MBC Dev. v. Miller

• Decision Date: 12 August 2022
• Docket Number: 1295 MDA 2021,J-S10041-22
• Parties: MBC DEVELOPMENT, LP, MBC MANAGEMENT, LLC, MBC PROPERTIES, LP, JAMES L. MILLER, MILLER PROPERTIES MANAGEMENT, LLC, MARTIN CERULLO, WILLIAM KIRWAN v. JAMES W. MILLER Appellant
• Court: Pennsylvania Superior Court

2022 PA Super 141

MBC DEVELOPMENT, LP, MBC MANAGEMENT, LLC, MBC PROPERTIES, LP, JAMES L. MILLER, MILLER PROPERTIES MANAGEMENT, LLC, MARTIN CERULLO, WILLIAM KIRWAN v. JAMES W. MILLER Appellant

No. 1295 MDA 2021

No. J-S10041-22

Superior Court of Pennsylvania

August 12, 2022

Appeal from the Order Entered September 28, 2021 In the Court of Common Pleas of Schuylkill County Civil Division at No(s) S-797-2021

BEFORE: MURRAY, J., McLAUGHLIN, J., and COLINS, J. ^[*]

OPINION

COLINS, J.

This is an appeal from an order of the Court of Common Pleas of Schuylkill County (trial court) permanently staying an arbitration initiated by Appellant, James W. Miller, against MBC Development, LP, MBC Properties, LP, MBC Management, LLC Miller Properties Management, LLC, James L. Miller (JLM), Martin Cerullo, and William Kirwan. For the reasons set forth below, we vacate the trial court's order insofar as it stayed Appellant's arbitration in its entirety, but affirm the stay of the arbitration with respect to appellees Cerullo and Kirwan.

Appellant and JLM, who is Appellant's father, are limited partners in MBC Development, LP and MBC Properties, LP (collectively, the Partnerships). N.T. Oral Argument of Motion to Stay Arbitration (N.T. Oral Argument) at 3. MBC Properties, LP is a Pennsylvania limited partnership founded in the 1970s by JLM and JLM's brother. Trial Court Opinion at 2. MBC Development, LP is a Pennsylvania limited partnership founded in 2002 by JLM and Appellant. Id. Miller Properties Management, LLC and MBC Management, LLC (collectively, the LLCs) are the respective general partners of MBC Properties, LP and MBC Development, LP. N.T. Oral Argument at 3; 2/28/20 Report of Special Litigation Committee Investigating Potential Claims on Behalf of MBC Properties, LP, MBC Development, LP, MBC Grings Hill, LP, MBC Danville, LP, MBC Carlisle, LP, and MBC Hamburg LLC (SLC Report) at 6-7. JLM owns more than fifty percent of each of the Partnerships and more than 99% of each of the LLCs. Id.

The partnership agreements of the Partnerships (the Partnership Agreements) both contain the following arbitration clause:

Section 11.1 Mandatory Arbitration

A. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association in effect at the time of submission to arbitration. Each Partner consents for himself or itself, and for his or its respective successors in interest, to the submission of any dispute or controversy hereunder to the arbitration process as aforesaid, where such submission is initiated by any other Partner (or that Partner's successor in interest). The arbitration shall be conducted by a single arbitrator selected by the parties or, if they cannot agree, then the arbitrator or arbitrators shall be selected under the procedures of the American Arbitration Association.

B. All decisions of the arbitrator shall be final, binding and conclusive on all Partners (including any decision with regard to costs as set out below in Section 11.2, and no Partner (and no successor in interest) shall have a right of appeal from any such decision to any Court. However, solely for the purpose of implementing the arbitrator's decision, judgment may be entered on the arbitrator's award in any court having jurisdiction.

MBC Properties, LP Partnership Agreement at 26 § 11.1 (emphasis added); MBC Development, LP Partnership Agreement at 23 § 11.1 (emphasis added)

On July 16, 2019 and August 12, 2019, Appellant served written demands on the Partnerships and other entities not involved in this case asking that they bring legal actions against JLM. Trial Court Opinion at 2; 2/28/20 SLC Report at 1. In response to these demands, the Partnerships and other entities invoked the special litigation committee process provided by Section 8694 of the Pennsylvania Uniform Limited Partnership Act of 2016 (the Limited Partnership Act), 15 Pa.C.S. § 8694, and appointed Cerullo and Kirwan as a special litigation committee (the SLC) to investigate and address the claims asserted in Appellant's demands.^[1] Trial Court Opinion at 2; 2/28/20 SLC Report at 1. On February 28, 2020 and August 31, 2020, the SLC issued reports addressing Appellant's July and August 2019 demands and subsequent demands submitted by Appellant. Trial Court Opinion at 2-3. In these reports, the SLC directed that the Partnerships take certain actions to address issues raised in Appellant's demands, but concluded that no suit should be brought against JLM. Id. at 3; 2/28/20 SLC Report at 41-48. Following the SLC's February 28, 2020 report, the parties entered into an agreement tolling the statute of limitations on the claims in Appellant's demands from February 28, 2020 through April 24, 2021.

