IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
PATRICIA L. ABRAMS, Individually
and as Trustee of the Gertrude E. May
Irrevocable Residential/Income Only
Trust, et al.,
Plaintiffs,
vs.
CHESAPEAKE ENERGY
CORPORATION, et al.,
Defendants.
:
:
:
:
:
:
:
:
:
:
Case No. 4:16-cv-01343-MWB
Judge Matthew W. Brann
Complaint filed: 06/28/16
Electronically Filed
ANADARKO DEFENDANTS’ REPLY BRIEF
John A. Snyder, Esquire
I.D. No. 66295
jasnyder@mqblaw.com
McQUAIDE BLASKO, INC.
811 University Drive
State College, PA 16801
(814) 238-4926
Fax: (814) 234-5620
Attorneys for Defendants Anadarko
Petroleum Corporation and Anadarko
E&P Onshore LLC, f/k/a Anadarko
E&P Company LP
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 1 of 26
i
TABLE OF CONTENTS
I. The Doctrine of Equitable Estoppel Allows APC to Invoke the
Arbitration Clauses in the Leases. ................................................................... 2
A. The Third Circuit Has Already Held that Equitable Estoppel Is
Consistent with Pennsylvania Law. ...................................................... 2
B. Plaintiffs Rely Upon Pennsylvania Authority that Does Not
Contradict Existing Federal Precedent. ................................................. 6
II. The Relevant Arbitration Provisions Do Not Bar the Application of
Equitable Estoppel. .......................................................................................... 7
A. Federal Precedent Applying Pennsylvania State Law Allows a
Non-Signatory to Invoke an Arbitration Clause Under an
Equitable Estoppel Theory When the Clause Covers Disputes
“Between” the Parties to the Agreement. .............................................. 8
B. Dozens of the Plaintiffs Do Not Have Arbitration Provisions
that Limit Arbitration to Disputes between Lessor and Lessee. ......... 11
III. Plaintiffs’ Antitrust and RICO Claims As Pleaded Rely Upon the
Leases. ............................................................................................................ 12
IV. Plaintiffs’ Ninth Cause of Action Improperly Asks this Court to
Overrule the AAA on a Decision of Arbitration Procedure. ......................... 16
A. The Pennsylvania Authority Cited by Plaintiffs Is Irrelevant and
Inconsistent with Binding Authority. .................................................. 18
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 2 of 26
ii
TABLE OF AUTHORITIES
Cases
Academy of Medicine v. Aetna Health, Inc.,
108 Ohio St. 3d 185 (Ohio 2006) ......................................................................... 15
Aluminum Bahrain B.S.C. v. Dahdaleh,
17 F.Supp.3d 461 (W.D. Pa. 2014) ........................................................................ 4
Arthur Andersen LLP, v. Carlisle,
556 U.S. 624 (2009) .................................................................................... passim
Bannett v. Hankin,
331 F. Supp. 2d 354 (E.D. Pa. 2004)...................................................................... 6
Barletto v. Heuschkel,
21 Pa. D. & C. 5th at 402–03, 2011 Pa. Dist. & Cnty. Dec. LEXIS 318 ............... 7
Bontempo v. Wolpoff & Abramson,
2006 WL 3040905 (W.D. Pa. Oct. 24, 2009) ......................................................... 7
Caparra v. Maggiano’s Inc.,
2015 WL 5144030 (E.D. Pa. Sept. 1, 2015) .......................................................4, 8
Carasquilla v. Mazda Motors Corporation,
197 F.Supp.2d 169 (M.D. Pa. 2002) ..................................................................4, 5
Certain Underwriters at Lloyd’s London v. Westchester Fire Ins. Co.,
489 F.3d 580 (3d Cir. 2007) .................................................................... 16, 17, 19
Chesapeake Appalachia LLC v. Scout Petroleum, LLC,
809 F.3d 746 (3d Cir. 2016) .......................................................................... 15, 17
Children’s Hospital of Philadelphia v. AAA,
331 A.2d 848 (Super. Ct. Pa. 1974) .............................................................. 18, 19
Colon v. Conchetta, Inc.,
2017 WL 2572517 (E.D. Pa. June 14, 2017) (slip op.) ........................... 4, 8, 9, 10
Coors Brewing Co. v. Molson Breweries,
51 F.3d 1511 (10th Cir. 1995) ....................................................................... 14, 15
Dockser v. Schwartzberg,
489 F.3d at 588 (citing 433 F.3d 421 (4th Cir. 2006) ................................... 17, 18
E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates
S.A.S.,
269 F.3d 187 (3d Cir. 2001) ................................................................................... 3
Elwyn v. Deluca, 48 A.3d 457, 463 ......................................................................... 10
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 3 of 26
iii
Esis, Inc. v. Coventry Health Care Workers Comp., Inc.,
2016 WL 928667 (E.D. Pa. March 9, 2016) .......................................................... 4
Estate of Stiles v. Chesapeake Appalachia, LLC,
2014 Pa. Super. Unpub. LEXIS 3037 (Pa. Super. Ct. June 17, 2014) ................. 15
Glenwright v. Carbondale Nursing Home, Inc.,
Civ. Act. No. 3:16-0926, 2017 WL 1092541 ......................................................... 4
Griswold v. Coventry First LLC,
762 F.3d 264 (3d Cir. 2014) .......................................................................... 3, 4, 6
Hittle v. Scripto-Tokai Corp.,
166 F.2d 159 (M.D. Pa. 2001) ................................................................................ 5
Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79 (2002) ............................................................................................... 16
Kramer v. Toyota Motor Corp.,
705 F.3d 1122 n.5 (9th Cir. 2013) .......................................................................... 3
Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc.,
845 F.3d 1351 (11th Cir. 2017) ............................................................................ 10
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614 (1985) ............................................................................................. 14
Mundi v. Union Sec. Life Ins. Co.,
555 F.3d 1042 (2009) .............................................................................. 10, 11, 12
Novelty Knitting Mills, Inc. v. Siskind,
457 A.2d 502 (Pa. 1983)......................................................................................... 6
Pesotine v. Liberty Mut. Grp., Inc.,
No. 3:14-CV-784, 2014 WL 4215535 (M.D. Pa. Aug. 25, 2014) ......................... 5
Sanford v. Bracewell & Giuliani, LLP,
618 Fed. Appx. 114 (3d Cir. 2015) ....................................................................4, 6
Torres v. CleanNet, U.S.A.,
90 F. Supp. 3d 369 (E.D. Pa. 2015) ........................................................................ 4
Zeglen v. Nw. Mut. Life Ins. Co.,
No. 3:14-CV-00173, 2014 WL 4215531 (M.D. Pa. Aug. 25, 2014) ..................... 5
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 4 of 26
1
Plaintiffs’ First Amended Complaint was carefully engineered to attempt to
avoid the mandatory arbitration provisions contained in the leases between
Anadarko E&P Onshore LLC (“Anadarko E&P”) and Plaintiffs. Confronted with
Third Circuit precedent preventing parties from taking such obviously strategic
steps to avoid arbitration, Plaintiffs make no effort to defend their decision to join
Anadarko Petroleum Corporation (“APC” and with Anadarko E&P the “Anadarko
Defendants”) or to assert certain claims only against APC and not Anadarko E&P.
Instead, the Response attempts to do away with the doctrine of equitable estoppel
as a theory for defeating efforts to plead around an arbitration clause. It also
conveniently ignores specific allegations in the First Amended Complaint that
demonstrate the alleged injuries as to all claims are predicated on alleged royalty
underpayments under the leases, bringing the claims squarely within the scope of
the arbitration clauses in the leases.
Likewise, the Response’s effort to justify Plaintiffs’ declaratory judgment
cause of action fails. While attempting to distinguish Third Circuit authority
holding courts are not permitted to inject themselves into issues of arbitration
procedure, the Response does not dispute that the declaratory judgment action asks
this Court to do precisely that.
The declaratory judgment action fails to state a claim on which relief may be
granted and should be dismissed. The remainder of the claims against the
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 5 of 26
2
Anadarko Defendants are subject to mandatory arbitration in accordance with the
AAA Rules, and Plaintiffs should be compelled to arbitrate those claims in
accordance with those rules, with the claims stayed pending arbitration.
I. The Doctrine of Equitable Estoppel Allows APC to Invoke the
Arbitration Clauses in the Leases.
In its motion, APC demonstrated that it was entitled to arbitrate the claims
against it under the doctrine of equitable estoppel. Plaintiffs have not directly
challenged the Anadarko Defendants’ ability to satisfy the two requirements for
equitable estoppel discussed in the Opening Brief, but, instead, they argue that the
Supreme Court’s 2009 opinion in Arthur Andersen LLP v. Carlisle has made
equitable estoppel an unavailable means of compelling arbitration in cases
governed by Pennsylvania law. 556 U.S. 624 (2009). That argument has been
rejected by both the Third Circuit and multiple federal district courts. The
Response ignores this precedent and attempts to muddy a well-settled legal
principle that remains crystal clear. Equitable estoppel is alive and well in
Pennsylvania.
A. The Third Circuit Has Already Held that Equitable Estoppel Is
Consistent with Pennsylvania Law.
While Plaintiffs are correct that the Supreme Court’s opinion in Arthur
Andersen requires federal courts to defer to state court principles that conflict with
federal precedent on questions of whether a party can compel arbitration, the
Response ignores the critical fact that the Third Circuit has already held that
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 6 of 26
3
equitable estoppel does not conflict with Pennsylvania law and remains available
after Arthur Andersen.
The Third Circuit reaffirmed equitable estoppel as an available means of
compelling arbitration in its 2014 opinion in Griswold v. Coventry First LLC, 762
F.3d 264 (3d Cir. 2014). In Griswold, the Third Circuit outlined how equitable
estoppel principles apply to situations involving non-signatories. See 762 F.3d at
272 (quoting E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates S.A.S., 269 F.3d 187, 199 (3d Cir. 2001)). The Griswold court
specifically addressed the impact of Arthur Andersen and held that the Supreme
Court did not overrule existing federal precedent “so long as [those opinions] do
not conflict with . . . Pennsylvania state law principles.” Id. at 272 n.6 (emphasis
added) (citing Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1130 n.5 (9th Cir.
2013) (holding that pre-Arthur Andersen federal decisions consistent with relevant
state contract principals remain “good law”) (emphasis added)). The Griswold
court then undertook a lengthy discussion of opinions issued before and after
Arthur Andersen applying equitable estoppel and noted that a non-signatory is able
to compel arbitration with a signatory where the standard test for equitable
estoppel is met. Id. at 272–75 (citations omitted).
Since the Griswold opinion, numerous federal district courts sitting in
Pennsylvania have held that the opinion affirms the viability of equitable estoppel
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 7 of 26
4
in light of Arthur Andersen. See, e.g., Caparra v. Maggiano’s Inc., 2015 WL
5144030, at *8 (E.D. Pa. Sept. 1, 2015) (“Pennsylvania law embraces the theory of
equitable estoppel.”); Torres v. CleanNet, U.S.A., 90 F. Supp. 3d 369, 379–81
(E.D. Pa. 2015) (equitable estoppel under Pennsylvania law allowed non-signatory
to compel signatory to arbitration); Glenwright v. Carbondale Nursing Home, Inc.,
Civ. Act. No. 3:16-0926, 2017 WL 1092541 (where Judge Mannion held that the
Third Circuit has determined that equitable estoppel is consistent with
Pennsylvania law); Colon v. Conchetta, Inc., 2017 WL 2572517, at *5 (E.D. Pa.
June 14, 2017) (slip op.)
(“Pennsylvania law allows for a theory of equitable estoppel.”); Esis, Inc. v.
Coventry Health Care Workers Comp., Inc., 2016 WL 928667, at *8 (E.D. Pa.
March 9, 2016) (all citing Griswold); see also Aluminum Bahrain B.S.C. v.
Dahdaleh, 17 F.Supp.3d 461, 470 (W.D. Pa. 2014) (applying equitable estoppel
test while ultimately holding elements not satisfied). The Third Circuit also applied
equitable estoppel in a second case that post-dates Arthur Andersen and involves
Pennsylvania. Sanford v. Bracewell & Giuliani, LLP, 618 Fed. Appx. 114, 118 (3d
Cir. 2015).
Despite citing Griswold elsewhere in the Response, Plaintiffs do not discuss
or attempt to distinguish the holding on equitable estoppel but, instead, casually
ask this Court to ignore the Third Circuit altogether. Citing Carasquilla v. Mazda
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 8 of 26
5
Motors Corporation
, Plaintiffs argue that in deciding whether equitable estoppel is available under
Pennsylvania law, “this Court is not strictly bound by any decisions (or dicta) of
the Third Circuit.” 197 F.Supp.2d 169, 172-73 (M.D. Pa. 2002). The Carasquilla
opinion, however, does not stand for this proposition. In Carasquilla, the court
acknowledged existing ambiguity as to whether or not a federal district court was
bound by its own court of appeals’ interpretation of state law. Id. at 172. Quoting
language from a prior opinion, the court went on to note that “it has been written
that a district court is bound by its court of appeals on questions of state law unless
‘later state court decisions indicate that the Court of Appeals’ earlier prediction of
state law was in error.’” Id. at 173 (emphasis added) (citing Hittle v. Scripto-Tokai
Corp., 166 F.2d 159, 162 (M.D. Pa. 2001)). In Carrasaquilla, the court was faced
with a state-court opinion that contradicted the relevant court of appeal’s decision,
but here, Plaintiffs do not cite a single Pennsylvania case that rejects equitable
estoppel as a means of compelling arbitration.
Finally, recent decisions from the Middle District of Pennsylvania have
confirmed that absent contrary Pennsylvania Supreme Court precedent, “a district
court is bound by a Third Circuit decision where that court has predicted how the
Pennsylvania Supreme Court will decide an issue.” Zeglen v. Nw. Mut. Life Ins.
Co., No. 3:14-CV-00173, 2014 WL 4215531, at *4 (M.D. Pa. Aug. 25, 2014);
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 9 of 26
6
Accord Pesotine v. Liberty Mut. Grp., Inc., No. 3:14-CV-784, 2014 WL 4215535,
at *4 n. 1 (M.D. Pa. Aug. 25, 2014). This rule holds true even if an intermediate
state court has issued a conflicting opinion. Only a Pennsylvania Supreme Court
opinion that post-dates Griswold and Sanford and rejects equitable estoppel could
bar APC from relying on the doctrine.
B. Plaintiffs Rely Upon Pennsylvania Authority that Does Not
Contradict Existing Federal Precedent.
The Pennsylvania Supreme Court authority that the Plaintiffs cite does not
overrule Griswold or Sanford because it all pre-dates those opinions. See pp.
Response, pp. 8-9. As discussed above, Third Circuit precedent is only overruled
by a Pennsylvania Supreme Court opinion issued after that authority. 197
F.Supp.2d at 173.
Even standing alone, the opinions have virtually nothing to do with equitable
estoppel as a means of compelling arbitration. One opinion, Novelty Knitting Mills,
Inc. v. Siskind
, simply outlines the elements of an affirmative equitable estoppel cause of action.
457 A.2d 502, 503-504 (Pa. 1983) (elements not established in claim seeking to
prevent yarn from being removed from a factory based on equitable estoppel).
Plaintiffs also argue that the Pennsylvania Supreme Court has barred corporations
from “voluntary veil piercing” for their own benefit, but the cited opinions make
no such blanket statement, and numerous opinions have pointed to the
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 10 of 26
7
parent/subsidiary relationship as a classic example of a relationship that can satisfy
the “close relationship” element of the test for equitable estoppel. Bannett v.
Hankin, 331 F. Supp. 2d 354, 360 n. 6 (E.D. Pa. 2004); Bontempo v. Wolpoff &
Abramson, 2006 WL 3040905, at *8 (W.D. Pa. Oct. 24, 2009); see also Barletto v.
Heuschkel, 21 Pa. D. & C. 5th at 402–03, 2011 Pa. Dist. & Cnty. Dec. LEXIS 318,
at *35–36
(equitable estoppel could permit non-signatory company related to signatory to
compel arbitration).
II. The Relevant Arbitration Provisions Do Not Bar the Application of
Equitable Estoppel.
In addition to arguing that equitable estoppel is now inconsistent with
Pennsylvania law, Plaintiffs also attempt to avoid arbitration by arguing that the
relevant arbitration provisions only provide for arbitration of disputes between
“Lessor and Lessee” and therefore bar the application of equitable estoppel to a
party related to the Lessee such as APC. As a threshold matter, this argument is
inconsistent with federal precedent from courts within the Third Circuit applying
Pennsylvania law, and the only cases cited by Plaintiffs that actually discuss
arbitration language in the context of equitable estoppel emphasize that their
holdings are based on the precedent of other states. Moreover, Plaintiffs’ argument
ignores the fact that all of the claims are properly characterized as disputes
between “Lessor and Lessee,” regardless of whether Plaintiffs unilaterally and
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 11 of 26
8
artfully omitted the lessee, Anadarko E&P, from a particular count in the First
Amended Complaint. Finally, even if Plaintiffs could overcome these fatal defects
in Plaintiffs’ argument, they ignore the fact that some of the Plaintiffs hold leases
with arbitration provisions that do not contain the “Lessor and Lessee” language at
all, while others that do also contain supplemental provisions that expand the scope
of that language.
A. Federal Precedent Applying Pennsylvania State Law Allows a
Non-Signatory to Invoke an Arbitration Clause Under an
Equitable Estoppel Theory When the Clause Covers Disputes
“Between” the Parties to the Agreement.
As demonstrated above, after Arthur Andersen, federal courts resolve
questions regarding whether a particular party can compel arbitration by looking to
state law. The federal courts applying Pennsylvania law since Arthur Andersen
have treated equitable estoppel as an available means of compelling arbitration
even if the arbitration provision covers disputes “between the parties” or has
language to that effect.
For example, in Caparra, an Eastern District of Pennsylvania court held that
a non-signatory could compel arbitration of claims brought against it by a
signatory. 2015 WL 5144030, at *8. The arbitration provision in that case
specifically provided for the “resolution of all disputes that arise between” the two
signatories to the contract. Id. at *2.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 12 of 26
9
As another example, in Colon, an Eastern District court again allowed a non-
signatory to compel arbitration where the arbitration provision stated that “[t]his
provisions purpose is to ensure than an arbitration—not a court—will decide ALL
. . . claims between the Parties.” 2017 WL 2572517, at *3-4 (E.D. Pa. June 14,
2017). The court noted that it would be “completely inequitable to disallow the
non-signatories from compelling arbitration in light of [Plaintiff’s] allegations of
collective wrongdoing by Defendants.”
This important point from Colon distinguishes all of the federal authorities
relied on by Plaintiffs. In this case, all of the claims Plaintiffs assert against APC
are properly characterized as a dispute between “Lessor and Lessee.” One of the
antitrust claims is asserted jointly against both APC and Anadarko E&P and
indisputably reflects a dispute between Lessor and Lessee. The fact that APC is
also joined as a defendant does not change that fact. As to the antitrust and RICO
claims asserted against APC but not Anadarko E&P, Plaintiffs’ unilateral decision
to join only APC in those claims does not change the fact—clearly shown on the
face of the First Amended Complaint—that those claims are properly characterized
as a dispute between Lessor and Lessee. As shown in the Anadarko Defendants’
Opening Brief and as discussed in detail in Section III, infra, all of the federal
claims are predicated on actions allegedly taken in obtaining and performing the
oil and gas leases—leases that Anadarko E&P, the lessee, obtained and performed.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 13 of 26
10
Just as the court in Colon held that “allegations of collective wrongdoing by
Defendants” allowed a non-signatory to invoke arbitration under an arbitration
clause covering disputes between the parties to the agreement, Plaintiffs’
allegations of collective wrongdoing by APC and Anadarko E&P allow APC to
invoke the arbitration clause in the leases covering disputes between “Lessor and
Lessee.” Plaintiffs’ unilateral decision to name APC as a defendant, but not
Anadarko E&P, in three of the counts in the First Amended Complaint, does not
change the proper characterization of all of the claims against the Anadarko
Defendants as disputes between Lessor and Lessee.
The only opinion applying Pennsylvania law relied upon by Plaintiffs in
support of their argument is Elwyn v. Deluca, but that Pennsylvania Superior Court
opinion makes no mention of equitable estoppel. 48 A.3d 457, 463. The holding
also relies upon the fact that the claim against the non-signatory was based on an
extra-contractual duty that had no relation to the agreement containing the
arbitration provision. Here, the claims against APC are inextricably intertwined
with the leases and Anadarko E&P’s alleged actions in obtaining and performing
those leases.
The federal opinions cited by Plaintiffs that actually discuss the availability
of equitable estoppel when arbitration provisions limit disputes to those between
the parties are outside the Third Circuit and explicitly rely on Florida and
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 14 of 26
11
California law. See Kroma Makeup EU, LLC v. Boldface Licensing + Branding,
Inc., 845 F.3d 1351, 1355-56 (11th Cir. 2017) (citing numerous Florida cases in
holding that the Kardashians needed to be considered “parties” to the agreement to
invoke equitable estoppel); Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042
(2009). Those cases did not involve “allegations of collective wrongdoing by
Defendants” who were affiliates, one of whom was a party to the agreement, like
Colon and this case. Whatever import these holdings might have in Florida and
California in such a case, Pennsylvania federal authority permits APC to invoke
the arbitration clauses in the leases on the facts of this case.
B. Dozens of the Plaintiffs Do Not Have Arbitration Provisions that
Limit Arbitration to Disputes between Lessor and Lessee.
Plaintiffs’ argument that the arbitration provisions bar equitable estoppel by
limiting arbitration to disputes between Lessor and Lessee also ignores the basic
fact that many of the Plaintiffs have leases that do not contain such language. As
Plaintiffs allege in the First Amended Complaint, some of the Plaintiffs have leases
containing an arbitration provision that applies to “any controversy or claim arising
out of or relating to this Lease,” with no mention to those claims being limited to
Lessor and Lessee. ECF 45, ¶ 552. Based on the descriptions in the First Amended
Complaint, at least three dozen Plaintiffs would appear to have leases with these
expansive arbitration provisions.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 15 of 26
12
Other Plaintiffs have leases that refer to arbitration between Lessor and
Lessee in the body of the lease but also contain addenda that expand the scope of
those provisions. Specifically, the leases of some of the Plaintiffs have addenda
providing that “any questions concerning this lease or performance there under
shall be ascertained and determined by three disinterested arbitrators.” Id. at 549.
Regardless of this Court’s decision addressing the impact of “between the
parties” language on the availability of equitable estoppel under Pennsylvania law,
APC is entitled to invoke arbitration as to the dozens of leases that do not contain
any such limitation on the scope of arbitrable claims.
III. Plaintiffs’ Antitrust and RICO Claims As Pleaded Rely Upon the
Leases.
Plaintiffs have also attempted to avoid the arbitration provision in their
leases by bringing federal statutory claims for antitrust and RICO violations
against non-signatory APC but not Anadarko E&P, the signatory to the leases. In
addition to strategically bringing these federal claims against only APC and other
non-signatory defendants—a decision the Response makes no effort to defend as
anything other than a ploy to avoid arbitration—Plaintiffs have also attempted to
recast the antitrust and RICO claims raised in the Amended Complaint as claims
that have nothing to do with the leases. Of course, Plaintiffs are bound by the
allegations of the Amended Complaint, and the federal precedent cited in the
Response demonstrates that arbitration cannot be avoided where, as here, the
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 16 of 26
13
federal statutory claims allege harm and rely upon rights arising out of contracts
containing arbitration provisions.
As discussed in Anadarko’s Opening Brief, Plaintiffs are all Parties to leases
with one of two mandatory arbitration provisions, and identical or highly similar
iterations of those provisions have been held to be broad by courts in this district.
See Opening Brief, at pp. 14-15. Mandatory Provision I covers claims “concerning
this Lease” or “performance thereunder.” Id. at 547. Mandatory Arbitration
Provision II calls for arbitration of “[a]ny controversy or claim arising out of or
relating to this Lease, or the breach thereof.” Id. at ¶ 552.
The Amended Complaint repeatedly demonstrates that the antitrust and
RICO claims “concern,” “aris[e] out of,” “relat[e] to” the leases and Anadarko
E&P’s performance thereunder. Anadarko’s Opening Brief cites to the numerous
instances in the Amended Complaint where Plaintiffs claim that the alleged
antitrust and RICO violations resulted in the terms of the leases not providing for
higher royalty rates, better signing bonuses, or other more favorable lease terms.
See Opening Brief at pp. 16-17. Plaintiffs also argue that Anadarko E&P’s
performance of the leases was impacted by the antitrust and RICO violations
through allegedly increased deductions for post-production services. Id. At the
most basic level, Plaintiffs’ federal claims allege that the Defendants’ antitrust and
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 17 of 26
14
RICO violations caused the Plaintiffs to receive less money than they otherwise
would have from the relationship created by the leases.
In the face of the obvious link between these federal statutory claims and the
leases, the Response attempts to shift the focus of the claims away from alleged
underpayments and bad contract terms toward supposed harm to the broader
market, but this pivot cannot change the allegations of the Amended Complaint
that necessarily rely upon the Leases.
Essentially, Plaintiffs are arguing that because the alleged antitrust and
RICO violations would have inflicted harm on landowners in the geographic area
who did not have leases, the claims do not really “concern” the leases at all.
Whatever claim a hypothetical landowner who does not hold a lease might have,
these Plaintiffs have not brought a claim based on harm to landowners without
leases—an evaluation of the antitrust and RICO claims as pleaded plainly
demonstrates reliance on, and repeated reference to, the terms of the leases and
their performance.
Plaintiffs also point to cases where antitrust claims were not ordered to
arbitration, in an attempt to show that such claims are rarely within the scope
arbitration provisions. But the cases cited only highlight the difference between an
arbitrable antitrust claim—like the ones brought here—and a non-arbitration claim
that is brought without reference to any contract.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 18 of 26
15
In Coors Brewing Co. v. Molson Breweries
, the Tenth Circuit held that the Coors-Molson arbitration clause could cover
antitrust claims unless those claims were not “related to the licensing agreement”
containing the arbitration provision. 51 F.3d 1511, 1513 (10th Cir. 1995). The
Tenth Circuit based its holding on Supreme Court authority that antitrust claims
are arbitrable when those claims have a “reasonable factual connection” to the
contract containing the provision. Id. (citing Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 617 (1985)). In Coors, there was no
reasonable factual connection between the contract and one of the antitrust claims
because the contract containing the arbitration provision was an agreement
between Coors and Molson, a Canadian brewer, and the antitrust claim alleged
harm for Coors only due to its participation in the North American brewing
industry—not based on its contractual relationship with Molson. Coors, 51 F.3d at
1513, 1517.
A similar distinction is drawn in the Academy of Medicine v. Aetna Health,
Inc. case cited by Plaintiffs, where the Supreme Court of Ohio refused to order an
antitrust claim to arbitration because “the allegations [at issue] did not even
presume the existence of [the agreement containing the arbitration provision].”
108 Ohio St. 3d 185, 187 (Ohio 2006). Here, there is no doubt that the antitrust
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 19 of 26
16
and RICO claims share a “reasonable factual connection” with the leases exactly
because the harm alleged flows from those leases.
Plaintiffs also cite to other cases outside the antitrust context, but the courts
in those cases refused to order claims to arbitration where the existence of a
contract between the parties was merely “fortuitous” in relation to the claim being
brought. See, e.g., Estate of Stiles v. Chesapeake Appalachia, LLC, 2014 Pa. Super.
Unpub. LEXIS 3037, at *12 (Pa. Super. Ct. June 17, 2014) (trespass, negligence,
and nuisance claims based on damage to nearby property non-arbitrable because
they are “wholly incidental to the alleged cause of action.”). The claims as pleaded
are inextricably interwoven with the obligations and performance of the leases, and
this necessarily makes the claims arbitrable under the broad provisions of the
leases.
IV. Plaintiffs’ Ninth Cause of Action Improperly Asks this Court to
Overrule the AAA on a Decision of Arbitration Procedure.
Plaintiffs’ Ninth Cause of Action asks for a declaratory judgment that the
AAA’s administrative body has incorrectly interpreted its own rules and
procedures in refusing to allow Plaintiffs to initiate a single arbitration. The
Parties actually agree that the question of whether the Plaintiffs can pursue a single
arbitration is a “procedural” question. See FAC, at ¶¶ 574, 578(c). The Parties
only diverge on the question of whether the AAA’s administrative body is the
proper party to decide this “procedural” question. While all parties now seem to
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 20 of 26
17
agree that this Court is not being asked to decide whether the final decision on
whether consolidated arbitration should be made by the an arbitrator or the courts,
Third Circuit precedent is clear that procedural questions, such as how claims can
be initiated, are left entirely up to the AAA.
In the Opening Brief, the Anadarko Defendants identified holdings from the
Third Circuit that procedural rulings related to an arbitration are not for a court to
decide. See Certain Underwriters at Lloyd’s London v. Westchester Fire Ins. Co.,
489 F.3d 580, 585 (3d Cir. 2007) (“‘procedural’ questions which grow out of the
dispute and bear on its final disposition are presumptively not for the judge”)
(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82-84 (2002)
(emphasis in original); Chesapeake Appalachia LLC v. Scout Petroleum, LLC, 809
F.3d 746, 756 (3d Cir. 2016) (distinguishing between arbitrability decisions, which
generally are for the court, and procedural issues in the arbitration, which are not).
Plaintiffs actually reference this same authority and argue that the holding
that procedural questions are “not for the judge, but for the arbitrator” should be
interpreted to mean that “arbitrator” cannot mean arbitration organization. There is
no authority offered for the distinction between “arbitrator” and “arbitration
organization,” and Plaintiffs make no attempt to explain the inherent contradiction
in relying on a holding that arbitrators and not courts should decide procedural
matters in asking this Court to issue a declaratory judgment on a procedural matter.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 21 of 26
18
In other words, whatever the Third Circuit means when it leaves decisions to an
“arbitrator,” it is explicitly removing the authority of a “court” to decide procedural
matters for arbitration.
Plaintiffs also cannot meaningfully distinguish the present situation from the
Fourth Circuit’s holding in Dockser v. Schwartzberg, an opinion relied upon by the
Third Circuit in Certain Underwriters. 489 F.3d at 588 (citing 433 F.3d 421,425,
427 (4th Cir. 2006)). In Dockser the Fourth Circuit held that the procedural
question of how many arbitrators should sit on a panel was a procedural question
that had to be left to the AAA administrative organization. Id. If Plaintiffs’
interpretation of Certain Underwriters were correct, then the Dockser court should
have held that since procedural matters must be left up to an “arbitrator,” it was
improper for the AAA’s administrative organization to make the decision.
Plaintiffs attempt to distinguish Dockser from the present case because the
AAA rules contain a specific provision dealing with the number of arbitrators that
should sit on a Panel whereas those rules are, according to Plaintiffs, silent on the
question of joinder of parties. This is a distinction without a meaningful
difference. In Dockser, the Fourth Circuit specifically rejected the argument that it
was improper for the AAA’s administrative organization, rather than an arbitrator,
to resolve the issue put before it. The court relied on the fact that the arbitration
provision invoked the AAA Rules and that:
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 22 of 26
19
According to the AAA rules, parties that invoke the rules “thereby
authorize the AAA to administer the arbitration,” and “[t]he authority
and duties of the AAA ... may be carried out through such of the
AAA's representatives as it may direct.
Id. at 428. Having invoked the AAA Rules in the leases, Plaintiffs have agreed to
allow the “AAA’s representative” to administer the arbitration as it sees fit.
A. The Pennsylvania Authority Cited by Plaintiffs Is Irrelevant and
Inconsistent with Binding Authority.
In an attempt to argue that this Court actually can order the AAA how to
apply its procedural rules, Plaintiffs cite to a 1974 case where a suit against the
AAA obtained an order consolidating an arbitration. The opinion, Children’s
Hospital of Philadelphia v. AAA, relies on the doctrine of necessary implication in
concluding that the parties must have intended to engage in consolidated
arbitration because such an arbitration would be speedy and efficient. 331 A.2d
848, 851 (Super. Ct. Pa. 1974). Not only have the Plaintiffs failed to allege any
facts that could show that the Lessee Defendants “intended” to allow for a
consolidated arbitration, this 43-year old holding directly conflicts with binding
Third Circuit precedent in Certain Underwriters which leaves procedural matters
to the arbitrator. As shown above, Third Circuit opinions on matters of
Pennsylvania state law serve as binding authority unless a subsequent opinion from
the State’s highest court contradicts that authority.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 23 of 26
20
Since the only other declaratory relief requested in the First Amended
Complaint seeks relief on issues on which there is not a justiciable controversy, the
above authority requires the dismissal of the Ninth Cause of Action.1
McQUAIDE BLASKO, INC.
Dated: June 27, 2017 By: s/John A. Snyder
John A. Snyder, Esquire
I.D. No. 66295
jasnyder@mqblaw.com
811 University Drive
State College, PA 16801
(814) 238-4926
Fax: (814) 234-5620
VINSON & ELKINS, LLP
Guy S. Lipe
TX I.D. No. 12394600
glipe@velaw.com
1001 Fannin Street, Suite 2500
Houston, TX 77002-6760
(713) 758-1109
Attorneys for Defendants Anadarko
Petroleum Corporation and Anadarko E&P
Onshore LLC, f/k/a Anadarko E&P
Company LP
1 The Opening Brief argued Plaintiffs’ request that the Court declare that the
breach of contract and accounting claims arbitrable failed to present a justiciable
controversy. The Response does not appear to contest this request.
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 24 of 26
21
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
PATRICIA L. ABRAMS, Individually
and as Trustee of the Gertrude E. May
Irrevocable Residential/Income Only
Trust, et al.,
Plaintiffs,
vs.
CHESAPEAKE ENERGY
CORPORATION, et al.,
Defendants.
:
:
:
:
:
:
:
:
:
:
Case No. 4:16-cv-01343-MWB
Judge Matthew W. Brann
Complaint filed: 06/28/16
Electronically Filed
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of Defendants Anadarko’s Reply
Brief in the above-captioned matter was served this 27th day of June, 2017, to the
attorneys/parties of record via electronic filing as follows:
Christopher D. Jones, Esquire
Griffin, Dawsey, DePaola & Jones,
P.C.
101 Main Street
Towanda, PA 18848
chris@gddj-law.com
570-265-2175
(for Plaintiffs)
Taunya M. Rosenbloom, Esquire
P.O. Box 309
332 South Main Street
Athens, PA 18810
taunya@tkrlaw.com
570-888-0660
(for Plaintiffs)
Thomas S. McNamara, Esquire
Indik & McNamara, P.C.
100 South Broad Street, Suite 2230
Philadelphia, PA 19110
tmcnamara915@gmail.com
215-567-7125
(Plaintiffs)
John K. Gisleson, Esquire
Matthew H. Sepp, Esquire
Morgan Lewis & Bockius, LLP
One Oxford Centre, 32nd Floor
Pittsburgh, PA 15219-6401
jgisleson@morganlewis.com
msepp@morganlewis.com
412-560-3300
(Def. Mitsui E&P USA LLC)
Seamus C. Duffy, Esquire
Kathryn E. Deal, Esquire
Drinker Biddle & Reath LLP
One Logan Square, Suite 2000
Philadelphia, PA 19103
seamus.duffy@dbr.com
Kathryn.deal.@dbr.com
(215) 988-2700
(Defs. Chesapeake)
John S. Summers, Esquire
Hankgley, Aronchick, Segal, Pudlin &
Schiller
One Logan Square, 27th Floor
Philadelphia, PA 19103
jsummers@hangley.com
215-496-7007
(Defs. William Partners LP, Access MLP Operating, LLP and
Appalachia Midstream Services, LLC and co-counsel for Defs.
