Court Opinion

ID: 612378
Source: CourtListenerOpinion
Date Created: 2011-08-23 17:46:32+00
Date Added: 2024-06-11T17:50:19.654957
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                ____________

                                     No. 10-4197
                                    ____________

           HARLEYSVILLE INSURANCE COMPANY OF NEW YORK,

                                      Appellant

                                          v.

                              MICHAEL CERCIELLO
                                 ____________

                   On Appeal from the United States District Court
                       for the Middle District of Pennsylvania
                               (D.C. No. 3-08-cv-02060)
                     District Judge: Honorable Edwin M. Kosik
                                    ____________

                            Argued July 14, 2011
            Before: SLOVITER, FUENTES and FISHER, Circuit Judges.

                               (Filed: August 23, 2011)

Michael T. Blazick, Esq. (Argued)
Mark A. Fontanella, Esq.
2 Public Square, Suite 102
Wilkes-Barre, PA 18701
       Counsel for Appellant

Andrew D. Bigda, Esq. (Argued)
Rosenn, Jenkins & Greenwald
15 South Franklin Street
Wilkes-Barre, PA 1 8711
      Counsel for Appellee
                                    ____________

                             OPINION OF THE COURT
                                       ____________

FISHER, Circuit Judge.

       Harleysville Insurance Company of New Jersey appeals the final order of the

United States District Court for the Middle District of Pennsylvania holding that it has no

right to a de novo trial after arbitrators issued an award to Michael Cerciello. For the

reasons below, we will affirm.

                                              I.

       We write principally for the parties, who are familiar with the factual context and

legal history of this petition. Therefore, we will set forth only those facts necessary to

our analysis.

       Harleysville Insurance Company of New Jersey (“Harleysville”) and Michael

Cerciello are engaged in an insurance coverage dispute. The underlying insurance

contract, a commercial automobile insurance policy, provided for non-binding arbitration

that would occur in and be governed by the laws of the place where an accident occurred.

The relevant portion of the policy, the underinsurance endorsement, provided:

       NEW JERSEY UNINSURED AND UNDERINSURED MOTORIST
       COVERAGE CHANGES

       THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT
       CAREFULLY

       4.       The following condition is added:

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       ARBITRATION

       a.     If we and an insured disagree whether the “insured” is legally
              entitled to recover damages from the owner or driver of an
              „uninsured motor vehicle‟ or an “underinsured motor vehicle” or do
              not agree as to the amount of damages that are recoverable by that
              “insured,” then the matter may be arbitrated. However, disputes
              concerning coverage of this endorsement may not be arbitrated.
              Either party may make a written demand for arbitration. In this
              event, each party will select an arbitrator. The two arbitrators will
              select a third. If they cannot agree within thirty (30) days, either
              may request that selection be made by a judge of a court having
              jurisdiction. Each party will pay the expenses it incurs and bear the
              expenses of the third arbitrator equally.

       b.     Unless both parties agree otherwise, arbitration will take place in the
              county in which the insured lives. Local rules of law as to
              arbitration procedure and evidence will apply. A decision agreed to
              by two or more of the arbitrators will be binding only if neither we
              nor an insured demand trial within 30 days after the award. Trial
              will be in a court of competent jurisdiction. Trial will be on all
              issues of the award.

(App. at 102).

       The accident that triggered coverage under the policy occurred in Pennsylvania,

and, accordingly, arbitration occurred in Pennsylvania, where Cerciello won an award of

$200,000 against Harleysville. Subsequently, Harleysville sent a letter to Cerciello

invoking the trial demand contained in the policy and rejecting the arbitration award.

       Prior to the arbitration, Harleysville had filed a complaint in the U.S. District

Court for the Middle District of Pennsylvania seeking a declaratory judgment holding

that the language in the underinsurance endorsement was valid and enforceable, and that

arbitration would be non-binding.

                                              3
       Harleysville argued that the policy provided both parties with the right to demand

a trial after an arbitration award and that it is well-settled that it is enforceable under New

Jersey law, which applies to the policy, as it was purchased and issued in New Jersey and

covered a vehicle garaged in New Jersey. Cerciello argued that Pennsylvania law

applies, that the provision is unenforceable under Pennsylvania law, and that to the extent

that it may be enforceable, it only provides for judicial review when the claimant is

unsatisfied with the arbitration award.

