Court Opinion

ID: 4969644
Source: CourtListenerOpinion
Date Created: 2021-09-24 16:56:31.570652+00
Date Added: 2024-06-11T08:16:30.525883
License: Public Domain

DISSENTING OPINION BY
President Judge DAN PELLEGRINI.
By filing an action to determine whether Kutztown Borough and Kutztown Municipal Authority (collectively, Kutztown) waived its arbitration rights, which is itself determined through the arbitration process, I agree with the trial court that Maxatawny Township and Maxatawny Township Municipal Authority (collectively, Maxatawny) submitted to and accepted the judicial process and therefore waived its right to compel arbitration. Accordingly, I respectfully dissent.
As the majority explains, the Inter-municipal Sanitary Sewage Service and Treatment Agreement (Agreement) into which *906Maxatawny and Kutztown entered obligated Maxatawny tq construct a treatment facility to provide for the parties’ future sewage needs and to convey it to the inter-municipal sewage treatment authority by December 31, 2013. Article X of the Agreement contains provisions governing arbitration:
Section 11.02. Demand for Arbitration. Arbitration shall be demanded within ninety (90) calendar days from the time when the demanding party, either by one of the Municipalities party to this Agreement or the [treatment authority], knows or should have known of the event or events giving rise to the claim. Failure to demand arbitration within this time limit shall forever foreclose the right of the demanding party to review its alleged claim.
Section 11.03. Arbitration. The parties recognize that this Section means that all claims shall be litigated and reviewed before a panel of arbitrators instead of before a court of law and/or a jury, because they desire the many benefits of the arbitration process over court proceedings, including the speed of the resolution, lower costs and fees, and more flexible rules of evidence.
Agreement art. X, §§ 11.02-11.03.
In October 2012, Maxatawny informed Kutztown that it could not comply with certain duties under the Agreement and therefore, that it intended to dissolve it. By letter dated November 30, 2012, Maxa-tawny confirmed its position, stating that it intended to withdraw from the Agreement and proposing general settlement terms. Over a year later, on December 10, 2013, Kutztown rejected Maxatawny’s proposal, demanded compliance with the Agreement as written, and stated its intention to “enforce all of [the Agreement’s] rights and remedies, at law, in equity and pursuant to other causes of action, to compel performance of the Agreements.” (Reproduced Record [R.R.] at 47a.)
In December 2013, Maxatawny filed suit against Kutztown in the Court of Common Pleas of Berks County (trial court), seeking a declaration that: (1) Kutztown waived its right to arbitration by failing to make a timely demand for arbitration as required under the Agreement; (2) the Agreement was terminated pursuant to the notice Maxatawny provided in November 2012; and (3) Maxatawny is not liable to Kutztown.
In response, Kutztown filed a counterclaim against Maxatawny, seeking a writ of mandamus directing Maxatawny to perform its obligations under the Agreement as well as specific performance, or alternatively, monetary damages, for Maxatawny’s breach of the Agreement. Maxatawny then filed preliminary objections, contending that the trial court lacked jurisdiction over the dispute raised in the counterclaims because Kutztown had an adequate remedy at law insofar as the Agreement provided for mandatory arbitration.
The trial court overruled the preliminary objections in principal part, emphasizing that:
[Maxatawny] voluntarily entered into the Agreement and then initiated litigation against [Kutztown] after [Kutztown] performed [its] obligations under the Agreement. A party that avails itself of the judicial process by attempting to win favorable rulings from the judicial system following the filing of a complaint does waive [its] right to proceed through arbitration.... [Maxatawny has] initiated the legal process and [is] proceeding on [its] claim to its conclusion within the judicial process. This is evidenced further by [Maxatawny] filing preliminary objections seeking judicial determinations beyond just the disputed arbi*907tration provision(s). It is apparent [Maxatawny] ha[s] availed [itself] of the judicial process, which Pennsylvania case law tracks, and this conduct by [Maxatawny] does waive any right [it] may have had to proceed to arbitration.
(Trial Court’s May 30, 2014 Opinion, at 5.)
The majority acknowledges that a party may waive enforcement of an agreement to arbitrate through its conduct. See Moscatiello Construction Company v. Pittsburgh Water & Sewer Authority, 167 Pa.Cmwlth. 508, 648 A.2d 1249, 1251 (1994), appeal denied, 540 Pa. 608, 655 A.2d 995 (1995). When, as here, a party to an agreement to arbitrate seeks to enjoin the other party from pursuing arbitration, “judicial inquiry is limited to two questions: (1) was an agreement to arbitrate entered into; and (2) does the dispute involved fall within the arbitration clause.” Lincoln University of Commonwealth System of Higher Education v. Lincoln University Chapter of American Association of University Professors, 467 Pa. 112, 354 A.2d 576, 580 (1976).