Chesapeake)
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 25 of 26
22
Daniel T. Brier, Esquire
John B. Dempsey, Esquire
Myers, Brier & Kelly, LLP
425 Spruce Street, Suite 200
Scranton, PA 18503
dbrier@mbklaw.com
jdepmsey@mbklaw.com
570-342-6100
(for Defs. Chesapeake)
Daniel T. Donovan, Esquire
Ragan Nash, Esquire
Kirkland & Ellis LLP
655 Fifteen Street, NW
Washington, DC 20005
ddonovan@kirkland.com
ragan.naresh@kirkland.com
202-879-5000
(for Defs. Chesapeake)
Michael J. Gibbens, Esquire
Susan E. Huntsman, Esquire
Crowe & Dunlevy
321 S. Boston Avenue, Suite 500
Tulsa, OK 74103
(918) 592-9800
Pro Hac Vice
(Defs. William Partners LP, Access MLP Operating, LLP and
Appalachia Midstream Services, LLC)
Guy Stanford Lipe, Esquire
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, TX 77002-6760
glipe@velaw.com
713-758-1109
(for Def. Anadarko E&P Onshore LLC)
McQUAIDE BLASKO, INC.
By: s/John A. Snyder
John A. Snyder, Esquire
I.D. No. 66295
jasnyder@mqblaw.com
811 University Drive
State College, PA 16801
(814) 238-4926
Fax: (814) 234-5620
Attorneys for Defendants Anadarko
Petroleum Corporation and Anadarko
E&P Onshore LLC, f/k/a Anadarko
E&P Company LP
Case 4:16-cv-01343-MWB Document 74 Filed 06/27/17 Page 26 of 26
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
PATRICIA L. ABRAMS, Individually
and as Trustee of the Gertrude E. May
Irrevocable Residential/Income Only
Trust, et al.,
Plaintiffs,
vs.
CHESAPEAKE ENERGY
CORPORATION, et al.,
Defendants.
:
:
:
:
:
:
:
:
:
:
Case No. 4:16-cv-01343-MWB
Judge Matthew W. Brann
Complaint filed: 06/28/16
Electronically Filed
CERTIFICATE OF COMPLIANCE
with Local Rule 7.8(b)(2)
I, John A. Snyder, attorney for Defendants Anadarko, hereby certify that
Defendants Anadarko’s Reply Brief contains 4,617 words, and is in compliance
with Middle District Local Rules.
Respectfully submitted,
Dated: June 27, 2017 s/John A. Snyder
John A. Snyder
PA I.D. No. 66295
McQUAIDE BLASKO, INC.
811 University Drive
State College, PA 16801
Tel: (814) 238-4926
E-mail: jasnyder@mqblaw.com
Attorneys for Defendants Anadarko
Petroleum Corporation and Anadarko E&P
Onshore LLC, f/k/a Anadarko E&P
Company LP
Case 4:16-cv-01343-MWB Document 74-1 Filed 06/27/17 Page 1 of 1
Aurra Fellows
Cited
As of: June 27, 2017 9:52 PM Z
Barletto v. Heuschkel
Common Pleas Court of Lawrence County, Pennsylvania
February 7, 2011, Decided
NO. 10606 of 2010, C.A.
Reporter
2011 Pa. Dist. & Cnty. Dec. LEXIS 318 *; 21 Pa. D. & C.5th 376 **
CHARLES BARLETTO, Plaintiff, VS. MARK
HEUSCHKEL, FERROTECH CORPORATION,
FERROMET CORPORATION, and FERROTECH
REALTY, LLC, Defendants.
Core Terms
arbitration, non-signatory, arbitration clause, parties,
signatory, arbitration agreement, alleges, obligations,
profits, counts, duties, Industrial, equitable estoppel,
preliminary objection, superior court, twenty-five,
disputes, entities, deeded, nexus, contractual obligation,
minority shareholder, alleged breach, defamation,
affiliate, sister corporation, license agreement, fiduciary
duty, filing claim, new business
Case Summary
Overview
Traditional contract theories of agency and estoppel
compelled a signatory to an arbitration agreement to
arbitrate at the insistence of non-signatories, who were
the agents or affiliates of a signatory, where the claims
and positions of all parties were intimately founded on
and intertwined with the underlying contractual
obligations found in the agreement. Each of the nine
counts in the complaint arose directly out of or related
back to the duties and obligations contained within the
agreement or the breach of said duties and obligations
and, therefore, were subject to arbitration.
Outcome
Preliminary objection raising lack of subject matter
granted. Parties directed to submit dispute to arbitration.
Proceedings stayed until conclusion of arbitration.
Remaining preliminary objections overruled as moot.
LexisNexis® Headnotes
Civil Procedure > ... > Alternative Dispute
Resolution > Arbitration > General Overview
HN1[ ] Alternative Dispute Resolution, Arbitration
Pursuant to Pa.R.C.P. No. 1028(a)(6), a party may raise
by preliminary objections an agreement for alternative
dispute resolution. A court is required to sustain
preliminary objections raising an agreement for
alternative dispute resolution, if the court finds as a
matter of law that the dispute falls within the ambit of a
contractual arbitration provision.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN2[ ] Arbitration, Arbitrability
Arbitration clause that states that "any and all disputes,
controversies, or claims arising out of or relating to this
Agreement or for the breach or validity of any term or
provision of this Agreement, shall be resolved by final
and binding arbitration" is an unlimited arbitration clause
and any claims implicating the contract can be
compelled to arbitration.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN3[ ] Arbitration, Arbitrability
Pennsylvania case law supports the notion that non-
signatory agents, parent corporations, or sister
corporations may enforce arbitration clauses when the
interests of the parties overlap or are closely linked.
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 1 of 12
Page 2 of 12
Aurra Fellows
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN4[ ] Arbitration, Arbitrability
Arbitration is contractual by nature and absent an
agreement between the parties to arbitrate an issue,
they cannot be compelled to arbitrate. As a matter of
public policy, courts of the Pennsylvania favor
agreements to arbitrate and such agreements will be
found valid, enforceable and irrevocable save for
grounds that exist at law or in equity that relate to the
validity, enforceability, or revocation of any contract.
When a party to an agreement is attempting to prevent
another from proceeding to arbitration, the court must
apply a two part test. The court must first determine
whether a valid agreement to arbitrate exists between
the parties, and if so, determine whether the dispute
involved is within the scope of the arbitration provision.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN5[ ] Arbitration, Arbitrability
Five traditional theories arising out of common law
principles of contract and agency can bind non-
signatories to arbitration agreements. The theories are:
1) incorporation by reference; 2) assumption; 3) agency;
4) veil-piercing/alter ego; and 5) equitable estoppel.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
Business & Corporate Law > ... > Authority to
Act > Contracts & Conveyances > Liability of Agents
HN6[ ] Arbitration, Arbitrability
Non-signatories can enforce an arbitration agreement
where there is an obvious and close nexus between the
non-signatories and the contract or contracting parties.
One instance in which such an obvious and close nexus
exists is the relationship between a principal and an
agent. Under traditional agency theory, an agent is
subject to contractual provisions entered into by the
principal. Therefore, because a principal is bound under
the terms of a valid arbitration clause, its agents,
employees, and representatives are also covered under
the terms of such agreements.
Business & Corporate Law > Agency
Relationships > Establishment > General Overview
HN7[ ] Agency Relationships, Establishment
In Pennsylvania, agency is defined as the fiduciary
relation which results from the manifestation of consent
by one person to another that the other shall act on his
behalf and subject to his control, and consent by the
other to so act. The relationship necessary to create an
agency does not depend on the intent of the parties to
create it, nor their belief that they have done so. What is
necessary to create the relation is an agreement
between the parties, which need not be contractual, that
results in the factual relation to which the legal
consequences of an agency are attached. This is the
case even if the parties did not call the relationship an
agency or did not intend for an agency to exist.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN8[ ] Arbitration, Arbitrability
Arbitration agreements may be upheld against non-
signatories where their interests are directly related to, if
not congruent with a signatory.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN9[ ] Arbitration, Arbitrability
Where parties unmistakably intend to arbitrate all
controversies which might arise between them, their
agreement should be applied to claims against agents
or entities related to the signatories.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN10[ ] Arbitration, Arbitrability
A non-signatory parent company may enforce an
arbitration clause to which its subsidiary is a signatory.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *318; 21 Pa. D. & C.5th 376, **376
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 2 of 12
Page 3 of 12
Aurra Fellows
HN11[ ] Arbitration, Arbitrability
Non-signatory third party beneficiaries may fall within
the scope of an arbitration clause if that was the signing
parties' intent. An arbitration agreement would be of little
value if a party could obviate the effect of the agreement
merely by finding a way to join another party. In no
event can an arbitration clause be defeated by adding a
party to the complaint. Signatories to the arbitration
agreement should not be able to avoid the requirement
to arbitrate by a non-signatory when the non-signatory
wants to arbitrate. This is especially the case when a
non-signatory parent company wishes to enforce the
arbitration agreement the signatory party is attempting
to avoid.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
Contracts Law > ... > Estoppel > Equitable
Estoppel > General Overview
HN12[ ] Arbitration, Arbitrability
Equitable estoppel is an appropriate method by which
non-signatories to arbitration agreements may compel
signatories to arbitrate their claims. Three factors
compel a signatory to an arbitration agreement to
arbitrate with a non-signatory at the non-signatory's
insistence. Signatories are bound to arbitrate because
of (1) the close relationship between the entities
involved in the disputes; (2) the relationship of the
alleged wrongs to the non-signatory's obligations and
duties found in the contract; and (3) because the claims
involved in the disputes were intimately founded in and
intertwined with underlying contractual obligations. Of
the three factors, the third factor, whether the claims are
intimately founded in and intertwined with underlying
contractual obligations is the most important.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
Contracts Law > ... > Estoppel > Equitable
Estoppel > General Overview
HN13[ ] Arbitration, Arbitrability
For equitable estoppel to be applicable to compel
arbitration, an examination of the nature of the claims
being asserted must be conducted to determine if the
claims fall within the scope of the agreement and
therefore compel the signatory to arbitrate. Therefore,
the focus of the inquiry should be on the nature of the
underlying claims asserted by the plaintiff against the
defendant to determine whether those claims fall within
the scope of the arbitration clause contained in the
agreement.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN14[ ] Arbitration, Arbitrability
It is well established in Pennsylvania that when parties
to a contract have included a broad arbitration clause in
an agreement, disputes arising out of the contractual
relationship must, when requested, be arbitrated.
Doubts as to whether an arbitration clause covers a
particular dispute should be resolved in favor of
arbitration.
Business & Corporate Compliance > ... > Alternative
Dispute Resolution > Arbitration > Arbitrability
HN15[ ] Arbitration, Arbitrability
Traditional contract theories of agency and estoppel
compel a signatory to the agreement to arbitrate at the
insistence of non-signatory defendants who are the
agents or affiliates of the signatory to the agreement
when the claims and positions of all parties are
intimately founded on and intertwined with the
underlying contractual obligations found in the
agreement. In short, a plaintiff cannot have it both ways.
It cannot rely on a contract when it works to its
advantage, and repudiate it when it works to its
disadvantage.
Counsel: [*1] For Plaintiff: Robert O. Lampl, Esquire,
James R. Cooney, Esquire, Elsie R. Lampl, Esquire,
Pittsburgh PA.
For Defendant: Mark A. Willard, Esquire, Stuart Kaplan,
Esquire, Audrey K. Kwak, Esquire, Eckert, Seamans,
Cherin & Mellot, LLC, Pittsburgh, PA.
Judges: Dominick Motto, President Judge.
Opinion by: Dominick Motto
Opinion
[**403contd]
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *318; 21 Pa. D. & C.5th 376, **376
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 3 of 12
Page 4 of 12
Aurra Fellows
[EDITOR'S NOTE: The page numbers of this document
may appear to be out of sequence; however, this
pagination accurately reflects the pagination of the
original published document.]
ORDER OF COURT
AND NOW, this 7th day of February, 2011 in
accordance with the accompanying opinion of even date
herewith, it is ORDERED and DECREED as follows:
1. Defendant's First Preliminary objection raising lack of
Subject Matter Jurisdiction pursuant to Pa.R.C.P. §
1028(a)(6) and the Pennsylvania uniform Arbitration Act
is GRANTED.
2. The parties are directed to submit their dispute, as set
forth in the Complaint, to arbitration in accordance with
the Commercial Arbitration Rules of the American
Arbitration Association.
3. All further proceedings in this matter are STAYED
pending the conclusion of arbitration.
[**404] 4. All remaining Preliminary Objections are
OVERRULED as rendered MOOT by this Order.
By the Court:
/s/ Dominick Motto, P.J.
Dominick Motto
President Judge
[**378] OPINION
MOTTO, P.J.
Before the Court for disposition are preliminary
objections filed on behalf of Defendants Mark Heuschkel
("Heuschkel"), [*2] Ferrotech Corporation ("Ferrotech"),
Ferromet Corporation ("Ferromet"), and Ferrotech
Realty, LLC ("Ferrotech Realty") in response to the
complaint of Plaintiff Charles Barletto ("Barletto").
Defendants contend that the Asset Purchase
Agreement ("APA") at the heart of this dispute contains
a broad arbitration clause which compels any and all
disputes arising out of the APA be resolved through
arbitration. Plaintiff argues that because three of the four
defendants are non-signatories to the agreement,
arbitration is not the proper venue for disposition of his
claims and the Court must hear the matter. After
argument on the preliminary objections and reviewing
applicable case [**379] law and the well argued briefs
submitted by the parties, the Court sustains Defendants'
preliminary objections for dismissal based on
jurisdictional grounds.
The Plaintiff in the action before the Court today is
Charles Barletto, a self-averred "experienced
businessman" who ran a number of scrap-metal
processing enterprises. The primary Defendant, Mark
Heuschkel, was also involved in the scrap-metal
processing business and was a customer of Barletto's.
Barletto owned three separate businesses associated
with the [*3] scrap-metal industry, those being Barletto
Equipment and Construction Company, Industrial
Concerns, and Barletto Corporation. Defendant
Heuschkel's business, known as Ferromet, also a
defendant in the present action, sent much of its scrap-
steel to Barletto Corporation to be processed.
In 2005, Barletto and Heuschkel entered into
negotiations for the sale of Barletto Corporation and
Barletto Equipment, and for a lease on the property
owned by Industrial concerns to a new company
Heuschkel had founded, Ferrotech, which is also a
defendant in the current action. The heart of the dispute
between the parties rests on the rights and obligations
contained within the APA that effectuated the sale.
Under the Agreement, Ferrotech agreed to employ
Barletto as a consultant and to provide Barletto with
twenty-five percent of the voting stock of Ferrotech. In
order for Barletto to receive his twenty-five percent of
the shares, there were several obligations he had to
satisfy. The obligations included delivery of the fully
executed sublease to the property owned by Industrial
Concerns, the transfer of a Dust Collection Permit, the
attachment of the Seller's financial statements to the
agreement, [*4] the full [**380] release of any and all
claims and/or liens on the purchased assets, and a
receipt of Revenue Notice.
After the execution of the APA, Ferrotech became a
highly profitable business. Barletto believes that as an
alleged minority shareholder he was entitled to share in
the profits. Barletto avers that Heuschkel informed him
he was not entitled to share in the profits, and that
Heuschkel routinely refused to allow Barletto any share
of the profits earned by Ferrotech. Barletto alleges in his
complaint that Heuschkel, in an attempt to keep the
profits from Barletto, funneled the profits to Ferromet,
the parent corporation of Ferrotech.
In 2008, it became necessary for the parties to refinance
the mortgage on the facility Ferrotech leased from
Industrial Concerns, Inc. In order to receive the
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *1; 21 Pa. D. & C.5th 376, **376
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 4 of 12
Page 5 of 12
Aurra Fellows
refinancing, Heuschkel informed Barletto that the
property owned by industrial Concerns would have to be
deeded over to Ferrotech. On June 24, 2009 the parties
executed the document that Barletto believed would
deed the property from Industrial Concerns to Ferrotech.
In actuality, the document deeded the property from
industrial Concerns to Ferrotech Realty, another new
corporation formed by Heuschkel [*5] and the final
defendant in the current action. Barletto alleges in his
complaint that his signature on the 2009 Agreement was
procured through means of duress and fraud.
Specifically Barletto alleges that when he was told he
had to sign the document, he was unaware that the
document was an agreement between the parties, and
that when he asked to review the document Heuschkel
refused to allow him and threatened Barletto with
termination if [**381] he did not sign.
Plaintiff alleges that he only signed the 2009 Agreement
and deeded over the property owned by Industrial
concerns after he was given assurances by Heuschkel
that he would still own twenty-five percent of the
property as he was the owner of twenty-five percent of
the stock of Ferrotech. Defendant Heuschkel avers that
because Plaintiff failed to fulfill his obligations under the
original APA, Plaintiff never became a minority
stockholder in Ferrotech.
In October of 2009 the business relationship between
Barletto and Heuschkel ended. On or about October 30,
Barletto was in the offices of Ferrotech and a
confrontation between himself and Heuschkel occurred.
As a result of the confrontation, Barletto was fired from
the employ of Ferrotech. [*6] Upon his termination,
Barletto inquired into his position as minority
shareholder in Ferrotech. Barletto alleges that he was
informed his stock was worthless and all of the assets of
Ferrotech were owned by Ferromet or Ferrotech Realty.
Barletto was then frozen out of the business and
corporate affairs of Ferrotech, which Barletto believes
deprived him of his rights as a shareholder.
As a result of his termination from Ferrotech, Barletto
started a new business. Since the start of his new
business, Barletto alleges that Heuschkel has engaged
in a campaign of defamation, trade libel, and
interference with contractual relations. Barletto alleges
that Heuschkel has contacted customers and potential
customers of Barletto's and informed them that Barletto
is a "crack addict", sleeps with "crack whores", is not fit
to be in business, is unreliable, and is a "liar" and "thief"
who cannot be trusted. Barletto [**382] claims that
these statements allegedly made by Heuschkel have
had a "serious and deleterious impact" upon his new
business. Based on the above mentioned facts, Barletto
has instituted the current action before the Court today.
HN1[ ] Pursuant to Pa.R.C.P. § 1028(a)(6), a party
may raise by preliminary [*7] objections an agreement
for alternative dispute resolution. A court is required to
sustain preliminary objections raising an agreement for
alternative dispute resolution, if the court finds as a
matter of law that the dispute falls within the ambit of a
contractual arbitration provision. Shadduck v.
Christopher J. Kaclik, Inc., 713 A.2d 635, 639 (Pa.
Super. 1998).
In filing his complaint before the Court, Plaintiff attempts
to avoid the arbitration clause contained within the APA.
Plaintiff initially alleged that he was not a signatory to
the agreement and therefore could not be compelled to
arbitrate. Careful examination of the agreement,
however, reveals that Plaintiff is a signatory to the
agreement. Barletto is directly listed as a party to the
agreement, rights and obligations of Barletto are found
throughout the agreement, and on the signature page
Barletto signed as an individual party to the agreement.
The record clearly establishes that Barletto is a
signatory and party to the APA.
The arbitration clause contained within the Agreement
states that, "any and all disputes, controversies, or
claims arising out of or relating to this Agreement or for
the breach or validity of any [*8] term or provision of this
Agreement, shall be resolved by final and binding
arbitration." Pennsylvania appellate case law
considering [**383] similarly worded HN2[ ] clauses
have held that such clauses are unlimited arbitration
clauses and any claims implicating the contract can be
compelled to arbitration. Dodds v. Pulte Home
Corporation, 2006 PA Super 268, 909 A.2d 348, 351
(Pa. Super. 2006) (Arbitration clause that read "Any
controversy, claim, or dispute arising out of or relating to
this Agreement" compels arbitration of fraud claims);
Smay v. Stuebner, Inc., 2004 PA Super 493, 864 A.2d
1266, 1276 (Pa. Super. 2004) (Arbitration clause that
read "Any controversy or Claim arising out of or related
to the Contract," interpreted broadly to include all claims
arising from the contract regardless of whether the claim
sounds in tort or contract.) The arbitration clause at
issue before the Court is equally as broad as those
found in Dodds and Smay and thus any disputes
arising out of or relating to the APA or the validity or
breaches of contractual obligations and duties contained
therein may be compelled to arbitration. An examination
of the nine counts of Plaintiff's complaint reveals that all
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *4; 21 Pa. D. & C.5th 376, **380
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 5 of 12
Page 6 of 12
Aurra Fellows
counts arise out of or relate back to the [*9] APA or its
breach.
Count One of the complaint is against Defendant
Heuschkel for breach of contract. Plaintiff alleges that
various actions committed by Heuschkel constitute
repeated breaches of the APA. Plaintiff avers that the
first alleged breach occurred when Heuschkel refused to
recognize the twenty-five percent interest in Ferrotech
that Barletto believed he was entitled to under the
agreement. The second alleged breach occurred when
Barletto was terminated from Ferrotech despite the
twenty-five percent interest he believed he held in the
company. Plaintiff claims the third breach came as a
result of Heuschkel's failure to share the profits earned
by Ferrotech with Barletto since [**384] the date of the
agreement. The final alleged breach is for the
deprivation of salary and benefits Barletto felt he was
entitled to receive under the "consulting Agreement"
agreed upon by the parties when signing the
agreement. All of the claims in count One of the
complaint arise out of the terms of the APA and the
alleged breach of those terms.
In Count Two of the complaint, Barletto alleges that
Heuschkel breached the fiduciary duty owed to Barletto
as a minority shareholder. Plaintiff claims that
Heuschkel, [*10] as a majority shareholder, owed
Plaintiff a fiduciary duty to not exclude Plaintiff from his
"proper share of benefits accruing from the enterprise."
Plaintiff alleges that Heuschkel breached his fiduciary
duty by refusing to allow Barletto to participate in the
profits earned by Ferrotech and for terminating Barletto
despite his holding a twenty-five percent interest in the
company. The alleged breach of fiduciary duty by
Heuschkel arises directly out of the obligations of the
parties found within the APA.
Count Three of the complaint is against Defendant
Heuschkel for alleged corporate oppression of a
minority shareholder. This Count also arises directly out
of the terms of the original APA. Barletto bases this
Count of the Complaint on 15 Pa.C.S. 1767(a)(2) and
avers that the breach of fiduciary duty by Heuschkel
alleged in Count Two also constitutes corporate
oppression of a minority shareholder.
In Count Four of the complaint, Plaintiff brings claims
against Heuschkel, Ferrotech, and Ferromet for fraud.
Barletto alleges that the promise by Heuschkel of a
[**385] twenty-five percent interest in Ferrotech was a
significant inducement for Barletto in signing the APA.
Plaintiff alleges further [*11] that Heuschkel's
representations that Ferrotech would earn substantial
profits that would be split between Heuschkel and
Plaintiff was additional inducement for Plaintiff's entering
into the APA. In his complaint, Plaintiff avers that
Ferrotech did indeed earn substantial profits, but
Plaintiff was excluded in the sharing of the profits as a
result of Heuschkel's funneling the profits made by
Ferrotech into Ferromet for the purpose of preventing
Plaintiff from receiving his rightful share of the profits.
This count arises directly out of alleged violations of the
duties and obligations contained within the APA.
The Fifth Count of Plaintiff's Complaint is for an
accounting of the profits earned by Ferrotech. This
count is against Defendants Heuschkel, Ferrotech, and
Ferromet and also arises directly from rights and
obligations of the parties found within the APA. Plaintiff
asserts that as a result of the alleged fraud perpetrated
by the Defendants in the previous count, he is entitled to
an accounting of all the profits earned by Ferrotech from
the date of the APA until the present date, as well as
accountings of any transfers Ferrotech may have made
to Ferromet.
The sixth and Seventh [*12] Counts of Plaintiff's
Complaint are for fraud against Defendants Heuschkel
and Ferrotech Realty, LLC and for rescission against
the same. These counts of the Complaint arise directly
from the lease agreement contained in the APA. Plaintiff
alleges that he was fraudulently induced to deed the
property owned by Industrial Concerns to Ferrotech
Realty when the parties refinanced the property in 2008.
[**386] The Eighth and Ninth Counts of the Complaint
are against Defendant Heuschkel for defamation/trade
libel and intentional interference with contractual
relations. These counts originated with Heuschkel's
alleged breach of the APA forcing Barletto to start a new
business. Barletto alleges that since he started his new
business, Heuschkel has participated in a campaign of
defamation and trade libel against him. Plaintiff alleges
that this campaign has intentionally interfered with his
current and potential customers.
In the nine counts filed by Plaintiff, multiple defendants
have been named. Defendant Heuschkel has been
named individually as defendant in each count. At
Counts Four and Five, Ferromet and Ferrotech have
also been included as defendants, and at Counts Six
and Seven, Ferrotech Realty [*13] is included as a
defendant, while four separate parties are involved as
defendants in the complaint, the close relationship
between the four parties renders their individual
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *8; 21 Pa. D. & C.5th 376, **383
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 6 of 12
Page 7 of 12
Aurra Fellows
interests intricately linked.
Of the four defendants, only Ferrotech is a signatory to
the APA, and based on this fact Barletto avers that he
cannot be compelled to arbitration. HN3[ ]
Pennsylvania case law, however, supports the notion
that non-signatory agents, parent corporations, or sister
corporations may enforce arbitration clauses when the
interests of the parties overlap or are closely linked.
Dodds v. Pulte Home Corporation, 2006 PA Super 268,
909 A.2d 348, 351-352 (Pa. Super. 2006). Defendant
Heuschkel is the president and owner of Ferrotech, and
as such he is the agent through which Ferrotech, a
corporation and creature of legal fiction, must [**387]
act. Ferromet is the parent company of both Ferrotech
and Ferroteeh Realty. Defendant Heuschkel is the
owner of all three corporate defendants, and all of the
charges against the corporate defendants stem directly
from Heuschkel's conduct as the owner and president of
the corporations. For the reasons that follow this Court
finds that Plaintiff Barletto is compelled to arbitrate all
his claims [*14] at the insistence of the non-signatory
defendants.
HN4[ ] Arbitration is contractual by nature and it is well
established that absent an agreement between the
parties to arbitrate an issue, they cannot be compelled
to arbitrate. Hoffman v. Gekoski, 250 Pa. Super. 49, 378
A.2d 447 (Pa. Super. 1977). As a matter of public policy,
courts of the Commonwealth favor agreements to
arbitrate and such agreements will be found valid,
enforceable and irrevocable save for grounds that exist
at law or in equity that relate to the validity,
enforceability, or revocation of any contract, Quiles v.
Financial Exchange, 2005 PA Super 250, 879 A.2d 281,
287 (Pa. Super. 2005), quoting Keystone Tech. Group,
Inc. v. Kerr Group. Inc., 2003 PA Super 199, 824 A.2d
1223 (Pa. Super 2003) and Emmaus Municipal Auth. v.
Eltz, 416 Pa. 123, 204 A.2d 926 (1964). When a party to
an agreement is attempting to prevent another from
proceeding to arbitration, the court must apply a two
part test. The court must first determine whether a valid
agreement to arbitrate exists between the parties, and if
so, determine whether the dispute involved is within the
scope of the arbitration provision. Highmark, Inc. v.
Hospital Service Association of Northeastern
Pennsylvania, 2001 PA Super 278, 785 A.2d 93, 98 (Pa.
Super. 2001).
The [*15] first step the Court must take is to determine
[**388] whether a valid arbitration clause exists. There
can be little doubt that a valid agreement exists between
Barletto and Ferrotech. The parties to the APA are listed
on the first page of the agreement as Charles Barletto,
Barletto Corporation, Barletto Equipment and
Construction Co., Industrial Concerns, and Ferrotech
Corporation. On the signature page of the agreement,
the same page on which the arbitration clause is found,
both Ferrotech and Charles Barletto, as an individual,
are signatories. The validity issue the Court must
resolve is whether the non-signatory defendants,
Heuschkel, Ferromet, and Ferrotech Realty, may
enforce the arbitration clause for the claims brought
against them by Barletto.
When confronted with the question before the Court
today, Pennsylvania courts and federal district courts
have relied upon traditional principles of contract and
agency law. See Dodds v. Pulte Home Corporation,
2006 PA Super 268, 909 A.2d 348 (Pa. Super. 2006)
(allowing parent corporation to invoke arbitration clause
signed by subsidiary based on obvious and close nexus
between contract and non-signatory); Smay v. E.R.
Stuebner, Inc., 2004 PA Super 493, 864 A.2d 1266 (Pa.
Super. 2004) [*16] (third-party beneficiary bound by
arbitration clause); Pritzker v. Merrill Lynch. Pierce,
Fenner, & Smith, Inc., 7 F.3d 1110 (3rd Cir. 1993)
(agent of signatory bound by arbitration clause). In
Thomson-CSF v. American Arbitration Association, 64
F.3d 773 (2nd Cir. 1995), the Second Circuit discussed
HN5[ ] five traditional theories arising out of common
law principles of contract and agency that can bind non-
signatories to arbitration agreements. The theories
identified by the court were: 1) incorporation by
reference; 2) assumption; 3) agency; 4) veil-
piercing/ [**389] alter ego; and 5) equitable estoppel,
Thomson-CSF at 776. This Court holds that Barletto is
bound to arbitrate by the contract theories associated
with agency, the parent-subsidiary relationship, and
equitable estoppel.
Particularly important to the question sub judice is the
principle that HN6[ ] non-signatories can enforce an
arbitration agreement where there is an obvious and
close nexus between the non-signatories and the
contract or contracting parties. Weiner v. Pritzker, Nos.
2846, 101251, 2001 Phila. Ct. Com. Pl. LEXIS 78, 2001
WL 1807929 citing Dayoff Inc. v. H.J. Heinz Inc., 86
F.3d 1287 (3rd Cir. 1996). One instance in which such
an obvious and close nexus exists [*17] is the
relationship between a principal and an agent. Weiner,
2001 Phila. Ct. Com. Pl. LEXIS 78, [WL] at 2. Under
traditional agency theory, an agent is subject to
contractual provisions entered into by the principal.
Therefore, because a principal is bound under the terms
of a valid arbitration clause, its agents, employees, and
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *13; 21 Pa. D. & C.5th 376, **386
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 7 of 12
Page 8 of 12
Aurra Fellows
representatives are also covered under the terms of
such agreements. Pritzker v. Merrill Lynch, Pierce,
Fenner, & Smith, Inc., 7 F.3d 1110, 1121 (3rd Cir.
1993).
HN7[ ] In the Commonwealth, agency is defined as the
fiduciary relation which results from the manifestation of
consent by one person to another that the other shall
act on his behalf and subject to his control, and consent
by the other to so act. Restatement (Second) of Agency
§ 1. The relationship necessary to create an agency
does not depend on the intent of the parties to create it,
nor their belief that they have done so. What is
necessary to create the relation is an agreement
between the parties, which need not be contractual, that
results in the factual [**390] relation to which the legal
consequences of an agency are attached. This is the
case even if the parties did not call the relationship an
agency or did not intend for an agency to exist.
Restatement (Second) of Agency § 1 comment b.
With [*18] these principles of agency in mind, there can
be no doubt that Defendant Heuschkel was acting as an
agent of Ferromet, Ferrotech, and Ferrotech Realty
when he allegedly breached the APA. As president and
sole-owner of the three corporate defendants,
Heuschkel was the means through which the corporate
entities acted. In Weiner v. Pritzker, the Plaintiff
attempted to avoid the arbitration agreement by suing
two employees of the principal with which he had signed
the agreement. Weiner, 2001 Phila. Ct. Com. Pl. LEXIS
78, 2001 WL 1807929 at 2. Like Heuschkel, Pritzker
was the president and active controlling shareholder for
the principal company, Omicron. 2001 Phila. Ct. Com.
Pl. LEXIS 78, [WL] at 2. The court recognized that this
relationship created the factual relation necessary for an
agency to be found at law, and likewise an agency
relationship exists in the case sub judice. Id. Heuschkel,
as the president and controlling shareholder of
Ferrotech, is the agent of Ferrotech, the signatory to the
APA, and as such he may enforce the arbitration clause
found within the APA for claims against him that arise
out of or relate to the Agreement.
Having established that the arbitration clause is valid as
to Heuschkel for the actions he took as the agent of
Ferrotech, [*19] the Court now must determine if the
clause is valid as to Ferrotech Realty, the sister
corporation of Ferrotech. In Pritzker v. Merrill Lynch,
Pierce, Fenner, & Smith, 7 F.3d 1110 (3rd Cir. 1993),
the Third circuit [**391] found that the non-signatory
corporate sister of Merril Lynch, Pierce, Fenner, & Smith
("MLPFS") could enforce an arbitration clause to which
MLPFS was the signatory. The holding in Pritzker was
based on the principle that HN8[ ] arbitration
agreements may be upheld against non-signatories
where their interests are directly related to, if not
congruent with a signatory. Pritzker at 1122.
In reaching its holding, the court focused on the fact that
Merril Lynch Asset Management, Inc. ("MLAM"), as a
sister corporation to MLPFS, held interests that were
directly related to those of MLPFS. Id. at 1122. The
issue in Pritzker centered on investment purchases the
plaintiffs believed were in violation of the fiduciary duties
owed them through the cash management agreements
they had with MLPFS. Id. at 1113. The cash
management agreements contained clauses that
designated arbitration as the forum to resolve any
controversies arising between MLPFS and the plaintiffs.
Id. The plaintiffs filed [*20] three claims, one of which
was against MLAM for participation in the knowing
breach of fiduciary duties owed to the plaintiffs through
the agreements. Id.
In holding that MLAM could compel arbitration, the court
relied on the plaintiffs' own theory of liability to find that
the interests of MLAM were directly related to, and
potentially predicated upon the actions of MPFS, who
was a signatory to the agreement. Id. at 1122. The court
found this to be determinative in holding that MLAM
had interests congruent with its sister corporation. Id.
The court ruled that HN9[ ] where parties unmistakably
intend to arbitrate all controversies which might arise
between them, their [**392] agreement should be
applied to claims against agents or entities related to the
signatories. Id.
The same principles relied upon by the Third Circuit are
equally applicable to Ferrotech Realty. Barletto alleges
that in early 2008 the parties needed to refinance the
mortgage on the property leased to Ferrotech by
industrial Concerns through the APA. Barletto claims
that Heuschkel, acting as agent of Ferrotech, informed
him that to receive the financing the property needed to
be deeded to Ferrotech. Instead of the property being
[*21] deeded to Ferrotech, the complaint alleges that
the property was fraudulently deeded to Ferrotech
Realty for the purpose of depriving Barletto of his
property rights. The claims that arise out of this
transaction are directly related to the actions Heuschkel
allegedly took as the agent of the signatory. Just as the
plaintiffs in Pritzker were basing liability against MLAM
for actions taken on behalf of their sister corporation,
Barletto is claiming knowing participation by Ferrotech
Realty in the fraudulent refinancing done on behalf of
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *17; 21 Pa. D. & C.5th 376, **389
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 8 of 12
Page 9 of 12
Aurra Fellows
Ferrotech. The claims for fraud and rescission against
Ferrotech Realty are directly related to transactions
arising out of the APA and thus are subject to the
arbitration clause. This is an instance, much like in
Pritzker, where the parties have unmistakably agreed to
arbitrate any and all controversies which might arise
between them, and as such the agents and related
corporate entities of the parties have the right to enforce
the arbitration clause for any such controversies.
Another similar situation in which a sister corporation
was bound by an arbitration clause is found in the case
of [**393] Ketchum v. Almahurst Bloodstock IV, 685 F.
Supp. 786 (D. Kan. 1988). [*22] The District Court in
Ketchum, had to decide whether an affiliate corporation
was bound by an arbitration clause entered into by a
corporate sister. Without basing its decision on the
affiliate status of the corporation, the court held that the
sister corporation was bound by the arbitration clause.
