Loading...
HomeMy WebLinkAbout02-5469 CIVIL JTH TAX SERVICES, LLC, JAMES S. HARRIS AND TERRI HARRIS, HUSBAND AND WIFE, APPLICANTS G.H. HARRIS ASSOCIATES, INC., RESPONDENT JAMES P. HARRIS AND KATHY HARRIS, HUSBAND AND WIFE, AND J.P. HARRIS ASSOCIATES, LLC, INTERVENERS IN RE: IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA 02-5469 CIVIL TERM PETITION TO STAY ARBITRATION BEFORE BAYLEY, J. OPINION AND INTERIM ORDER OF COURT Bayley, J., December 13, 2002:-- James S. Harris is the son of James P. Harris. G.H. Harris is the father of James P. Harris and the grandfather of James S. Harris. On August 2,5, 2000, "G.H. Harris Associates, Inc. (seller)," of Dallas, Pennsylvania, and "Mr. and Mrs. James P. Harris (buyer)," of Mechanicsburg, Pennsylvania, entered into a written Market Region Purchase Agreement. Both the seller and buyer are in the business of collecting delinquent taxes. The buyer purchased a part of the seller's tax collection business. The Agreement prohibits competition and solicitation by the buyer with respect to certain clients of the seller. Paragraph 4.6.1 of the Agreement provides: 02-5469 CIVIL TERM In the event of a dispute between the Parties, each Party agrees to attempt resolution through mediation with a mediator provided by the American Arbitration Association ("AAA") in Philadelphia, Pennsylvania, in accordance with the then existing AAA Commercial Rules. Absent favorable results, arbitration notice may be sent within thirty (30) days of the request for mediation. Claims for equitable relief need not be mediated. (Emphasis added.) Paragraph 4.7 of the Agreement provides: Bindinq Effect: This agreement supersedes all prior agreements, written or oral, between the Parties concerning the subject matter of this Agreement. It shall be binding upon and inure to the benefit of the undersigned and their representatives, administrators, assigns, and/or successors-in-interest. This Agreement and the non-compete provisions in particular shall be binding upon Buyer, Buyer's wife and children, and upon any and all business entities in which Buyer has any ownership interest, direct or indirect. The person signing for each party warrants that he has the full authority to bind the Party represented. (Emphasis added.) The Agreement was executed as follows: (1) G.H. Harris signed for"G.H. Harris, individually and as President G.H. Harris Associates, Inc." (2) James P. Harris signed for "JAMES P. HARRIS, individually and for his wife, children, and associated business activities." (Emphasis added.) On October 31, 2002, G.H. Harris Associates, Inc., filed with the American Arbitration Association a Demand for Arbitration against (1) J.P. Harris Associates, LLC, (2) James P. Harris and Kathy Harris, husband and wife, (3) JTH Tax Service, LLC, and (4) James S. Harris and Terri Harris, husband and wife. The Demand seeks relief for (1) an alleged violation by defendants of the restrictive covenant in the Market -2- 02-5469 CIVIL TERM Region Purchase Agreement of August 25, 2000, (2) tortuous interference with contractual relations, and (3) breach of representation and warranties. On November 12, 2002, JTH Tax Service, LLC, and James S. Harris and Terri Harris, filed an application in this court against G.H. Harris Associates, Inc., to stay the arbitration as to them. James P. Harris and Kathy Harris, husband and wife, and J.P. Harris The Judicial Code at 42 Pa.C.S. Section 7304(b) Associates, LLC, has intervened. provides: 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 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. (Emphasis added.) The application to stay the arbitration was tried on December 2, 2002.1 The applicants maintain that they are not bound by the arbitration clause in the Market Region Purchase Agreement because they are not a party to that Agreement. They did not execute the Agreement, and they maintain that James P. Harris did not have authority to bind them to the Agreement. A question of whether a party has agreed to arbitrate a dispute is a jurisdictional question to be decided by a court. Smith v. Cumberland Group LTD, 687 A.2d 1167 (Pa. Super. 