John Ashe Associates, Inc. v. Envirogenics Co.

• Decision Date: 25 January 1977
• Docket Number: Civ. A. No. 76-949.
• Citation: 425 F. Supp. 238
• Parties: JOHN ASHE ASSOCIATES, INC. and Sharp Electric, Inc. v. ENVIROGENICS CO. et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

425 F. Supp. 238

JOHN ASHE ASSOCIATES, INC. and Sharp Electric, Inc. v. ENVIROGENICS CO. et al.

Civ. A. No. 76-949.

United States District Court, E. D. Pennsylvania.

January 25, 1977.

COPYRIGHT MATERIAL OMITTED

Alan R. Kutner, Philadelphia, Pa., for plaintiffs.

Daniel J. Brooks, Robert G. Bernstein, Frederick E. Sherman, Layton & Sherman, New York City, Gerald F. Tietz, Abraham, Pressman & Tietz, Philadelphia, Pa., for defendants.

MEMORANDUM AND ORDER

BECHTLE, District Judge.

This is a diversity contract action. Presently before this Court are motions, filed by defendants Aerojet-General Corporation ("Aerojet") and Chemical Construction Corporation ("Chemical"),¹ to dismiss the complaint for lack of subject matter jurisdiction and for summary judgment.² See Fed.R. Civ.P. 12(b), 12(b)(6) and 56.

The contract between Aerojet and Chemical, the contractors, and plaintiffs John Ashe Associates ("Ashe") and Sharp Electric, Inc. ("Sharp"), the subcontractors, called for the installation of electrical conduits and wires at the Public Service Electric and Gas Facility in Burlington Township, New Jersey, pursuant to defendants' Specification PS-7538. In their complaint, Ashe and Sharp allege breach of contract on the part of Aerojet and Chemical for failure to reimburse Ashe and Sharp for costs incident to the purchase and installation of replacement materials when materials required by Specification PS-7538 proved inadequate for their intended purpose.

Defendants' 12(b)(1) motion is predicated upon this Court's lack of subject matter jurisdiction as a result of an agreement between the parties to submit all disputes arising under the contract to arbitration, in accordance with the procedural rules of the State of California, and to enter judgment upon the arbitration award only in the Superior Court of the State of California in the district in which arbitration occurred. Defendants' Rule 56 motion incorporates the arguments advanced pursuant to Rule 12(b)(1) and argues in the alternative that, even if the Court determines that it has subject matter jurisdiction, the agreement of the parties to arbitrate and to limit the forum available for the entry of judgment upon the award would preclude the Court from granting plaintiffs any relief. Plaintiffs dispute defendant's allegations of an obligation to arbitrate or to limit the forum available to the parties for review of the award or for the granting of further relief, and argue that the breach of contract action is properly before this Court for resolution.

Initially, we hold that this Court has an independent basis of federal subject matter jurisdiction based upon diversity of citizenship and the amount in controversy under 28 U.S.C. § 1332(a). Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 408 (2d Cir. 1959), cert. dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1959); Warren Brothers Co. v. Community Building Co., 386 F.Supp. 656, 658 (M.D.N. C.1974); Litton RCS, Inc. v. Pennsylvania Turnpike Commission, 376 F.Supp. 579, 585 (E.D.Pa.1974), aff'd, 511 F.2d 1394 (3d Cir. 1975). Ashe is a Pennsylvania corporation with its principal place of business in Pennsylvania. Sharp is a New Jersey corporation with its principal place of business in New Jersey. Aerojet is an Ohio corporation with its principal place of business in California, and it is registered to do business in the Commonwealth of Pennsylvania. Chemical is a Delaware corporation with its principal place of business in New York, and it is registered to do business in the Commonwealth of Pennsylvania. The parties are of diverse citizenship, and the amount in controversy is alleged to be greater than $10,000, exclusive of interest and costs. Thus, federal subject matter jurisdiction independently and properly lies under 28 U.S.C. § 1332(a). We, therefore, will deny defendants' motion to dismiss for lack of subject matter jurisdiction.³

We turn then to defendants' motion for summary judgment, the determination of which must begin with an assessment of the plaintiffs' duty to arbitrate. When confronted with an agreement to arbitrate, a court's review is limited to a determination of whether the allegation of the duty to arbitrate is supported on the face of the contract. National R.R. Passenger Corp. v. Missouri Pacific R.R. Co., supra, 501 F.2d at 427. The analysis is threefold: (1) whether federal or state substantive law governs construction of the contract; (2) whether the parties are bound by the arbitration provision of the contract; and (3) whether the dispute in question is covered by the arbitration clause.