The court rested its decision on four specific
circumstances present in the case. First, the affiliate
corporation agreed to be bound by the arbitration clause
as evidenced by its motion to compel arbitration. Id. at
793. Second, the claims against the affiliate corporation
were identical to the claims against the signatory
corporation. Id. Third, the plaintiff's claims against both
defendants arose out of the same transactions. Id. at
794. Finally, the claims against both defendants fell
within the broad language of the arbitration clauses. The
District Court concluded that based on the four
described circumstances it was reasonable for the non-
signatory corporate affiliate to be bound by the
arbitration clause. Id. at 794.
The four circumstances the District Court relied upon to
find it reasonable for a non-signatory corporate affiliate
to compel arbitration are also present in the case
[*23] sub judice. First, Ferrotech Realty has agreed to
be bound by the arbitration clause based on its motion
to compel arbitration. Second, the claims Barletto has
against Ferrotech Realty are identical to the claims
against Heuschkel, who was acting on behalf of and as
the agent of Ferrotech when the alleged fraud was
committed. Third, the two claims filed against both
Ferrotech Realty and Heuschkel arise [**394] out of the
same transaction. And finally, the claims against
Ferrotech Realty are within the ambit of the broadly
construed arbitration clause. As was the case in
Ketchum, based on the above stated circumstances, it
is reasonable for Ferrotech Realty to compel Barletto to
arbitrate the two claims filed against the entity.
The Court's attention must next turn to the question of
whether Ferromet, as the parent company of Ferrotech,
may enforce the arbitration clause in the claims filed
against it. In the case of Dodds v. Pulte Home
Corporation, 2006 PA Super 268, 909 A.2d 348 (Pa.
Super. 2006), the Pennsylvania Superior Court held that
HN10[ ] a non-signatory parent company could
enforce an arbitration clause to which its subsidiary was
a signatory. Dodds at 352. In Dodds, the plaintiffs
sought to avoid the arbitration [*24] agreement they
entered into with the Pulte Home Corporation of the
Delaware Valley (PHCDV) by including the parent of
PHCDV, Pulte Home Corporation (PHC), who was a
non-signatory to the agreement, in their claim. Id. at
348.
The plaintiffs in Dodds argued that because a fraud
claim was asserted against the non-signatory PHC, the
alleged parent of PHCDV, the claim was no longer in
the ambit of the arbitration agreement. Id. at 351. The
defendants argued that non-signatories to an arbitration
agreement are able to enforce the agreement when an
obvious and close nexus between the non-signatories
and the contract or contracting parties is found. The
Superior Court agreed with the defendants. Id.
The Superior Court started its analysis of the issue by
citing instances in which the Court had found that non-
signatories [**395] to a contract have fallen within the
scope of the arbitration clause found in the contract. In
the cases of. Smay v. E.R. Stuebner, Inc., 2004 PA
Super 493, 864 A.2d 1266 (Pa. Super. 2004) and
Highmark Inc., v. Hospital Service Ass'n, 2001 PA
Super 278, 785 A.2d 93 (Pa. Super. 2001), the superior
Court found that HN11[ ] non-signatory third party
beneficiaries could fall within the scope of an arbitration
clause if that [*25] was the signing parties intent. Dodds
at 351. The Court examined the interests of the parties
in Smay and found that the claims from the signatory
and the claims from the non-signatory were
indistinguishable, arose from the same incident and
implicated identical legal principles. Because of the
close and obvious nexus between the claims, the non-
signatory's claim was subject to the arbitration
agreement. Dodds at 352.
The Superior court extended the rationale in Smay to
find that claims against PHC fell within the ambit of the
arbitration clause signed by the Dodds and PHCDV.
Dodds at 352. The Superior Court found that the
interests of PHC and PHCDV were identical and that the
arbitration agreement was enforceable by the non-
signatory parent. Specifically the Court held that:
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *21; 21 Pa. D. & C.5th 376, **392
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 9 of 12
Page 10 of 12
Aurra Fellows
An arbitration agreement would be of little value if a
party could obviate the effect of the agreement
merely by finding a way to join another party. In no
event could the arbitration clause of PHCDV be
defeated by adding PHC to the complaint, and
because PHC wishes to enforce the arbitration
agreement rather than avoid it, Plaintiffs, as
signatories to the arbitration agreement, should not
be able to avoid the [*26] requirement to
arbitrate [**396] by a non-signatory when the non-
signatory wants to arbitrate. Dodds at 352.
The holding in Dodds thus blocks signatories to an
arbitration agreement from attempting to avoid their
bargained for contractual obligation by joining a non-
signatory parent who shares interests that are obviously
and closely related to the interests of a signatory
subsidiary. This is especially the case when the non-
signatory parent company wishes to enforce the
arbitration agreement the signatory party is attempting
to avoid. Dodds at 352.
When the rationale of the Superior Court in Dodds is
applied to the case sub judice, the attempts by Plaintiff
Barletto to block enforcement of the arbitration clause
must fail. Examining the interests of signatory
Defendant Ferrotech with the interests of the non-
signatory Defendants Ferromet, Heuschkel, and
Ferrotech Realty it is clear that an obvious and close
nexus exists among the interests of all defendants.
Ferrotech is a subsidiary of Ferromet, Ferrotech Realty
is a sister-corporation to Ferrotech, and Heuschkel, who
as president and owner of all three corporations, was
the agent through which the corporate entities
functioned. The claims [*27] filed by Plaintiff Barletto all
arise as a result of actions Heuschkel took on behalf of
the corporate entities, and therefore the interests of the
Defendants are indistinguishable. As the Superior Court
stated in Dodds, an arbitration agreement has little
value if it can be avoided simply by adding another party
to an action. Dodds at 352. This is especially true in the
instant action where Plaintiff has attempted to avoid the
bargained for arbitration agreement by filing claims
arising directly out of the APA against non-signatory
parties closely related [**397] to the signatory, whose
interests are indistinguishable from the signatory and
those who wish to arbitrate.
Even if the court were to assume arguendo that the
above mentioned theories do not compel Barletto to
resolve his claims in arbitration, the theory of equitable
estoppel compels that Barletto does so. HN12[ ] The
theory has been adopted by several courts of appeal as
an appropriate method by which non-signatories to
arbitration agreements may compel signatories to
arbitrate their claims. See Sunkist Soft Drinks, Inc. v.
Sunkist Growers, Inc., 10 F.3d 753, 757-58 (11th Cir.
1993), cert. denied, 513 U.S. 869, 115 S. Ct. 190, 130
L. Ed. 2d 123 (1994); [*28] J.J. Ryan & Sons, Inc. v.
Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-321
(4th Cir. 1988); McBro Planning & Dev. Co. v. Triangle
Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984);
Thomson-CSF, S.A. v. American Arbitration
Association, 64 F.3d 773 779-780 (2nd Cir. 1995);
Hughes Masonry Co. v. Greater Clark County School
Bldg. Corp., 659 F.2d 836, 838-839 (7th Cir. 1981). In
these cases, the courts identified three factors that
compelled a signatory to an arbitration agreement to
arbitrate with a non-signatory at the non-signatory's
insistence. Signatories were bound to arbitrate because
of (1) the close relationship between the entities
involved in the disputes; (2) the relationship of the
alleged wrongs to the non-signatory's obligations and
duties found in the contract; and (3) because the claims
involved in the disputes were intimately founded in and
intertwined with underlying contractual obligations.
Thomson-CSF, 64 F.3d at 779 (quoting Sunkist, 10 F.3d
at 757).
Of the three factors, the third factor, whether the claims
[**398] are intimately founded in and intertwined with
underlying contractual obligations is the most important.
Sunkist, 10 F.3d at 757-758. At issue in Sunkist
[*29] was a license agreement that contained an
arbitration clause. The non-signatory to the agreement,
Del Monte, was attempting to compel Sunkist to
arbitrate the claims between them. Sunkist claimed that
it could not be equitably estopped from avoiding
arbitration because no references to duties or
obligations of Del Monte were present in the license
agreement. Id. at 757. The Eleventh Circuit Court of
Appeals disagreed. Id. at 758.
The court began its analysis by discussing case law
across the circuits where the theory of equitable
estoppel was used to compel a signatory to arbitrate
with a non-signatory. Id. at 757. In those cases, the
courts relied on the close relationship between the
entities involved in the dispute and on the relationship of
the alleged wrongs to the non-signatory's obligations
and duties in the contract to determine that the claims
were "intimately founded in and intertwined with the
underlying contractual obligations." Sunkist, 10 F.3d at
757 (quoting McBro Planning, 741 F.2d at 344.) Sunkist
hinged its arguments against the imposition of equitable
estoppel on the absence of any mention of Del Monte in
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *25; 21 Pa. D. & C.5th 376, **395
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 10 of 12
Page 11 of 12
Aurra Fellows
the licensing agreement. The Eleventh Circuit held that
this [*30] reliance was legally insufficient. Id. at 757.
In distilling the rationale behind the decisions that used
equitable estoppel to bind a signatory, the Eleventh
Circuit discovered that the crucial and dispositve factor
in those holdings was not the inclusion of the non-
signatories in the contracts at issue. Rather, the crucial
factor in each case was "the foundation that ultimately,
each party must rely [**399] on the terms of the written
agreement in asserting their claims." Sunkist at 757.
The references in the contracts to non-signatories
added support to the conclusion that the claims were
"intimately founded in and intertwined with the
underlying contract obligation," but the references alone
were not a deciding factor. Id. The deciding factor for
the court in Sunkist was the degree to which the claims
arose out of the obligations and duties contained in the
contract at the heart of the dispute. Id.
To add support to its position, the Eleventh Circuit
discussed the case of J.J. Ryan & Sons, Inc. v. Rhone
Poulenc Textile, S.A., 863 F.2d 315 (4th Cir. 1988). The
holding in J.J. Ryan allowed a parent company to
arbitrate claims based on a contract entered into by its
subsidiary. The court did [*31] so based on the fact that
the claims against both the parent and subsidiary arose
from the same facts and were inherently inseparable.
The Fourth Circuit cited the Eleventh Circuit's use of
equitable estoppel in McBro as a justification for its
holding. The Eleventh Circuit then used the holding of
the Fourth Circuit in J.J. Ryan to more fully develop the
theory of equitable estoppel as it relates to the binding
of signatories to an arbitration agreement at the
insistence of non-signatories.
Using the holding in J.J. Ryan, the Eleventh Circuit in
Sunkist determined that HN13[ ] for equitable estoppel
to be applicable, an examination of the nature of the
claims being asserted must be conducted to determine
if the claims fall within the scope of the agreement and
therefore compel the signatory to arbitrate. Sunkist at
758. The Sunkist court stated:
[**400] Therefore, the focus of our inquiry should
be on the nature of the underlying claims asserted
by Sunkist against Del Monte to determine whether
those claims fall within the scope of the arbitration
clause contained in the license agreement. Id.
The Court examined the claims filed by Sunkist and
found that all of them made reference to the license
agreement [*32] to which Del Monte was not a
signatory. Id. The claims did not rely exclusively on the
license agreement, but the court found that each claim
at least presumed the existence of such an agreement.
Each claim arose out of and was directly related to the
agreement, and therefore a sufficient nexus between
the claims and the agreement existed such that Sunkist
could be equitably estopped from avoiding arbitration of
its claims. Id. at 758.
To determine if Barletto can be equitably estopped from
avoiding arbitration of his claims, those claims must be
examined to determine if a sufficient nexus exists
between the claims and the APA. As has already been
established, each claim does arise out of and relate to
the terms of the APA. Count One is for breach of the
APA. Count Two is for breach of fiduciary duties that
arose out of the APA. In Count Three, Barletto is suing
for oppression of a minority shareholder. Barletto's
alleged position as a minority shareholder arises directly
out of the duties and obligations found in the APA.
Count Four of the complaint alleges fraud regarding the
percentage of profits Barletto was entitled to receive
under the APA and where said profits were actually
[*33] distributed. Count Five is tied to Count Four, and
asks for an accounting of the profits [**401] that have
been earned as a result of Barletto entering into the
APA. Counts Six and Seven are tied to the refinancing
of the property leased to Ferrotech via the APA, and the
alleged fraud associated with the refinancing.
The two final counts of Barletto's complaint are for
defamation/trade libel and for intentional interference
with contractual relationships. HN14[ ] It is well
established in Pennsylvania that when parties to a
contract have included a broad arbitration clause in an
agreement, disputes arising out of the contractual
relationship must, when requested, be arbitrated. Foster
v. Philadelphia Manufacturers, 140 Pa. Commw. 186,
592 A.2d 131, 133 (Pa. Commw. Ct. 1991). Doubts as
to whether an arbitration clause covers a particular
dispute should be resolved in favor of arbitration.
McNulty v. H&R Block. Inc., 2004 PA Super 45, 843
A.2d 1267, 1271 (Pa. Super. Ct. 2004). In J.J. Ryan,
three of the counts at issue were for libel, defamation,
and injurious falsehood. The counts centered around
the malicious sending of untrue notices by the
defendant to business associates of the plaintiff
informing them that the plaintiff had defaulted [*34] on
security agreements. The court concluded that the
dispute over the security agreements arose in
connection with the contract and therefore all the claims
regarding the security agreement disputes could be
referred to arbitration. J.J. Ryan, 863 F.2d at 320.
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *29; 21 Pa. D. & C.5th 376, **398
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 11 of 12
Page 12 of 12
Aurra Fellows
As was the case in J.J. Ryan, the alleged
defamation/trade libel and intentional interference with
contractual relationship claims brought by Barletto can
be resolved in arbitration. The arbitration clause
contained in the APA is broadly worded and covers "any
and all disputes, controversies or claims arising out of or
relating to this Agreement or for the breach or validity of
any term or [**402] provision of this Agreement." As has
been previously discussed, these claims originate out of
the allegedly wrongful breaches of the APA by
Defendant Heuschkel. Plaintiff, in his complaint, admits
that because of the alleged breaches of the APA he was
forced to start a new business and since then Defendant
Heuschkel has "engaged in a campaign of defamation
and trade libel" the purpose of which is to drive Barletto
out of business. The defamatory statements allegedly
made by Heuschkel arose out of the disintegration of
the relationship formed [*35] between the two parties
through the APA and thus stem from the dispute
between the parties regarding the duties and obligations
contained within the Agreement. Therefore these counts
also arise out of or relate back to the Agreement.
Barletto is estopped from avoiding arbitration of these
claims.
Having established that a valid arbitration agreement
exists between all of the parties, the Court's final task is
to determine whether all of the alleged claims against
the defendants are within the ambit of the arbitration
clause. Based on the foregoing analysis of the theory of
equitable estoppel, and the previous discussion of
Plaintiff's claims, the Court finds that each of the nine
counts in the complaint arise directly out of or relate
back to the duties and obligations contained within the
APA or for the breach of said duties and obligations and
therefore may be compelled to arbitration.
In conclusion, Plaintiff Charles Barletto must arbitrate
his claims against Defendants Heuschkel, Ferrotech,
Ferromet, and Ferrotech Realty. HN15[ ] Traditional
contract theories of agency and estoppel compel
Barletto, a signatory to the agreement, to arbitrate at the
insistence [**403] of non-signatory defendants who
[*36] are the agents or affiliates of the signatory to the
agreement when the claims and positions of all parties
are intimately founded on and intertwined with the
underlying contractual obligations found in the APA. "In
short, plaintiff cannot have it both ways. It cannot rely on
the contract when it works to its advantage, and
repudiate it when it works to its disadvantage." Hughes
Masonry, 659 F.2d at 839. Barletto bargained for the
provisions found in the APA, and relies on those same
provisions in his claims against the defendants. He
cannot now avoid his contractual obligations by
repudiating the portions of the contract that are not in
his favor. Defendant's preliminary objections are
sustained and Plaintiff's claim is dismissed so that it
may be filed within the proper venue.
End of Document
2011 Pa. Dist. & Cnty. Dec. LEXIS 318, *34; 21 Pa. D. & C.5th 376, **401
Case 4:16-cv-01343-MWB Document 74-2 Filed 06/27/17 Page 12 of 12
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
KeyCite Yellow Flag - Negative Treatment
Distinguished by Montalbano v. Cavalry Portfolio Services, LLC, W.D.Pa., February 15, 2013
2006 WL 3040905
Only the Westlaw citation is currently available.
United States District Court,
W.D. Pennsylvania.
Thomas J. BONTEMPO and Terry Monteleone, and all others similarly situated, Plaintiffs,
v.
WOLPOFF & ABRAMSON, L.L.P., Defendant.
No. Civ.A. 06-745.
|
Oct. 24, 2006.
Attorneys and Law Firms
Jeffrey L. Suher, Monroeville, PA, for Plaintiffs.
Ronald S. Canter, Wolpoff & Abramson, Rockville, MD, Robert N. Polas, Wolpoff & Abramson, Pittsburgh, PA, for
Defendant.
ORDER
AMBROSE, J.
*1 AND NOW, this 23 rd day of Oct., 2006, after the plaintiffs filed a purported class action complaint in the above-
captioned case, and after the defendant moved to dismiss the claim of plaintiff Terry Monteleone and to compel
arbitration of Monteleone's claim, and after a Report and Recommendation was issued by the United States Magistrate
Judge, and the parties were granted thirteen days after being served with a copy to file written objections thereto, and
upon consideration of the objections filed by the defendant, as well as the plaintiffs' response to those objections, and
after independent review of the pleadings, and the Magistrate Judge's Report and Recommendation, which is adopted
as the opinion of this Court,
IT IS ORDERED that the defendant's motion to dismiss the claim of plaintiff Terry Monteleone and to compel
arbitration of the claim (Docket No. 4) is denied.
REPORT AND RECOMMENDATION
MITCHELL, Magistrate J.
I. Recommendation:
It is respectfully recommended that the defendant's motion to dismiss the claim of plaintiff Terry Monteleone and to
compel arbitration of the claim (Docket No. 4) be denied.
II. Report:
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 1 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
Presently before the Court is a motion to dismiss the claim of plaintiff Terry Monteleone and to compel arbitration of
the claim filed by defendant Wolpoff & Abramson, L.L.P. (“W & A”). For reasons discussed below, W & A's motion
to dismiss should be denied.
The plaintiffs, Thomas Bontempo and Terry Monteleone, have filed a purported class action complaint, alleging that
W & A obtained arbitration awards through a non-participatory process using false, deceptive or misleading means in
connection with the collection of their debts in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et
seq. (“FDCPA”). The plaintiffs are said to be consumers within the meaning of the FDCPA, while W & A is alleged to
be a debt collector within the meaning of the Act. 1
1 The FDCPA defines the term “consumer” as “any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C.
§ 1692a(3). The term “debt collector” means in relevant part, “any person who uses any instrumentality of interstate commerce
or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts
to collect ... debts owed or ... asserted to be ... due another.” Id. at § 1692a(6).
It is alleged in the complaint that plaintiffs Bontempo and Monteleone obtained consumer credit from MBNA America
Bank, N.A. (“MBNA”) by means of a credit card; that both plaintiffs incurred debt for personal, family or household
purposes and fell behind in their credit card payments; and that as a result, W & A began dunning them on the debt.
The plaintiffs contend that W & A obtained arbitration awards against them to recover the amounts of their purported
debts, but the arbitration awards are invalid, as the process concluded without any participatory hearing, and Bontempo
and Monteleone were not allowed to personally attend the process to oppose the claims presented by W & A, and the
amounts of their debts were improperly increased in the arbitral awards. The plaintiffs complain it is W & A's practice to
obtain alleged arbitration awards through an invalid, non-participatory process, and to add costs and fees to any arbitral
award, after which it uses those awards to attempt to collect debts.
*2 The plaintiffs commenced this action on behalf of themselves and a purported class of individuals “with addresses
in Pennsylvania” and from whom W & A “obtained or attempted to obtain ... an ‘arbitration award’ through an arbitral
process with non-participatory process absent an agreement to the contrary” (complaint at ¶ 25(i-ii)). The plaintiffs seek
actual and statutory damages pursuant to 15 U.S.C. § 1692k, and they invoke the Court's federal question jurisdiction.
In response to the complaint, W & A filed an answer to the claim of plaintiff Thomas Bontempo. However, it moved to
dismiss the claim of plaintiff Terry Montelone and to compel arbitration of the claim pursuant to F.R.Civ.P. 12(b)(1).
A Rule 12(b)(1) motion to dismiss “may be treated as either a facial or factual challenge to the court's subject matter
jurisdiction.” Gould Electronics Inc. v. U.S., 220 F.3d 169, 176 (3d Cir.2000). In reviewing a “facial attack”, which is
based on the legal sufficiency of the claim, the Court “must only consider the allegations of the complaint and documents
referenced therein and attached thereto in the light most favorable to the plaintiff.” Id. Conversely, in reviewing a “factual
attack”, as here, where a challenge is based on the sufficiency of jurisdictional fact, “the Court is free to weigh the evidence
and satisfy itself whether it has power to hear the case.” See, Carpet Group Intern. v. Oriental Rug Importers, 227 F.3d
62, 69 (3d Cir.2000). In such a scenario, “the court may consider evidence outside the pleadings”, Gould Electronics, 220
F.3d at 176, as “no presumptive truthfulness attaches to plaintiff's allegations”. Carpet Group, 227 F.3d at 69.
In support of its motion to dismiss, W & A avers that MBNA retained it as the law firm to pursue recovery of the
outstanding balance due on plaintiff Monteleone's credit card account through binding arbitration. As gleaned from
the record, W & A, on behalf of MBNA, filed a claim against Terry Monteleone in the National Arbitration Forum
(“NAF”), alleging as follows: that Monteleone opened a credit card account with MBNA, which is governed by a Credit
Card Agreement (hereinafter, the “Agreement”); that Monteleone is in default under terms of the Agreement and is
indebted to MBNA in the amount of $44,683.03; and that despite repeated demands for payment, Monteleone has not
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 2 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
paid the amount due, such that MBNA seeks an award of the amount it is owed, plus all arbitration fees incurred, process
of service fees and attorney fees (hereinafter, the “arbitration claim”). 2
2 See, Exhibit 1 to W & A's brief in support of its present motion.
The parties' Agreement, which was appended to the arbitration claim, contains a binding arbitration clause which
provides in pertinent part:
... Any claim or dispute (“Claim”) by either you or us against the other, or against the employees,
agents or assigns of the other, arising from or relating in any way to this Agreement or any prior
Agreement of your account (whether under a statute, in contract, tort, or otherwise and whether
for money damages, penalties or declaratory or equitable relief), including Claims regarding the
applicability of this Arbitration Section or the validity of the entire Agreement or any prior
Agreement, shall be resolved by binding arbitration. The arbitration shall be conducted by the
National Arbitration Forum (“NAF”), under the Code of Procedure in effect at the time the claim
is filed ... 3
3 Id. at “Arbitration and Litigation” section of the Agreement.
*3 The arbitration clause further provides: “This arbitration agreement is made pursuant to a transaction involving
interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ... [T]his Arbitration and
Litigation section applies to all Claims now in existence or that may arise in the future”. 4
4 Id.
The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), provides in relevant part that “[a] written provision in ...
a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of
such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. § 2. “The FAA makes agreements to arbitrate enforceable to the
same extent as other contracts.” Harris v. Green Tree Financial Corp., 183 F.3d 173, 178 (3d Cir.1999). Thus, “federal
law presumptively favors the enforcement of arbitration agreements”. Id. Indeed, “any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration ...” Moses H. Cone Memorial Hospital v. Mercury Constr.
Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). An arbitration provision should be interpreted to cover
the dispute unless it can be stated with “positive assurance” that the dispute was not meant to be arbitrated. Becker
Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 44 (3d Cir.1978).
Believing that the arbitration clause in Terry Monteleone's Agreement mandates that the parties submit their claims to
arbitration, W & A filed the aforesaid arbitration claim and served it on plaintiff Monteleone. An arbitrator appointed
to decide the claim reviewed all evidence in the matter and entered an award in favor of MBNA in the amount of
$54,305.52. 5
5 See, Exhibit 2 to W & A's brief in support of its present motion.
To obtain judgment on the arbitration award, W & A, on behalf of MBNA, filed suit in the Court of Common Pleas
of Indiana County, PA. 6 After hearing argument on MBNA's petition to confirm the arbitration award, the Court
of Common Pleas issued an Order on June 21, 2005, granting the petition. 7 Terry Monteleone appealed the Order
confirming the arbitration award to the Pennsylvania Superior Court. On July 20, 2006, the Superior Court affirmed the
Court of Common Pleas' ruling which confirmed the arbitration award. 8
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 3 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
6 See, Exhibit 3 to W & A's brief in support of its present motion.
7 See, Exhibit 4 to W & A's brief in support of its present motion.
8 See, Exhibit A to W & A's supplemental brief in support of its present motion.
In moving to dismiss the claim of Terry Monteleone, W & A argues that since the Agreement between Monteleone and
MBNA requires that all claims related to their Agreement be resolved through binding arbitration, the Court should
dismiss Terry Monteleone's claim and compel arbitration of it. W & A, which is not a signatory to the Agreement, makes
several arguments in support of its position, all of which are disputed by Monteleone.
“When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally apply
state law principles that govern the formation of contracts.” First Options of Chicago v. Kaplan, 514 U.S. 938, 944,
115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Here, the Agreement contains a choice of law provision, specifying it is to be
“governed by the laws of the State of Delaware”. 9 Plaintiff Monteleone agrees that Delaware law governs this dispute.
9 See, “What Law Applies” Section of the Agreement.
*4 W & A asserts that Monteleone is collateral estopped from challenging the validity of the arbitration agreement, for
on July 20, 2006, the Pennsylvania Superior Court affirmed the decision of the Court of Common Pleas which confirmed
the arbitration award entered against Monteleone. It is clear, however, that collateral estoppel is inapplicable here.
Collateral estoppel bars a party from re-litigating an issue previously litigated and resolved by a fact-finder. Higgins v.
Walls, 901 A.2d 122, 137 (Del.Super.2005). In order for collateral estoppel to apply, the following criteria must be met: (1)
the issue previously decided must be identical to the issue at bar; (2) the prior issue was finally adjudicated on the merits;
(3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication; and (4)
the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action. Id.
We find that the first and fourth criteria listed above are not satisfied. That is, the issue previously decided in the state
court matter is not identical to the issue before us. In the state court action, MBNA filed a petition to confirm the
arbitration award entered against Monteleone in the NAF, and the Court of Common Pleas confirmed the arbitration
award for the sole reason that Monteleone “failed to make an application to vacate or modify the arbitration award
within thirty (30) days prescribed by 42 Pa.C.S.A. § 7314”. 10 On July 20, 2006, the Pennsylvania Superior Court affirmed
that ruling, finding that Monteleone “waived his present challenges to the arbitration award by failing to file a petition to
modify or vacate that award within the time provided by law.” 11 Clearly, the issue presented here-whether Monteleone
is bound to arbitrate his FDPCA claim against W & A by virtue of his Agreement with MBNA-was neither decided in
the state court matter, nor litigated there. As a result, collateral estoppel is not applicable here.
10 See, Exhibit 4 to W & A's brief in support of its present motion.
11 See, Exhibit A to W & A's supplemental brief in support of its present motion.
W & A also argues that it may compel arbitration of Monteleone's claim against it, because it was MBNA's “agent” as
set forth in the arbitration clause. As noted above, the arbitration clause in the Agreement provides that: “[a]ny claim
or dispute (“Claim”) by either you or us against the other ... shall be resolved by binding arbitration.”
The word “you” in the above clause pertains to credit card users such as Terry Monteleone. The word “us”, however,
is defined in the arbitration clause in the following ways:
... ‘us' means MBNA America Bank, N.A., its parent, subsidiaries, affiliates, licensees, predecessors,
successors, assigns, any purchaser of your account, and all of their officers, directors, employees,
agents, and assigns or any and all of them. (Emphasis added). Additionally, ... ‘us' shall mean any
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 4 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
third party providing benefits, services, or products in connection with the account (including but
not limited to credit bureaus, merchants that accept any credit device issued under the account,
rewards or enrollment services, credit insurance companies, debt collectors, and all of their officers,
directors, employees and agents) if and only if, such a third party is named by you as a codefendant
in any Claim you assert against us. (Emphasis added). 12
12 See, Arbitration and Litigation Section of the Agreement.
*5 W & A insists it may compel arbitration of Monteleone's claim against it, as it acted as MBNA's “agent” in pursuing
the underlying arbitration claim (and thereby fits within the first definition of “us”). Conversely, Monteleone argues that
W & A may not compel arbitration of his claim under the Agreement, as it is a “debt collector”, and the complaint names
it as the lone defendant, not as a co-defendant with MBNA (such that it falls within the additional definition of “us”).
Under Delaware law, the construction of contract language is a question of law. Rhone-Poulenc Basic Chems. Co. v. Am.
Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.1992). In interpreting a contract, the primary goal is to “attempt to fulfill,
to the extent possible, the reasonable shared expectations of the parties at the time they contracted.” Comrie v. Enterasys
Networks, Inc., 837 A.2d 1, 13 (Del.Ch.2003). In order to ascertain intent, Delaware courts utilize an “objective” theory
of contracts. Haft v. Haft, 671 A.2d 413, 417 (Del.Ch.1995). Under this theory, where parties enter into an unambiguous
written contract “a contract's construction should be that which would be understood by an objective reasonable third
party.” In re: Stone & Webster, Inc. v. Shaw Group, 2005 WL 1036556, *5-6 (D.Del., May 3, 2005).
However, “inconsistent contractual provisions may create ambiguity in a contract.” Id. A contract is ambiguous “when
the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or
more different meanings.” Lorillard Tobacco Co. v. American Legacy Foundation, 903 A.2d 728, 2006 WL 2035682, *8
(Del.Super., July 17, 2006). “Ambiguity does not exist where a court can determine the meaning of a contract without
any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meaning
depends.” Id. Certainly, “[a] contract is not rendered ambiguous simply because the parties do not agree upon its proper
construction.” Id.
As discussed above, the arbitration clause provides in pertinent part that any Claim “by either you or us against the
other ... shall be resolved by binding arbitration.” In one part of the arbitration clause, the word “us” is defined to
encompass MBNA and its “agents”. Thus, W & A insists that as the law firm retained by MBNA to collect debts for it
under the Agreement, it is MBNA's “agent” and a named intended third party beneficiary under the arbitration clause.
However, the word “us” is defined in another portion of the arbitration clause as encompassing “any third party
providing benefits [or] services ... in connection with the account (including but not limited to ... debt collectors ... ) if,
and only if, such a third party is named by you as a codefendant in any Claim you assert against us.” According to Terry
Monteleone, W & A was a debt collector for MBNA on his account, and since he named W & A as the sole defendant
in his FDCPA suit (not as a codefendant with MBNA), the arbitration clause does not pertain to W & A, and it may
not compel arbitration of his claim against it.
*6 Recently, a similarly-worded arbitration clause was reviewed and interpreted by the court in Karnette v. Wolpoff &
Abramson, L.L.P., 2006 WL 2222673 (E.D.Va., Aug.2, 2006). In that case, as here, credit cards were issued by MBNA
to consumers who used the credit cards for personal, household and family purposes. The consumers became indebted,
and upon their defaults, MBNA referred the accounts for collection to W & A, a multi-state debt collection law firm.
2006 WL 2222673, *1. In Karnette, as here, the consumers filed a purported class action against W & A, alleging that it
engaged in false, deceptive and unfair debt collection practices in violation of the FDCPA. W & A subsequently moved
to compel arbitration of the plaintiffs' FDCPA claim, citing the arbitration clause in MBNA's agreements with them. Id.
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 5 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
In Karnette, the arbitration clause at issue was identical to the one here, and the parties made similar arguments in support
of their positions as here. Id. at *1-*2. Relying on Delaware law (which governed MBNA's credit card agreement), the
Karnette Court interpreted the arbitration clause in favor of the plaintiffs and against W & A, stating:
W & A argues that, as a law firm working for MBNA, it is an agent of MBNA, and, therefore, is a named third party
beneficiary of the arbitration provision ... As such, W & A claims that it is protected from suit by reading the arbitration
clause to state, ‘any claims by ... you ... against the ... agents ... of the other ... shall be resolved by binding arbitration.’
However, it is undisputed that W & A is a ‘debt collector’ as that term is defined in the FDCPA. Where a contract
specifies different rights to different specifically mentioned entities, the contract must be interpreted to require that
specificity. See, DCV Holdings, Inc. v. ConAgra, 889 A.2d 954, 961 (Del.2005) (“Specific language in a contract controls
over general language, and where specific and general provisions conflict, the specific provision ordinarily qualifies
the meaning of the general one.”) [citations omitted]. see generally Am.Jur. Contracts § 363. 13 Otherwise, the use of
two different terms would be mere surplusage. Colautti v. Franklin, 439 U.S. 379, 99 S.Ct. 675, 58 L.Ed.2d 596 (1979)
(one clause should not be read to render another inoperative).
13 In relevant part, Am.Jur. Contracts § 363 provides: “In general, where there are general and specific provisions in a contract
relating to the same thing, the special provisions control ... Where the parties express themselves in reference to a particular
matter, the attention is directed to that, and it must be assumed that it expresses their intent, whereas a reference to some
general matter, within which the particular matter may be included, does not necessarily indicate that the parties had the
particular matter in mind.
Because the credit card agreement specifically mentions debt collectors in the arbitration provision, that term cannot be
construed to be without purpose. While a debt collector may function as an agent for the specific purpose of collecting
debts, time-honored principles of contract construction require a thing specifically named to be specifically treated.
E.g. Bock v. Perkins, 139 U.S. 628, 634, 11 S.Ct. 677, 35 L.Ed. 314 (1891) (“The particular description [in the contract]
must control the ... general description ...”); DCV Holdings, Inc. v. ConAgra, 889 A.2d 954, 961 (Del.2005) (“Specific
language in a contract controls over general language ...”) ... Accordingly, W & A is to be treated as a debt collector
rather than as a general agent because W & A functioned only to serve MBNA for the purpose of collecting overdue
credit card debts. By the terms of the arbitration agreement, there is no agreement to arbitrate the claim against W &
A under the FDCPA because the plaintiffs' action does not name MBNA as a co-defendant.
*7 2006 WL 2222673, at *4-*5.
We believe the Karnette Court's construction of the arbitration clause is proper. As explained in Karnette:
By putting the Arbitration and Litigation section in the credit card agreement, MBNA sought to
limit its exposure, and the exposure of all in its corporate family, to litigation in court. It also
foresaw that plaintiffs might sue third party entities together with MBNA. Therefore, MBNA wrote
a clause into the arbitration agreement that required arbitration where MBNA was joined as a co-
defendant in a suit against a third party. However, for obvious reasons, MBNA had less reason
for concern about suits against third parties where MBNA was not a co-defendant. Thus, given its
plain meaning and accorded a common sense construction, the arbitration clause does not operate
here because MBNA is not a co-defendant in this action.
Id. at *4.
We too interpret the arbitration clause against W & A for the reasons set forth in Karnette. Furthermore, we disagree
with W & A that Monteleone is equitably estopped from denying that his claim against it is to be resolved by binding
arbitration.
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 6 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7
“Delaware allows a nonsignatory to a contract to compel a signatory to arbitrate under an equitable estoppel theory.”
Wilcox & Fetzer, Ltd. v. Corbett & Wilcox, 2006 WL 2473665, *4 (Del.Ch., Aug.22, 2006). Under this theory, a signatory
is compelled to arbitrate with a nonsignatory in either of two circumstances:
First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on
the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims
against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims
arise out of and relate directly to the written agreement and arbitration is appropriate. Second, application of equitable
estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially
interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract ...
Id. at *5 (emphasis added), quoting Grigson v. Creative Artists Agency, 210 F.3d 524, 527 (5 th Cir.2000) (quoting MS
Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11 th Cir.1999)).