1997). A party who can establish that there was no agreement to arbitrate is entitled to enjoin an arbitration. Id. In the 1 The arbitration is scheduled for mid-January, 2003. -3- 02-5469 CIVIL TERM case sub judice, none of the applicants signed the Market Region Purchase Agreement of August 25, 2000, that contains the arbitration clause. However, James P. Harris signed for his "children, and associated business activities." G.H. Harris Associates, Inc., maintains that the applicants are subject to the arbitration clause in the Market Region Purchase Agreement because James P. Harris bound them to the Agreement as their agent. In Reifsnyder v. Dougherty, 301 Pa. 328 (1930), the Supreme Court of Pennsylvania stated that there are four grounds upon which an agency relationship can be established: The liability of a principal to third parties for the acts of an agent may rest on the following grounds: (1) Express authority, or that which is directly granted; (2) implied authority, to do all that is proper, usual, and necessary to the exercise of the authority actually granted; (3) apparent authority, as where the principal holds one out as agent by words or conduct; and (4) agency by estoppel, which arises where the principal, by his culpable negligence in failing to supervise the affairs of his agent, allows him to exercise powers not granted to him, and so justifies others in believing he possesses the requisite authority. James S. Harris, age 27, testified that he and his wife Terri Harris, have lived in Columbia, Maryland since 1996. He is a graduate of West Virginia University, and a professional engineer. Since before 2000, he has worked full-time as an engineer on propulsion systems for Carlton Technologies in Maryland. He and his wife incorporated JTH Tax Services, LLC, in Pennsylvania, on October 25, 2001. They are the sole owners of the corporation which is in the business of collecting delinquent taxes for municipalities in Pennsylvania, the same business as those operated by his father and grandfather. Terri Harris operates the company on a daily basis out of an -4- 02-5469 CIVIL TERM office in Hanover, Pennsylvania. James S. Harris testified that neither his father nor his grandfather's delinquent tax collections business, or any of his relatives, have any interest or working relationship with JTH Tax Services, LLC. The company employs two part-time deputy tax collectors who are also part-time employees of the father's tax collection company, J.P. Harris Associates, LLC. From 1991 to 1994, until he graduated from college, James S. Harris worked part-time during summer school breaks and vacation periods in his grandfather's tax collection business, G.H. Harris Associates, LLC. His wife worked for that company over one Christmas break. She has other experience in debt collection and management. Neither James S. Harris or Terri Harris have ever worked for his father's tax collection business, J.P. Harris Associates, LLC. James S. Harris testified that prior to August 25, 2000, he was told by his father that his father and grandfather were negotiating an agreement with respect to their businesses, and that his grandfather wanted the agreement to bind him. He told his father that he would not be bound. James P. Harris testified that he signed the Market Region Purchase Agreement for his "children and associated business activities," although he has only one child, James S. Harris. He testified that despite having warranted in the agreement that he has full authority to bind his son, his attorney told him (1) that his signature was not binding on his son, and (2) that his father, G.H. Harris, understood that but he would not allow the language to be taken out of the Agreement. G.H. Harris did not present any testimony to the contrary, nor did he testify on what basis he may have reasonably -5- 02-5469 CIVIL TERM believed that James P. Harris had authority to bind his son to the Agreement. There is clearly no basis upon which Terri Harris can be bound by the arbitration clause in the Market Region Purchase Agreement. Weighing the credibility of all of the witnesses, and considering all of the evidence, we find that James S. Harris did not give his father, James P. Harris, express authority to bind him to the Market Region Purchase Agreement. There is no evidence that James P. Harris had implied authority to bind his son to the Agreement as he had no express authority from his son whereby he could act in a necessary, proper and usual exercise of such authority. There is no evidence of any authority that James S. Harris is estopped to deny. In Bennett v. Juzelenos, 791 A.2d 403 (Pa. Super 2002), the Superior Court of Pennsylvania stated: Apparent authority is power to bind a principal which the principal has not actually granted but which he leads persons with whom his agent deals to