ROSS DEVELOPMENT v. Advanced Bldg. Dev.

• Decision Date: 02 July 2002
• Citation: 803 A.2d 194,2002 PA Super 219
• Parties: ROSS DEVELOPMENT COMPANY and KENNY ROSS CHEVROLET, INC., Appellee, v. ADVANCED BUILDING DEVELOPMENT, INC., Appellant.
• Court: Pennsylvania Superior Court

803 A.2d 194

2002 PA Super 219

ROSS DEVELOPMENT COMPANY and KENNY ROSS CHEVROLET, INC., Appellee, v. ADVANCED BUILDING DEVELOPMENT, INC., Appellant.

Superior Court of Pennsylvania.

Argued October 23, 2001.

Filed July 2, 2002.

Jeffrey T. Morris, Bradford Woods, for appellant.

Avrum Levicoff, Pittsburgh, for appellees.

Before: DEL SOLE, P.J., FORD ELLIOTT and ORIE MELVIN, JJ.

OPINION BY ORIE MELVIN, J.:

¶ 1 Appellant, Advanced Building Development, Inc., (ABD) appeals from the trial court's order dismissing a pending arbitration proceeding against Ross Development Company and Kenny Ross Chevrolet, Inc. (Ross) and making a Rule to Show Cause Why Arbitration Should Not Be Stayed or Dismissed absolute. For the reasons that follow, we reverse the order granting declaratory judgment, lift the stay and remand for arbitration proceedings.

¶ 2 The trial court summarized the facts as follows:

The parties entered into a contract on August 12, 1999 for the construction by ABD of a building to be used by Ross as a Chevrolet dealership in Somerset County, Pennsylvania. In May and June 2000, during the course of construction, disputes arose between Ross and ABD. ABD contended that its application for progress payment No. 5 was overdue and unpaid. Ross asserted that ABD was not entitled to receive any additional progress payments due to their failure to timely pay subcontractors and suppliers out of earlier progress payments. On June 26, 2000, ABD filed a Demand for Arbitration with the American Arbitration Association (hereinafter "AAA") pursuant to the contract.

Ross then filed a Complaint for Declaratory Judgment alleging that ABD failed to satisfy the conditions precedent in the contract which trigger the arbitration provisions therein. Ross claimed that ABD was therefore not entitled to demand arbitration of his claims and requested that the arbitration be enjoined or dismissed.

A Consent Order was entered on August 4, 2000 staying the proposed arbitration pending resolution of the Complaint. Argument was heard before this Court on November 22, 2000.

Trial Court Opinion, 2/12/01, at 1-2. Ultimately, the trial court entered an order granting the Declaratory Judgment in favor of Ross. ABD was enjoined from proceeding in arbitration. This timely appeal follows.

¶ 3 ABD sets forth three issues:

I. Should the Lower Court have permitted the AAA arbitration proceeding commenced by Advanced Building Development, Inc. to continue?

II. Assuming arguendo the Lower Court was empowered to address the issue was prior submission of the claim at issue to the architect a condition precedent to arbitration?

III. Assuming arguendo submission of the claim at issue to the architect was a condition precedent to arbitration, was that condition in the Contract modified by conduct of the parties in the course of performance or otherwise waived?

Appellant's brief at 4.

¶ 4 ABD's complaints must be reviewed in the context of whether the trial court erred in entering the declaratory judgment. Our scope and standard of review is well established. In Fred E. Young, Inc. v. Brush Mountain, 697 A.2d 984 (Pa.Super.1997), we noted:

When reviewing the decision of the trial court in a declaratory judgment action, our scope of review is narrow. O'Brien v. Nationwide Mutual Insurance Co., 455 Pa.Super. 568, 689 A.2d 254, 257 (1997). Consequently, we are limited to determining whether the trial court's findings are supported by substantial evidence, whether an error of law was committed or whether the trial court abused its discretion, Walker v. Ehlinger, 544 Pa. 298, 300 n. 2, 676 A.2d 213, 214 n. 2 (1996).

The test is not whether we would have reached the same result on the evidence presented, but whether the trial court's conclusion can reasonably be drawn from the evidence. Where the trial court's factual determinations are adequately supported by the evidence we may not substitute our judgment for that of the trial court. Clearfield Volunteer Fire Department v. BP Oil, 412 Pa.Super. 29, 602 A.2d 877, 879 (1992), appeal denied, 531 Pa. 650, 613 A.2d 556 (1992) (citations omitted).

Id. at 987.

¶ 5 Appellant contends that the trial court erred in issuing a stay of the scheduled arbitration proceedings. They first argue that the trial court should not have considered the issue of whether it was foreclosed from arbitration and instead an arbitrator should have decided that issue. We agree.