Here, neither of the above-mentioned circumstances for equitable estoppel is applicable. First, Terry Monteleone need
not rely on the terms of his Agreement with MBNA to assert his claim against W & A. While Monteleone states in his
FDCPA complaint that he obtained consumer credit from MBNA through a credit card, after which he fell behind in his
payments (complaint at ¶¶ 15, 17), the crux of his claim is that W & A violated the FDCPA by obtaining an arbitration
award through a non-participatory process using false, deceptive or misleading means in connection with the collection
of his debt (complaint at ¶¶ 1, 19-21, 32). Monteleone could have asserted his claim against W & A without making any
reference to his Agreement with MBNA. Likewise, the second circumstance for equitable estoppel does not apply, as
Monteleone's complaint raises no claim against MBNA, which is not named as a co-defendant with W & A.
*8 There is another scenario in which courts have bound a signatory to arbitrate with a nonsignatory under a theory
of equitable estoppel, namely:
because of ‘the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the
nonsignatory's obligations and duties in the contract ... and [the fact that] the claims were intimately founded in and
intertwined with the underlying contract obligations.’
E.I. Dupont De Nemours v. Rhone Poulenc Fiber, 269 F.3d 187, 199 (3d Cir.2001), quoting Thomson-CSF, S.A. v.
American Arbitration Ass'n., 64 F.3d 773, 779 (2d Cir.1995). Unfortunately for W & A, this theory of equitable estoppel
is also inapplicable, as no “close relationship” (such as a corporate parent and subsidiary) exists between W & A and
Monteleone; W & A appears to have no obligations or duties under the Agreement between Monteleone and MBNA;
and Monteleone's claim against W & A is not intertwined with his Agreement with MBNA. For these reasons, equitable
estoppel is not appropriate here.
Therefore, it is recommended that the defendant's motion to dismiss the claim of Terry Monteleone and to compel
arbitration of the claim be denied.
Within thirteen (13) days after being served with a copy, any party may serve and file written objections to this Report
and Recommendation. Any party opposing the objections shall have seven (7) days from the date of service of objections
to respond thereto. Failure to file timely objections may constitute a waiver of any appellate rights.
All Citations
Not Reported in F.Supp.2d, 2006 WL 3040905
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 7 of 8
Bontempo v. Wolpoff & Abramson, L.L.P., Not Reported in F.Supp.2d (2006)
2006 WL 3040905
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-3 Filed 06/27/17 Page 8 of 8
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
2015 WL 5144030
United States District Court,
E.D. Pennsylvania.
Fabio Caparra, Plaintiff,
v.
Maggiano's Inc. et al., Defendants.
CIVIL ACTION NO. 14–05722
|
Signed September 1, 2015
Attorneys and Law Firms
Stephen G. Console, Caren N. Gurmankin, Console Law Offices LLC, Philadelphia, PA, for Plaintiff.
Stephanie Jill Peet, Samantha Sherwood Bononno, Jackson Lewis P.C., Philadelphia, PA, for Defendants.
MEMORANDUM
PAPPERT, District Judge
*1 Plaintiff Fabio Caparra (“Caparra”) sued Maggiano's, Inc. (“Maggiano's), Brinker International, Inc. (“Brinker
International”), and Brinker International Payroll Company, L.P. (“Brinker Payroll”) (collectively referred to as
“Defendants” throughout the complaint), alleging that Defendants violated the Family Medical Leave Act, 29 U.S.C. §
2601 et seq. (“FMLA”), the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq. (“ADA”), and the Pennsylvania
Human Relations Act, 43 P.S. § 951 et seq. (“PHRA”) by terminating him while he was on medical leave. Approximately
ten months before his termination, Caparra signed an agreement to arbitrate with Brinker Payroll. Brinker Payroll now
seeks to enforce this agreement and compel Caparra to arbitrate his claims. Maggiano's and Brinker International join
the motion to compel and also move to dismiss. 1 For the reasons that follow, the Court will compel arbitration and
stay these proceedings while the parties arbitrate Caparra's claims.
1 Brinker International and Maggiano's contend that they are improperly named defendants because neither employed Caparra.
(See, e.g., Defs.' Reply 2–4, ECF No. 19.) They thus argue that they should be dismissed. (See, e.g., Defs.' Mot. Dismiss 8,
ECF No. 16.) However, a challenge to the merits of Caparra's claims must be decided by the arbitrator. PaineWebber Inc.
v. Hartman, 921 F.2d 507, 511 (3d Cir.1990) (“If ... the court determines that an agreement exists and that the dispute falls
within the scope of the agreement, it then must refer the matter to arbitration without considering the merits of the dispute.”),
overruled on other grounds by Howsam v. Dean Witter Reynolds, 537 U.S. 79, 85 (2002).
I. Background
In 2004, Defendants hired Caparra as a sous chef. (Compl. ¶ 23, ECF No. 1.) Over the next six years, Caparra received
several promotions. In December 2010, he was promoted to Executive Chef–Managing Partner, making him one of the
highest-level managers at his location. (Id.) On April 27, 2012, Caparra signed an agreement to arbitrate with Brinker
Payroll. (Caparra Dep. 94:17–95:11, Apr. 14, 2015, Pl.'s Opp'n Mot. Dismiss Ex. 11.) In November 2012, Caparra
informed Defendants that he needed to take medical leave to undergo surgery for acute spinal stenosis. (Compl.¶
28.) Caparra began leave on January 21, 2013–the same day he underwent back surgery. (Id. ¶ 29.) On February 27,
2013, Caparra sent Defendants a doctor's note stating that he was cleared to return to work if Defendants provided
certain accommodations. (Id. ¶ 36.) Defendants received the doctor's note, but did not discuss Caparra's requested
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 1 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
accommodations. (Id. ¶ 37.) The next day, while Caparra remained on leave, his supervisor David Kososki terminated
him. (Id. ¶ 39.) Caparra later learned that he had been terminated for “misconduct and behavior deemed detrimental,”
but was provided no further explanation. (Id. ¶ 41.) Caparra contends that the Defendants interfered with his rights
under the FMLA, and retaliated against him for exercising those rights by terminating him while he was out on leave.
Caparra avers that this same incident violated the ADA and the PHRA.
*2 On December 8, 2014, Defendants filed a motion to dismiss and to compel arbitration. (ECF No. 6.) In response,
Plaintiff argued inter alia that the arbitration agreement was unconscionable. (See ECF No. 10.) Concluding that it was
unable to rule on Defendants' motion in the absence of a fuller evidentiary record, the Court denied the motion without
prejudice and ordered the parties to conduct discovery into Plaintiff's unconscionability arguments. (See Order, ECF
No. 15.)
Discovery revealed the following pertinent facts. 2 On April 27, 2012, Caparra learned that all “teammates” were being
asked to sign a stand-alone arbitration agreement. (Caparra Dep. 94:23–95:5; see also id. at 95:17–95:21.) Caparra was
told that he needed to sign the document the day he received it, and he did so after learning that his superiors had also
signed the document. (Id.; see also id. at 98:13–99:22.) Caparra asked to call his wife before signing the document, and he
was permitted to make the call. (Id. at 105:23–106:1.) Caparra did not, however, ask any questions about the document
nor did he read it before signing it. (Id. at 101:4–103:2; 110:9–110:21.) Rather, he signed the document in reliance on
his superiors' assurances that they signed the document, his belief that the document was innocuous, and in an effort to
encourage his kitchen staff to sign the document. (Id. at 92:3–93:22.)
2 Most of the evidence submitted by the parties in support of their positions pertains to whether the arbitration agreement
is procedurally, as opposed to substantively, unconscionable. For reasons discussed infra, the Court does not address the
procedural unconscionability issue. The Court accordingly does not recount those facts in detail here.
The arbitration agreement 3 (the “Arbitration Agreement”) that Caparra signed on April 27, 2012 states the following:
Brinker Payroll International Company, L.P. (“Brinker”) makes available certain internal procedures for amicably
resolving any complaints or disputes you have relating to your employment. However, if you are unable to resolve
any such complaints or disputes to your satisfaction internally, Brinker has provided for the resolution of all disputes
that arise between you and Brinker through formal, mandatory arbitration before a neutral arbitrator.
Because of, among other things, the delay and expense which result from the use of the court systems, any legal or
equitable claims or disputes arising out of or in connection with employment, terms and conditions of employment, or the
termination of employment with Brinker will be resolved by binding arbitration instead of in a court of law or equity. This
agreement applies to all disputes involving legally protected rights (e.g., local, state and federal statutory, contractual
or common law rights) regardless of whether the statute was enacted or the common law doctrine was recognized
at the time this agreement was signed. This agreement does not limit an employee's ability to complete any external
administrative remedy (such as with the EEOC).
This Agreement to Arbitrate substitutes one legitimate dispute resolution form (arbitration) for another (litigation),
thereby waiving any right of either party to have the dispute resolved in court. This substitution involves no surrender,
by either party, of any substantive statutory or common law benefits, protection or defense for individual claims. You do
waive the right to commence or be party to any representative, collective or class action.
*3 Arbitration Rules
...Each party is entitled to representation by an attorney throughout the arbitration proceeding at their own expense.
Each party shall bear their own fees and expenses, unless otherwise awarded by the arbitrator in the final, written
decision.
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 2 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
...The arbitrator may award individual relief only ...
(Defs.' Mot. Dismiss Ex. G; Pl.'s Opp'n Mot. Dismiss Ex. 1) (emphasis added). The Arbitration Agreement also sets forth
where the arbitration proceeding will occur, the process to initiate arbitration, and additional procedural rules. (See id.)
3 At the time of his hire in 2004, Caparra agreed to be bound by a similar arbitration agreement. (See Defs.' Mot. Dismiss Ex. F;
Pl.'s Opp'n Mot. Dismiss Ex. 10, ECF No. 18.) As Caparra points out, the 2004 agreement obligated him to arbitrate disputes
“arising out of or related to [his] compensation, employment or termination of employment with Brinker International or its
related companies.” (Defs.' Mot. Dismiss Ex. E.) The 2012 agreement does not include this “related companies” language.
Caparra contends that this distinction means that he cannot be compelled to arbitrate his claims against Defendants Brinker
International and Maggiano's. However, as discussed infra, the absence of this language does not permit Caparra to avoid
his arbitration obligations. The agreements are otherwise substantially similar and Caparra makes no arguments regarding
the unenforceability of the agreement signed in 2004. For these reasons, the Court considers only the agreement signed on
April 27, 2012.
II. Legal Standard For a Motion to Compel Arbitration
The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”) evinces Congress' liberal policy favoring arbitration
agreements. 4 Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983). Pursuant to Section 2 of the
FAA, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.” 9 U.S.C. § 2. “Agreements to arbitrate employment disputes, whether based
on federal or state statutory claims, are enforceable under the [FAA].” Hudyka v. Sunoco, Inc., 474 F.Supp.2d 712, 715
(E.D.Pa.2007) (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001)). “A district court is authorized to
compel arbitration if a party to an arbitration agreement institutes an action that involves an arbitrable issue and one
party to the agreement has failed to enter arbitration.” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir.1999).
4 All parties agree that the FAA governs this dispute.
The Third Circuit Court of Appeals recently clarified the standard by which a district court must review a motion to
compel arbitration:
[W]hen it is apparent, based on the face of the complaint, and documents relied upon in the
complaint, that certain of a party's claims are subject to an enforceable arbitration clause, a motion
to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's
delay. But if the complaint and its supporting documents are unclear regarding the agreement to
arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts
sufficient to place the agreement to arbitrate in issue, then the parties should be entitled to discovery
on the question of arbitrability before a court entertains further briefing on the question. After
limited discovery, the court may entertain a renewed motion to compel, this time judging the motion
under a summary judgment standard.
*4 Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764, 776 (3d Cir.2013) (internal quotation marks and
citations omitted). Because the complaint did not make clear that the parties' dispute was subject to arbitration and
Caparra asserted in response to Defendants' initial motion that the agreement to arbitrate was unconscionable, the Court
ordered limited discovery on the issue. After completing discovery, Defendants filed a renewed motion to dismiss and
to compel arbitration pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court must, however, entertain the
renewed motion to compel under a summary judgment standard.
Under a summary judgment standard, a court will grant the motion “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In ruling on a
summary judgment motion, we consider “the facts and draw all reasonable inferences in the light most favorable to the
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 3 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
plaintiff, the party who opposed summary judgment.” Lamont v. New Jersey, 637 F.3d 177, 179 n.1 (3d Cir.2011) (citing
Scott v. Harris, 550 U.S. 372 (2007)). “The party seeking to compel arbitration bears the initial burden of showing that
the non-movant has failed to establish one or more essential elements of its case. If it meets this burden, the party seeking
to avoid arbitration must point to specific facts in the record that demonstrate that there is a genuine issue for trial.”
Porreca v. Rose Grp., No. 13–cv–1674, 2013 WL 6498392, at *6 (E.D.Pa. Dec. 11, 2013) (citing Guidotti, 716 F.3d at 773)).
III. Discussion
“Because arbitration is a matter of contract, before compelling arbitration pursuant to the [FAA], a court must determine
that (1) an enforceable agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that
agreement.” MacDonald v. Unisys Corp., 951 F.Supp.2d 729, 734 (E.D.Pa.2013) (quoting Kirleis v. Dickie, McCamey &
Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.2009)). Caparra challenges only the enforceability of the Arbitration Agreement,
contending that (1) that the agreement is invalid because it is not supported by consideration, and (2) that the agreement
is unenforceable because it is unconscionable. The Court considers the arguments in turn.
a. Validity of the Arbitration Agreement
“To determine whether the parties have agreed to arbitrate, we apply ordinary state-law principles that govern the
formation of contracts.” Century Indem. Co. v. Certain Underwriters at Lloyd's London, 584 F.3d 513, 524 (3d Cir.2009)
(citations omitted). The parties agree that Pennsylvania contract principles apply. To determine whether a contract
was formed under Pennsylvania law, a court must look to: (1) whether both parties manifested an intention to be
bound by the agreement; (2) whether the terms of the agreement are sufficiently definite to be enforced; and (3) whether
there was consideration. Id. at 533. “Pennsylvania contract law assigns to the party seeking arbitration ‘the burden of
demonstrating that a valid agreement to arbitrate exists between the parties.” Swartz v. Comcast Corp., 256 Fed.Appx.
515, 518 (3d Cir.2007) (quoting Goldstein v. Depository Trust Co., 717 A.2d 1063, 1067 (Pa.Super.Ct.1998)).
Caparra contends only that the Arbitration Agreement is not supported by consideration. “Consideration confers a
benefit upon the promisor or causes a detriment to the promisee and must be an act, forbearance or return promise
bargained for and given in exchange for the original promise.” Channel Home Ctrs. v. Grossman, 795 F.2d 291, 299 (3d
Cir.1986) (citation omitted). The Arbitration Agreement states that Brinker Payroll “has provided for the resolution of
all disputes that arise between you and Brinker through formal, mandatory arbitration before a neutral arbitrator.” This
language makes clear that Caparra and Brinker Payroll mutually agreed to forgo litigation and to arbitrate all disputes
covered by the agreement. “When both parties have agreed to be bound by arbitration, adequate consideration exists
and the arbitration agreement should be enforced.” Blair v. Scott Specialty Gases, 283 F.3d 595, 603–04 (3d Cir.2002).
The Arbitration Agreement is supported by consideration, and is thus a valid contract.
b. Unconscionability
*5 Caparra also contends that the Arbitration Agreement is unconscionable and thereby unenforceable. (Pl.'s Opp'n
Mot. Dismiss 12.) “To prove unconscionability under Pennsylvania law, a party must show that the contract was both
substantively and procedurally unconscionable.” Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 230 (3d
Cir.2012) (citing Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa.2007)). “[T]he Pennsylvania Supreme Court
has indicated that it might be appropriate to use a ‘sliding scale approach’ so that where the procedural unconscionability
is very high, a lesser degree of substantive unconscionability may be required and presumably, vice-versa.” Quilloin,
673 F.3d at 230 (citation omitted). This “sliding scale approach” does not, however, eliminate a party's obligation to
demonstrate the existence of both procedural and substantive unconscionability. See Porreca, 2013 WL 6498392, at *16
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 4 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
(citing Quilloin, 673 F.3d at 230). “[T]he burden of establishing unconscionability lies with the party seeking to invalidate
the contract, including an arbitration agreement ...” Salley, 925 A.2d at 347.
Procedural unconscionability focuses on the process underlying the formation of the contract and the form and language
of the agreement. Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, 228 (3d Cir.2008). A procedurally unconscionable
contract is one marked by “a lack of meaningful choice in the acceptance of the challenged provision.' ” Quillion, 673 F.3d
at 236 (quoting Salley, 925 A.2d at 119). On the other hand “[a] contract or provision is substantively unconscionable
where it ‘unreasonably favors the party asserting it.’ ” Id. (quoting Salley, 925 A.2d at 119). “An arbitration agreement
cannot be construed as substantively unconscionable where it ‘does not alter or limit the rights and remedies available
to [a] party in the arbitral forum....’ ” Quilloin, 673 F.3d at 231 (quoting Edwards v. HOVENSA, LLC, 497 F.3d 355,
364 (3d Cir.2007)).
Caparra presents three reasons why the Arbitration Agreement is substantively unconscionable. First, Defendants failed
to explain the terms of the Arbitration Agreement to him. (Pl.'s Opp'n Mot. Dismiss 19, 22.) Second, the Arbitration
Agreement limits his ability to recover equitable and injunctive relief available to him under the ADA, the FMLA
and the PHRA. (Id. at 23.) Third, the Arbitration Agreement makes him bear his own fees and expenses. (Id. at 24.)
Caparra also contends that the Arbitration Agreement is a procedurally unconscionable contract of adhesion. (Id. at
14–19.) Because the Court finds that the Arbitration Agreement is not substantively unconscionable, the Court need not
determine whether the Agreement is procedurally unconscionable.
i. Substantive Unconscionability
Caparra contends that the terms of the Arbitration Agreement are “ ‘unreasonably or grossly favorable to one side’ i.e.,
Defendants” because “a high-level director” David Kososki did not understand the meaning of many of the terms in the
agreement. 5 (Id. at 22.) In support of this position Caparra quotes sections of Kososki's deposition where he admits that:
he does not know the difference between a legal claim or an equitable claim; he does not know what a court of equity is;
he does not know what a statutory or common law benefit is; he does not know what the Federal Rules of Evidence or
Rules of Civil Procedure are; and he does not know the meaning of the sentence, “The arbitrator may award individual
relief only.” (Id. at 19–22.) Caparra, like Kososki, does not understand the terms of the Arbitration Agreement, and “no
one at Defendants ever made any effort to explain the Agreement to [him].” (Id. at 22.)
5 This argument, which challenges the procedure underlying the formation of the Arbitration Agreement, is a procedural
unconscionability argument. See Alexander v. Anthony Intern., L.P., 341 F.3d 256, 265 (3d Cir.2003) (“Procedural
unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use
therein of fine print and convoluted or unclear language.”) (citation omitted). The Court nevertheless considers it pursuant
to Caparra's substantive unconscionability label.
*6 Caparra failed to read the agreement and he did not raise any questions about its language before signing. (See
Caparra Dep. 98:13–103:1, 110:9–110:21.) He contends that even if he had read the document, he would not have
understood it. (Id. at 111:19–111:24.) Nevertheless, the terms of the agreement were clearly described in the document that
Caparra received and signed. Under Pennsylvania law, “[c]ontracting parties are normally bound by their agreements,
without regard to whether the terms thereof were read and fully understood and irrespective of whether the agreements
embodied reasonable or good bargains.” Simeone v. Simeone, 581 A.2d 162, 165 (Pa.1990). Caparra cites no law for
the proposition that an arbitration agreement is unconscionable because his employer failed to explain its terms. To the
contrary, there is “no additional requirement to conduct an orientation to discuss the terms of the agreement with the
employee and ensure that the employee understands all of its terms.” Porreca, 2013 WL 6498392, at *9; see also Morales
v. Sun Constructors, Inc., 541 F.3d 218, 223 (3d Cir.2008) (enforcing arbitration agreement drafted in English against
non-English speaking employee who made no effort to learn the terms of the agreement). The Court cannot find the
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 5 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
Arbitration Agreement substantively unconscionable because Caparra failed to understand its terms before he signed
the document.
Caparra next contends that the Arbitration Agreement precludes him from seeking the equitable and injunctive relief
he is entitled to under the ADA, the FMLA and the PHRA. 6 He is correct that he is entitled to seek such relief under
those statutes. See 42 U.S.C. § 12117(a); 29 U.S.C. § 2617(a)(1)(B); 43 P.S. § 962(c)(3). He is incorrect, however, that
the fact that the “arbitrator may award individual relief only” eliminates his right to these remedies. The Arbitration
Agreement unequivocally states that the agreement “involves no surrender, by either party, of any substantive statutory
or common law benefit, protection or defense for individual claims.” The “individual relief” limitation refers to the
class action waiver 7 in the Arbitration Agreement; it is not a limit on the remedies available to Caparra. Moreover,
should some ambiguity between the rights available under the ADA, the FMLA or the PHRA and the language of the
Arbitration Agreement arise, the “Supreme Court has clearly established that ambiguities in arbitration agreements must
be interpreted by the arbitrator.” Quilloin, 673 F.3d at 231 (citing PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401,
406–07 (2003)). The Arbitration Agreement cannot be deemed substantively unconscionable on this basis.
6 Caparra has asked the Court to “enjoin and permanently restraining [sic] the violations” and to grant “such other and further
relief as this Court may deem just, proper, or equitable including other equitable and injunctive relief providing restitution
for past violations and preventing future violations.” (Compl. at 12–13.)
7 Caparra has not asserted a putative class action and he raises no challenges to the class action waiver in the Arbitration
Agreement.
Caparra appears (though only through parentheticals appended to case citations) to contend that requiring him to bear
his own costs makes the arbitral forum prohibitively expensive, which renders the Arbitration Agreement substantively
unconscionable. (Pl.'s Opp'n Mot. Dismiss 24.) An arbitration agreement that requires a claimant to bear prohibitive
costs may be unconscionable because such costs could deter a litigant from effectively vindicating his rights. See Nino v.
Jewelry Exch., Inc., 609 F.3d 191, 203 (3d Cir.2010); Blair, 283 F.3d at 605 (“[T]he existence of large arbitration costs
could preclude a litigant ... from effectively vindicating her federal statutory rights in the arbitral forum.”). However, the
mere risk that a party “will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration
agreement.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000). A party seeking to invalidate an arbitration
agreement on such grounds bears the burden of showing the likelihood of incurring such costs. Id.
*7 The Arbitration Agreement states “Each party shall bear their own fees and expenses, unless otherwise awarded by
the arbitrator in the final, written decision.” This plain language expressly provides the arbitrator the discretion to award
Caparra fees and costs. The agreement places no limitations on the arbitrator's discretion to do so and, as discussed
above, Caparra has not waived his right to recover fees, to the extent available, under the ADA, the FMLA or the
PHRA. See 42 U.S.C. § 12205; 29 U.S.C. § 2617(a)(3); 43 P.S. § 962(c)(4). Despite engaging in discovery directed at
the unconscionability of the Arbitration Agreement, Caparra makes no attempt to show that he will have to bear his
own costs or that he is unable to pay such costs. 8 “[T]he effect of the attorney fees provision ... is, at this point, purely
speculative.” (Defs.' Mot. Dismiss Ex. O, Johnson v. Brinker Int'l Payroll Co., No. 13–cv–1090, at 7 (W.D.Wash. Oct. 23,
2013) (interpreting an identical arbitration provision)). The Arbitration Agreement is not substantively unconscionable.
8 Caparra's citations to Nino v. Jewelry Exchange, Inc., 609 F.3d 191 (3d Cir.2010) and Parilla v. IAP Worldwide Services VI, Inc.,
368 F.3d 269 (3d Cir.2004) lend no support to his argument. In Nino, the Third Circuit held that an arbitration provision that
stated “that the fees and expenses of the arbitrator and stenographer are to be borne equally by the parties” was substantively
unconscionable because its restriction on the arbitrator's ability to award attorney's fees, costs and expenses “undermine[d]
the legislative intent behind fee-shifting statutes like Title VII.” Nino, 609 F.3d at 203. The Arbitration Agreement in this
case does not contain a similar restriction. Similarly, the provisio n in Parilla required each party to “bear its own costs and
expenses, including attorney's fees.” Parilla, 368 F.3d at 278–79. The Third Circuit held that the relinquishment of eligibility for
costs, expenses and attorney's fees “clearly helps the employer” and is thus substantively unconscionable. Id. at 278. Caparra,
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 6 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7
however, has not relinquished his eligibility for costs, expenses and attorney's fees under the ADA, the FMLA or the PHRA.
The arbitration agreement in Parilla also required the employee to reimburse the company for the arbitrator's fees and expenses
if so directed by the arbitrator. Id. at 283. While noting that “the prospect that the employee may have to pay the entire amount
of the arbitrator's fees and expenses may serve to chill her willingness to bring a claim,” the court remanded the case to permit
the employee to conduct limited discovery in an effort to demonstrate her inability to pay the anticipated costs of arbitration.
Id. at 284–85. The Arbitration Agreement here does not saddle Caparra with a similar obligation. And even if it did, Caparra
puts forth no evidence regarding his inability to pay such fees.
ii. Procedural Unconscionability
Caparra contends that the Arbitration Agreement is a procedurally unconscionable contract of adhesion, which is a “
‘standard-form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who
adheres to the contract with little choice about the terms.’ ” Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174,
1190 (Pa.2010) (quoting Black's Law Dictionary 342 (8th ed.2004)). Under Pennsylvania law, contracts of adhesion are
usually found to be procedurally unconscionable. Quilloin, 673 F.3d at 235. Nonetheless, the absence of substantive
unconscionability mandates the enforcement of the Arbitration Agreement, regardless of a finding of procedural
unconscionability. See Williams v. Nabors Drilling USA, LP, No. 13–cv–1013, 2014 WL 710078, at *9 (W.D.Pa. Feb. 25,
2014) (“[B]ecause the Employees failed to show substantive unconscionability, procedural unconscionability is irrelevant.
The Arbitration Agreement must be enforced.”); accord Zimmer, 523 F.3d at 230 (“Because we have concluded that the
arbitration agreement here was not procedurally unconscionable and reverse on that basis, we need not decide whether
the District Court's decision as to substantive unconscionability was correct.”). Put another way, even if the Court,
after considering the record evidence and applying the sliding scale approach, found the Arbitration Agreement was
procedurally unconscionable, it would still enforce the Arbitration Agreement. Therefore, the Court need not take up
Caparra's procedural unconscionability arguments.
c. Scope of the Arbitration Agreement
*8 Because an enforceable arbitration agreement exists, the Court must determine whether the dispute falls within the
scope of the agreement. See MacDonald, 951 F.Supp.2d at 734. “[W]here the contract contains an arbitration clause,
there is a presumption of arbitrability in the sense that ‘an order to arbitrate the particular grievance should not be
denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute. Doubts should be resolved in favor of coverage.’ ” AT & T Tech., Inc. v. Commc'n Workers
of Am., 475 U.S. 643, 650 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582–83(1960)).
This presumption is “particularly applicable where the clause is broad.” Id. Accordingly, “if the allegations underlying
the claims touch matters covered by an arbitration clause in a contract, then those claims must be arbitrated.” Brayman
Const. Corp. v. Home Ins. Co., 319 F.3d 622, 626 (3d Cir.2003) (internal quotation marks and citation omitted). The
parties agreed to arbitrate “any legal or equitable claims or disputes arising out of or in connection with employment,
terms and conditions of employment, or the termination of employment ...” This broad language clearly encompasses
Caparra's ADA and PHRA discrimination claims as well as his FMLA interference and retaliation claims. Caparra
makes no argument to the contrary. The Court accordingly finds that the Arbitration Agreement is a valid, enforceable
contract requiring Caparra to arbitrate the claims set forth in his complaint.
d. Claims Against Brinker International and Maggiano's Must Also Be Arbitrated
Finally, Caparra asserts that he cannot be compelled to arbitrate his claims against Brinker International and Maggiano's
because they did not sign the Arbitration Agreement. (Pl.'s Opp'n Mot. Dismiss 6–10.) Even assuming that Caparra
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 7 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
was employed by one or both of these entities—as he contends—his joinder of these defendants does not mandate the
conclusion that he need not arbitrate his claims against them.
A non-signatory to a contract may bind a signatory to arbitrate a dispute when “traditional principles of state law allow
a contract to be enforced by or against non-parties to the contract through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.” Arthur Anderson LLP v. Carlisle,
556 U.S. 624, 631 (2009) (internal quotation marks omitted). “In the wake of Arthur Anderson ... we must expressly
consider whether the relevant state contract law recognizes the particular principle as a ground for enforcing contracts by
or against third parties.” Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir.2014) (internal quotation marks omitted).
Pennsylvania law embraces the theory of equitable estoppel. Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d
Cir.2014) (citing Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.Super.Ct.2006)). Under Dodds, “[n]on-signatories
to an arbitration agreement can enforce such an agreement when there is an obvious and close nexus between the non-
signatories and the contract or the contracting parties.” 909 A.2d at 351. The Dodds plaintiffs signed an arbitration
agreement with Pulte Home Corporation of the Delaware Valley (“Pulte Home”) and agreed that “any controversy,
claim or dispute arising out of or relating to this Agreement or purchase of the Home ... shall be settled by arbitration.”
Id. at 350. The plaintiffs asserted a fraud claim against Pulte Home's parent company, who had not signed the arbitration
agreement, in an effort to avoid arbitration. Id. at 351. Because the interests of the parent company were the same as
Pulte Home, the Dodds plaintiffs could not avoid the arbitration agreement by asserting a fraud claim against the parent
company. Id. at 352.
Here, Caparra lumps together non-signatory affiliated entities, Brinker International and Maggiano's, with signatory
affiliated entity Brinker Payroll, and alleges that the Defendants are collectively liable as his employer. (See, e.g.,
Compl.¶¶ 23, 41, 42, 43, 44, 46, 47, 48, 49.) Caparra's claims against the Defendants are indistinguishable as they stem
from the same incident and implicate identical legal principles. Permitting simultaneous litigation and arbitration of these
identical claims runs the risk of different fact finders interpreting identical fact patterns differently and unnecessarily
wastes judicial resources. See Smay v. E.R. Stuebner, Inc., 864 A.2d 1266, 1272 (Pa.Super.Ct.2004) (“[I]n disputes
involving identical facts, we have an interest in obtaining consistent results and avoiding an unnecessary waste of
resources.”). Moreover, Caparra, a signatory to the arbitration agreement, “should not be able to avoid the requirement
to arbitrate by a non-signatory when the non-signatory wants to arbitrate.” Dodds, 909 A.2d at 352; see also Pritzker v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1112 (3d Cir.1993) (holding that claims against non-signatory
“corporate sister” of signatory corporation fell within the scope of an arbitration agreement because plaintiff's theory
of liability demonstrated that corporate sister's interests were “directly related to, if not predicated upon” the alleged
wrongful conduct). Any other result would permit a party to “obviate the effect of the agreement merely by finding a
way to join another party.” Dodds, 909 A.2d at 352; see also Arnold v. Arnold Corp.-Printed Commc'ns For Bus., 920 F.2d
1269, 1281 (6th Cir.1990) (“[I]f appellant can avoid the practical consequences of an agreement to arbitrate by naming
non-signatory parties as defendants in his complaint, or signatory parties in their individual capacities only, the effect of
the rule requiring arbitration would, in effect, be nullified.”) (internal quotation marks omitted). The Court accordingly
finds that Caparra must arbitrate his claims against Brinker International and Maggiano's.
IV. Conclusion
*9 The FAA directs that if a case referable to arbitration is brought in federal court, the court before which the lawsuit
is pending “shall on application of one of the parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement.” 9 U.S.C. § 3. This section “affords district courts no discretion to dismiss
a case where one of the parties applies for a stay pending arbitration.” Lloyd v. HOVENSA, LLC, 369 F.3d 263, 269
(3d Cir.2004). Defendants move to dismiss the complaint; they did not request a stay. Nevertheless, Caparra appears
to request a stay in opposition to the Defendants' motion. (See Pl.'s Opp'n Mot. Dismiss 25.) A stay furthers both the
Defendants' interests in compelling arbitration and judicial economy. See Lloyd, 369 F.3d at 270 (noting that entering
a stay expedites judicial resolution of disputes for which the parties are entitled to seek the Court's assistance during
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 8 of 9
Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015)
2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 9
arbitration and ensures that the parties proceed immediately to arbitration). Accordingly, this case will be stayed, and
administratively closed, pending the resolution of arbitration. Cf. Somerset Consulting, LLC v. United Capital Lenders,
LLC, 832 F.Supp.2d 474, 490 (E.D.Pa.2011) (dismissing case because “neither plaintiffs nor defendants have requested
that we stay the action pending arbitration”).
An appropriate Order follows.
ORDER
AND NOW, this 1st day of September, 2015, upon consideration of Defendants' Renewed Motion to Dismiss Complaint
and to Compel Arbitration (ECF No. 16), Plaintiff's response in opposition (ECF. No. 18), and Defendants' reply (ECF
No. 19), it is ORDERED that the motion is GRANTED in part. The parties shall arbitrate the claims raised in Plaintiff's
Complaint (ECF No. 1) in accordance with the parties' enforceable arbitration agreement. It is further ORDERED that
this action shall be stayed and placed in CIVIL SUSPENSE pending the outcome of the arbitration.
All Citations
Not Reported in F.Supp.3d, 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-4 Filed 06/27/17 Page 9 of 9
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
2017 WL 2572517
Only the Westlaw citation is currently available.
United States District Court,
E.D. Pennsylvania.
Julieann COLON, on behalf of herself and all others similarly situated, Plaintiff,
v.
CONCHETTA, INC. d/b/a Club Risque; RT, 413, Inc. d/b/a Club Risque;
Tacony 2008 Inc. d/b/a Club Risque; Connie Innezzelli; Dean M. Pagano;
Ronald Crudele; Theodore Pagano Jr; and Doe Defendants 1-10, Defendants.
CIVIL ACTION No. 17-0959
|
Filed 06/14/2017
Attorneys and Law Firms
Gerald D. Wells, III, Connolly Wells & Gray, LLP, King of Prussia, PA, for Plaintiff.
Luke Lirot, Luke Charles Lirot, P.A., Clearwater, FL, Marlo Pagano-Kelleher, The Pagano Law Firm, Media, PA,
Matthew J. Hoffer, Shafer & Associates PC, Lansing, MI, for Defendants.
MEMORANDUM
ROBERT F. KELLY, Sr., District Judge
*1 Presently before the Court is the Motion to Compel Arbitration and Dismiss the Proceedings, and Stay Discovery
filed by Defendants Conchetta Inc. d/b/a Club Risque, RT 413, Inc. d/b/a Club Risque, Tacony 2008 Inc. d/b/a Club
Risque, Connie Innezzelli (“Innezzelli”), Dean M. Pagano, Ronald Crudele (“Crudele”), Theodore Pagano Jr., and Doe
Defendants 1-10 (collectively “Defendants”), Plaintiff Julieann Colon's (“Colon”) Response in Opposition, Defendants'
Reply Brief, and Colon's Notice of Supplemental Authority. For the reasons noted below, we grant Defendants' Motion.
I. BACKGROUND
On March 2, 2017, Colon filed the present class action before this Court alleging federal and Pennsylvania state
wage violations. Specifically, Colon claims she was an exotic dancer at various entities doing business as “Club
Risque.” (Compl. ¶ 12.) The essence of her Complaint is that she and others are entitled to damages because Defendants
improperly classify exotic dancers as “independent contractors.” (Id. ¶¶ 12, 33.) Thus, Colon claims that the Defendants
have, inter alia, violated federal and Pennsylvania state law relating to the failure to pay the applicable minimum wage;
failure to pay overtime compensation in excess of forty hours; improper collection of a portion of tips the dancers receive
from the public; and improper subsidization of the businesses by requiring a portion of tips to be forfeited to management
and employees who do not regularly receive tips. (Id. ¶ 3.)