believe that he has granted. Persons with whom the agent deals can reasonably believe that the agent has power to bind his principal if, for instance, the principal knowingly permits the agent to exercise such power or if the principal holds the agent out as possessing such power. (Emphasis added.) In determining the apparent authority of an agent we must look to the actions of the principal, not the agent. Tumway Corp. v. Softer, 461 Pa. 447 (1975). There is nothing in the evidence that would warrant our concluding that James S. Harris did anything which could have led G.H. Harris to reasonably believe that James P. Harris had authority to bind him to the Market Region Purchase Agreement. James S. Harris never worked in his father's tax collection business. He only did some part-time work for G.H. Harris Associates, Inc., when he was in college. He was married and living in -6- 02-5469 CIVIL TERM Maryland and working as a full-time professional engineer when the Market Region Purchase Agreement was signed on August 25, 2000. JTH Tax Services, LLC, did not start business until it was incorporated on October 25, 2001, one year and two months after the Market Region Purchase Agreement was signed. Despite the duplicity of James P. Harris signing the Market Region Purchase Agreement "for his.., children," we find that he did not have apparent authority to bind his son, James S. Harris, to the Agreement. Notwithstanding that James P. Harris is not an officer, director or shareholder in JTH Tax Services, LLC, which was incorporated by his son and daughter-in-law over a year after the Market Region Purchase Agreement was executed, G.H. Harris Associates, Inc., maintains that the corporation is the alter ego of James P. Harris and thus is bound by the arbitration clause in the Agreement. There are federal cases which have held when considering enforcement of an arbitration agreement against non-signatories, the question is whether the non-signatory is bound by the agreement under traditional common law principles of contract and agency law. See Bel-Ray Company, Inc. v. Chemrite, Ltd., 181 F.3d 435 (3d Cir. 1999); E.I. Dupont deNemours and Company v. Rhone Poulenc Fiber and Resin Intermediates, $.A.S., 269 F.3d 187 (3d Cir. 2001). This alter ego argument that JTH Tax Services, LLC is a front/subterfuge/facade for James P. Harris can also be considered as it being an associated business activity of his; therefore, the corporation is bound by the arbitration clause in the Market Region Purchase Agreement signed by him, inter alia, -7- 02-5469 CIVIL TERM -8- 02-5469 CIVIL TERM "for his.., associated business activities," a party to the Agreement? In retrospect, we believe that at the hearing on December 2®, we wrongly sustained objections to allowing G.H. Harris Associates, Inc., to present a full record in support of this position. Accordingly, we will schedule another hearing to allow development of a complete record limited to the issue of whether JTH Tax Services, LLC, is subject to the arbitration provision contained in the Market Region Purchase Agreement of August 25, 2000, because it is the alter ego of James P. Harris and/or is his associated business activity. INTERIM ORDER OF COURT AND NOW, this day of December, 2002, IT IS ORDERED that a continuation of the hearing of December 2, 2002, shall be conducted in Courtroom Number 2, Cumberland County Courthouse, Carlisle, Pennsylvania, at 8:45 a.m., Friday, December 27, 2002. A final order with respect to all claims of the applicants will be entered thereafter. 2 In Sklaroff v. Sklaroff, 263 Pa. 421 (1919), two men sold a business and entered into a non-competition agreement with the buyer. The sellers later sued the buyers maintaining that they were violating the non-compete agreement by using a company to operate the same kind of business through the agency of two men who held themselves out as the owners. The trial court held that the company was in reality the business of the two sellers, that the two men were acting as their agents, and that this plan was conceived for the purpose of avoiding the non-competition clause in the contract. An injunction was issued restraining the buyers from competing through the operation of the company. The injunction was upheld by the Supreme Court of Pennsylvania. -9- 02-5469 CIVIL TERM By the Court, Alexandra Makosky, Esquire For Applicants Steven E. Grubb, Esquire For Respondent John R. Zonarich, Esquire For Interveners :sal Edgar B. Bayley, J. -10-