Stewart v. GGNSC-Canonsburg, L.P.

• Decision Date: 13 January 2011
• Citation: 9 A.3d 215
• Parties: Robert G. STEWART, as Attorney-in-Fact for Ruth Davidson, Appellee, v. GGNSC-CANONSBURG, L.P., d/b/a/ Golden Living Center-South Hills; GGNSC Canonsburg GP, L.L.C.; GGNSC Equity Holdings, L.L.C.; Golden Gate National Senior Care, L.L.C., d/b/a/ Golden Living GGNSC Holdings, L.L.C., d/b/a/ Golden Horizons, Appellants.
• Court: Pennsylvania Superior Court

9 A.3d 215

Robert G. STEWART, as Attorney-in-Fact for Ruth Davidson, Appellee,

v.GGNSC-CANONSBURG, L.P., d/b/a/ Golden Living Center-South Hills; GGNSC Canonsburg GP, L.L.C.; GGNSC Equity Holdings, L.L.C.; Golden Gate National Senior Care, L.L.C., d/b/a/ Golden Living GGNSC Holdings, L.L.C., d/b/a/ Golden Horizons, Appellants.

Superior Court of Pennsylvania.

Argued Oct. 6, 2010.

Filed Nov. 4, 2010.

Reargument Denied Jan. 13, 2011.

Ira L. Podheiser, Pittsburgh, for GGNSC-Canonsburg, L.P., for appellant.

Stephen Trzcinski, Philadelphia, for appellee.

BEFORE: MUSMANNO, SHOGAN, and ALLEN, JJ.

OPINION BY ALLEN, J.:

In this appeal, various defendants listed in the caption above ("Appellants") contend that the trial court erred in denying their preliminary objections seeking to compel the enforcement of an arbitration agreement. We affirm.

The facts and procedural history of this case are as follows. Robert G. Stewart, as attorney-in-fact for Ruth Davidson ("Plaintiff"), commenced this civil action against Appellants, maintaining that they were negligent in caring for Plaintiff while she was admitted to their nursing home facility. Appellants filed preliminary objections seeking to compel the enforcement of an arbitration agreement ("Agreement").

In the Agreement, the parties agreed that disputes, such as the one asserted by Plaintiff, would be submitted to arbitration. Specifically, the parties agreed that a dispute " shall be resolved exclusively by binding arbitration ... in accordance with the National Arbitration Forum [the "NAF"] Code of Procedure, which is hereby incorporated into this Agreement, and not by any lawsuit or resort to court process." R.R. at 76 (emphasis added).¹ Under the NAF Code of Procedure, the "Code shall be administered only by [the NAF] or by any entity or individual providing administrative services by agreementwith [the NAF]." R.R. at 274 (emphasis added). Moreover, the Agreement contained a severability clause. This clause stated: "In the event a court having jurisdiction finds any portion of this agreement unenforceable, that portion shall not be effective and the remainder of the agreement shall remain effective." R.R. at 76. The problem in this case is that the designated arbitration forum, the NAF, can no longer accept arbitration cases pursuant to a consent decree it entered with the Attorney General of Minnesota.

On December 17, 2009, the trial court entered an order denying Appellants' preliminary objections seeking to compel arbitration. The trial court concluded that the Agreement was unenforceable because an essential term of the Agreement failed; that is, the arbitration forum selection clause designating the NAF and its procedures were integral to the Agreement and could not be enforced because the NAF was no longer available to act as arbitrators. Trial Court Opinion (T.C.O.), 3/1/10, at 3-7. As the trial court explained:

Here, it was clearly the intent of [Appellants] to arbitrate before the NAF. [Appellants] presented a pre-printed agreement to [Plaintiff] in which the selection of an arbitral forum was already made. Moreover, the agreement states that this binding arbitration shall be conducted "in accordance with [the NAF] Code of Procedure, which is hereby incorporated into this agreement." The Code consists of over 65 pages of rules and procedures governing parties and the adjudication of their disputes. An agreement to submit to a specific forum and its comprehensive set of rules evidences an explicit intention to arbitrate exclusively before that organization.... Accordingly, this Court finds that the arbitral forum selection clause is not an ancillary, logistical concern but, rather, a primary purpose of the agreement itself. Therefore, the arbitration clause is unenforceable as an essential term of the agreement has failed[.]

T.C.O., 3/1/10, at 6 (citations omitted).

The trial court further concluded that the severability clause could not save the Agreement's arbitration clause because the trial court would be forced to rewrite the arbitration clause and devise a new form and mode of arbitration for the parties. Id. at 7-8. According to the trial court:

... [Appellants] would like the Court to dust off its blue pencil, excise some portions of the very agreement they drafted, and then create new terms. This Court refuses to do so.