In the instant matter, the parties do not dispute that they entered into the Agreement; rather, Maxatawny contends that Kutztown is time-barred from seeking arbitration. Generally, “the question of the timeliness of a demand for arbitration is not of interpretation of the agreement and not one of the existence or scope of the arbitration provision; it is thus outside the bounds of [a trial court’s] review and its resolution must be left to arbitration.” Id. at 582 n. 11 (internal quotation marks and citation omitted); see also Muhlenberg Township School District Authority v. Pennsylvania Fortunato Construction Co., 460 Pa. 260, 333 A.2d 184, 186-87 (1975) (holding that the issue of whether a contractor’s demand for arbitration was timely must be resolved by the arbitrators as it is a matter of interpretation of the agreement).
Although the issue of whether Kutztown waived its arbitration rights should have been submitted to arbitration, the trial court found that Maxatawny waived its right to compel arbitration to determine that question by initiating suit in the trial court. Indeed, it is well established that “[a] party engaged in litigation before a court may waive its right to have a dispute submitted to arbitration.” St. Clair Area School District Board of Education v. E.I. Associates, 733 A.2d 677, 682 n. 6 (Pa.Cmwlth.1999). To this extent, I agree with the majority that a party’s acceptance of the judicial process, and thus whether it has waived arbitration, should take into consideration whether the party: “(1) fails to raise the issue of arbitration promptly, (2) engages in discovery, (3) files pretrial motions which do not raise the issue of arbitration, (4) waits for adverse rulings on pretrial motions before asserting arbitration, or (5) waits until the case is ready for trial before asserting arbitration.” Id.
However, these factors do not account for the rare situation in which a plaintiff seeks to compel arbitration after initiating a claim in the trial court. The United States District Court for the Eastern District of Pennsylvania addressed such an issue in Pirito v. Penn Engineering World Holdings, 833 F.Supp.2d 455 (E.D.Pa.2011), and I find its analysis instructive and persuasive. In that case, the district court explained that the waiver “test was intended for situations where a party might have waived the right to arbitrate due to its acquiescence with the opposing party’s litigation conduct, not for the exceptional case in which the party asserting the defense of arbitrability itself initiated the litigation by asserting arbitrable claims.” Id. at 467. Finding that the claims the plaintiff asserted were encom*908passed by the agreement to arbitrate, the district court held that the plaintiff:
waived the defense of arbitrability not by passive acquiescence — as we more commonly see ... — but by his active choice of this forum. By submitting his arbitrable claim to this Court, he has waived the argument that this Court is an inappropriate forum for the resolution of such claims. In this context, the fact that [the plaintiff] did assert the affirmative defense of arbitrability in his answer to the [defendants’] counterclaims, see Pl.’s Ans. at 19, diminishes in importance.
Id. at 468.
Significantly, Maxatawny did not “passively acquiescence” but “actively chose its forum” when it filed its declaratory action in the trial court rather than proceeding to arbitration. It only asserted its arbitration objection to protect itself after Kutz-town filed counterclaims. As was the case in Pirito, here, Maxatawny1 s active choice of forum weighs in favor of a finding of waiver. This factor is due far greater weight than the fact that Maxatawny filed preliminary objections raising the arbitration clause in response to Kutztown’s counterclaims, particularly when those counterclaims arise from the same matter that Maxatawny chose to litigate in the trial court. Moreover, despite the trial court’s ruling that Maxatawny waived its right to enforce the arbitration clause by filing its declaratory action, Maxatawny did not choose to withdraw its action, continuing to submit itself to jurisdiction of the trial court.
The majority holds that “the mere filing of a complaint or an answer in a court proceeding will not result in waiver of the right to compel arbitration” because “[t]he party asserting waiver must show prejudice to it or undue advantage gained by the other party.” (Majority Opinion at 903.) In support of this position, the majority relies upon O’Donnell v. Hovnanian Enterprises, Inc., 29 A.3d 1183 (Pa.Super.2011). However, in that case it was the defendant who sought to move the case to arbitration after proceeding in the judicial system for several years without objection. O’Donnell did not encompass the fact pattern where the party initiating the litigation in the trial court was fully aware of the arbitration clause but knowingly sought a court decision on an issue that was arbitrable.
The majority cites an earlier Superior Court case, Kwalick v. Bosacco, 329 Pa.Super. 235, 478 A.2d 50 (1984), a matter where the plaintiff sought to remove his case to arbitration after originally filing it in the trial court. In Kwalick, the court rejected the defendant’s waiver argument, relying on two pre-Pinto, single-judge decisions issued by the United States District Court for the Eastern District of Pennsylvania which did not address the additional considerations advanced in Pirito. See Nuclear Installation Services Co. v. Nuclear Services Corp., 468 F.Supp. 1187 (E.D.Pa.1979); Vespe Contracting Co. v. Anvan Corp., 399 F.Supp. 516 (E.D.Pa.1975). Because application of the Pirito factor is necessary and counsels in favor of a finding of waiver, I do not find this line of reasoning persuasive.
Further, because I would find that the trial court did not err in holding that Maxatawny waived its right to enforce arbitration, I would find that Kutztown’s counterclaims are governed by the statute of limitations applicable to civil actions rather than by the time period applicable to demands for arbitration.
Accordingly, for the reasons discussed above, I would affirm the trial court’s decision.