Case Bulletin – PA Superior Court Upholds Arbitration Clause
On March 30, 2017, Pennsylvania’s Superior Court addressed the issue of mandatory arbitration arising out of a contract in Fellerman v. Peco Energy Co., 2017 WL 1175434 (Pa. Super. 2017). In Fellerman, the plaintiffs retained the defendant to perform a home inspection as part of a real estate transaction. The plaintiffs signed a contract prepared by the defendant, which contained a binding arbitration clause related to any dispute between the parties. After the real estate purchase closed, the plaintiffs learned that a utility pole located on the subject property had fallen and caused a fire. When attempting to extinguish the fire, Mr. Fellerman was shocked and burned. Plaintiffs alleged that the utility pole fell due to severe rot, decay, and deterioration, which should have been discovered or disclosed by the defendant. The defendant filed preliminary objections, which were overruled.
On appeal, the Superior Court held that an agreement to arbitrate will be found valid if it is legible and capable of being understood even when there are multiple defendants who are not subject to arbitration. Noting that the subject contract contained a conspicuous statement at the top of the document, written in bold, capital letters and surrounded by a text box with the words “ PRIOR TO THE INSPECTION, PLEASE READ CAREFULLY BEFORE SIGNING,” the Court placed the onus on the plaintiffs to request a legible copy of the agreement if it was difficult to read for any reason. Further, the Court rejected the plaintiffs’ claims that forcing them to arbitrate against one defendant while, simultaneously, litigating against other defendants in court deprived them of their constitutional right to a jury trial and disturbed notions of judicial economy. Relying on Pennsylvania’s Supreme Court decision in Taylor v. Extendicare Health Facilities, Inc., 147 A.3d 490 (Pa. 2016, the Court found the plaintiff’s arguments without merit. The Taylor court previously held that the mandate of the Federal Arbitration Act trumps notions of judicial economy and efficiency even when related disputes with multiple defendants are adjudicated in separate forums.
The Court continued by holding that the plaintiff’s bodily injury claims fell within the scope of the subject arbitration agreement. While the services contemplated relate to a home inspection, the subject clause provided that
“any dispute between the parties, except those for nonpayment of fees, that in any way, directly or indirectly, arising out of, connected with, or relating to…the inspection service provided…or any other matter involving [the] service, shall be submitted to binding arbitration[.]” (emphasis added)
Because the plaintiffs alleged injuries arising out of the defendant’s breach of its obligations under the home inspection contract, the Court held that the tort claims all arose from duties owed pursuant to the contract, requiring that the plaintiffs and defendant arbitrate their dispute. The Court will look to the claim’s substance, not its styling, when evaluating whether an agreement to arbitrate disputes arising from a contract is mandatory.