       Also before arbitration occurred, Cerciello filed a motion to dismiss for lack of

subject matter jurisdiction. Specifically, he alleged “Harleysville fail[ed] to plead a case

or controversy as required by Article III of the United States Constitution thereby

depriving [the District Court] of the authority to adjudicate the issues presented therein

. . . Alternatively, should [the District Court] conclude that it ha[d] subject matter

jurisdiction, Harleysville complaint should be dismissed for lack of ripeness.” As the

parties had not yet gone through arbitration, the District Court agreed to stay the

proceedings pending its results.

       After the arbitration, the District Court lifted the order staying the proceedings.

Cerciello filed counterclaims against Harleysville. One counterclaim sought a

declaratory judgment confirming the decision of the arbitration panel concerning the

underinsurance claim and awarding him $200,000. Other counterclaims were filed but

are not before us. Ultimately, Cerciello filed a motion for judgment on the pleadings and

                                               4
supporting brief. Harleysville likewise filed its own motion for judgment on the

pleadings and supporting briefs.

       The pending motions for judgment were referred to a magistrate judge for

purposes of preparing a report and recommendation. The recommendation was

submitted. It recommended granting partial judgment on the pleadings to Cerciello. The

District Court followed the recommendation.

       On September 20, 2010, Harleysville and Cerciello filed a joint motion for entry

of judgment. On October 1, 2010, the District Court filed an order that, among other

things, entered final declaratory judgment in favor of Cerciello and concluded that there

would be no review of the arbitration award.

       Harleysville filed a timely notice of appeal.

                                             II.

       The District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and 28 U.S.C.

§ 2201 et seq. We have jurisdiction pursuant to 29 U.S.C. § 1291. We exercise plenary

review when reviewing a district court‟s grant of judgment on the pleadings. Ehrheart v.

Verizon Wireless, 609 F.3d 590, 593 n.2 (3d Cir. 2010).

                                            III.

       Harleysville argues that the District Court erred by determining that the parties

implicitly agreed that the arbitration proceeding would be governed by Pennsylvania law,

and believes that further choice of law analysis was required to determine whether

Pennsylvania or New Jersey law applies. We disagree. In Pennsylvania, parties to a

                                             5
contract can select which state‟s law will apply. Smith v. Commonwealth Nat’l Bank, 557

A.2d 775, 777 (Pa. Super. Ct. 1989); Assicurazioni Generali v. Clover, 195 F.3d 161, 164

(3d Cir. 1999).

       Pennsylvania courts have reviewed policies that are materially the same as

Harleysville‟s policy and have concluded that the parties implicitly agreed that

Pennsylvania law governs the arbitration proceedings and its related procedure. For

example, in Miller v. Allstate Insurance Company, 763 A.2d 401, 403 (Pa. Super. Ct.

2000), the court determined that the contract language, combined with the fact that

arbitration proceedings took place in Philadelphia, meant that the parties chose to apply

Pennsylvania law. The case involved the interpretation of an arbitration provision in a

New Jersey insurance contract. Id. The court held that while the contract was generally

governed by New Jersey law, the arbitration provision was governed by Pennsylvania

law. Id. The specific language in question was that, “[l]ocal rules of law as to procedure

and evidence will apply” for arbitration. Id. Here, the specific paragraph detailing the

arbitration procedure states, “[u]nless both parties agree otherwise, arbitration will take

place in the county in which the „insured‟ lives. Local rules as to arbitration procedure

and evidence will apply.” (App. at 102.) The facts are analogous to those found in

Miller. Accordingly, Pennsylvania law governs the procedural and evidentiary rules of

the arbitration proceeding.

                                              6
                                             IV.

       Harleysville also argues that the District Court erred in its application of

Pennsylvania law by converting the non-binding arbitration provision into an agreement

for binding arbitration. Cerciello argues that the District Court did not err because, even

though the language of the agreement called for non-binding arbitration, Pennsylvania‟s

common law arbitration rules convert non-binding arbitration agreements into binding

arbitration agreements. While we agree with Harleysville that Pennsylvania allows for

non-binding arbitration and that the District Court erred, we will ultimately affirm the

District Court‟s order on alternative grounds.

       The Pennsylvania‟s Uniform Arbitration Act provides default rules for arbitration

agreements. 42 Pa. C.S.A. § 7301 et seq.

       An agreement to arbitrate a controversy on a nonjudicial basis shall be
       conclusively presumed to be an agreement to arbitrate pursuant to
       Subchapter B (common law arbitration) unless the agreement to arbitrate is
       in writing and expressly provides for arbitration pursuant to this subchapter
       or any other similar statute, in which case the arbitration shall be governed
       by this subchapter.