Pennsylvania law holds that if less than an entire agreement is invalid, and the invalid provision is not an essential part or the primary purpose of the agreement, then the remaining portions of the agreement are fully enforceable. Huber v. Huber , 470 A.2d 1385, 1389 (Pa.Super.1984); Restatement (Second) of Contracts, § 184 (1981). Thus, the replacement of an essential term is impermissible under general contract principles. As stated above, this Court finds that the arbitral forum provision is an essential part of the agreement. Therefore, the remainder of the arbitration agreement is unenforceable. The face of the agreement reflects the parties' intention to be bound by a particular term-the one with the NAF as the arbitrator. To use the severability clause to basically swap out essential terms would not prevent injustice; rather, it would foster it.

Id. at 7-8.

For these reasons, the trial court denied Appellants' preliminary objections seeking to compel enforcement of the Agreement.

On appeal, Appellants raise two issues for review:

1. Whether the trial court erred when it found that the forum selection clause was not an "ancillary logistical concern, but rather an essential part of the parties' agreement," thereby justifying the Court's decision to void the entire arbitration agreement?

2. Whether the trial court erred when it did not invoke the Severance Clause contained in the Arbitration Agreement, which provides that "in the event a court having jurisdiction finds any portion of this agreement unenforceable, that portion shall not be effective and the remainder of the agreement shall remain in effect," and refer the case to arbitration?

Brief for Appellants at 3.²

We will address Appellants' two issues together because they are interrelated. In their brief, Appellants contend that under the plain language of the Agreement, the primary purpose of the Agreement "was not to have [the NAF] arbitrate the dispute," but rather, that the dispute be submitted to arbitration. Brief for Appellants at 13. Appellants point to the severability clause in the Agreement as further evidence that the parties' paramount intent was to arbitrate claims, and that the selection of the NAF and the NAF Code was merely ancillary to this intent. Id. at 18-21. Appellants propose that under § 5 of the Federal Arbitration Act ("FAA"), the Agreement was enforceable, and the trial court could have appointed another arbitrator to replace the NAF. Id. at 16, 21. Accordingly, Appellants conclude that the trial court erred in denying the preliminary objections to compel arbitration. We disagree.

"Our review of a claim that the trial court improperly denied ... preliminary objections in the nature of a petition to compel arbitration is limited to determining whether the trial court's findings are supported by substantial evidence and whether the trial court abused its discretion in denying the petition." Midomo Company, Inc. v. Presbyterian Housing Development Company, 739 A.2d 180, 186 (Pa.Super.1999). Here, the relevant facts are not in dispute, and the issues presented by Appellants primarily involve matters of contract interpretation. As contract interpretation poses a pure question of law, our review of the trial court's decision is de novo and our scope of review is plenary. Bucks Orthopaedic Surgery Associates, P.C. v. Ruth, 925 A.2d 868, 871 (Pa.Super.2007).

The parties agree that this case is governed by § 5 of the FAA, which provides in pertinent part:

If in the agreement provision be made for a method of naming or appointing an arbitrator ... such method shall be followed ... or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein.

9 U.S.C.A. § 5.

Under 9 U.S.C.A. § 5, an arbitration agreement will not fail because ofthe unavailability of a chosen arbitrator unless the parties' choice of forum is an "integral part" of the agreement to arbitrate, rather than "an ancillary logistical concern." Reddam v. KPMG L.L.P., 457 F.3d 1054, 1061 (9th Cir.2006); Brown v. ITT Consumer Financial Corp., 211 F.3d 1217, 1222 (11th Cir.2000). Where the arbitration clause selects merely the rules of a specific arbitral forum, as opposed to the forum itself, and another arbitral forum could apply those rules, the unavailability of the implicitly intended arbitral forum will not require the court to condemn the arbitration clause. Reddam, 457 F.3d at 1059-61. At a minimum, for the selection of an arbitrator to be deemed "integral," the arbitration clause must include an "express statement" designating a specific arbitrator. Id. at 1060; see Ranzy v. Tijerina, 2010 WL 3377235, 2010 U.S.App. LEXIS 17872 (5th Cir.2010).

Upon review, we find that the trial court's analysis is well-reasoned, and we adopt it as our own. Although Appellants' issues have not been addressed by Pennsylvania case law, other jurisdictions have had the opportunity to decide whether an arbitration agreement is enforceable in the absence of the NAF. The trial court's legal conclusion that the Agreement was unenforceable due to the NAF's unavailability is supported by a majority of the decisions that have analyzed language similar to that in the Agreement. In sum, these cases concluded that the NAF's participation in the arbitration process was an "integral...