In construing a contract providing for arbitration, the Court must first determine whether federal or state substantive law applies. Robert Lawrence Co. v. Devonshire Fabrics, Inc., supra, 271 F.2d at 409; Warren Brothers Co. v. Community Building Co., supra, 386 F.Supp. at 663; Litton RCS, Inc. v. Pennsylvania Turnpike Commission, supra, 376 F.Supp. at 585. Federal law will govern when the contract evidences a transaction "involving commerce," Litton RCS, Inc. v. Pennsylvania Turnpike Commission, supra; otherwise, state law applies. An examination of the complaint in the instant case reveals the requisite transaction "involving commerce." The contract is between several corporations which are incorporated and which do business in a number of states; it involves construction of a New Jersey public utility facility by a Pennsylvania and a New Jersey corporation, and it requires the transport of personnel and materials in interstate commerce. Accordingly, federal substantive law, as embodied in the federal Arbitration Act, 9 U.S.C. § 1 et seq., will be applied.

We must next determine whether the contract requires the parties to arbitrate their disputes. As we recently stated in Vespe Contracting Co. v. Anvan Corp., 399 F.Supp. 516, 520 (E.D.Pa.1975), a case remarkably similar to the instant one, arbitration is a matter of contract and the parties cannot be forced to arbitrate something to which they did not agree.

The contract in issue contains three separate parts: (1) Purchase Order 40461,⁴ (2) Specification PS-7538⁵ and (3) the General Conditions.⁶ The relevant portions of each part are outlined in full in the margin. The plaintiffs do not deny being bound by the contract as embodied in the Purchase Order and Specification PS-7538, which were specifically incorporated therein. Ashe and Sharp do deny that the "General Conditions" and, consequently, the arbitration clause were incorporated by reference into the Purchase Order.

Although there is no clear and unequivocal reference in any of the documents to an incorporation of the "General Conditions" into the Purchase Order, we do find that the "General Conditions" were incorporated by reference into Purchase Order 40461. Several factors support incorporation. First, the affidavit of Albert W. Taglieri, submitted in support of defendants' motion, states that defendant Envirogenics' normal procedure for soliciting bids for subcontracts was to send all prospective bidders the Specifications for the construction project being bid upon, as well as a document labeled "General Conditions," which were intended by Envirogenics to be a part of all their contracts (see Taglieri Affidavit at ¶ 2).⁷ Second, paragraphs F and G of Specification PS-7538 repeatedly and in bold type refer to the standard "General Conditions." Next, the Special Conditions section of Specification PS-7538 defined "this contract" in I-G(3)(c) as including the provisions of the "General Conditions."⁸ Finally, plaintiffs could not have completed or submitted the contract bid to defendants without having made specific reference to the "General Conditions."⁹ The completion of the "Cost of Labor and Material Basis" was a mandatory part of the bid proposal. It could not have been completed without a copy of the "General Conditions." This fact alone demonstrates that plaintiffs had a copy of the "General Conditions" and were on notice as to the important relationship between the Purchase Order, Specifications and General Conditions. While we do not lightly dismiss the lack of actual notice to plaintiffs of the incorporation, they are nonetheless held to have been given sufficient constructive notice to support the incorporation by reference of the "General Conditions" in their entirety into the contract. See Ogden Development Corp. v. Federal Insurance Co., 508 F.2d 583, 586 (2d Cir. 1974); Rehart v. Clark, 448 F.2d 170, 174 (9th Cir. 1971); Vespe Contracting Co. v. Anvan Corp., supra, 399 F.Supp. at 516.

The next area of inquiry is whether the arbitration clause covered the dispute in question. Gavlik Construction Co. v. H. F. Campbell Co., 389 F.Supp. 551, 554 (W.D.Pa. 1975). The general federal policy in favor of arbitration requires that doubts as to whether an arbitration clause should be interpreted to cover the asserted dispute be resolved in favor of arbitration, unless a court can state with positive assurance that the dispute was not meant to be arbitrated. Hussey Metal Division v. Lectromelt Furnace Division, 471 F.2d 556, 557-558 (3d Cir. 1972); Vespe Contracting Co. v. Anvan Corp., supra, 399 F.Supp. at 520.

As previously quoted, the arbitration clause in question states:

Any dispute arising under this order which is not disposed of by agreement between the parties shall be decided by arbitration in accordance with Part 3 of Title 9 of the Code of Civil Procedure of the State of California. . . .

The dispute here concerns the alleged monetary damages resulting to plaintiffs as a result of their compliance with the contract specifications for electrical wire which were later found to be inadequate for the project and required replacement. This dispute is clearly one arising under the contract and is, therefore, subject to arbitration. See Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1212 (2d Cir. 1972); Merritt-Chapman & Scott Corp. v....