On April 11, 2017, Defendants filed a Motion to Compel Arbitration and Dismiss the Proceedings, and to Stay Discovery
Pending Determination of the Motion, which relies upon an arbitration provision contained in a “Performer License and
Temporary Space Lease Agreement” (the “Agreement”). (Defs' Brief; Ex. A § 16.) Colon filed a Response in Opposition,
Defendants filed a Reply Brief, and Colon filed a Notice of Supplemental Authority.
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 1 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
II. LEGAL STANDARD
In order to determine whether a valid arbitration agreement exists, we must initially decide whether that determination is
made under Federal Rule of Civil Procedure 12(b)(6) or 56, and thus, what materials may be considered. See Sanford v.
Bracewell & Guiliani, LLP, 618 Fed.Appx. 114, 117 (3d Cir. 2015). “Motions to compel arbitration are reviewed under
Rule 12(b)(6) ‘[w]here the affirmative defense of arbitrability of claims is apparent on the face of a complaint (or ...
documents relied upon in the complaint).’ ” Id. (quoting Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d
764, 773–74 (3d Cir. 2013)). “If the motion to compel arbitration is not based on a complaint ‘with the requisite clarity’
to establish arbitrability or ‘the opposing party has come forth with reliable evidence that is more than a naked assertion
that it did not intend to be bound by the arbitration agreement, even though on the face of the pleadings it appears that
it did,’ resort to discovery and Rule 56 is proper.” Id. (ellipsis omitted) (quoting Guidotti, 716 F.3d at 774).
*2 Colon does not mention the Agreement in her Complaint, although it is clearly integral to her claims. See Hewitt v.
Rose Grp., No. 15-5992, 2016 WL 2893350, at *2 n.1 (E.D. Pa. Mar. 21, 2016) (“It would frustrate the purposes of the
Federal Arbitration Act if plaintiffs could avoid having their claims quickly compelled to arbitration simply by failing
to mention the existence of clearly applicable arbitration agreements in their complaints.”). Defendants attached the
Agreement to their Brief, and Colon does not contest its authenticity. Indeed, Colon admits to signing the Agreement
on February 18, 2015. (Pl.'s Resp. in Opp'n at 11.) Because there is no question that the Agreement is integral to Colon's
claims and no dispute of its authenticity, we will consider it.
Finding that arbitrability is facially established, the Rule 12(b)(6) standard applies. See Guidotti, 716 F.3d at 776 (stating
under the Rule 12(b)(6) standard, “[w]e consider only the complaint, exhibits attached to the complaint, matters of
public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents”)
(citation omitted); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (stating that
even if a “[c]omplaint does not explicitly refer to or cite [a document] ... the critical [issue] is whether the claims in the
complaint are ‘based’ on an extrinsic document and not merely whether the extrinsic document was explicitly cited”);
Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (“[A] court may consider
an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims
are based on the document. Otherwise, a plaintiff with a legally deficient claim could survive a motion to dismiss simply
by failing to attach a dispositive document on which it relied.”). Thus, pursuant to Federal Rule of Civil Procedure 12(b)
(6), we accept as true the facts plead in the Complaint construing them in the light most favorable to Colon. See Fed.
R. Civ. P. 12(b)(6).
We also note that no discovery is needed because any further development of the factual record is unnecessary to decide
the instant Motion. Therefore, we deny Colon's request for discovery.
III. DISCUSSION
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., “creates a body of federal substantive law establishing and
governing the duty to honor agreements to arbitrate disputes.” Century Indem. Co. v. Certain Underwriters at Lloyd's,
London, 584 F.3d 513, 522 (3d Cir. 2009). The FAA provides that “ ‘[a] written provision’ in a maritime or commercial
contract showing an agreement to settle disputes by arbitration ‘shall be valid, irrevocable, and enforceable, save upon
grounds as exist in law or in equity for the revocation of any contract.’ ” Id. (quoting 9 U.S.C. § 2). “Because arbitration
is a matter of contract, before compelling arbitration pursuant to the Federal Arbitration Act, a court must determine
that (1) a valid agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that agreement.”
Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009).
A. The Agreement to Arbitrate Arbitrability
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 2 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
At the outset, Defendants assert that any challenge Colon makes regarding the Agreement or the arbitration clause
must be submitted to the arbitrator. (See Defs' Brief at 10.) In other words, Defendants claim that, pursuant to the
express language in the Agreement, any argument concerning the validity, enforceability, or scope of the Agreement or
arbitration provision must be decided by the arbitrator, not the Court. (See id.)
*3 In Rent-A-Center, West, Inc. v. Jackson, the Supreme Court of the United States (“Supreme Court”) clarified
how courts are to decide a challenge to an arbitration agreement that contains a provision requiring arbitration of
“gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers
a particular controversy.” 561 U.S. 63, 70 (2010) (internal quotation marks omitted). The Court noted a distinction
between a challenge to the arbitration agreement as a whole, and a challenge to the agreement to arbitrate arbitrability.
See Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 229 (3d Cir. 2012) (“To eliminate the confusion caused by
an agreement to arbitrate nested within another agreement to arbitrate, the Rent-A-Center Court found it necessary to
distinguish between the overall arbitration agreement (the ‘contract’), and the agreement to arbitrate arbitrability (the
‘delegation clause’).”). The latter is referred to as a “delegation provision,” which is “an agreement to arbitrate threshold
issues concerning the arbitration agreement.” Rent-A-Center, 561 U.S. at 68. “An agreement to arbitrate a gateway issue
is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the
FAA operates on this additional arbitration agreement just as it does on any other.” Id. at 70.
Although “questions of arbitrability, including challenges to an arbitration agreement's validity, are presumed to be
questions for judicial determination.... [c]ourts should not assume that the parties agreed to arbitrate arbitrability unless
there is ‘clear and unmistakable’ evidence that they did so.” Quilloin, 673 F.3d at 228 (alterations omitted) (quoting First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). Significantly, unless the party opposing arbitration challenges
the delegation provision specifically, “we must treat it as valid under § 2 [of the FAA], and must enforce it under §§ 3 and
4, leaving any challenge to the validity of the Agreement as a whole for the arbitrator.” Rent-A-Center, 561 U.S. at 72.
We must first look to whether there is clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.
See Quilloin, 673 F.3d at 228 (quoting First Options, 514 U.S. at 944). The arbitration provision in the Agreement
provides as follows:
The parties agree that this Agreement is subject to binding arbitration pursuant to the Federal Arbitration Act (the
“FAA”), and any disputes under this Agreement, as well as any disputes that may have arisen at any time during the
relationship between the parties, and will be governed by the following:
* * * * * *
3. Scope of Arbitration and Arbitrability Reserved to the Arbitrator
This provision's purpose is to ensure that an arbitrator—not a court—will decide ALL federal, state, statutory, and
common law claims between the Parties and to ensure that the class action waiver provision will apply to all such
claims regardless of whether there are any pending collective or class actions pending at the time the agreement is
entered. The Parties expressly agree that the arbitrator will decide all issues in the first instance, including, but not limited
to all gateway questions of arbitrability concerning: substantive arbitrability; the scope of this arbitration provision; the
provision's applicability to a particular dispute; procedural arbitrability; whether the Parties have complied with this
arbitration provision; the validity and enforceability of the Agreement as a whole; the validity and enforceability of
the arbitration provision; and whether the arbitration clause is substantively or procedurally unconscionable. ... Should
Performer attempt to disavow the nature of the Parties' relationship of its classification as an Independent Performer,
Licensee and Temporary Space Lessee, and not an “employee,” such challenges will be heard exclusively by the
arbitrator, not a court.
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 3 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
(Defs' Brief; Ex. A § 16.) (italics added) Based on the language above, we find there is clear and unmistakable evidence
that the parties agreed to arbitrate arbitrability. Indeed, the language could not be clearer that the parties have agreed
that the arbitrator will decide all threshold issues.
*4 Colon mounts a number of challenges to the Agreement and arbitration provision. She first argues that the
Agreement is inapplicable to her claims because her claims are outside the scope of the Agreement. (Pl.'s Resp. in
Opp'n at 7-9.) She further argues that the Agreement is illusory and that the Agreement and arbitration clause are
unconscionable due to their one-sided nature. (Id. at 9-19.) Lastly, she asserts the arbitration agreement violates the
National Labor Relations Act (“NLRA”), 29 U.S.C. §§ 151-169, because the class action waiver inhibits the dancers'
collective adjudication rights. (Id. at 19-24.)
All of Colon's arguments suffer from the same deficiency as the plaintiff's arguments in Rent-A-Center. In Rent-A-
Center, all of the plaintiff's challenges related to the enforceability of the arbitration agreement as a whole, rather than
a specific challenge to the arbitration agreement's delegation clause. Rent-A-Center, 561 U.S. at 72. As a result, because
the plaintiff failed to challenge the delegation clause specifically, the Supreme Court held that the agreement to arbitrate
arbitrability was valid under § 2 of the FAA and enforceable under §§ 3 and 4. Id. Like the plaintiff in Rent-A-Center, all
of Colon's arguments concern the Agreement overall or simply the arbitration provision in general. In her Response in
Opposition, we recognize that Colon does quote the delegation clause in its entirety. (Pl.'s Resp. in Opp'n at 12.) However,
the reference appears only for procedural and factual purposes and does not serve as the basis for any substantive
argument. (See id.) As Defendants note in their Reply Brief, Colon has failed to assert any argument levied specifically
towards the delegation clause. (Defs' Reply Br. at 8.) Colon's arguments regarding scope, whether the Agreement is
illusory, unconscionability, and any violation of the NLRA miss the mark because a valid delegation clause is severable
from the remainder of the contract and is unaffected by the contract's validity. See Quilloin, 673 F.3d at 229. Pursuant
to the language in the Agreement, all of Colon's challenges are for the arbitrator to decide, not this Court. Accordingly,
any questions of arbitrability must go to the arbitrator.
B. Arbitration Will Be Ordered For All Defendants
Now that we have determined that the questions regarding arbitrability are to be decided by the arbitrator, the question
remains as to whether Colon must arbitrate her claims against all of the Defendants. Colon argues that she does not
have to arbitrate her claims against most of the Defendants because they were non-signatories to the Agreement. (Pl.'s
Resp. in Opp'n at 24.) Although she is correct that a number of the Defendants did not actually sign the Agreement, we
reject her argument and order arbitration as to all Defendants.
The gravamen of Colon's argument is that the Agreement was signed between Defendant Conchetta, Inc. d/b/a Club
Risque (identified in the Agreement as “the Club”) and herself. (Id. at 24, 25; see also Defs' Brief; Ex. A at 1, 6.) Thus,
in her view, Defendants Innezzelli, Dean M. Pagano, Crudele, Theodore Pagano Jr., and Doe Defendants 1-10 cannot
compel her to arbitrate her claims because there was no mutual assent to be bound by the terms of the arbitration
agreement. (Pl.'s Resp. in Opp'n at 26.) In their Reply Brief, Defendants argue that Colon must arbitrate her claims
against all Defendants based on the theories of agency, equitable estoppel, and alter ego. (Defs' Reply Br. at 10-14.)
Because the theories of agency and equitable estoppel clearly allow the non-signatories to compel arbitration of Colon's
claims against them, we need not address alter ego.
1. Agency
*5 The United States Court of Appeals for the Third Circuit (“Third Circuit”) has recognized that a non-signatory to an
arbitration agreement may compel a signatory to arbitrate claims based under a traditional agency theory. See Pritzker
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993). “To bind a principal by its agent's acts,
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 4 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
the plaintiff must demonstrate that the agent was acting on behalf of the principal and that the cause of action arises
out of that relationship.” E.I. DuPont de Nemours and Co. v. Rhone Poulenc Fiber and Resin Intermediates, S.A.S.,
269 F.3d 187, 199 (3d Cir. 2001). “Because a principal is bound under the terms of a valid arbitration clause, its agents,
employees, and representatives are also covered under the terms of such agreements.” Pritzker, 7 F.3d at 1121.
Here, Colon's own pleading belies her argument that all of the Defendants, except Conchetta, Inc. d/b/a Club Risque,
cannot compel arbitration because they were non-signatories to the Agreement. In her Complaint, Colon alleges
[u]pon information and belief ... at all relevant times each defendant was the officer, director,
employee, agent, representative, alter ego, or co-conspirator of each of the other defendants. In
engaging in the alleged conduct herein, defendants acted in the course, scope of, and in furtherance
of the aforementioned relationship. Accordingly, unless otherwise specified herein, Plaintiff will
refer to all defendants collectively as “Defendants” and each allegation pertains to each of the
defendants.
(Compl. ¶ 26.) Third Circuit precedent dictates that agents, employees, and representatives are covered under the
arbitration clause of a principal. See Pritzker, 7 F.3d at 1121. Taking the allegations in Colon's Complaint as true, as we
must, we find that all of the Defendants are covered by the arbitration agreement based on the theory of agency.
2. Equitable Estoppel
“A non-signatory to a contract may bind a signatory to arbitrate a dispute when ‘traditional principles of state law allow
a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.’ ” Torres v. CleanNet, U.S.A.,
Inc., 90 F. Supp. 3d 369, 379 (E.D. Pa. 2015) (quoting Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009)).
Pennsylvania law allows for a theory of equitable estoppel. Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d Cir.
2014). In DuPont, the Third Circuit outlined two theories of equitable estoppel that may apply in the arbitration context.
DuPont, 269 F.3d at 199-200. Under the first theory, “courts have held non-signatories to an arbitration clause when
the non-signatory knowingly exploits the agreement containing the arbitration clause despite having never signed the
agreement.” Id. at 199 (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 778 (2d Cir. 1995)). Under the
second, “courts have bound a signatory to arbitrate with a non-signatory at the nonsignatory's insistence because of the
close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's
obligations and duties in the contract ... and the fact that the claims were intimately founded in and intertwined with the
underlying contract obligations.” Id. (citing Thomson, 64 F.3d at 779) (internal quotation marks and alteration omitted).
The first theory of equitable estoppel has no application in the instant matter because Colon, a signatory to the
Agreement, is seeking to avoid the compulsion of arbitration asserted by non-signatories. Thus, the second theory of
equitable estoppel, commonly known as “alternative estoppel,” see White v. Sunoco Inc., 189 F. Supp. 3d 486, 494
(E.D. Pa. 2016), is more appropriate. As noted above, in order for alternative estoppel to apply, a non-signatory must
establish (1) a close relationship between the entities involved; and (2) the claims against it are intimately founded in and
intertwined with the underlying contractual obligations. Torres, 90 F. Supp. 3d at 379 (citing Griswold, 762 F.3d at 272).
“ ‘Claims are intertwined with an arbitration agreement when the signatory's claims rely on the terms of the agreement
or assume the existence of, arise out of, or relate directly to, the written agreement.’ ” Id. (quoting Booth v. BMO Harris
Bank, N.A., No. 13-5968, 2014 WL 3952945, at *6 (E.D. Pa. Aug. 11, 2014)).
*6 Here, the first prong of the alternative estoppel theory is met because Colon pleads that there is a close relationship
between the entities involved. In her Complaint, Colon asserts that Defendants Innezzelli, Dean M. Pagano, Crudele,
and Theodore Pagano, Jr. “own[ ] and operate” the various Club Risque locations. (Compl. ¶¶ 14, 17, 18, 20, 21, 23.) She
specifically pleads that Defendants Innezzelli and Crudele are the presidents of Conchetta, Inc. and Tacony 2008, Inc.,
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 5 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
respectively. (Id. ¶¶ 14, 15.) Further, she claims that “Defendants are a single and joint employer with a high degree of
interrelated and unified operations. Each of these Defendants shares the common labor policies and practices complained
of herein. Indeed, upon information and belief, the sole reason for separate corporate entities was to limit the liability
of each of the Defendants.” (Id. ¶ 25.) As noted above, Colon also claims each defendant was an “officer, director,
employee, agent, representative, alter ego, or co-conspirator of each of the other defendants.” (Id. ¶ 26.) Thus, according
to the Complaint, the various owners and presidents of the Club Risque entities by definition have a close relationship
with one another. Accordingly, the first prong of the alternative estoppel doctrine is satisfied.
We also find that Colon's claims are “intimately founded in and intertwined with the underlying contract obligations.”
DuPont, 269 F.3d at 199. The second prong is met when “the signatory's claims rely on the terms of the agreement
or assume the existence of, arise out of, or relate directly to, the written agreement.” Torres, 90 F. Supp. 3d at 379
(quoting Booth, 2014 WL 3952945, at *6). Interestingly, Colon does not even reference the Agreement in her Complaint,
much less attach it as an exhibit. However, we find that fact to be irrelevant, as the genesis of her claims clearly stems
from the Agreement she entered into. For example, she claims “Defendants ... improperly classified Plaintiff and other
exotic entertainers (‘Dancers') as ‘independent contractors.’ Consequently, Defendants failed to pay Plaintiff and its
Dancers at least the applicable minimum wage, as well as premium overtime compensation for hours worked in excess
of forty.” (Compl. ¶ 3; see also ¶¶ 12, 33.) (footnote omitted). Colon's challenge to being classified as an independent
contractor necessarily assumes the existence of, arises out of, and relates directly to the Agreement. After all, the
Agreement is the very document she signed that categorizes her as an independent contractor. (See Defs' Brief; Ex.
A) She even acknowledges this fact in her Response in Opposition when she states that she was given the option of
being classified as an “employee” or a “licensee and temporary space lessee.” (Pl.'s Resp. in Opp'n at 17.) She provides,
“[o]stensibly, a Licensee and Temporary Space Lessee is an independent contractor.” (Id.) Additionally, she argues that
if the Agreement stands, it would effectively constitute a waiver of her statutory rights, which she claims is impermissible
under federal and state law. (Id. at 20.) Accordingly, we find that Colon's wage loss claims are founded in, and intertwined
with, the underlying contractual obligations. Therefore, Colon is equitably estopped from challenging arbitration as to
the non-signatory Defendants.
We also note that we find it would be completely inequitable to disallow the non-signatories from compelling arbitration
in light of Colon's allegations of collective wrongdoing by the Defendants. “Estoppel may also apply where the
nonsignatory is alleged to have engaged in ‘substantially interdependent and concerted misconduct’ with a signatory
other than the plaintiff.” Sarl v. A.M. Todd Co., No. 07-2727, 2008 WL 724607, at *10 (E.D. Pa. Mar. 18, 2008) (quoting
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000)). Here, Colon has alleged that each
Defendant is a “single and joint employer with a high degree of interrelated and unified operations” and grouped each of
the Defendants together, as “each allegation pertains to each of the defendants.” (Compl. ¶¶ 25, 26.) Colon's Complaint
asserts violations of federal and state wage law against all of the Defendants based on their classification of her as an
independent contractor. (Id. ¶ 3.) Thus, Colon has grouped all of the Defendants together for purposes of imposing
liability, but seeks to avoid arbitration against the non-signatories because they did not sign the Agreement. According
to Colon's Complaint, all of the theories of wage violations are applicable to each and every Defendant. Therefore, we
find that her allegations of substantially interdependent and concerted misconduct dictate that all of the Defendants are
covered under the arbitration agreement pursuant to the equitable estoppel doctrine.
C. Dismissal or Stay of Proceedings
*7 If a case referable to arbitration is brought in federal court, the FAA directs that the court before which the lawsuit
is pending “shall on application of one of the parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement.” 9 U.S.C. § 3. “The plain language of § 3 affords a district court no discretion
to dismiss a case where one of the parties applies for a stay pending arbitration.” Lloyd v. Hovensa, LLC, 369 F.3d 263,
269 (3d Cir. 2004); see also Devon Robotics, LLC v. DeViedma, 798 F.3d 136, 143-44 (3d Cir. 2015).
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 6 of 7
Colon v. Conchetta, Inc., Slip Copy (2017)
2017 WL 2572517
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7
In this matter, Defendants request a stay in full in their Reply Brief. (See Defs' Reply Br. at 3, 21.) Accordingly, we will
stay the case and administratively close it pending the resolution of arbitration.
IV. CONCLUSION
The parties have shown clear and unmistakable evidence that they agreed to delegate all threshold issues regarding
arbitrability to the arbitrator. Supreme Court and Third Circuit precedent dictates that unless a party challenges the
specific agreement to arbitrate arbitrability (i.e., the delegation clause), the provision is severable from the remainder of
the contract and is valid under § 2 of the FAA and enforceable under §§ 3 and 4. Because Colon does not specifically
challenge the delegation clause in the Agreement, it is fully enforceable under binding precedent. Further, we find that
the principles of agency and equitable estoppel are applicable in this matter, and we will order arbitration as to all
Defendants. Lastly, in light of Defendants' request for a stay, we will stay this matter and administratively close it pending
the resolution of arbitration.
An appropriate Order follows.
All Citations
Slip Copy, 2017 WL 2572517
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-5 Filed 06/27/17 Page 7 of 7
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
2016 WL 928667
Only the Westlaw citation is currently available.
United States District Court,
E.D. Pennsylvania.
Esis, Inc., Plaintiff,
v.
Coventry Health Care Workers Compensation, Inc., Defendant.
Esis, Inc., Plaintiff,
v.
Concentra Integrated Services, Inc., Defendant/Third Party Plaintiff,
v.
Aetna, Inc., and Aetna Workers' Comp Access, LLC, Third Party Defendants.
CIVIL ACTION NOS. 13-2957, 13-2998
|
Signed 03/09/2016
MEMORANDUM
DuBois, J.
I. INTRODUCTION
*1 This case arises out of the servicing of workers compensation claims by a variety of corporations, including the
parties in this litigation. Presently before the Court is Aetna Inc. and Aetna Workers' Comp Access LLC's Motion to
Dismiss Concentra Integrated Services, Inc.'s Second Amended Third Party Complaint. For the reasons that follow, the
Court grants the Motion and dismisses the Second Amended Third Party Complaint with prejudice.
II. BACKGROUND
A. Procedural History
Plaintiff in the underlying action, ESIS, Inc. (“ESIS”), is a claims administrator that manages workers compensation
claims on behalf of its clients, primarily employers and insurance companies. ESIS contracts with various managed care
providers to provide medical services to workers compensation claimants. On March 22, 2013, ESIS filed a Complaint
in the Court of Common Pleas of Philadelphia County against one of its contractual managed care providers, Coventry
Health Care Systems, Inc., alleging breach of contract and other claims. On April 2, 2013, ESIS filed a similar Complaint
in the Court of Common Pleas of Philadelphia County against another managed care provider, Concentra Integrated
Services, Inc. (“Concentra”). Both actions were removed to this Court. 1 By Order dated November 5, 2013, the Court
granted ESIS's Unopposed Motion to Consolidate and consolidated the two cases for case management, discovery, and
all other pretrial matters.
1 There is diversity jurisdiction under 28 U.S.C. § 1332. ESIS is a Pennsylvania corporation with its principal place of business
in Pennsylvania. Coventry is a Delaware corporation with its principal place of business in Maryland. Concentra is a
Massachusetts corporation with its principal place of business in Massachusetts. The amount in controversy in each case
exceeds $75,000 exclusive of interest and costs.
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 1 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
The instant Motion involves only the Concentra action. By Stipulation dated September 3, 2015, ESIS, Concentra, and
Coventry agreed to allow Concentra to implead Aetna Inc. (“Aetna”) and Aetna Workers Comp Access LLC (“AWCA”)
(collectively “the Aetna defendants”). The Stipulation was entered as an Order of the Court on September 8, 2015, and
Concentra filed its Third Party Complaint against the Aetna defendants on that date. Following a Stipulation and Order
granting an extension of time to respond to the Third Party Complaint, on November 16, 2015, the Aetna defendants
filed a Motion to Dismiss the Third Party Complaint.
On December 8, 2015, Concentra filed a First Amended Third Party Complaint as of right pursuant to Federal Rule of
Civil Procedure 15(a)(1)(B). On December 21, 2015, the Aetna defendants filed a Motion to Dismiss the First Amended
Third Party Complaint. With the Aetna defendants' consent, by Order dated January 15, 2016, the Court granted
Concentra leave to file a Second Amended Third Party Complaint, which was deemed filed on that date. On January 25,
2016, the Aetna defendants filed the Motion to Dismiss Concentra's Second Amended Third Party Complaint, presently
before the Court.
B. Facts Alleged in Concentra' Second Amended Third Party Complaint
*2 The facts of this case as relevant to the instant Motion and set forth in Concentra's Second Amended Third Party
Complaint and attached exhibits are as follows. ESIS contracted with Concentra to provide managed care services
for workers compensation claims, including bill review services. Concentra, in turn, entered into preferred provider
organization (“PPO”) agreements with medical providers, often through intermediary corporations, to obtain discounted
rates for managed care services provided to workers compensation claimants.
In the underlying action, ESIS alleges that Concentra breached obligations under a Services Agreement. Second
Amended Third Party Compl. ¶ 6 (hereinafter “Compl.”). Pursuant to that Agreement, Concentra was to provide
to ESIS, inter alia, “bill review services to capture reductions in fees for usual and customary and/or fee scheduled
adjustments as well as application of [PPO] and pharmacy program discounts.” Compl. ¶ 7. ESIS has asserted breach
of contract and indemnity claims against Concentra for losses incurred by ESIS's customers as a result of claims for
additional compensation brought by medical providers located in Virginia. Compl. ¶ 9. 2
2 The provider claims, which are not directly relevant to the instant Motion, are based on alleged failure by ESIS to pay the
correct rates to medical care providers due to improperly calculated PPO discounts. Notice of Removal, Ex. 2, Compl. ¶ 13.
ESIS alleges that the aggregate of these medical provider claims exceeds $1.6 million and claims that $400,000 of those claims
are attributable to the actions of Concentra. Notice of Removal, Ex. 2, Compl. ¶ 16
During the relevant time period, Concentra's wholly owned subsidiary, FOCUS Healthcare Management, Inc.
(“FOCUS”) had an extensive network of healthcare providers that Concentra's clients could access. Compl. ¶ 11. 3 In
certain states, FOCUS contracted with other healthcare provider networks to provide its customers with access to more
providers. Compl. ¶ 12. In Virginia, FOCUS entered into a Master Business Agreement (“MBA”) with AWCA, a wholly
owned subsidiary of Aetna, to provide access to the Aetna defendants' healthcare provider network. Compl. ¶ 13; see
Compl. Ex. C (hereinafter “MBA”).
3 In 2007, Concentra sold FOCUS to Coventry. Compl. ¶ 11 n.2.
As relevant here, the MBA requires AWCA to provide FOCUS with certain “Participating Provider Network Services.”
MBA § 2.1. The MBA includes a contractual indemnification provision that compels each party to “indemnify and hold
harmless the other party...against any and all claims, lawsuits, judgment, settlements and expenses...caused by the gross
negligence or willful misconduct of the other party hereto or breach by the other party hereto of its obligations under
this agreement.” MBA § 7.1. The MBA also has an “entire agreement” provision that states
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 2 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
The terms and conditions of this Agreement, and any amendment hereto, will be binding on the
parties, their successors, or other transferees for the benefit of the other party and its Affiliates and
their successors and assigns.
MBA § 9.11. “Affiliates” are defined by the MBA as “[a]ny company that (i) controls, (ii) is controlled by, or (iii) is under
common control with either party or its parent corporation.” MBA § 1.1. In addition, the MBA contains a survival
clause, which provides:
The provisions ... of this Agreement or any Schedule will survive the termination, cancellation,
or expiration of this Agreement or Schedule. Such provisions will be binding on either party, its
successors and assigns for the benefit of Aetna and its affiliates or subsidiaries and their successors
and assigns.
MBA § 9.10.
*3 Importantly, the MBA includes a binding arbitration provision in a section entitled “Resolution of Disputes and
Complaints,” which necessitates, inter alia, that
[i]n the event a dispute concerning this Agreement cannot be satisfactorily resolved except for
temporary, preliminary, or permanent injunctive relief or any other form of equitable relief, the
dispute will be settled by arbitration in accordance with the commercial rules and regulations of
the American Arbitration Association then in effect....The results of the arbitration will be final
and binding on both parties.
MBA § 5.
C. Allegations in Second Amended Third Party Complaint and Motion to Dismiss
In the Second Amended Third Party Complaint, Concentra argues that “if it is determined that Concentra is liable
to ESIS in the ESIS Case, it is by reason, in whole or in part, of the acts and/or omissions” of the Aetna defendants.
Compl. ¶ 10. Concentra further avers that “many of the alleged claims being asserted by ESIS against Concentra...were
actually the result of the alleged negligent conduct of [the Aetna defendants] in providing inadequate/insufficient notice
to the healthcare providers purportedly in Aetna's Virginia Network about providers' enrollment or re-enrollment in new
PPO program(s).” Compl. ¶ 17. Concentra asserts four claims against the Aetna defendants: (1) a claim for negligent
misrepresentation; (2) a claim for negligence; (3) a claim for “common law indemnity”; and (4) a claim for promissory
estoppel.
In the Motion to Dismiss, the Aetna defendants argue that Concentra's claims are barred in their entirety by the
mandatory arbitration clause in the MBA. To the extent that Concentra asserts that it is not bound by the MBA, the
Aetna defendants maintain that Concentra's tort claims fail as a matter of law in the absence of a contractual agreement.
III. LEGAL STANDARD
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that, in response to a pleading, a defense of “failure to
state a claim upon which relief can be granted” may be raised by motion to dismiss. To survive a motion to dismiss, a
plaintiff must allege facts that “'raise a right to relief above the speculative level.' +” Victaulic Co. v. Tieman, 499 F.3d 227,
234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A complaint must contain “sufficient
factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' +” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Twombly, 550 U.S. at 570). A district court first identifies those factual allegations that constitute
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 3 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
nothing more than “legal conclusions” or “naked assertions.” Twombly, 550 U.S. at 555, 557. Such allegations are “not
entitled to the assumption of truth” and must be disregarded. Iqbal, 556 U.S. at 679. The court then assesses “the 'nub'
of the plaintiff['s] complaint—the well-pleaded, nonconclusory factual allegation [s]”—to determine whether it states a
plausible claim for relief. Id. “In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits
attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's
claims are based upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).
IV. DISCUSSION
A. MBA and Mandatory Arbitration Provision
*4 In an attempt to avoid the MBA's mandatory arbitration provision, Concentra argues that it “was never a party
to or assignee of the...MBA” and is “not subject to its terms.” Concentra's argument is unavailing because Concentra
is bound by the MBA as an affiliate of FOCUS.
In ruling on a Motion to Dismiss, “[w]here the written terms of the contract are not ambiguous and can only be read
one way, the court will interpret the contract as a matter of law.” Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38
F.3d 107, 111 (3d Cir. 1994). The test for ambiguity is whether “the words of the contract are capable of more than one
objectively reasonable interpretation....” Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 76 (3d Cir. 2011). Courts
should read contracts “to avoid ambiguities if possible.” Accurso v. Infra-Red Servs., Inc., 23 F. Supp. 3d 494, 505 (E.D.
Pa. 2014) (quoting Nationwide Mut. Ins. Co. v. Chiao, 186 Fed. App'x. 181, 185 (3d Cir. 2006)).
At the time the MBA was in force, Concentra was an affiliate of FOCUS. The MBA defines “affiliate” as
Any company that (i) controls, (ii) is controlled by, or (iii) is under common control with either
party or its parent corporation. A company will be deemed to control a company if it has the power
to direct or cause the direction of the management or policies of such company, whether through
the ownership of voting securities, by contract, or otherwise.
MBA § 1.1. Under this definition, Concentra is an affiliate of FOCUS because FOCUS was a wholly-owned subsidiary
of Concentra, controlled by Concentra. Concentra admits it was an affiliate of FOCUS based on this definition. See,
e.g., Concentra's Resp., at 12 (referring to “Concentra's former status as an 'affiliate' of FOCUS”).
Affiliates of AWCA and FOCUS, including Concentra, are bound by the MBA pursuant to the entire agreement
provision. MBA § 9.11. The entire agreement provision provides:
The terms and conditions of this Agreement, and any amendment hereto, will be binding on the
parties, their successors, assigns or other transferees for the benefit of the other party and its
Affiliates and their successors and assigns.
MBA § 9.11. The only reasonable interpretation of this clause is that the MBA binds (1) “the parties,” (2) “their
successors, assigns or other transferees for the benefit of the other party” and (3) “its [either party's] affiliates and
their successors and assigns.” Concentra argues for an alternative interpretation, that the MBA applies only to “[1]
the parties [and] [2] their successors, assigns, or other transferees for the benefit of the other party and its [the other
party's] Affiliates and their successors and assigns.” Concentra's Resp., at 12. The Court concludes that Concentra's
ungrammatical alternative reading of the clause is unreasonable and does not render the clause ambiguous.
This conclusion should end the inquiry, because the MBA would have been binding on Concentra at the time of the
alleged harm in this case—the failure to adequately enroll medical providers in the Aetna PPO. However, the parties
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 4 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
dispute whether some of the harm alleged by ESIS to be caused by Concentra occurred after Concentra sold FOCUS.
The Court therefore briefly addresses the survival clause in the MBA and concludes that the MBA continues to bind
Concentra after of the sale of FOCUS. The survival clause states that the MBA is “meant to survive the termination,
cancellation, or expiration of this Agreement.” MBA § 9.10. The clause is
*5 binding on either party, its successors and assigns for the benefit of [AWCA] and its affiliates
or subsidiaries and their successors and assigns.
MBA § 9.10. The only reasonable interpretation of this section is that the MBA remains binding after termination of
the agreement on (1) “either party,” (2) “its [either party's] successors or assigns for the benefit of [AWCA],” and (3)
“its [either party's] affiliates or subsidiaries and their successors and assigns.” Concentra argues that this clause could
reasonably be interpreted to apply to “[1] either party [and] [2] its successors and assigns for the benefit of [AWCA] and
its [AWCA's] affiliates or subsidiaries and their successors and assigns,” and therefore that the clause would only apply
if the Aetna defendants sought to enforce the MBA. Concentra's Resp., at 11. As with the entire agreement clause, the
Court rejects Concentra's ungrammatical reading as a reasonable alternative and determines that the language of the
survival clause is unambiguously binding on Concentra.
Even if Concentra's interpretation that would limit the survival clause to affiliates “seeking the benefit” of the MBA were
reasonable, the Court concludes that Concentra is seeking the benefit of the MBA. Clearly, under the terms of the entire
agreement provision, Concentra can enforce the MBA as an affiliate of FOCUS. As will be discussed below, Concentra,
through its purported-tort claims, is seeking the benefit of the MBA's indemnification clause and other provisions.
Thus, the Court concludes that any contract claims asserted by Concentra as an affiliate of FOCUS are governed by
the MBA. The Court determines that the mandatory arbitration provision in the MBA applies to any such contractual
claims. As discussed below, while the Second Amended Third Party Complaint asserts no contract claims, Concentra
can only obtain the relief it seeks from the Aetna defendants through contractual claims based on the MBA.
B. Concentra's Tort Claims
The Aetna defendants argue that Concentra's tort claims must be dismissed in lieu of arbitration and in the alternative
because they fail as a matter of law. The Court agrees and dismisses the tort claims with prejudice in this Court, but
without prejudice to Concentra's right to arbitrate all such claims. As explained above, the MBA is binding on Concentra
and requires arbitration of any claims “concerning” the MBA. MBA § 5. As will be discussed below, each of the alleged
tort claims directly concern the MBA because they are inextricably related to AWCA's contractual duties under that
agreement. Furthermore, assuming arguendo that the MBA does not bind Concentra, the claims fail as a matter of
law because, outside of the parties' contractual relationship, there is no independent legal duty to support Concentra's
claims. 4
4 For purposes of this Memorandum, the Court applies Pennsylvania law. The MBA includes a choice of law provision that
provides “[t]his Agreement will be governed by and construed in accordance with applicable Texas law.” MBA § 9.13.