¶ 6 We begin our analysis by noting that Pennsylvania courts have long strongly favored arbitration for the resolution of legal disputes. See Bashford v. West Miami Land Co., 295 Pa. 560, 145 A. 678 (1928) (holding that parties to a contract which provides for arbitration are bound by their contract to arbitrate disputes and cannot seek redress elsewhere, and every reasonable intendment will be made in favor of the validity of such agreements); Nippon Ki-Ito Kaisha v. Ewing-Thomas Corp., 313 Pa. 442, 170 A. 286 (1934) (holding settlements by arbitration are no longer deemed contrary to public policy) and Smith v. Cumberland Group, Ltd., 455 Pa.Super. 276, 687 A.2d 1167, 1171 (1997) (holding that when parties agree to arbitrate in a clear and unmistakable manner, the court will make every reasonable effort to favor such agreements).

¶ 7 The jurisdiction of the court to decide whether a matter is properly arbitrated is explicitly stated in 42 Pa. C.S.A. § 7304(b), which provides:

(b) Stay of arbitration. — On Application of a party to a court to stay an arbitration proceeding threatened or commenced the court may stay an arbitration on a showing that there is no agreement to arbitrate. When in substantial and bona fide dispute, such an issue shall be forthwith and summarily tried and determined and a stay of the arbitration proceedings shall be ordered if the court finds for the moving party. If the court finds for the opposing party, the court shall order the parties to proceed with arbitration.

42 Pa.C.S.A. § 7304(b).¹ See Santiago v. State Farm Insurance Co., 453 Pa.Super. 343, 683 A.2d 1216 (1996) (holding same.) Accordingly, the determination of whether this matter is subject to arbitration is within the jurisdiction of the trial court. However, not all questions are to be resolved by the trial court. In a proceeding to stay or to compel arbitration, the question of whether the parties agreed to arbitrate, commonly referred to as "substantive arbitrability," is generally one for the courts and not for the arbitrators. AT & T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). On the other hand, resolution of procedural questions, including whether the invocation of arbitration was proper or timely is left to the arbitrator. Mack Mfg. Corp. v. International Union, United Auto., Aircraft and Agric. Implement Workers Local 677, 368 Pa. 37, 81 A.2d 562 (1951). Such questions may be referred to as "procedural arbitrability."

¶ 8 In Pennsylvania, our Supreme Court has held that:

When one party to an agreement to arbitrate seeks to enjoin the other from proceeding to arbitration, judicial inquiry is limited to the question of whether an agreement to arbitrate was entered into and whether the dispute falls within the scope of the arbitration provision. (Citation omitted.) Thus a party who can establish that he did not agree to arbitrate, or that the agreement to arbitrate, limited in scope, did not embrace the disputes in issue, may be entitled to enjoin an arbitration proceedings.

Kardon v. Portare, 466 Pa. 306, 309-310, 353 A.2d 368, 369 (1976), (quoting Flightways Corp. v. Keystone Helicopter Corp., 459 Pa. 660, 331 A.2d 184, 185 (1975)); see also, Paone v. Dean Witter Reynolds, Inc., 789 A.2d 221 (Pa.Super.2001) (holding same). Again, the question of substantive arbitration is for the courts while procedural arbitration is left to the arbitrators.

¶ 9 In making the threshold determination of whether the matter should proceed to arbitration, the court must look to the scope of the parties' agreement to arbitrate. Ross concedes that Section 4.3 of the Contract contains certain provisions relating to the assertion, handling and disposition of "claims." See Contract at ¶ 4.3.1 (defining "Claims" as a demand or assertion seeking, inter alia, payment of money). Ross also concedes that the contract has very clear provisions for arbitration. Accordingly, there can be no question that the parties agreed to arbitration.

¶ 10 Moreover, this particular type of dispute, whether the Contractor is entitled to the payment in question, is clearly within the scope of the agreement. In fact, Ross premises their argument on specific provisions that set forth time limitations for submission of claims, see Contract at ¶ 4.3.3, and what they characterize as conditions precedent to arbitration, see Contract at ¶ 4.3.2 and ¶ 4.5.4. Accordingly, with the questions answered of whether an agreement to arbitrate was entered into and whether the dispute falls within the scope of the arbitration provision, the trial court erred in precluding this matter from proceeding to arbitration. Hence, the threshold issue of whether the failure to meet time limitations for submission of these claims to the architect is a condition precedent for proceeding to arbitration is an issue for the arbitrators to initially decide.

¶ 11 The problem here arose because Ross asked the trial court to interpret specific terms of the contract, which allegedly make submission of claims to the architect a condition precedent to arbitration. ABD alleges that Ross failed to make the final payment, and Ross alleges that ABD is not entitled to it because they failed to timely pay subcontractors out of the previous payments. Ross further complains that ABD failed to submit its claim for the final payment to the architect. ABD counters that the architect was not fully performing his functions, and the requirement that payments be approved by the...