On May 17, 2021, Appellant filed a demand for arbitration against the Partnerships, the LLCs, JLM, Cerullo, and Kirwan (collectively, Appellees) asserting derivative claims on behalf of the Partnerships against JLM for breach of the fiduciary duty that the general partner owes to the Partnerships and a direct claim against MBC Development, LP for failure to make a mandatory distribution to him. On June 2, 2021, Appellees filed a petition to permanently stay arbitration. In this petition, Appellees sought to stay the arbitration in toto on the ground that Appellant's claims are challenges to the SLC determinations under Section 8694 of the Limited Partnership Act, not claims arising under or in connection with the Partnership Agreements, and on the ground that Section 8694 requires that a court determine whether a special litigation committee's determination bars a derivative action. Appellees also sought, in the alternative, to permanently stay the arbitration as to Cerullo and Kirwan on the ground that they were not parties to any agreement to arbitrate.

Following briefing and oral argument, the trial court on September 28, 2021 issued an order permanently staying the arbitration. The trial court concluded that Appellant's derivative claims were within the scope of the Partnership Agreements' arbitration clauses, but held that Appellant could not proceed with the arbitration because the issue of whether the SLC's determination barred Appellant from bringing the derivative claims was a statutory claim that was not within the scope of the arbitration clauses and because the Limited Partnership Act requires that a court determine whether a special litigation committee's rejection of derivative claims must be enforced. Trial Court Opinion at 5-12. The trial court also concluded that Cerullo and Kirwan could not be compelled to arbitrate because they were not parties to the Partnership Agreements and never consented to arbitration. Id. at 12. This timely appeal followed.

Appellant presents the following issues for our review:

A. Did the trial court commit an error of law or abuse its discretion by ordering a permanent stay of the arbitration initiated by Appellant based on its interpretation of the Pennsylvania Limited Partnership Act, 15 Pa. C.S. §8601, et seq., and in particular sections 8615, 8692 and 8694, as requiring "court review" of determinations of a special litigation committee even when the parties have chosen arbitration as the exclusive and mandatory forum for any dispute or controversy arising under or in connections [sic] with the Partnership Agreement?

B. Did the trial court commit an error of law in finding that Appellees Martin Cerullo and William Kirwan, as members of the special litigation committee appointed as agents acting on behalf of the Partnerships, could not be bound to the arbitration clause in the Partnership Agreements?

Appellant's Brief at 5-6 (suggested answers omitted).

Both Pennsylvania and federal law impose a strong public policy in favor of enforcing arbitration agreements. Marmet Health Care Center, Inc. v. Brown, 565 U.S. 530, 532-33 (2012); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983); In re Estate of Atkinson, 231 A.3d 891, 898 (Pa. Super. 2020); Saltzman v. Thomas Jefferson University Hospitals, Inc., 166 A.3d 465, 471 (Pa. Super. 2017). If a valid agreement to arbitrate exists and the dispute falls within the scope of the arbitration agreement, the dispute must be submitted to arbitration and a lower court's denial of arbitration must be reversed. Estate of Atkinson, 231 A.3d at 898; Saltzman, 166 A.3d at 472; Provenzano v. Ohio Valley General Hospital, 121 A.3d 1085, 1094, 1104 (Pa. Super. 2015); see also 42 Pa.C.S. §§ 7304(b), 7321.8(b), 7342(a).

We therefore employ a two-part test to determine whether the trial court erred in granting Appellees' petition to stay the arbitration: we determine 1) whether a valid agreement to arbitrate exists and 2) whether the dispute is within the scope of that agreement to arbitrate. Pittsburgh Logistics Systems, Inc. v. B. Keppel Trucking, LLC, 153 A.3d 1091, 1093 (Pa. Super. 2017); Ross Development Co. v. Advanced Building Development, Inc., 803 A.2d 194, 196-97, 199 (Pa. Super. 2002); see also Saltzman, 166 A.3d at 472. Whether a written contract includes an arbitration agreement and whether the parties' dispute is within the scope of the arbitration agreement are questions of law subject to this Court's plenary review. Estate of Atkinson, 231 A.3d at 898; Provenzano, 121 A.3d at 1095.

Applying these standards, we conclude that Appellant's first issue is meritorious and that the trial court erred in staying the arbitration in its entirety. It is undisputed that both of the Partnership Agreements contain valid arbitration clauses. Trial Court Opinion at 5; MBC Properties, LP Partnership Agreement at 26 § 11.1; MBC Development, LP Partnership Agreement ...