However, the Court finds that there is no conflict between Pennsylvania and Texas law presented under the facts of this case.
See Aetna Defs.' Mot. to Dismiss, at 12 n.4 (“Whether Pennsylvania or Texas law applies, the result here is the same.”)
1. Negligent Misrepresentation and Negligence
*6 The Aetna defendants argue that Concentra's negligent misrepresentation and negligence claims are barred by
Pennsylvania's gist of the action doctrine and because Concentra has failed to identify any applicable duty of care, other
than that created by the MBA. The Court agrees.
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 5 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
“Under Pennsylvania law, the 'gist of the action' doctrine 'precludes plaintiffs from recasting ordinary breach of contract
claims into tort claims.' +” Jones v. ABN Amro Mortg. Grp., Inc., 606 F.3d 119, 123 (3d Cir. 2010) (quoting Erie Ins. Exch.
v. Abbott Furnace Co., 972 A.2d 1232, 1238 (Pa. Super. Ct. 2009)). The gist of the action doctrine bars tort claims that
(1) arise solely from a contract between the parties, (2) where the duties allegedly breached were “created and grounded
in the contract itself,” (3) where “the liability stems from a contract,” and (4) where the tort claim “essentially duplicates
a breach of contract claim or the success of which is wholly dependent on the terms of a contract.” eToll, Inc. v. Elias/
Savion Advertising, Inc., 811 A.2d 10, 19 (Pa. Super. Ct. 2002) (citations and quotations omitted). When “a defendant's
alleged failure to perform its duty under the contract is transformed into a claim that this failure amounts to” negligence
or fraud, the gist of the action doctrine bars the tort claim. CRS Auto Parts, Inc. v. Nat'l Grange Mut. Ins. Co., 645 F.
Supp. 2d 354, 377 (E.D. Pa. 2009).
The Court determines that the Second Amended Third Party Complaint alleges tort duties that could only arise out
of the MBA. Concentra avers that “the alleged claims being asserted by ESIS against Concentra in the ESIS Case
were actually the result of the alleged negligent conduct of [the Aetna defendants] in providing inadequate/insufficient
notice to the healthcare providers purportedly in Aetna's Virginia Network....” Compl. ¶ 17. Concentra alleges in its
negligent misrepresentation claim that it “reasonably relied on” the Aetna defendants' representations that “providers'
claims submitted on behalf of customers of its clients such as ESIS were properly discounted.” Compl. ¶ 32. Concentra's
negligence claim is solely an allegation that the Aetna defendants “committed negligence by providing inadequate/
insufficient notice to the health care providers....” Compl. ¶ 35.
The only source of the Aetna defendants' alleged duty to notify health care providers, however, is the MBA, and not any
aspect of tort law. Thus, Concentra's negligent misrepresentation and negligence claims amount to an attempt to enforce
the MBA on behalf of its subsidiary, FOCUS. Concentra identifies no independent duty of care on the part of the Aetna
defendants to provide such notice to the healthcare providers other than the MBA. The duty allegedly breached, the duty
to adequately provide notice to the healthcare providers in Aetna's Virginia Network, is one that stems solely from the
MBA and the success or failure of such a claim is wholly dependent on the scope of the Aetna defendants' contractual
duties. 5 Accordingly, Concentra's negligent misrepresentation and negligence claims are barred by the gist of the action
doctrine and the Court grants the Aetna defendants' Motion to Dismiss these claims. 6 Alternatively, even if the MBA
were not binding on Concentra, the lack of a legal duty of care absent the MBA is fatal to Concentra's negligence and
negligent misrepresentation claims.
5 Concentra argues that some of the alleged negligent acts of the Aetna defendants occurred prior to the execution of the MBA
and therefore that the MBA cannot apply to its tort claims. See Concentra Surreply, at 4. If so, there is no independent duty
of care and all such claims fail.
6 The cases cited by Concentra for the proposition that the gist of the action doctrine does not bar claims asserted by non-
parties to a contract are inapposite in this case because Concentra is bound by the MBA as an affiliate of FOCUS and because
Concentra is seeking to enforce the provisions of the MBA. See Centimark Corp. v. Pegnato & Pegnato Roof Mgmt., Inc.,
Civil Action No. 05-708, 2008 WL 1995305, at *13 (W.D. Pa. May 6, 2008) (holding that individual officers of a corporation
could not use gist of the action doctrine to bar tort claims in case in which contract did not purport to bind officers); Fleet
Nat'l Bank v. Boyle, Civil Action No. 04-1277, 2005 WL 2455673, at *11 (E.D. Pa. Sept. 12, 2005) (concluding that individual
defendants could be held liable for perpetration of a fraud scheme in the course of their employment despite contract between
plaintiff and their employer).
2. Common Law Indemnification
*7 The Aetna defendants argue that Concentra's common law indemnification claim must be dismissed due to the lack
of legal relationship between the Aetna defendants and Concentra, outside of the MBA. The Court agrees.
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 6 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7
“Indemnity is a common law remedy which shifts the entire loss from one who has been compelled, by reasons of
some legal obligation, to pay a judgment occasioned by the initial negligence of another who should bear it.” Kinney-
Lindstrom v. Med. Care Availability and Reduction of Error Fund, 73 A.3d 543, 558 (Pa. 2013). “Under Pennsylvania law,
indemnity is available only: (1) where there is an express contract to indemnify, or (2) where the party seeking indemnity
is vicariously or secondarily liable for the indemnitor's acts.” Allegheny Gen. Hosp. v. Philip Morris Inc., 228 F.3d 429,
448 (3d Cir. 2000) (citations and quotations omitted). Where there is an express contract to indemnify, common law
indemnification is not available. Eazor Express, Inc. v. Barkley, 272 A.2d 893, 895 (Pa. 1971) (“[W]here...there is a written
contract setting forth the rights and duties of the parties[,]...[t]he contract must then govern.”).
Secondary liability is “constructive only, being based on some legal relation between the parties, or arising from some
positive rule of common or statutory law or because of a failure to discover or correct a defect or remedy a dangerous
condition caused by the act of the one primarily responsible.” Sirianni v. Nugent Bros. Inc., 506 A.2d 868, 871 (Pa. 1986).
“Pennsylvania courts have not extended common law indemnification to cases where the third party plaintiff—which
stands in neither an employer/employee or principal/agent relationship to the third party defendant—is alleged to have
breached a contract it entered with the plaintiff ....” E. Elec. Corp. of N.J. v. Rumsey Elec. Co., Civil Action No. 08-5478,
2010 WL 2788294, at *3 (E.D. Pa. July 14, 2010).
In this case, Concentra has not identified any freestanding legal relationship between it and the Aetna defendants that
would make the Aetna defendants secondarily liable, other than the MBA. Concentra's Second Amended Third Party
Complaint avers that the Aetna defendants have “an obligation, based on common law indemnification, to indemnify
Concentra for such losses as Aetna/AWCA were delegated bill review and network access services by Concentra in
Virginia.” Compl. ¶ 38. The “delegation” referred to in the Second Amended Third Party Complaint occurred through
the MBA between FOCUS and AWCA. Thus, Concentra's common law claim is supplanted by the indemnification
provision in the MBA, which the Court has already ruled applies to Concentra's claims. A claim pursuant to the MBA's
indemnification provision would, as discussed above, be barred by the MBA's mandatory arbitration provision.
Furthermore, there is no principal–agent or employer–employee relationship between Concentra and the Aetna
defendants. Assuming arguendo that there was no MBA, there would be no relationship between the parties from which a
common law duty to indemnify could arise. For these reasons, the Court grants the Aetna defendants' Motion to Dismiss
the common law indemnification claim.
3. Promissory Estoppel
The Aetna defendants argue that Concentra's promissory estoppel claims must be dismissed because of the existence of
a binding contract between the parties. The Court agrees.
*8 The doctrine of promissory estoppel is “invoked in situations where the formal requirements of contract formation
have not been satisfied and where justice would be served by enforcing a promise.” Carlson v. Arnot-Ogden Mem'l
Hosp., 918 F.2d 411, 416 (3d Cir. 1990) citing Cardmone v. Univ. of Pittsburgh, 384 A.2d 1228, 1233 (Pa. Super. 1978).
“Promissory estoppel allows the court to enforce a party's promise that is unsupported by consideration where (1) the
promisor makes a promise that he reasonably expects to induce action or forbearance by the promisee, (2) the promise
does induce action or forbearance by the promisee, (3) and injustice can only be avoided by enforcing the promise.” Id.
If the parties formed an enforceable contract, a promissory estoppel claim is barred. Id.
In this case, Concentra alleges that the Aetna's defendants promised Concentra “that they would adequately and properly
perform repricing and access to the Aetna Virginia Network for services for Concentra's customers such as ESIS in
Virginia.” Compl. ¶ 42. This promise was made in the context of the MBA between FOCUS and AWCA. Thus, there
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 7 of 8
Esis, Inc. v. Coventry Health Care Workers Compensation, Inc., Slip Copy (2016)
2016 WL 928667
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
is a valid contract between Concentra's former subsidiary and the Aetna defendants, and Concentra is bound by the
contract as an affiliate of FOCUS. Alternatively, Concentra's Second Amended Third Party Complaint does not allege
any promise that the Aetna defendants made to Concentra other than the promise to perform the contractual duties of
the MBA and therefore Concentra has failed to allege a prima facie case of promissory estoppel. For these reasons, the
Court grants the Aetna defendants' Motion to Dismiss the promissory estoppel claim.
4. Equitable Estoppel
In addition, the Court concludes that Concentra's tort claims in this case are barred by the arbitration provision in the
MBA under the doctrine of equitable estoppel. A nonsignatory to a contract may be bound by an arbitration clause if
the nonsignatory “embraces the agreement and directly benefits from it.” Griswold v. Coventry First LLC, 762 F.3d 264,
272 (3d Cir. 2014). “A nonsignatory can 'embrace' a contract in two ways: (1) by knowingly seeking and obtaining direct
benefits from that contract; or (2) by seeking to enforce terms of that contract or asserting claims based on the contracts
other provisions.” Id. (citations and quotations omitted).
As discussed with respect to each tort claim, Concentra is seeking to bind the Aetna defendants to the promise contained
in the MBA: that AWCA would provide FOCUS's customers with access to its PPO network and properly enroll
providers in that network. None of Concentra's claims are cognizable in the absence of the AWCA's promise to perform
based on the MBA. The Court concludes that Concentra is equitably estopped from avoiding the arbitration provision
because Concentra is seeking to enforce the provisions of the MBA against the Aetna defendants.
C. Leave to Amend
“[I]f a complaint is subject to a Rule 12(b)(6) dismissal, a district court must permit a curative amendment unless such
an amendment would be inequitable or futile.” Phillips v. County of Allegheny, 515 F.3d 224, 245 (3d Cir. 2008). The
Court may dismiss a claim with prejudice based on “repeated failures to cure the deficiency by amendments previously
allowed” or “futility of amendment.” Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993).
This is Concentra's third attempt to plead its claims against the Aetna defendants. The Court concludes, for the reasons
discussed, that any future amendment would be futile in light of the MBA's mandatory arbitration provision. The Court
will therefore dismiss the Second Amended Third Party Complaint with prejudice.
V. CONCLUSION
*9 For the foregoing reasons, the Court grants the Aetna defendants' Motion to Dismiss Concentra's Second Amended
Third Party Complaint and dismisses all of Concentra's claims against the Aetna defendants with prejudice. This
dismissal is without prejudice to Concentra's right to proceed against the Aetna defendants in arbitration pursuant to
the MBA. An appropriate order follows.
All Citations
Slip Copy, 2016 WL 928667
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-6 Filed 06/27/17 Page 8 of 8
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
2017 WL 1092541
Only the Westlaw citation is currently available.
United States District Court,
M.D. Pennsylvania.
Linda GLENWRIGHT, Plaintiff
v.
CARBONDALE NURSING HOME, INC. d/b/a Carbondale Nursing Home and
Rehabilitation Center and Genesis Eldercare Network Services, Inc., Defendants
CIVIL ACTION NO. 3:16-0926
|
Signed 03/23/2017
Attorneys and Law Firms
George R. Barron, Wilkes-Barre, PA, for Plaintiff.
Karen P. Gaster, Rubin, Fortunato & Harbison PC, Paoli, PA, for Defendants.
MEMORANDUM
MALACHY E. MANNION, United States District Judge
*1 Currently before the court is a motion to dismiss or, in the alternative, compel arbitration, (Doc. 11), filed by
the defendants. The defendants' motion was filed in response to the plaintiff's (“Glenwright's”) amended complaint,
(Doc. 16). Their motion seeks dismissal of Glenwright's claims or, in the alternative, enforcement of an arbitration
agreement between Glenwright and defendant Carbondale Nursing Home, Inc. (“Carbondale”). Based on the foregoing,
the defendants' motion is GRANTED IN PART and DENIED IN PART. Glenwright must arbitrate her claims against
Carbondale. The claims against defendant Genesis Eldercare Network Services, Inc. (“Genesis”) may proceed and
Genesis will be allowed to file a renewed motion at the close of discovery.
I. FACTUAL BACKGROUND
Glenwright was employed by Carbondale, a healthcare facility, for approximately six (6) years as a registered nurse
and supervisor. Genesis is the managing entity of Carbondale. At some point before or during her employment,
Glenwright signed an arbitration agreement with Carbondale. (Doc. 24-9). Glenwright does not dispute that she signed
this agreement. (Doc. 24, ¶ 3; see also Doc. 24-9, at 3). The agreement provides as follows:
[A]ny ... dispute arising out of the [employee's] employment or the termination of ... employment
(including, but not limited to claims of unlawful termination based on race, sex, age, national origin,
disability, breach of contract or any other bias prohibited by law) [will be submitted] ... exclusively
to binding arbitration under the Federal Arbitration Act.
(Doc. 24-9, at 1). The agreement also states that the employee's dispute must be initiated by the employee delivering
a written request for arbitration within one year from the date of the alleged incident. (Id.). If the employee does not
submit a timely request, the agreement states the employee's “right to raise any claims arising out of the [employee's]
termination” will have been waived. (Id.). In addition, in two instances, the agreement provides that the employee will
be responsible for his or her own legal costs and half the cost of arbitration. (Doc. 24-9, at 2–3).
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 1 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
Glenwright's employment was terminated, effective May 20, 2014. Leading up to her termination, on December 10,
2012, Glenwright suffered an injury at work. She filed a workers' compensation claim for this injury in February of 2013
and was unable to work until August of 2013. Glenwright's work injury exacerbated her arthritis and degenerative knee
condition. When she returned to work she required accommodations for these disabilities, including adjustments to her
duties and work schedule. She was granted her requested accommodations from August of 2013 until her termination.
After seeking accommodations, Glenwright alleged that she was assigned to “menial and physically challenging job
duties that she had rarely been required to perform in the past.” (Doc. 16, at ¶ 20). She described this as “unwarranted
discipline” designed to “force her out of the workplace.” (Id. ¶ 21).
*2 On May 14, 2014, Glenwright was informed that her workplace could no longer accommodate her injuries. She was
notified that her employment would be terminated, effective May 20, 2014, if she did not apply for a leave of absence.
Glenwright notified her workplace, verbally and in writing, that she would not request a leave of absence because she
did not need one and requested the continuance of her existing accommodations. No further accommodations were
provided.
II. PROCEDURAL BACKGROUND
On October 9, 2014, Glenwright filed a charge with the Equal Opportunity Employment Commission (“EEOC”)
asserting claims under the Americans with Disabilities Act of 1990 (“ADA”), 42 U.S.C. § 12101 et seq. and she dual-
filed claims under the Pennsylvania Human Relations Act (“PHRA”), 43 PA. STAT. § 951 et seq. with the Pennsylvania
Human Relations Commissions (“PHRC”). (Doc. 24-8). These charges listed Carbondale as the respondent, but did not
list Genesis explicitly. On May 18, 2016, Glenwright filed a complaint in this court. (Doc. 1). At that time, Glenwright
was still in the process of exhausting her administrative remedies with respect to her ADA and PHRA claims; thus, her
complaint did not contain those claims. Within her complaint, Glenwright notified the court that she intended to file an
amended complaint once she completed the administrative process. (Doc. 1, at ¶ 2 n. 1).
On August 11, 2016, Glenwright filed an unopposed motion to amend/correct her complaint. (Doc. 9). On August 12,
2016, the court granted the motion, (Doc. 10), and the amended complaint was docketed that same day. 1 (Doc. 16).
Her amended complaint included claims under Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq.
(Counts I–II), claims under the Family Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq. (Counts III–IV), a wrongful
discharge claim under Pennsylvania law (Count V), claims under the ADA (Counts VI–VIII), and claims under the
PHRA (Counts IX–XI).
1 In addition to adding her claims under the ADA and PHRA, Glenwright's amended complaint also changed the name of one
defendant. Her original complaint listed the defendants as Carbondale and an entity named Genesis Healthcare, Inc. (See
Doc. 1). The amended complaint kept Carbondale as a defendant and changed Genesis Healthcare, Inc. to Genesis Eldercare
Network Services, Inc., the current co-defendant. (See Doc. 16). This change was likely in response to the Rule 7.1 disclosure
statement filed by Genesis Healthcare, Inc., (Doc. 6), identifying Genesis Eldercare Network Services, Inc. as the corporate
parent of Genesis Healthcare, Incorporated. Carbondale has no corporate parent. (See Doc. 5).
On August 16, 2016, the defendants filed the current motion with a supporting brief. (Doc. 11, Doc. 12). In addition,
the defendants filed a statement of facts with the underlying arbitration agreement attached as an exhibit. (Doc. 13).
The defendants' motion seeks dismissal based on the limitations period provided for in the arbitration agreement. In the
alternative, the defendants request that this court compel arbitration. As another alternative argument, the defendants
argue that this court lacks subject-matter jurisdiction over the claims against Genesis because Glenwright failed to
exhaust her administrative remedies with respect to Genesis. On September 27, 2016, after requesting and receiving
two extensions of time, Glenwright filed her brief in opposition, contesting the validity of the agreement, among other
arguments. (Doc. 23). She also filed a counter statement of facts with several exhibits attached. (Doc. 24). On October
17, 2016, after requesting and receiving an extension of time, the defendants filed a reply brief. (Doc. 27).
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 2 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
*3 On September 19, 2016, after the defendants' motion had been filed, the court held a telephone case management
conference with the parties. (See Doc. 18). Immediately thereafter, the court issued a scheduling order setting various
case management deadlines, including a February 13, 2017 deadline for fact discovery. (Doc. 20). No supplemental briefs
or exhibits have been provided to the court during the course of this discovery. On February 8, 2017, the plaintiff filed an
unopposed motion seeking to extend the original deadlines, which the court granted. (See Docs. 28–29). Thus, to date,
the parties are still in the process of discovery.
III. LEGAL STANDARDS
A. Motion to Compel Arbitration
In Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013), the Third Circuit Court of Appeals
clarified the appropriate standard to be applied to a motion to compel arbitration that is filed prior to the benefit of
discovery. The court held that where the affirmative defense of arbitrability is apparent on the face of the complaint or
those documents relied upon in the complaint the standard under Federal Rule of Civil Procedure 12(b)(6) should be
applied. Id. at 773–74. In those cases, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., would favor speedy
resolution of the motion without the delay of discovery. Id. at 773.
“[A] more deliberate pace is required” when either (1) the complaint and documents referenced therein do not establish
with “requisite clarity” that the parties agreed to arbitrate or (2) “the opposing party has come forth with reliable evidence
that is more than a ‘naked assertion ... that it did not intend to be bound,’ even though on the face of the pleadings it
appears that it did.” Id. at 774 (quoting Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F. Supp. 2d 474,
479 (E.D. Pa. 2011) and Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd, 636 F.2d 51, 55 (3d Cir. 1980)). In those
instances the motion should be resolved according to the standard provided by Federal Rule of Civil Procedure 56. Id.
When the issue of arbitrability is not apparent on the face of the complaint, normally, “the motion to compel arbitration
must be denied pending further development of the factual record.” Id. “[A] restricted inquiry into the factual issues will
be necessary to properly evaluate whether there was a meeting of the minds on the agreement to arbitrate, and the non-
movant must be given the opportunity to conduct limited discovery.” Id. (internal citations and quotations omitted).
After this, the appropriate standard to be applied is the standard provided by Rule 56.
Here, the issue of arbitrability is not apparent on the face of Glenwright's amended complaint or any documents cited
within or attached to the amended complaint. The defendants' arguments are entirely premised on the arbitration
agreement attached to the motion to compel arbitration. Glenwright contests the validity of this agreement. Normally, a
plaintiff would be “entitled to discovery on the question of arbitrability before [this] court entertains further briefing” on
the issue. Guidotti, 716 F.3d at 776 (quoting Somerset, 832 F. Supp. 2d at 482). However, at this stage of the litigation, the
parties have already engaged in several months of discovery. Despite this, Glenwright has not submitted or attempted to
submit any supplemental briefing or exhibits to further her arguments with respect to the issue of arbitrability. Denying
the defendants' motion in its entirety at this time solely to provide additional time for discovery would be inefficient,
especially where the allowance of discovery to engage in the arbitrability analysis is, typically, quite limited.
*4 Further, on February 8, 2017, Glenwright requested more time for discovery generally. (Doc. 28). The court granted
her request. (Doc. 29). The court will not further extend the discovery deadline. Instead, the court will rule on the
defendants' motion using the summary judgment standard set forth in Federal Rule of Civil Procedure 56 in light of the
briefing, exhibits, and statements of facts submitted by all parties.
B. Rule 56 Summary Judgment Standard
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 3 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Rule 56 allows a court to enter summary judgment “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); see also Celotex Corp. v. Catrett,
477 U.S. 317 (1986). A factual dispute is genuine if a reasonable jury could find for the nonmovant, and is material if
it will affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Aetna Cas. & Sur. Co.
v. Ericksen, 903 F. Supp. 836, 838 (M.D. Pa. 1995). In support of their argument, the movant and nonmovant must
point to “particular parts of materials in the record, including depositions, documents, electronically stored information,
affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory
answers, or other materials” or show that the other party's evidence does “not establish the absence or presence of a
genuine dispute.” FED. R. CIV. P. 56(c)(1)(A), (B).
The movant can also meet the Rule 56 standard by showing that “on all the essential elements of its case on which it
bears the burden of proof at trial, no reasonable jury could find for the nonmoving party.” In re Bressman, 327 F.3d 229,
238 (3d Cir. 2003). The nonmoving party must then “do more than simply show that there is some metaphysical doubt
as to material facts.” Boyle v. Cnty. of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). In assessing the parties' arguments, “the court must draw all reasonable
inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence.”
Guidotti, 716 F.3d at 772 (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000)).
C. Administration Exhaustion—Rule 12(b)(1)
In addition to seeking dismissal or arbitration based on the arbitration agreement, the defendants' motion challenges
this court's subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The defendants allege that
Glenwright failed to exhaust her administrative remedies with respect to Genesis. “A motion to dismiss under Rule 12(b)
(1) challenges the jurisdiction of the court to address the merits of the plaintiff's complaint.” Vieth v. Pennsylvania, 188
F. Supp. 2d 532, 537 (M.D. Pa. 2002). The failure to exhaust administrative remedies is a jurisdictional issue and the
appropriate device to raise this issue is a motion to dismiss under Rule 12(b)(1). See Batchelor v. Rose Tree Media Sch.
Dist., 759 F.3d 266, 271 (3d Cir. 2014). A Rule 12(b)(1) dismissal is not a judgment on the merits, but only a determination
that the court lacks the authority to hear the case. Swope v. Central York Sch. Dist., 796 F. Supp. 2d 592, 599 (M.D.
Pa. 2011). Because the district court is a court of limited jurisdiction, the burden of establishing jurisdiction always rests
upon the party asserting it. See Kokkonen v. Guardian Life. Ins. Co. of America, 511 U.S. 375, 377 (1994).
*5 An attack on the court's jurisdiction may be either “facial” or “factual” and the “distinction determines how the
pleading must be reviewed.” Constitution Party of Pennsylvania v. Aichele, 757 F.3d 347, 357 (3d Cir. 2014). A facial
attack tests the sufficiency of the pleadings, while a factual attack challenges whether a plaintiff's claims fail to comport
factually with jurisdictional prerequisites. Id. at 358; see also S.D. v. Haddon Heights Bd. of Educ., 833 F.3d 389, 394 n.
5 (3d Cir. 2016). If the defendant brings a factual attack, the district court may look outside the pleadings to ascertain
facts needed to determine whether jurisdiction exists. Id.
Reviewing a facial attack, a district court must accept the allegations stated in a plaintiff's complaint and review “only
whether the allegations on the face of the complaint, taken as true, allege facts sufficient to invoke the jurisdiction of
the district court.” Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006) (internal quotation marks
omitted). “Thus, a facial attack calls for a district court to apply the same standard of review it would use in considering
a motion to dismiss under Rule 12(b)(6), i.e., construing the alleged facts in favor of the nonmoving party. This is in
marked contrast to the standard of review applicable to a factual attack, in which a court may weigh and ‘consider
evidence outside the pleadings.’ ” Aichele, 757 F.3d at 358 (quoting Gould Elecs., Inc. v. United States, 220 F.3d 169, 176
(3d Cir. 2000)) (internal citation omitted).
The court construes the defendants' motion as a factual attack of jurisdiction. An attack on jurisdiction based on a
failure to exhaust remedies that is filed prior to answering the complaint is usually, “by definition, a facial attack” on
the pleadings unless the defendant has offered factual averments in support of its motion. Haddon Heights, 833 F.3d
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 4 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
at 394 n. 5. Here, all parties have provided statements of facts inclusive of various factual averments. In addition, all
parties have provided the court with an abundance of exhibits to support their arguments. The court will look to these
exhibits in making its determination.
IV. THE ARBITRATION DISPUTE
The parties dispute the validity of the arbitration agreement signed by Glenwright. In particular, Glenwright argues that
the agreement is unconscionable under Pennsylvania law and that Carbondale waived its rights under the agreement.
Also at issue is whether Genesis may compel arbitration, assuming the agreement is valid. The court finds that the
arbitration agreement is valid when the fee provisions have been severed from the agreement. The court also finds that
the decision of whether Carbondale has waived the provision in the agreement requiring a written request for arbitration
within one year of her termination is a question for the arbitrator and not this court. Finally, the court cannot determine
at this stage whether Genesis should be deemed a party to the agreement as noted below and will allow Genesis to file
a renewed motion, if appropriate, after the completion of discovery.
“A party to a valid and enforceable arbitration agreement is entitled to a stay of federal court proceedings pending
arbitration as well as an order compelling such arbitration.” Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263–64 (3d
Cir. 2003); see also 9 U.S.C. §§ 3, 4. Judicial review over a dispute regarding arbitration is, initially, limited to a two-
part inquiry. CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165, 172 (3d Cir. 2014). First, the court must determine
whether “a valid agreement to arbitrate exists,” and, second, whether “the particular dispute falls within the scope of
the agreement.” Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009); see also id. Here, the
parties primary dispute falls within the first inquiry. Glenwright does not dispute that her employment related claims
are included in the scope of the arbitration agreement.
*6 The initial question of whether the parties validly agreed to arbitrate is presumed to be a question for the court unless
the parties clearly and unmistakably indicate otherwise. Guidotti, 716 F.3d at 773. Generally, there is a “liberal federal
policy favoring arbitration” and a “fundamental principle that arbitration is a matter of contract.” AT&T Mobility, 131
S. Ct. at 1745 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) andRent-A-Center,
West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). However, “before a party to a lawsuit can be ordered to arbitrate and thus
be deprived of a day in court, there should be express, unequivocal agreement to that effect.” Guidotti, 716 F.3d at 773
(quoting Par-Knit Mills, 636 F.2d at 54). Thus, the presumption in favor of arbitration is only applied once the court
has determined that the parties “have consented to and are bound by the arbitration [agreement].” Griswold v. Coventry
First LLC, 762 F.3d 264, 271 (3d Cir. 2014). Their agreement may be declared unenforceable by the court “upon such
grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2; see also AT&T Mobility, LLC v.
Concepcion, 131 S. Ct. 1740,1746 (2011).
A. Unconscionability
Glenwright argues that the arbitration agreement is invalid because it is unconscionable, particularly because it
requires the employee to bear his or her own legal fees and costs and half the cost of arbitration. 2 The arbitration
agreement states that Carbondale and the employee “shall each bear respective costs for legal representation at any
such arbitration.” (Doc. 24-9, at 2). It further states, “The parties, if any, shall share the cost of the arbitrator and
court reporter, equally.” (Id.). Later, in the Acknowledgment signed by Glenwright, the agreement again states, “I agree
that I will be entitled to legal representation at my own cost, during arbitration.” (Id. at 3). The defendants argue that
the agreement is not unconscionable under Pennsylvania law and, in the alternative, that the fee provisions can be
severed. The court finds that the fee provisions are unconscionable, but that this does not render the entire agreement
unconscionable. The unconscionable provision can be severed to save the parties' agreement to arbitrate.
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 5 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
2 Glenwright has not argued, nor has she presented any evidence to show, that the fee provisions are prohibitive of her ability
to “fully and effectively” vindicate her rights. See Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 214 (3d Cir. 2003). A litigant
arguing the inability to vindicate his or her rights based on a fee provision in the agreement bears the burden of showing the
likelihood of high costs and must establish, beyond speculation, the existence of and inability to pay these costs. See Green
Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91–92 (2000); Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 268–69 (3d Cir.
2003); Spinetti, 324 F.3d at 216–17. Here, Glenwright argues that the fee provisions are unconscionable based on the possible
limitation of remedies available to her and, thus, the agreement as a whole is unconscionable and cannot be enforced.
A court should “generally apply state contract principles to determine whether an arbitration agreement is
unconscionable.” Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 230 (3d Cir. 2012). In Pennsylvania, an
agreement is unconscionable if it is both substantively and procedurally unconscionable. Id. (citing Salley v. Option One
Mortg. Corp., 925 A.2d 115, 119 (2007)). Glenwright's argument for unconscionability of the contract is based on the
alleged unconscionability of the fee provisions in the agreement. The court agrees that the provisions are unconscionable,
but disagrees that this renders the entire contract unconscionable and, therefore, unenforceable.
*7 “Provisions requiring parties to be responsible for their own expenses, including attorneys' fees, are generally
unconscionable because restrictions on attorneys' fees conflict with federal statutes providing fee-shifting as a remedy.”
Id. at 230–231(collecting cases). This generalization is only applicable when the provision requires the litigant to bear
legal fees and costs regardless of the outcome of the arbitration and disallows fee-shifting. See id. at 231; Alexander v.
Anthony Int'l, L.P., 341 F.3d 256, (3d Cir. 2003) (fee provision substantively unconscionable under Virgin Islands law
where the agreement substantially limited the available remedies to plaintiffs); Spinetti, 324 F.3d at 214–15 (addressing a
provision that required the litigant to bear costs regardless of the outcome of arbitration). If the agreement is ambiguous
with respect to the arbitrator's ability to fashion an appropriate award, this ambiguity must be addressed by the arbitrator
in the first instance. See Quillion, 673 F.3d at 231. In Quillion, the Third Circuit found an ambiguity with respect to the
employee's ability to obtain fees as a remedy where explicit provisions in the parties' agreement contradicted each other
as to the availability or non availability of fees and costs. Id.
Here, the arbitration agreement at issue unambiguously provides that the employee will bear his or her own legal costs
and half of the costs of arbitration. It states so in two instances. Unlike the agreement in Quillion, there is no provision
that states that all remedies available in a court of law would be available to Glenwright in arbitration, or some similar
provision to that effect. Thus, there is no ambiguity in the language of the agreement and it is clear that Glenwright must
bear her respective legal fees and half the costs of arbitration. This is so despite the existence of a fee-shifting remedy
available to her in this court. This is clearly unconscionable underQuillion. See 673 F.3d at 230–31.
Although the court finds that the fee provisions are unconscionable, the court also finds that these provisions are
severable. In Pennsylvania, where an essential term in a contract is illegal, the entire contract is unenforceable. Spinetti,
324 F.3d at 214 (citing Deibler v. Chas. H. Elliott Co., 81 A.2d 557, 560–61 (Pa. 1951)). In Spinetti v. Service Corporation
International, the Third Circuit, applying Pennsylvania law, explained that a clause can be stricken from an agreement so
long as it does not constitute “an essential part of the agreed upon exchange.” Id. (quoting RESTATEMENT (SECOND)
OF CONTRACTSS § 184(1) (1981)). This is true even if there is no specific clause in the agreement allowing for severance
of the agreement. Id. at 221–22. The Spinetti court affirmed the district court's decision to sever unenforceable fee
provisions in an employment arbitration agreement. Id. The court found that the essence of the agreement was to settle
employment disputes, and not the language regarding fees. Id. at 214. “[P]rovisions regarding payment of arbitration
costs and attorney's fees represent only a part ‘of [the] agreement and can be severed without disturbing the primary
intent of the parties to arbitrate their disputes.’ ” Id. (quoting the district court) (alteration in original).
In line with Spinetti, the court is able to sever the fee provisions in the parties' arbitration agreement without disturbing
the intent of the parties to arbitrate their employment-related disputes. Thus, any argument that the unconscionable fee
provision renders the entire agreement unconscionable is legally unsound. The court will enforce the agreement without
the fee provisions and allow the parties to arbitrate their claims.
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 6 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7
Moreover, Glenwright has not argued, nor has she shown, that the agreement is procedurally unconscionable, which
this court would be required to find in order to deem the entire agreement unconscionable. “A contract is procedurally
unconscionable where ‘there is a lack of meaningful choice in the acceptance of the challenged provision[.]’ ” Quillion, 673
F.3d at 235 (quoting Salley, 925 A.2d at 119) (alteration in original). “Under Pennsylvania law, a contract is generally
considered to be procedurally unconscionable if it is a contract of adhesion.” Id. However, more than a mere disparity
of bargaining power is needed to find procedural unconscionability. Id. The court should consider factors including:
“the take-it-or-leave-it nature of the standardized form of the document[,] the parties' relative bargaining positions, and
the degree of economic compulsion motivating the adhering party[.]” Id. at 235–36 (quoting Salley, 925 A.2d at 125)
(alteration in original) (internal quotation marks omitted).
*8 Glenwright has not offered any arguments indicating that the arbitration agreement as a whole is procedurally
unconscionable. Accordingly, the court finds that the agreement as a whole is valid, but will sever the unconscionable
fee provisions.
B. Waiver
Having found a valid arbitration agreement between Carbondale and Glenwright, the court must next determine whether
the agreement has been waived, and, if not, whether the case must be dismissed because Glenwright failed to follow the
procedural requirements in the agreement. Glenwright argues that Carbondale “waived its rights under [the] policy,”
including the one year limitations period, because Carbondale did not notify her of the arbitration agreement at any time
during the underlying administrative proceedings. (Doc. 23, at 7). The court finds that whether Carbondale waived the
clause requiring written notification of the dispute within a year is an issue for the arbitrator to decide, not this court.
Accordingly, the court will compel arbitration with respect to Carbondale and allow the arbitrator to determine whether
or not Glenwright's claims fail because she did not submit a written request for arbitration in time.
“[W]aiver of the right to arbitrate based on litigation conduct remains presumptively an issue for the court to decide.”
Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 219 (3d Cir. 2007). “Consistent with the strong preference for arbitration
in federal courts, waiver [of the right to compel arbitration] is not to be lightly inferred, and waiver will normally be
found only where the demand for arbitration came long after the suit commenced and when both parties had engaged
in extensive discovery.” Nino, 609 F.3d at 208 (quoting PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1068–69 (3d Cir.