42 Pa. C.S.A. § 7302(a). Additionally, 42 Pa. C.S.A. § 7341 limits the circumstances

when a district court can vacate an arbitrator‟s award:

       The award of an arbitrator in a nonjudicial arbitration which is not subject
       to [statutory arbitration] . . . is binding and may not be vacated or modified
       unless it is clearly shown that a party was denied a hearing or that fraud,
       misconduct, corruption or other irregularity caused the rendition of an
       unjust, inequitable or unconscionable award.

                                              7
         In Trombetta v. Raymond James Fin. Servs., Inc., the Superior Court of

Pennsylvania determined that parties cannot contract to modify the standard of review for

purposes of appealing an arbitration award. 907 A.2d 550, 576 (Pa. Super. Ct. 2006).

The court held expressly that “de novo review clauses contained in arbitration agreements

are unenforceable as a matter of law in Pennsylvania.” Id. Based on this, the District

Court concluded that parties cannot contract for a de novo trial demand right after

arbitration.

         However, Pennsylvania distinguishes contract provisions providing the standard of

review on appeal of an arbitration decision from those allowing a party to demand a de

novo trial after arbitration. Bucks Orthopaedic Surgery Assoc., P.C. v. Ruth, 925 A.2d

868, 873 (Pa. Super. Ct. 2008). In Bucks, the court limited Trombetta’s holding:

         [w]e held that in Pennsylvania, contracting parties are not free to impose
         their own standards of review on a court and parties to an arbitration
         agreement receive no support for doing so under the guise of arbitration,
         thereby putting those agreements in a superior position. Herein, however,
         the parties were not prescribing a standard of review by the trial court of a
         binding arbitration decision, but rather preserving their right to a judicial
         forum and a de novo hearing.

Id. The court ultimately enforced a contract provision which allowed for a party to

exercise its right to demand a de novo trial in accordance with its contract. Id. The

District Court erred by failing to recognize that Pennsylvania has distinguished clauses

which specify a standard of review and clauses which permit a right to demand a de novo

trial.

                                               8
       Cerciello argues that, even if Pennsylvania allows non-binding arbitration

agreements, because Harleysville did not file a writ of summons pursuant to 42 Pa.

C.S.A. § 7342(b), its right to a new trial has been waived. Section 7342(b) requires a

party appealing an arbitration award to file a writ of summons with the Pennsylvania

Court of Common Pleas within 30 days.

       An analogous situation was presented in Miller v. Allstate Insurance Company,

where the contract contained similar language regarding what a party could do after an

adverse result in arbitration. 763 A.2d at 404-05. The contract stated, “either party may

demand the right to a trial. This demand must be made within 60 days of the arbitrators‟

decision. If this demand is not made, the amount of damages agreed to by the arbitrators

will be binding.” Id. at 404. There, the insurer sought review of a confirmed arbitration

award after having not filed a writ. Here, the language provides that “[a] decision agreed

to by two of the arbitrators will be binding only if neither „we‟ nor an „insured‟ demand a

trial within 30 days after the award.” (App. at 102.) In Miller, the Superior Court of

Pennsylvania determined that, even if a party notified the other party that it was

demanding a new trial, but failed to follow Pennsylvania procedure, it waived its right to

litigate. Id. at 405. In both Miller and here, the insurer who lost in arbitration told the

insured that it was exercising its right to a new trial, but neither filed a petition with the

Pennsylvania Court of Common Pleas within the appropriate timeframe. Id.; (app. at

164). In both cases, the party that won in arbitration moved to confirm its award. (App.

at 116.) In Miller, the court determined that a party cannot exercise its right to demand

                                               9
judicial review of an arbitration proceeding without filing a petition within the thirty-day

jurisdictional limit because, while “parties to a contract may agree to alter their rights and

obligations under the contract; . . . [they] may not agree to enlargen the jurisdiction of the

courts.” Miller, 763 A.2d at 405.

       Harleysville attempts to argue that Bucks holds generally that Pennsylvania

procedural rules do not apply. However, in Bucks, the loser of the arbitration proceeding

filed a writ of summons within 30 days of the adverse arbitration decision. Bucks, 925

A.2d at 870. Accordingly, Bucks did not overturn the existing precedent from Miller, as

that issue was not raised. As Miller has not been overturned, we are bound to apply it

and conclude that Harleysville has waived its ability to challenge the arbitration award.

                                             VI.

       For the reasons set forth above, we will affirm the order of the District Court.

                                             10