1995)). “[H]owever, a court may refuse to enforce an arbitration agreement where, for example, the alleged defaulting
party has acted inconsistently with the right to arbitrate, and [the court] will not hesitate to hold that the right to arbitrate
has been waived where a sufficient showing of prejudice has been made by the party seeking to avoid arbitration.” Id.
(internal quotation marks and citations omitted). The list of factors relevant to this inquiry include the following:
[1] the timeliness or lack therof of a motion to arbitrate ... [; 2] the degree to which the party seeking
to compel arbitration has contested the merits of its opponent's claims; [3] whether that party has
informed its adversary of the intention to seek arbitration even if it has not yet filed a motion to
stay the district court proceedings; [4] the extent of its non-merits motion practice; [5] its assent to
the court's pretrial orders; and [6] the extent to which both parties have engaged in discovery.
Id. at 208–209 (quoting Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 926–27 (3d Cir. 1992)) (internal citations
omitted) (alterations in original). All of the above factors need not be present and the existence of prejudice is the
“touchstone for determining whether the right to arbitrate has been waived by litigation conduct.” Id. at 209 (quoting
Ehleiter, 482 F.3d at 219).
Here, Glenwright's sole argument for waiver is premised on the defendants' failure to raise the arbitration agreement
during the underlying administrative proceedings. She does not address any litigation conduct in this court as a basis
for her waiver argument. The Third Circuit has not directly addressed whether a failure to raise the issue of arbitration
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 7 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
in administrative proceedings constitutes a waiver. The Third Circuit has recognized that a defendant is not required to
raise every legal defense or argument before the EEOC.Petruska v. Gannon Univ., 462 F.3d 294, 308 (3d Cir. 2006) (citing
Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 15 (1st Cir. 2005) (holding that appellee did not waive right to raise
arbitration defense in district court by failing to raise it before EEOC)). Several federal courts addressing this issue have
come to the conclusion that failure to raise the arbitration agreement in administrative proceedings does not constitute
a waiver of the right to compel arbitration. See, e.g., Volpe v. Jetro Holdings, No. 08-3521, 2008 WL 4916027, at *6–7
(E.D. Pa. Nov. 14, 2008) (collecting cases); see also Esaka v. Nanticoke Health Servs., Inc., 752 F. Supp. 2d 476, 484 (D.
Del. 2010). The court is persuaded by the reasoning in these cases and sees no reason to come to a different conclusion.
*9 Further, in light of the factors provided for waiver, generally, the court cannot conclude that Glenwright will be
prejudiced by Carbondale's failure to raise the arbitration issue. The only argument that Glenwright can assert to show
possible prejudice is the requirement requiring employees to submit their written request for arbitration within one year
from the date of termination or alleged incident in dispute. (Doc. 24-9, at 1). The court is not able to conclude that this
procedural requirement has been waived and will leave that issue for the arbitrator.
“ ‘[P]rocedural questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the
judge, but for an arbitrator, to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (quoting John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)) (emphasis in original). Thus, “waiver, delay, or like defenses
arising from non-compliance with contractual conditions precedent to arbitration” are presumptively for the arbitrator.
Ehleiter, 482 F.2d at 219. In comparison, waiver based on active litigation in court implicates the “court's authority to
control judicial procedures and to resolve issues ... arising from judicial conduct” and is, presumptively, an issue for the
court. Id. (emphasis in original).
The Third Circuit's reasoning in Ehleiter further supports a finding that conduct in the administrative proceeding is not
sufficient to find waiver of the right to compel arbitration in this judicial proceeding. It also leads to the conclusion
that the waivability of a particular clause requiring a written request for arbitration within a period of time is an issue
for the arbitrator to decide and not this court. Accordingly, the court will compel arbitration and enforce Carbondale's
agreement with Glenwright to arbitrate all employment related disputes, absent the severed fee provisions. It is for the
arbitrator to determine whether Carbondale waived the written notification requirement in the parties' agreement.
C. Genesis
The court must next determine if Genesis is covered by the arbitration agreement. While it is clear that Carbondale is a
party to the agreement, the parties dispute whether Genesis is a party. (See Doc. 23, at 3 n. 1). Genesis is not a signatory
to the agreement. (See Doc. 24-9 (referencing Carbondale only)). In a footnote, Glenwright asserts that Genesis cannot
rely on the agreement because Genesis is not a signatory. (Id.). Also in a footnote, the defendants appear to assert that
they should be treated as one and the same for purposes of arbitration due to Glenwright's own arguments as provided
in her brief; overall, their argument is unclear. (Doc. 27, at 8 n.3). At this stage, a genuine dispute still exists as to whether
Genesis and Glenwright agreed to arbitrate claims and whether Genesis may compel Glenwright to arbitrate.
“[A] court may only compel a party to arbitrate where that party has entered into a written agreement to arbitrate that
covers that dispute.” DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 194
(3d Cir. 2001) (quoting Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d 435, 444 (3d Cir. 1999)). “[W]hen asked to
enforce an arbitration agreement against a non-signatory to an arbitration clause, [the court] ask[s] ‘whether he or she
is bound by that agreement under traditional principles of contract and agency law.’ ” Id. at 194–95 (quoting Bel-Ray
Co., 181 F.3d at 444). These principles may include “assumption, piercing the corporate veil, alter ego, incorporation by
reference, third-party beneficiary theories, waiver [,] and estoppel.” Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631
(2009). First, however, a court must look to state law to determine if the particular principle being argued is recognized
and thereafter apply it to the parties dispute. Id. at 632; Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir. 2014).
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 8 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 9
*10 Pennsylvania law allows nonsignatories to be bound to an arbitration agreement. Griswold, 762 F.3d at 271–72
(citing Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa. Super. Ct. 2006)). Particularly, Pennsylvania recognizes the
agency/principle theory of binding nonsignatories to an agreement. Provensano v. Ohio Valley Generally Hosp., 121 A.3d
1085, 1097 (Pa. Super. Ct. 2015) ( “[I]f the principle is bound by an arbitration agreement, its agents, employees and
representatives are generally likewise bound and can enforce the arbitration agreement, even as non-signatories to the
agreement.”) (collecting cases); see also Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d
Cir. 1993) (“Where the parties to [an arbitration] clause unmistakably intend to arbitrate all controversies which might
arise between them, their agreement should be applied to claims against agents or entities related to the signatories.”).
The agency relationship may be created by estoppel, among other traditional ways of establishing the relationship. See
Walton v. Johnson, 66 A.3d 782, 786, 788 (Pa. Super. Ct. 2013). The Third Circuit has also interpreted Pennsylvania law
to allow nonsignatories to be bound by equitable estoppel, a separate but related concept to agency by estoppel. See
Griswold, 762 F.3d at 271–73. In addition, a nonsignatory may be bound under the third-party beneficiary doctrine in
Pennsylvania. See Smay v. E.R. Stuebner, Inc., 864 A.2d 1266, 1271 (Pa. Super. Ct. 2004).
Here, the defendants have not made clear how Genesis, a nonsignatory, may bind Glenwright, a signatory, to the
arbitration agreement. The entirety of the defendants' argument is located in a footnote. (Doc. 27, at 8 n. 3). The footnote
references the doctrines of agency and estoppel. However, later in their briefing, the defendants assert that they should
be treated separately for purposes of administrative exhaustion. (See Doc. 12, at 14–15; id.). The defendants' argument
for administrative exhaustion purposes is inconsistent with their argument that Genesis is Carbondale's “agent.”
With respect to estoppel, the defendants cite to a non-precendential, state trial court decision applying the principle of
equitable estoppel, specifically. (Doc. 27, at 8 n. 3) (citing Barletto v. Heuschel, 21 Pa. D. & C. 5th 376, 402–403 (Ct. Com.
Pl. 2011)). It is not clear that equitable estoppel is applicable here. In the context of a nonsignatory attempting to bind a
signatory to an arbitration agreement, equitable estoppel applies only where “the claims [against the nonsignatory] were
intimately founded in and intertwined with the underlying contractual obligations” that contain the arbitration clause.
Griswold, 762 F.3d at 272. The signatory cannot rely on contract obligations for their claims against the true signatory
but then refuse to arbitrate against the nonsignatory based on those same claims. The Third Circuit has described this
as the nonsignatory “voluntarily pierc[ing] its own veil” to compel arbitration. E.I. DuPont de Nemours & Co. v. Rhone
Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 201 (3d Cir. 2001). This principle is applied where there is
some underlying agreement forming the basis of the plaintiff's claims. Glenwright's claims are not based on the agreement
at issue, but are based on violations of federal and state statutory law. The defendants have not shown that equitable
estoppel would be appropriate in this context.
More importantly, the parties have not clarified the exact relationship between Genesis and Carbondale. Glenwright
describes Genesis as the managing entity for Carbondale. (Doc. 16, ¶ 8). Genesis concedes this is true, though the
defendants dispute whether Genesis was Glenwright's “employer.” (See Doc. 13, ¶ 2; Doc. 24, ¶ 2). It appears from
the record that Genesis and Carbondale are, in fact, separate entities. Carbondale and Genesis's subsidiary, an initial
defendant in this action, filed a separate Rule 7.1 disclosure statement. (Doc. 5, Doc. 6). Carbondale has no parent
corporation, though it is unclear if Genesis and Carbondale are affiliated entities in any way. (See Doc. 5). At this stage
it is not clear if Genesis can be deemed an agent of Carbondale and, thus, may compel arbitration against Glenwright.
It is not even clear if this is the defendants' argument.
*11 The defendants have not shown “that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law” with respect to Genesis' ability to compel arbitration. FED. R. CIV. P. 56(a). Nor is
the court persuaded that “no reasonable jury” could find that Glenwright did not agree to arbitrate with Genesis. In re
Bressman, 327 F.3d at 238. The parties have not provided the court with enough facts to make this determination and
the court is unable to rely on the parties' footnotes. 3 At this stage, the court will deny the motion with respect to Genesis
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 9 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 10
without prejudice and allow Genesis to file a renewed motion after the completion of fact discovery, if appropriate. At
that time, hopefully, the court would be able to properly address the parties true arguments.
3 Arguments raised in passing that are not squarely argued are, typically, deemed waived. See Johnson v. Metlife Bank, N.A.,
883 F. Supp. 2d 542, 550 n.4 (E.D. Pa. 2012) (citing John Wyeth & Brother, Ltd. v. CIGNA Int'l Corp., 119 F.3d 1070, 1076 n.
6 (3d Cir. 1997)). In this instance, the parties have failed to properly address this issue and rely solely on sparse arguments in
footnotes. This renders the court unable to “make an informed ruling” on the issue. Id.
V. ADMINISTRATIVE EXHAUSTION
Next, the defendants argue that this court lacks jurisdiction over the ADA and PHRA claims against Genesis because
Glenwright failed to name Genesis as a party in the underlying administrative proceedings before the EEOC and PHRC.
Glenwright argues that Genesis did not need to be named because both entities represented to her that “for all intents and
purposes, [they were] one entity.” (Doc. 23, at 9). She also argues that they were “joint employers.” (Id.). The court cannot
determine at this stage whether the administrative charge naming Carbondale as respondent is sufficient with respect to
Genesis because the parties have not clarified the relationship between Genesis and Carbondale. The defendants' motion
will be denied without prejudice at this stage of the litigation.
A plaintiff alleging claims under the ADA and PHRA must exhaust his or her administrative remedies before filing a
complaint in court.Churchill v. Star Enters., 189 F.3d 184, 190 (3d Cir. 1999). Typically, the plaintiff may only bring suit
against the named party in the administrative proceeding. Schafer v. Bd. of Pub. Educ. Of Sch. Dist., 903 F.2d 243, 251
(3d Cir. 1990). An exception exists, however, when the unnamed party received notice and has a “shared commonality
of interest with the named party.” Id. at 252 (citing Glus v. G.C. Murphy Co., 629 F.2d 248, 251 (3d Cir. 1980), vacated on
other grounds by 451 U.S. 935 (1981)). 4 The court must consider following four factors in making this determination:
1) Whether the role of the unnamed party could through reasonable effort by the complainant be ascertained at the
time of the filing of the EEOC complaint;
2) Whether, under the circumstances, the interests of the named party are so similar to the unnamed party that for
purposes of obtaining voluntary conciliation and compliance it would be unnecessary to include the unnamed party
in the EEOC proceedings;
3) Whether the unnamed party's absence from the EEOC proceedings resulted in actual prejudice to the interests of
the unnamed party; and
4) Whether the unnamed party has in some way represented to the complainant that its relationship with the
complainant is to be through the named party.
Id. at 252 n. 7. This is not a mechanical test and no one factor is dispositive. Glus, 629 F.2d at 251.
4 This articulation has been described as “a shorthand version of the four-part test stated in Glus.” Dixon v. Phila. Housing
Auth., 43 F. Supp. 2d 543, 546 (E.D. Pa. 1999).
*12 It is unclear at this stage what the relationship is between Carbondale and Genesis other than Genesis being
a “managing entity.” Glenwright has provided the court with various exhibits to show that Carbondale and Genesis
represented to her that “for all intents and purposes, [they were] one entity” but this alone is insufficient. (Doc. 23, at 9).
Further, if Genesis is a party to the arbitration agreement, the exhaustion argument may become moot.
Glenwright's exhibits include the following:
1) An employee handbook provided to Glenwright that is labeled “Genesis Employee Handbook for Managed
Centers,” (Doc. 24-1);
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 10 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 11
2) Paystubs listing “Genesis Healthcare” as the payor, (Doc. 24-2);
3) Performance appraisals labeled “Genesis Healthcare Corporation Non-Management Performance
Appraisal,” (Doc. 24-3);
4) A leave of absence form provided by “Genesis Healthcare,” (Doc. 24-4); and
5) The position statement offered by Carbondale in the underlying EEOC proceeding whereby Carbondale stated
that “Genesis Healthcare, the managing entity of [Carbondale], offered Nurse Glenwright a leave of absence so she
could maintain employment,” (Doc. 24-5, at 7).
Glenwright uses the above information to argue that there is sufficient commonality of interests between Carbondale
and Genesis based on their representations to her. This is not enough to clarify the true relationship between Genesis
and Carbondale and it is not enough for this court to decide the defendants' motion using the factors enumerated in
Schafer and Glus.
The court cannot weigh the first factor at this stage. Glenwright's administrative charge does not mention Genesis, even
in passing. Genesis' direct role in the firing is not clear from the charge alone. However, depending on the relationship
between Genesis and Carbondale and each entities' role with respect to employee matters, Genesis may have been able
to easily ascertain it was included as a party in the administrative charge.
Similarly, the court cannot weigh the second factor at this stage. The claims against the parties are identical and their
alleged role in the underlying events that took place are intertwined. However, at some point, in order to hold Genesis
liable, a legal determination must be made that Genesis was either an agent of Carbondale, part of an integrated
enterprise, or a joint employer. 5 Although Genesis did play a role in the underlying allegations as the managing entity
for Carbondale, the court cannot state that the parties share a commonality of interest in this action until the exact
relationship between the defendants is determined.
5 See N.L.R.B. v. Browning-Ferris Indus. of Pa., Inc., 691 F.2d 1117, 1122 (3d Cir. 1982) (distinguishing the “single employer”
and “joint employer” concepts); see also 42 U.S.C. § 12111(5)(A) (defining the term “employer” to include any “agent” of
the employer).
The third and fourth factors do weigh in favor of Glenwright at this stage. Genesis has not alleged any prejudice based
on Glenwright's failure to name the entity in the administrative charge. In addition, based on her exhibits it appears
that Glenwright viewed Carbondale and Genesis as one and the same. This conclusion may have been reasonable based
on the representations made to her during her employment. Genesis was named as the entity on Glenwright's employee
handbook; Genesis was named as the payor on her paystubs; and Genesis was named in her performance appraisals. By
listing itself as an entity on various employee documents, Genesis was representing to Glenwright that its relationship
with her would be through Carbondale. Schafer, 903 F.2d at 252 n. 7.
*13 Although the third and fourth factor weigh in favor of Glenwright, the court finds it necessary to determine the
exact relationship between the parties before making a finding on the defendants' administrative exhaustion argument.
Clarity regarding the relationship of the parties would also resolve the pending arbitration issue with respect to Genesis
and may make the administrative exhaustion argument moot. Though normally the jurisdictional determination is given
initial consideration, a few courts have held that a valid arbitration agreement may waive the administrative exhaustion
requirement. See, e.g., Virk v. Maple-Gate Anesthesiologists, P.C., 80 F. Supp. 3d 469, 478–80 (W.D.N.Y. 2015), affirmed
and vacated in part by 657 Fed.Appx. 19 (2d Cir. 2016) (collecting and analyzing cases). This would be for an issue for the
arbitrator to decide, but it would make the current jurisdictional issue moot. Virk, 657 Fed.Appx. at 23. Accordingly,
the defendants' motion to dismiss based on lack of subject-matter jurisdiction will be denied at this time to allow further
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 11 of 12
Glenwright v. Carbondale Nursing Home, Inc., Slip Copy (2017)
2017 WL 1092541
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 12
factual development. The administrative exhaustion issue will be determined after the court's finding regarding Genesis'
ability to compel arbitration as a nonsignatory to the arbitration agreement.
VI. CONCLUSION
The defendants' motion, (Doc. 11), is GRANTED IN PART and DENIED IN PART. The defendants' motion is
GRANTED IN PART with respect to Carbondale. The claims against Carbondale will not be dismissed. Instead,
Glenwright will be compelled to arbitrate her claims against Carbondale. The court will sever the fee provisions in the
parties' agreement as these provisions are unenforceable. The defendants' motion is DENIED WITHOUT PREJUDICE
with respect to Genesis. Genesis may file a renewed motion, if appropriate and made in good faith, after the completion
of fact discovery. A separate order shall follow.
All Citations
Slip Copy, 2017 WL 1092541
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-7 Filed 06/27/17 Page 12 of 12
Pesotine v. Liberty Mut. Group, Inc., Not Reported in F.Supp.3d (2014)
2014 WL 4215535
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
KeyCite Yellow Flag - Negative Treatment
Disagreed With by Landau v. Viridian Energy PA LLC, E.D.Pa., November 30, 2016
2014 WL 4215535
Only the Westlaw citation is currently available.
United States District Court,
M.D. Pennsylvania.
Christopher PESOTINE, et al., Plaintiffs,
v.
LIBERTY MUTUAL GROUP, INC, et al., Defendants.
No. 3:14–CV–784.
|
Signed Aug. 25, 2014.
Attorneys and Law Firms
Frank J. Santomauro, Scranton, PA, for Plaintiffs.
John C. Sullivan, Stacey Z. Jumper, Post & Schell, P.C., Philadelphia, PA, for Defendants.
MEMORANDUM OPINION
ROBERT D. MARIANI, District Judge.
I. Procedural History
*1 On March 7, 2014, Plaintiffs, Christopher Pesotine and Colleen Pesotine, filed a Complaint in the above-captioned
matter in the Court of Common Pleas of Luzerne County, alleging Breach of Contract (Count I), Bad Faith, 42 Pa.
Cons.Stat. Ann. § 8371 (Count II), and Violation of the Pennsylvania Unfair Trade Practices and Consumer Protection
Law, 73 Pa. Cons.Stat. §§ 201–1, et seq. (Count III). (Compl., Doc. 1, Ex. A–1). Defendants, Liberty Mutual Group,
Inc., and The First Liberty Insurance Corporation, thereafter removed this action to federal court. (Doc. 1).
On April 30, 2014, Defendants filed a motion to dismiss defendant Liberty Mutual Group and Count III of the
Complaint. (Doc. 3). Upon Defendants' request, the Court held oral argument on Defendants' motion, at which time
it denied the motion to dismiss Liberty Mutual Group as a party but reserved ruling on Defendants' motion to dismiss
Count III of the Complaint. (Unoff. Tr., at 15–16). For the reasons set forth below, the Court will now grant Defendants'
motion with respect to Count III.
II. Factual Allegations
Plaintiffs' lengthy Complaint alleges the following pertinent facts.
On October 28, 2008, Defendants issued an insurance policy to Plaintiffs, providing the Pesotines with homeowners'
insurance coverage from November 30, 2008 through November 30, 2009. (Compl., ¶¶ 9–10). The insurance policy
provided coverage for Plaintiffs' residence, including “their home, as a dwelling with expanded replacement cost”; “other
Case 4:16-cv-01343-MWB Document 74-8 Filed 06/27/17 Page 1 of 5
Pesotine v. Liberty Mut. Group, Inc., Not Reported in F.Supp.3d (2014)
2014 WL 4215535
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
structures on the residence premises”; “personal property with replacement cost”; loss of use of residence premises”;
“increased limits and additional coverages”; “an ‘Inflation Protection’ ”; and “ ‘loss of use’, debris removal', and
additional coverages' ” under the “Special Provisions—Pennsylvania” section. (Id. at ¶ 13).
On January 23, 2009, a fuel valve broke off from under the fuel tank at the plaintiffs' residence, resulting in “fuel
extensively leaking and the home being inundated with heavy fuel fumes.” (Id . at ¶ 15). That evening, Plaintiffs (1)
contacted Liberty Mutual, “providing notice of loss and damage in accordance with the terms and requirements” of the
policy, in response to which Defendants “assured them that their claim would be handled in a timely manner” and (2)
subsequently contacted a contractor to “mitigate the fuel leak and attempt to limit the odors.” (Id. at ¶¶ 16, 18).
On January 26, 2009, after having no further contact with Defendants, Plaintiffs contacted Liberty Mutual again.
(Compl., ¶ 19). The following day, Plaintiffs were contacted by Lisa Speropolous, an Environmental Claims Specialist
for Liberty Mutual, who forwarded Plaintiffs an acknowledgment of their claim notification; Defendants also forwarded
correspondence to Plaintiffs “which highlighted the ‘many benefits and services' of Plaintiffs' homeowners policy. (Id.
at ¶ 21–23). In February, 2009, Liberty Mutual hired Jacques Whitford to perform a cause and origin groundwater
investigation of Plaintiffs' residence, resulting in a letter from Speropolous confirming the details of how the subject
incident occurred and that there was “property coverage for this loss.” (Id. at ¶ 26). At the request of Defendants,
Plaintiffs also hired Alicon Environmental to conduct a site delineation. (Id. at ¶ 28).
*2 On March 11, 2009, Plaintiffs hired Kevin Kennedy, a public adjuster, to “assist them in obtaining appropriate
relief from Defendants.” (Id. at ¶ 29). Over the next several months, Plaintiffs received estimates and cost proposals
from various individuals and companies regarding, among other things, the costs of inspections, remediation of the
property, and demolition and removal of debris from the property. (Id. at ¶¶ 33, 35–36, 38, 43, 44). Beginning in July,
2009, Plaintiffs “could no longer continue residing in their home,” and relocated to a rental apartment. (Id. at ¶ 42).
In September, 2009, because “Defendants still refused to release the policy limits to Plaintiffs” and Defendants failed
to reimburse Plaintiffs for their expenses, the Pesotines retained counsel to assist them in obtaining the requested relief.
(Compl., ¶ 50). On October 8, 2009, Speropolous informed Plaintiffs that “Defendants are agreeable to settling with the
Pesotines prior to the start of remediation for the actual cash value of the home.” (Id. at ¶ 57). Plaintiffs continued to
forward various estimates to Defendants over the next few months and, on December 10, 2009, Plaintiffs' counsel wrote
to Defendants “regarding their continued failure to offer any response to the building damage loss/estimates, personal
property loss/estimates and loss of use reimbursement demand in regards to the subject claim.” (Id. at ¶ 68).
On January 8, 2010, Professional Claims Service (“PCS”) issued a Claim Report at the request of Defendants, assessing
the value of the building loss at $151,185.93; debris removal at $6,120.00; and loss of other structures at $11,471.66.
(Compl., ¶ 90). On January 19, 2010, PCS issued a revised Claim Report wherein it removed all costs for loss of other
structures. (Id. at ¶ 101). In February, 2010, Defendants issued two checks, one in the amount of $850.00 for rent payment,
and another in the amount of $151,185.93 for the actual cash value of Plaintiffs' home. (Id. at ¶ 107). Defendants had
previously issued Plaintiffs checks in December, 2009, in the amount of $5,100 for payment for “Coverage D” of the
insurance policy, and in the amount of $10,801.00 to Alicon. (Id. at ¶¶ 76, 79, 97).
Subsequent to Defendants' payments in February, 2010, Plaintiffs and their representatives continued to correspond
with Defendants and repeatedly forwarded invoices and cost proposals to Defendants. The Pesotines also paid various
bills for costs related to, and as peripheral results of, the damage to their home, for some of which Defendants reimbursed
Plaintiffs. (See generally, id. at ¶¶ 109–198).
III. Standard of Review
Case 4:16-cv-01343-MWB Document 74-8 Filed 06/27/17 Page 2 of 5
Pesotine v. Liberty Mut. Group, Inc., Not Reported in F.Supp.3d (2014)
2014 WL 4215535
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
A complaint must be dismissed under Fed.R.Civ.P. 12(b)(6), if it does not allege “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The
plaintiff must aver “factual content that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).
*3 “Though a complaint ‘does not need detailed factual allegations, ... a formulaic recitation of the elements of a cause
of action will not do.’ “ DelRio–Mocci v. Connolly Prop. Inc., 672 F.3d 241, 245 (3d Cir.2012) (citing Twombly, 550
U.S. at 555). In other words, “[f]actual allegations must be enough to raise a right to relief above the speculative level.”
Covington v. Int'l Ass'n of Approved Basketball Officials, 710 F.3d 114, 118 (3d Cir.2013) (internal citations and quotation
marks omitted). A court “take[s] as true all the factual allegations in the Complaint and the reasonable inferences that
can be drawn from those facts, but ... disregard[s] legal conclusions and threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements.” Ethypharm S.A. France v. Abbott Laboratories, 707 F.3d 223, 231, n.
14 (3d Cir.2013) (internal citations and quotation marks omitted).
Twombly and Iqbal require [a district court] to take the following three steps to determine the sufficiency of a complaint:
First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify
allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally,
where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.
Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir.2013).
“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not show [n]—that the pleader is entitled to relief.” Iqbal, 556 U.S. at 679 (internal
citations and quotation marks omitted). This “plausibility” determination will be a “context-specific task that requires
the reviewing court to draw on its judicial experience and common sense.” Id.
IV. Analysis
Defendants argue that Count III, alleging a violation of the Pennsylvania Unfair Trade Practices and Consumer
Protection Law (“UTPCPL”), must be dismissed for two reasons: (1) it is barred by the economic loss doctrine; and (2)
Plaintiffs cannot establish all of the required elements of the claim. (Doc. 3, ¶¶ 16–17). We will address each argument
in turn.
A. Economic Loss Doctrine
The economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows
only from a contract.” Werwinski v. Ford Motor Co., 286 F.3d 661, 671 (3d Cir.2002) (quoting Duquesne Light Co. v.
Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir.1995)). As a result, “the doctrine prevents a plaintiff from recovering
economic losses in tort without physical injury [and] ‘[w]here [a] plaintiffs only alleged damage is a diminution in the
value of a product plaintiff has purchased, Pennsylvania law says that plaintiff's redress comes from the law of contract,
not the law of tort.’ ” Martin v. Ford Motor Co., 765 F.Supp.2d 673, 684 (E.D.Pa.2011) (quoting Stein v. Fenestra Am.,
L.L.C., No. 09–5038, 2010 WL 816346, at *3 (E.D.Pa. Mar.9, 2010)).
*4 In Werwinski, purchasers and leasers of Ford automobiles alleged the vehicles contained defective transmissions
and brought a putative class action in against the manufacturer, asserting claims for breach of express warranty, breach
of implied warranty, fraudulent concealment, and violations of UTPCPL. On appeal, the Third Circuit affirmed the
Case 4:16-cv-01343-MWB Document 74-8 Filed 06/27/17 Page 3 of 5
Pesotine v. Liberty Mut. Group, Inc., Not Reported in F.Supp.3d (2014)
2014 WL 4215535
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
District Court's application of the economic loss doctrine to the Appellant's claims under the UTPCPL, predicting that
the Supreme Court of Pennsylvania would likely apply the economic loss doctrine to transactions involving ordinary
consumers. Werwinski, 286 F.3d at 673–674. The Circuit also declined to carve out an exception for intentional fraud.
Id. at 680–681.
Relying on Knight v. Springfield Hyundai, 81 A.3d 940 (Pa.Super.Ct.2013), Plaintiffs argue that “recent case law from
the Pennsylvania Superior Court stands in direct contrast to the Third Circuit's prediction in Werwinski ... as to the
status of Pennsylvania jurisprudence concerning the economic loss doctrine.” (Doc. 5, at 12). In Knight, the Superior
Court stated that “[o]ur research reveals ... that our Supreme Court has defined the economic loss doctrine as providing
‘no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or
property damage.’ “ Knight, 81 A.3d at 951–952 (emphasis in original), Plaintiffs misinterpret this language in Knight
as narrowing the applicability of the economic loss doctrine to negligence actions, stating that “Plaintiffs do not seek
redress under a theory of negligence, but rather maintain Defendants violated statutory provisions of the UTPCPL,
a clear distinction” (Doc. 5, at 12). However, in footnote 9 of Knight, the Superior Court noted that there are other
definitions of the economic loss doctrine, citing Debbs v. Chrysler Corp., 810 A.2d 137, 164 n. 32 (Pa.Super.2002) (the
economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows
only from a contract”) and Ellenbogen v. PNC Bank, N.A., 731 A.2d 175, 188 n. 26 (Pa.Super.1999) (the economic loss
doctrine “bar [s] a plaintiff from recovering purely economic losses suffered as a result of a defendant's negligent or
otherwise tortious behavior, absent proof that the defendant's conduct caused actual physical harm to a plaintiff or
his property”). Further, in Knight, the allegations of fraud and misrepresentation occurred prior to the signing of any
contract, making that case factually different from the action currently before this Court. All of Plaintiffs' allegations
of dishonesty and misrepresentation and deceptive practices occurred after the policy of insurance was entered into by
Plaintiff and Defendants. (See generally, Compl .).
As a result, despite Plaintiffs arguments to the contrary, Knight, and similar Pennsylvania state case law, did not
overrule Werwinski, which controls in this case. 1 Therefore, all of Plaintiffs' allegations under Count III are inextricably
intertwined with the breach of contract claim such that they are barred by the economic loss doctrine or the “gist of
the action” doctrine (barring tort claims “(1) arising solely from a contract between the parties; (2) where the duties
allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4)
where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the
terms of a contract.” Reed v. Dupuis, 920 A.2d 861, 864 (Pa.Super.Ct.2007); see also, eToll, Inc., v. Elias/Savion Adv.,
Inc., 811 A.2d 10, 14 (Pa.Super.Ct.2002) (“Tort actions lie for breaches of duties imposed by law as a matter of social
policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements.”)). Specifically,
Plaintiffs' claims are based solely in contract because they are based on the insurance company's obligations under the
policy of insurance, they represent claims for purely economic loss, and there is an absence of any allegation of actual
physical harm to Plaintiffs or their property 2 .
1 Plaintiffs are correct that district courts in this Circuit have repeatedly recognized that Werwinski may be inconsistent with
Pennsylvania law. See, e.g., Martin, 765 F.Supp.2d at 685 n. 8 (collecting cases). However, “[w]hile an issue such as this remains
unsettled under Pennsylvania case law, this Court is bound by a Third Circuit decision where that court has predicted how
the Pennsylvania Supreme Court will decide an issue,” Id. (internal citations and quotation marks omitted). Therefore, in the
absence of a contrary decision by the Pennsylvania Supreme Court, we are bound by the Third Circuit's decision in Werwinski.
2 Plaintiffs admit that “the allegations against Liberty Mutual and First Liberty have nothing to do with them causing damage
to [Plaintiffs'] property, no. It's their failure to honor the policy. The resulting factor in terms of the oil leak is the damage.
It's what they didn't do under the policy.” (Unoff.Tr. 14–15).
B. Elements of the UTPCPL
Case 4:16-cv-01343-MWB Document 74-8 Filed 06/27/17 Page 4 of 5
Pesotine v. Liberty Mut. Group, Inc., Not Reported in F.Supp.3d (2014)
2014 WL 4215535
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
*5 The UTPCPL prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct
of any trade or commerce.” 73 Pa. Cons.Stat. § 201–3. The Consumer Law specifies the applicable unfair methods of
competition and unfair or deceptive acts or practices, and includes a catchall provision. 73 Pa. Cons.Stat. § 201–2(4).
“To establish liability under the UTPCPL's catchall provision a plaintiff must present evidence showing: (1) a deceptive
act that is likely to deceive a consumer acting reasonably under similar circumstances; (2) justifiable reliance; and (3)
that the plaintiff's justifiable reliance caused ascertainable loss.” Slapikas v. First American Title Ins., Co., 298 F.R.D.
285, 292 (W.D.Pa.2014) (citing Seldon v. Home Loan Servs., 647 F.Supp.2d 451, 470 (E.D.Pa.2009)).
As Count III has already been dismissed due to the economic loss doctrine, it is unnecessary to determine whether the
Plaintiffs adequately pleaded all of the required elements of this claim. Consequently, Defendants' motion to dismiss
Count III on the basis that the element of justifiable reliance cannot be established as a matter of law (Doc. 4, at 14),
and therefore Plaintiff cannot meet the second and third required elements, will be denied.
V. Conclusion
For the foregoing reasons, the court will grant Defendants' Motion to Dismiss Count III of Plaintiffs' Complaint with
prejudice. (Doc. 3). A separate Order follows.
ORDER
AND NOW, THIS 25th DAY OF AUGUST 2014, upon consideration of Defendants', Liberty Mutual Group, Inc., and
The First Liberty Insurance Corporation, Motion to Dismiss Count III of the Complaint (Doc. 3), and all accompanying
briefs and oral argument, IT IS HEREBY ORDERED THAT Defendants' motion is GRANTED; to wit, Count III is
DISMISSED WITH PREJUDICE.
All Citations
Not Reported in F.Supp.3d, 2014 WL 4215535
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-8 Filed 06/27/17 Page 5 of 5
Zeglen v. Northwestern Mut. Life Ins. Co., Not Reported in F.Supp.3d (2014)
2014 WL 4215531
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
KeyCite Yellow Flag - Negative Treatment
Disagreed With by Landau v. Viridian Energy PA LLC, E.D.Pa., November 30, 2016
2014 WL 4215531
Only the Westlaw citation is currently available.
United States District Court,
M.D. Pennsylvania.
Kurt ZEGLEN, Plaintiff,
v.
NORTHWESTERN MUTUAL LIFE INSURANCE CO., Defendant.
No. 3:14–CV–00173.
|
Filed Aug. 25, 2014.
Attorneys and Law Firms
Matthew P. Barrett, O'Malley, Harris, Durkin & Perry, P.C., Scranton, PA, for Plaintiff.
Kevan F. Hirsch, Kaplin Stewart Meloff Rieter & Stein, PC, Blue Bell, PA, for Defendant.
MEMORANDUM OPINION
ROBERT D. MARIANI, District Judge.
I. Introduction
*1 Plaintiff Kurt Zeglen (“Zeglen” or “Plaintiff”) filed a four-count Complaint (Doc. 2) against Defendant
Northwestern Mutual Life Insurance Company (“Northwestern” or “Defendant”), alleging breach of contract (Count
I), “breach of the covenant of utmost fair dealing” (Count II), bad faith pursuant to 42 Pa.C.S.A. § 8371 (Count III),
and violation of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 Pa.C.S.A. §§ 201–1, et seq.,
(Count IV). Presently before the Court is Northwestern's Motion to Dismiss Counts II and IV (Doc. 6). For the reasons
that follow, the Court shall grant Northwestern's Motion and dismiss Counts II and IV.
II. Factual Allegations
On October 21, 1988 and September 22, 1998, Northwestern issued Zeglen disability insurance policies. (Compl.¶¶ 3,
6). Zeglen, a licensed physician and board certified radiologist, became “disabled under the terms of the policy as he is
unable to perform his duties as a radiologist[.]” (Id. at ¶¶ 20, 24, 50). On March 18, 2012, “Dr. Zeglen made a request
for disability benefits asserting he last worked on March 22, 2011.” (Id. at ¶ 25).
In submitting his request for disability benefits, Dr. Zeglen indicated that there were ‘multiple
disabilities' and identified those to include the following: left above knee amputation; limited
range of motion and use of left arm; aortic valve replacement, hypertension, cardiac arrhythmia;
depression with associated anxiety and panic attacks; short term memory loss; right carpal tunnel
syndrome; gastro-esophageal reflex disease; and hiatal hernia.
Case 4:16-cv-01343-MWB Document 74-9 Filed 06/27/17 Page 1 of 5
Zeglen v. Northwestern Mut. Life Ins. Co., Not Reported in F.Supp.3d (2014)
2014 WL 4215531
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
(Id.).
On August 28, 2012, Northwestern sent Zeglen a letter approving his claim for the period between February 16, 2012
to May 30, 2012. (Id. at ¶¶ 31–32). The August 28, 2012 letter indicated that Northwestern's consulting psychiatrist
determined Zeglen's condition had improved to the point that his “symptoms were not rising to the level that they would
be limiting [him] from work activity.” (Id. at ¶ 33) The letter went on to state that Northwestern would continue to make
payments beyond May 30, 2012, subject to “additional information in order to obtain a thorough understanding of Dr.
Zeglen's reported symptoms and limitations.” (Id. at ¶ 35).
“Despite having previously advised in its August 28, 2012 letter that it would make disability payments beyond May
30, 2012,” Northwestern subsequently ceased issuing benefits. (Id. at ¶¶ 34–35). On November 29, 2012, Northwestern
sent Zeglen a letter stating, “[l]f Dr. Zeglen is willing to participate in the evaluative medical examinations that we are
requesting, we will provide benefits on an accommodation basis until we receive the reports from the examiners, which
will allow us to continue our review of his request for disability benefits.” (Id. at ¶ 36). In accordance with the November
29, 2012 letter, Plaintiff underwent examinations scheduled by Defendant. (Id. at ¶¶ 37, 39). As agreed, Northwestern
issued Zeglen payments for “disability benefits from June 30, 2012 and stated[,] in a letter dated January 9, 2013[,] that
it was ‘willing to make a payment on an accommodation basis while the review continues.’ ” (Id. at ¶ 38).
*2 “On March 8, 2013 and April 4, 2013, Defendant acknowledged that it had not yet completed its review.” (Id. at
¶ 41A 1 ). “Despite having agreed to make a payment during the review period, Defendant issued no payment to the
Plaintiff in March 2013.” (Id . at ¶ 40B). “On March 18, 2013, Defendant sent a letter stating that it was declining the
request of the Plaintiff for copies of the reports of Dr. Morgan and/or Dr. Fischbein,” the doctors who examined Zeglen
in accordance with November 29, 2012 letter. (Id. at ¶¶ 37, 39, 41). The letter also stated Defendant would share the
reports with Plaintiff's treating physician but only on the condition that his doctor not release the report to Plaintiff
without Defendant's authorization. (Id. at ¶ 42). Northwestern has “continued to refuse to allow the release of the reports
of Dr. Morgan and/or Dr. Fischbein[.]” (Id. at ¶ 45).
1 The Complaint contains a typographical error. There are two sets of Paragraphs 40 and 41. The Court will refer to the first set
of Paragraphs 40 and 41 as Paragraph 40A and 41A. Accordingly, the second set will be designated Paragraph 40B and 41B.
On November 3, 2013, Northwestern determined that Dr. Zeglen was not disabled beyond May 30, 2012 and denied
Plaintiffs internal appeal of its decision. (Id. at ¶ 49).
III. Standard of Review
A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(6), if it does not allege “enough facts to
state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974,
167 L.Ed.2d 929 (2007). The plaintiff must aver “factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173
L.Ed.2d 868 (2009).
“Though a complaint ‘does not need detailed factual allegations, ... a formulaic recitation of the elements of a cause of
action will not do.’ “ DelRio–Mocci v. Connolly Prop. Inc., 672 F.3d 241, 245 (3d Cir.2012) (citing Twombly, 550 U.S. at
555). In other words, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Covington
v. Int'l Ass'n of Approved Basketball Officials, 710 F.3d 114, 118 (3d Cir.2013) (internal citations and quotation marks
omitted). A court “take[s] as true all the factual allegations in the Complaint and the reasonable inferences that can be
drawn from those facts, but ... disregard[s] legal conclusions and threadbare recitals of the elements of a cause of action,
Case 4:16-cv-01343-MWB Document 74-9 Filed 06/27/17 Page 2 of 5
Zeglen v. Northwestern Mut. Life Ins. Co., Not Reported in F.Supp.3d (2014)
2014 WL 4215531
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
supported by mere conclusory statements.” Ethypharm S.A. France v. Abbott Laboratories, 707 F.3d 223, 231, n. 14 (3d
Cir.2013) (internal citations and quotation marks omitted).
Twombly and Iqbal require [a district court] to take the following three steps to determine the sufficiency of a complaint:
First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify
allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally,
where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.
*3 Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir.2013).
“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not shown—that the pleader is entitled to relief.” Iqbal, 556 U.S. at 679 (internal
citations, alterations, and quotation marks omitted). This “plausibility” determination will “be a context-specific task
that requires the reviewing court to draw on its judicial experience and common sense.” Id.
IV. Analysis
A. “Breach of the Covenant of Utmost Fair Dealing” (Count II)
Count II of the Complaint alleges that Northwestern's actions “constituted a breach of the covenant of the utmost
fair dealing inherent in insurance contracts.” (Id. at ¶ 56). Northwestern seeks to dismiss Count II on the ground that
“Pennsylvania law does not provide a separate and independent cause of action for breach of the duty of good faith and
fair dealing.” (Br. in Supp., Doc. 6, at 4).
“There are two separate ‘bad faith’ claims that an insured can bring against an insurer: a contract claim for breach of the
implied contractual duty to act in good faith, and a statutory bad faith tort claim under 42 Pa. Cons.Stat. Ann. Section
8371.” Tubman v. USAA Cas. Ins. Co., 943 F.Supp.2d 525, 529 (E.D.Pa.2013). Here, Zeglen alleges both, as well as a
separate breach of contract claim. (Compl. at ¶¶ 52–60). “In Pennsylvania, the common law duty of good faith and fair
dealing is implied in every contract.” Tubman, 943 F.Supp.2d at 529. “Pennsylvania Courts have consistently held” that
where parties bring breach of contract claims and a common law bad faith claims simultaneously the “bad faith claim
sounding in contract is subsumed within [the] breach of contract claim.” Fingles v. Cont'l Cas. Co., CIV.A.08–05943,
2010 WL 1718289, at *3 (E.D.Pa. Apr.28, 2010) (collecting cases).
Following this case law, Count II (breach of the implied covenant of good faith) of the Complaint will be subsumed into
Count I (breach of contract). Thus, the Court will dismiss Court II with prejudice.
B. Unfair Trade Practices and Consumer Protection Law (Count IV)
Count IV of the Complaint alleges that Northwestern violated the UTPCPL. (¶¶ 61–63). Northwestern asserts that the
Complaint “alleges nothing more than failure to pay a disability insurance claim, non-feasance, which is not actionable
under the UTPCPL.” (Br. in Supp. at 5–7). Defendant also contends Plaintiffs UTPCPL claim must be dismissed under
the economic loss doctrine. (Id. at 7). Because Count IV is barred by the economic loss doctrine, the Court need not
consider whether the Complaint alleges misfeasance, rather than mere non-feasance.
Under Pennsylvania law, the economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to
which their entitlement flows only from a contract.” Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618
(3d Cir.1995). Although the Pennsylvania Supreme Court has not considered whether the economic loss doctrine applies
to UTPCPL claims, see Gadley v. Ellis, CIV.A. 3:13–17, 2014 WL 3696209, at *4 (W.D.Pa. July 23, 2014); the Third
Case 4:16-cv-01343-MWB Document 74-9 Filed 06/27/17 Page 3 of 5
Zeglen v. Northwestern Mut. Life Ins. Co., Not Reported in F.Supp.3d (2014)
2014 WL 4215531
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Circuit has predicted that the doctrine applies to UTPCPL claims, Werwinski v. Ford Motor Co., 286 F.3d 661, 680–
81 (3d Cir.2002).
*4 “The Werwinski decision has generated considerable criticism .” Gadley, WL 3696209, at *4 (citing O'Keefe v.
Mercedes–Benz USA, LLC, 214 F.R.D. 266, 275 (E.D.Pa.2003) (engaging in a lengthy critique of Werwinski and
declining to adopt the Third Circuit's reasoning); Martin v. Ford Motor Co., 765 F.Supp.2d 673, 685 n. 8 (“Since the
Third Circuit decided Werwinski, numerous courts have recognized its reasoning may be inconsistent with Pennsylvania
law.”) (collecting cases)). Despite this criticism, “a district court is bound by a Third Circuit decision where that court
has predicted how the Pennsylvania Supreme Court will decide an issue.' “ Gadley, WL 3696209, at *5 (quoting Martin,
765 F.Supp.2d at 685 n. 8). As a result, Werwinski binds this Court. See Tubman, 943 F.Supp.2d at 531 (“Despite
disagreement following Werwinski, it remains the controlling law unless revisited by the Pennsylvania Supreme Court.”).
Courts have applied Werwinski in UTPCPL claims where allegedly deceptive conduct “is clearly interwoven with” an
insurance contract. Id. at 530–31 (internal quotation marks omitted); Sicherman v. Nationwide Life Ins. Co., No. 11–7227,
2012 WL 1122737, at *4 (E.D.Pa. Apr.4, 2012) (dismissing a UTPCPL claim where a woman's claim that an insurance
company deceived her late husband into letting his life insurance policy lapse was critically related to the alleged breach).
Here, Zeglen's UTPCPL claim is clearly interwoven with his insurance contract. (See Compl. at ¶ 63). Plaintiff does not
allege that he suffered damages aside from those arising from the insurance agreement. (Id.). 2
2 Zeglen's brief only devotes a paragraph to addressing Northwestern's economic loss argument, arguing
The case law cited by Defendant to dismiss on the basis of the economic doctrine is not controlling. The Werwinski
decision dealt with the lease of a vehicle. The Tubman decision is an out of district decision and it is respectfully submitted
that more weight should be given to the Zaloga decision cited above.
(Br. in Opp. at 13–14).
As stated above, Werwinski is controlling. Tubman, 943 F.Supp.2d at 531. Zaloga v. Provident Life and Acc. Ins. Co. of
America, 671 F.Supp.2d 623 (M.D.Pa.2009) does not discuss economic loss, and Tubman reflects current Third Circuit
precedent.
Thus, the economic loss doctrine bars Count IV, and the Court will dismiss it with prejudice.
V. Conclusion
For the foregoing reasons, the Court will grant Defendant's Motion and dismiss Counts II and IV with prejudice. A
separate Order follows.
ORDER
AND NOW, THiS 25 TH DAY OF AUGUST 2014, upon consideration of Defendant's Motion to Dismiss (Doc. 6)
and all accompanying briefs, IT IS HEREBY ORDERED THAT Defendant's Motion to Dismiss Count II (covenant
of good faith and fair dealing) and Count IV (Unfair Trade Practices and Consumer Protection Law) of the Complaint
(Doc. 2) is GRANTED. Counts II and IV are DISMISSED WITH PREJUDICE. Count I (breach of contract) and
Count III (statutory bad faith) remain.
All Citations
Not Reported in F.Supp.3d, 2014 WL 4215531
Case 4:16-cv-01343-MWB Document 74-9 Filed 06/27/17 Page 4 of 5
Zeglen v. Northwestern Mut. Life Ins. Co., Not Reported in F.Supp.3d (2014)
2014 WL 4215531
© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.
Case 4:16-cv-01343-MWB Document 74-9 Filed 06/27/17 Page 5 of 5
Aurra Fellows
Neutral
As of: June 27, 2017 9:48 PM Z
Estate of Carl Stiles v. Chesapeake Appalachia, LLC
Superior Court of Pennsylvania
June 17, 2014, Decided; June 17, 2014, Filed
No. 1346 MDA 2012
Reporter
2014 Pa. Super. Unpub. LEXIS 3037 *
ESTATE OF CARL STILES, JUDY ARMSTRONG, AND
ANGELINA FIORENTINO, Appellee v. CHESAPEAKE
APPALACHIA, LLC, CHESAPEAKE ENERGY
CORPORATION, NOMAC DRILLING, LLC, GREAT
PLAINS OILFIELD RENTAL, LLC. AND DIAMOND Y
ENTERPRISE, INC.
Notice: NON-PRECEDENTIAL DECISION - SEE
SUPERIOR COURT I.O.P. 65.37
Subsequent History: Reported at Estate of Stiles v.
Chesapeake, 105 A.3d 35, 2014 Pa. Super. LEXIS 3182
(Pa. Super. Ct., 2014)
Prior History: [*1] Appeal from the Order Entered June
27, 2012 In the Court of Common Pleas of Bradford
County Civil Division at No(s): 10-CV-000681.
Core Terms
Lease, operations, parties, arbitration, trial court,
arbitration clause, drilling, Lessee, Residents, damages,
oil, arbitration provision, first amended complaint, scope
of arbitration, compel arbitration, motion to compel
arbitration, contaminated, activities, adjoining, premises,
lessor, pooled
Judges: BEFORE: DONOHUE, J., OTT, J., and
PLATT, J.*. MEMORANDUM BY OTT, J.
Opinion by: OTT
Opinion
MEMORANDUM BY OTT, J.:
* Retired Senior Judge assigned to the Superior Court.
Chesapeake Appalachia, LLC, Chesapeake Energy
Corporation, Nomac Drilling LLC, Great Plains Oilfield
Rental LLC, and Diamond Y Enterprise, Inc.,
(collectively, "Chesapeake") appeal from the order
entered on June 27, 2012, in the Court of Common
Pleas of Bradford County overruling their preliminary
objections seeking to compel arbitration of the lawsuit
instituted by the Estate of Carl Stiles, Judy Armstrong,
and Angelina Fiorentino. Chesapeake claims the trial
court erred in construing that the term, "operations," as
used in the arbitration provision of the parties' oil and
gas lease, to cover only the lessee's operations on the
leased premises and not (as in the present matter) on
other lands. See Chesapeake's Brief at 3. After a
thorough review of the submissions by the parties, the
certified record, and relevant law, we affirm.
The facts and procedural history are as follows: At the
times relevant to this suit, Plaintiff [*2] Carl Stiles, now
deceased, resided at the property ("the Property")
located at 479 Quicks Bend Road, Sugar Run,
Pennsylvania, with his wife, Plaintiff Judy Armstrong.
Armstrong is the mother and biological parent of Plaintiff
Angelina Fiorentino, who also resided at the Property.1,2
In 2009, Chesapeake engaged in drilling activities, and
owned and operated four natural gas wells in Terry
Township, Bradford County.3 Chesapeake located,
drilled, and conducted oil and gas explorations of
thewells ("the Wells") within approximately three miles of
the Property and water supply.
On January 12, 2010, Stiles entered into an oil and gas
1 We will refer to Stiles, Armstrong, and Fiorentino collectively
as the "Residents."
2 Armstrong no longer resides at the Property.
3 The Wells were identified as #831081, #627644, #831206,
and #831205.
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 1 of 6
Page 2 of 6
Aurra Fellows
lease ("Lease") with Chesapeake Appalachia, LLC.4
Pursuant to the Lease, Chesapeake Appalachia, LLC,
acquired an interest in any oil and gas that lay beneath
the Property.5
On October 27, [*3] 2010, Armstrong initiated this action
by filing a complaint in law and in equity against
Chesapeake Appalachia, LLC, Chesapeake Energy
Corporation, and Nomac Drilling, Inc.6 She claimed her
water supply was contaminated as a result of negligent
actions by Chesapeake with respect to its drilling
techniques and materials in relation to the Wells, which
were not on the Property. Consequently, she asserted
she was exposed to hazardous chemicals and
materials, the value of her property went down, and she
suffered damages.
On November 30, 2010, Chesapeake served notice of
removal of the case to the United States District Court
for the Middle District of Pennsylvania on the basis of
federal diversity jurisdiction. Chesapeake also filed a
motion to dismiss on December 6, 2010.
On January 20, 2011, Armstrong filed a first amended
complaint in the district court. The amended complaint
added Stiles and Fiorentino [*4] as plaintiffs, and non-
diverse defendants Great Plains Oilfield Rental, LLC,
and Diamond Y Enterprise, Inc. The amended complaint
included the following causes of action: (1) the
Hazardous Sites Cleanup Act; (2) negligence; (3)
negligence per se; (4) private nuisance; (5) strict liability;
(6) trespass; and (7) medical monitoring trust funds. The
Residents also sought punitive and compensatory
damages.
On February 10, 2011, Chesapeake filed a motion to
strike and a motion to dismiss the amended complaint.
On February 18, 2011, the Residents then filed a motion
to remand, claiming diversity no longer existed because
Great Plains Oilfield Rental, LLC, and Diamond Y
Enterprise, Inc., were non-diverse parties. On July 29,
2011, the federal district court (1) granted the Residents'
4 Armstrong and Fiorentino were not parties to the Lease.
5 During this time, Stiles passed away and Armstrong was
subsequently named the administratrix for Stiles's estate on
February 12, 2012.
6 Chesapeake Appalachia, LLC, is a West Virginia limited
liability company. Chesapeake Energy Corporation is an
Oklahoma corporation. Nomac Drilling, Inc., a subsidiary of
Chesapeake Energy Corporation, is a Pennsylvania
corporation with its principal place of business in Oklahoma
City, Oklahama.
motion to remand, (2) determined Chesapeake's motion
to strike and motion to dismiss was moot, and (3)
remanded the matter to the trial court.
Upon remand, on September 14, 2011, Chesapeake
filed a motion to compel arbitration pursuant to 42
Pa.C.S. § 7304(a) and for interim and permanent stay.
On November 1, 2011, the Residents filed a
memorandum of law in opposition to Chesapeake's
motion to compel arbitration and to stay. On June [*5]
27, 2012, the trial court entered an order, and
concomitant opinion, denying and dismissing
Chesapeake's preliminary objections seeking to compel
arbitration. This appeal followed.7
Chesapeake's sole issue is as follows:
Whether the trial court erred when it concluded that the
term "operations," as used in an arbitration provision in
an oil and gas lease, covers only the lessee's operations
on the leased premises and not (as here) on other
lands, given that the arbitration provision does not so
limit "operations" and the lease, considered in its
entirety, evidences that the parties intended that
"operations," as used in the arbitration provision,
includes activities by the lessee that occur on or off the
leased premises.
See Chesapeake's Brief at 3. Specifically, Chesapeake
states that in each count of the complaint, "the
Residents allege that they sustained damages as a
result of Chesapeake's activities that constitute [*6]
'operations,' as that term is used in the Lease." Id. at 8.
Chesapeake contends "for purposes of the arbitration
provision, there is a dispute 'concerning ... damages
caused by Lessee's operations' and, therefore, the
Residents' claims should be submitted to arbitration." Id.
(citation omitted). Moreover, it points to the following two
reasons for reversing the court's order: (1) the court's
interpretation is inconsistent with the "plain meaning" of
the arbitration provision, and as a matter of law, the
plain meaning should govern; and (2) the court's
interpretation disregards the parties' intent as separately
evidenced by the Lease as a whole. Id. at 9-15.
We begin with our well-settled standard of review:
7 On July 20, 2012, the trial court ordered Chesapeake to file a
concise statement of errors complained of on appeal pursuant
to Pa.R.A.P. 1925(b). Chesapeake filed a concise statement
on August 9, 2012. The trial court issued a statement pursuant
to Pa.R.A.P. 1925(a), relying on its June 27, 2012, opinion.
2014 Pa. Super. Unpub. LEXIS 3037, *2
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 2 of 6
Page 3 of 6
Aurra Fellows
Our standard of review of a denial of preliminary
objections in the nature of a petition to compel
arbitration "is limited to determining whether the trial
court's findings are supported by substantial evidence
and whether the trial court abused its discretion in
denying the petition." Midomo Co., Inc. v.
Presbyterian Hous. Dev. Co., 1999 PA Super 233, 739
A.2d 180, 186 (Pa. Super. 1999).
Where a party to a civil action seeks to compel
arbitration of that action, a two-part test is employed to
determine if arbitration is required. First, the trial court
must determine if a valid agreement [*7] to arbitrate
exists between the parties. Id. Second, if the trial court
determines that such an agreement does exist, it must
then determine if the dispute involved is within the
scope of the arbitration provision. Id. "The scope of
arbitration is determined by the intention of the parties
as ascertained in accordance with the rules governing
contracts generally." Henning v. State Farm Mut.
Automobile Ins. Co., 2002 PA Super 80, 795, 795 A.2d
994, 996 (Pa. Super. 2002), citing, State Farm Mut.
Automobile Ins. Co. v. Coviello, 233 F.3d 710, 716
3rd Cir. 2000).
Pittsburgh Logistics Sys., Inc. v. Prof'l Transp. &
Logistics, Inc., 803 A.2d 776, 779, 2002 PA Super 227
(Pa. Super. 2002).
The interpretation of any contract is a question of law
and this Court's scope of review is plenary. Moreover,
"[w]e need not defer to the conclusions of the trial court
and are free to draw our own inferences. In interpreting
a contract, the ultimate goal is to ascertain and give
effect to the intent of the parties as reasonably
manifested by the language of their written agreement."
When construing agreements involving clear and
unambiguous terms, this Court need only examine the
writing itself to give effect to the parties' understanding.
This Court must construe the contract only as written
and may not modify the plain meaning under the guise
of interpretation.
Szymanowski v. Brace, 2009 PA Super 218, 987 A.2d
717, 722 (Pa. Super. 2009) (quoting Abbott v.
Schnader, Harrison, Segal & Lewis, LLP, 2002 PA
Super 247, 805 A.2d 547, 553 (Pa. Super. 2002)
(internal citations omitted)). [*8] "The task of interpreting
a contract is generally performed by a court rather than
by a jury. The goal of that task is, of course, to ascertain
the intent of the parties as manifested by the language
of the written instrument." Maguire v. Ohio Casualty
Ins. Co., 412 Pa. Super. 59, 602 A.2d 893, 894 (Pa.
Super. 1992).
Humberston v. Chevron U.S.A., Inc., 2013 PA Super
238, 75 A.3d 504, 509-510 (Pa. Super. 2013). "Where
the language of the contract is ambiguous, the provision
is to be construed against the drafter." State Farm Fire
and Casualty Company v. PECO, 2012 PA Super 212,
54 A.3d 921, 928 (Pa. Super. 2012); see also Standard
Venetian Blind Co. v. American Empire Ins. Co., 503
Pa. 300, 469 A.2d 563, 566 (Pa. 1983).
Turning to the first element of the two-part test to
determine if arbitration is required, whether a valid
agreement to arbitrate exists between the parties, we
note the trial court does not address this prong in its
June 27, 2012, opinion. Moreover, the record
establishes that the only named parties on the Lease
are Stiles and Chesapeake Appalachia, LLC. See First
Amended Complaint, 1/20/2011, Exhibit C at
unnumbered 1. However, we are guided by the
following:
In general, only parties to an arbitration agreement are
subject to arbitration. See Cumberland-Perry Area
Vocational-Technical School v. Bogar & Bink, 261
Pa. Super. 350, 396 A.2d 433 (Pa. Super. 1978) (parties
cannot be compelled to arbitrate disputes absent
agreement to arbitrate). However, a nonparty, such as a
third-party beneficiary, may fall within the scope of an
arbitration agreement if that is the parties' intent. Cf.
Highmark Inc. v. Hospital Service Association of
Northeastern Pennsylvania, 2001 PA Super 278, 785
A.2d 93 (Pa. Super. 2001) (third-party beneficiary may
enforce arbitration clause even though it [*9] is not a
signatory to the contract).
Smay v. E.R. Stuebner, Inc., 2004 PA Super 493, 864
A.2d 1266, 1271 (Pa. Super. 2004).
Armstrong and Fiorentino could be considered third-
party beneficiaries of the Lease either because they
resided on the Property or are beneficiaries under
Stiles's estate. Therefore, an agreement between the
parties arguably existed. Nevertheless, for the reasons
that follow, we find the arbitration clause does not
encompass the dispute at issue.
With respect to the second element of the test, whether,
the dispute involved is within the scope of the arbitration
provision, we note the Lease provided, in pertinent part:
LEASING CLAUSE. Lessor hereby leases exclusively to
Lessee all the oil and gas ..., and their liquid or gaseous
constituents, whether hydrocarbon or non-hydrocarbon,
2014 Pa. Super. Unpub. LEXIS 3037, *6
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 3 of 6
Page 4 of 6
Aurra Fellows
underlying the land herein leased, together with such
exclusive rights as may be necessary or convenient for
Lessee, at its election, to explore for, develop,
produce, measure, and market production from the
Leasehold, and from adjoining lands, using methods
and techniques which are not restricted to current
technology, including the right to conduct geophysical
and other exploratory tests; to drill, maintain, operate,
cease to operate, plug, abandon, and remove wells;
to [*10] use or install roads, electric power and
telephone facilities, and to construct pipelines with
appurtenant facilities, including data acquisition,
compression and collection facilities for use in the
production and transportation of products from the
Leasehold or from neighboring lands across the
Leasehold, to use oil, gas, and non-domestic water
sources, free of cost, to store gas of any kind
underground, regardless of the source thereof, including
the injecting of gas therein and removing the same
therefrom; to protect stored gas; to operate, maintain,
repair, and remove material and equipment.
****
UNITIZATION AND POOLING. [Stiles] grants
[Chesapeake Appalachia, LLC] the right to pool, unitize,
or combine all or parts of the Leasehold with other
lands, whether contiguous or not contiguous, leased or
unleased, whether owned by Lessee or by others, at a
time before or after drilling to create drilling or
production units either by contract right or pursuant to
governmental authorization.
****
DISPOSAL AND INJECTION WELLS. [Stiles] hereby
grants to [Chesapeake Appalachia, LLC] the right to drill
wells and/or re enter existing wells, including necessary
location, roadway and pipeline easements [*11] and
rights of way, on any part of the Leasehold or lands
pooled or unitized therewith for the disposal and/or
injection into any subsurface strata ... including, but not
limited to wells on the Leasehold or lands pooled or
unitized therewith or from properties and lands outside
the Leasehold, or lands pooled or unitized therewith,
and to conduct all operations as may be required, for so
long as necessary and required by [Chesapeake
Appalachia, LLC] for purposes as herein provided.
****
ARBITRATION. In the event of a disagreement between
[Stiles] and [Chesapeake Appalachia, LLC] concerning
this Lease, performance thereunder, or damages
caused by [Chesapeake Appalachia, LLC]'s
operations, the resolution of all such disputes shall be
determined by arbitration in accordance with the rules of
the American Arbitration Association. All fees and costs
associated with the arbitration shall be borne equally by
[Stiles] and [Chesapeake Appalachia, LLC].
First Amended Complaint, 1/20/2011, Exhibit C at
unnumbered 3 (emphasis added).
With respect to the substantive allegations raised by the
Residents in the original complaint and first amended
complaint, the Residents maintained Chesapeake was
negligent [*12] in the drilling, construction, and
operation of the Wells, such that "[m]ethane, ethane and
other pollutants and industrial and/or residual waste,
was caused to be discharged into or otherwise enter
and contaminate the ground and aquifer near and under
the [Residents'] home and into the ground water well
used and relied upon as their water supply." See First
Amended Complaint, 1/20/2011, at ¶ 26(a); see also
Complaint At Law and in Equity, 10/27/2010, at 5.
Moreover, in the Residents' opposition to Chesapeake's
motion to compel arbitration and to stay, they averred
that after executing the Lease, Chesapeake engaged in
improper and negligent behavior during their oil and gas
exploration and extraction activities on property near
[the Residents'] property and which was unrelated to
any oil or gas extraction activities on or under Stiles'
property that was the subject of the lease. It was
[Chesapeake's] actions on the nearby property, with no
relation to the Lease between the parties to this action
that proximately caused damage to [the Residents']
surface water, subsurface water and property and which
are now the basis of the present action. It was not
[Chesapeake's] actions resulting from the [*13] Lease
between Stiles and [Chesapeake] that damaged [the
Residents]. Further, nothing in the Lease expressly or
reasonably requires that claims for personal injury and
property damage from environmental contamination be
arbitrated.
The Residents' Memorandum of Law in Opposition to
Chesapeake's Motion to Compel Arbitration and to Stay,
11/1/2011, at 5-6 (italics in original).
In construing the Lease with respect to the Residents'
allegations, the trial court found the following:
None of [the Residents'] claims allege that the
operations which contaminated [the Residents'] water
supply arose from operations relating to the Stiles lease,
but [Chesapeake's] motion to compel arbitration
2014 Pa. Super. Unpub. LEXIS 3037, *9
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 4 of 6
Page 5 of 6
Aurra Fellows
implicitly suggests that a claim for damages arising from
any of its operations must be referred to arbitration, if
the party claiming damages has executed a lease
containing the arbitration clause in question. There is no
need for exegetical analysis of the scope of the
arbitration clause. Clearly the parties to the lease
intended that it would apply to operations involving a
gas well drilled on Plaintiff Stiles's property. Conversely,
it is equally clear that the arbitration clause would not
apply to damage [*14] claims arising from some other
operations, e.g., if Defendant Chesapeake Appalachia's
corporate jet crashed into a car carrying [the Residents]
on a California highway.
The trial court holds that the arbitration clause, which
identifies the principals as "Lessor" and "Lessee," was
intended by the parties to govern disagreements which
arise between them qua lessor and lessee. That is not
the case here. All of [the Residents'] claims, sounding in
trespass, would be viable in the absence of a lease. The
lease is wholly incidental to the alleged cause of action.
Trial Court Opinion, 6/27/2012, at 3 (italics in original).
We agree.
As indicated above, Chesapeake argues the parties'
intent with respect to "on-premises and off premises
'operations'" is evidenced by the language in the leasing
clause of the Lease, which precedes the arbitration
clause. Specifically, Chesapeake notes the leasing
clause references the following rights, given by Stiles as
lessor to Chesapeake as lessee: (1) "to explore for,
develop, produce, measure, and market production from
the Leasehold, and from adjoining lands;" and (2) to
"construct pipelines ... for use in the production and
transportation of products from [*15] the Leasehold or
from neighboring lands across the Leasehold[.]"
Chesapeake's Brief at 12-13.
Chesapeake requests this Court to interpret the Lease
broadly, and to read
the agreement as a whole, in order to find that the term
"operations" includes those acts "on the leased
premises but also all other operations," such as those
on adjoining or neighboring lands. Id. at 12 (emphasis
added).
We cannot read the terms of the Lease so broadly as to
mandate arbitration for the specific acts alleged in the
complaint which sound in tort. We note there is some
ambiguity as to the terms "adjoining lands" or
"neighboring lands" as used in the Lease.8 However, it
is unclear how a lessor could grant rights to a lessee to
engage operations as prescribed in the Lease on
"adjoining lands" that he or she does not own. Further,
we are required to interpret the Lease against
Chesapeake as the drafter. State Farm Fire and
Casualty Company, 54 A.3d at 928. Consequently, the
trial court did not abuse its discretion in refusing to
interpret the Lease to include Chesapeake's operations
on land that was three miles away from the Property as
such activity fell outside the scope of the arbitration
provision of the Lease.9
Lastly, we note that Chesapeake relies on several cases
for the principle that arbitration clauses should be given
the broadest interpretation. See Chesapeake's Brief at
10. However, we find that these cases are
distinguishable from the present matter. For example,
Chesapeake relies on Muhlenberg Township School
Dist. Authority v. Pennsylvania Fortunato Constr.
Co., 460 Pa. 260, 333 A.2d 184 (Pa. 1975), for the
conclusion that "for purposes of [an] arbitration clause,
'[t]o suffer damage in any manner' in our opinion is all
inclusive' and 'claims' ... means all claims.'"
Chesapeake's Brief at 10. However, Chesapeake's
interpretation of Muhlenberg Township is misplaced as
the arbitration provision in the case specifically
provided:
1. Should either party to this Contract suffer damage in
any manner because of any wrongful act or neglect of
the other party or of anyone employed by him, then he
shall be reimbursed by the other party for such
damages.
2. Claims under this clause shall be made in writing to
the party [*17] liable within a reasonable time at the first
observance of such damage and not later than the time
of final payment, except as expressly stipulated
otherwise in the case of faulty work or materials, and
shall be adjusted by agreement or arbitration.
Muhlenberg Township, 333 A.2d at 186 (quotation
8 See State Farm Fire and Casualty Company, 54 A.3d at
928.
9 We note because the parties are at the [*16] early stage of
the proceedings, if after discovery, it is determined that the
contamination resulted from Chesapeake's operations on the
Property, then the parties may be bound by the arbitration
clause. However, based on the facts so far alleged, there is no
evidence to support that conclusion.
2014 Pa. Super. Unpub. LEXIS 3037, *13
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 5 of 6
Page 6 of 6
Aurra Fellows
marks and footnote omitted). The Pennsylvania
Supreme Court rejected the argument that this language
applies only to incidents involving injury to persons or
property and concluded that "[t]o 'suffer damage in any
manner' in our opinion is all inclusive and the provision:
'Claims . . . shall be adjusted by agreement or
arbitration' means all claims." Id.
Here, on the other hand, the arbitration provision was
not all inclusive and did not encompass all claims where
it specifically designated that arbitration could be
compelled as to a disagreement regarding "performance
thereunder, or damages caused by [Chesapeake
Appalachia, LLC]'s operations" on the Property. First
Amended Complaint, 1/20/2011, Exhibit C at
unnumbered 3. As analyzed above, operations on
another individual's property does not fall under the
terms of the Lease.
Moreover, Chesapeake cites to Ambridge Water
Authority v. Columbia, 458 Pa. 546, 328 A.2d 498 (Pa.
1974) and Smay, supra, for the argument that the
arbitration clause was framed in [*18] the broadest
language and therefore, the scope of the provision was
unlimited. Chesapeake's Brief at10. However, again,
these arbitration clauses10 are different from the
arbitration clause at issue because broad language was
not used and the ability to compel arbitration was limited
to operations on this specific property.
Accordingly, we conclude the trial court did not err in
denying Chesapeake's preliminary objections seeking to
compel arbitration, as the trial court's findings are
supported by substantial evidence and the court did not
abuse its discretion in denying the petition. See
Midomo Co., Inc., supra.
Order affirmed. Judgment Entered.
Judgment Entered.
Date: 6/17/2014
10 See Ambridge Water Authority,328 A.2d at 499 (arbitration
clause provided: "That any controversy or claim arising out of
or relating to this Agreement or the breach thereof shall be
settled by arbitration[.]."); Smay, 864 A.2d at 1271 (arbitration
clause stated: "Any controversy or Claim arising out of or
related to the Contract, or the breach thereof, shall be settled
by arbitration ... except controversies or Claims relating to
aesthetic effect and except those waived as provided for in
Subparagraph 4.3.5 [(Waiver of Claims: Final Payment)].")
End of Document
2014 Pa. Super. Unpub. LEXIS 3037, *16
Case 4:16-cv-01343-MWB Document 74-10 Filed 06/27/17 Page 6 of 6