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HomeMy WebLinkAbout2009-1094 Civil ROBERT L. and ALICE S. GOODALL, : Husband and Wife, : Plaintiffs : IN THE COURT OF COMMON PLEAS : CUMBERLAND COUNTY, : PENNSYLVANIA : : v. : : : TRADITIONS OF AMERICA, LP, et al., : Defendants : NO. 09-1094 CIVIL TERM IN RE: DEFENDANT’S MOTION TO COMPEL ARBITRATION AND STAY JUDICIAL PROCEEDINGS BEFORE HESS, J., AND EBERT, J. ORDER OF COURT AND NOW , this 25th day of June, 2009, after consideration of Defendant’s Motion to Compel Arbitration and Stay Judicial Proceedings, Plaintiffs’ Response to the Motion, and briefs and arguments of counsel, IT IS HEREBY ORDERED GRANTED that the Motion is and that: 1.The parties are ordered to proceed with arbitration of all claims raised in the Complaint in accordance with paragraph 8(g) of the Agreement of Sale dated August 11, 2008; and 2.All actions and proceeding in this Court are stayed pending the outcome of arbitration. By the Court, M. L. Ebert, Jr., J. Daniel L., Sullivan, Esquire 2109 Market Street Camp Hill, PA 17011 717-737-3405 Attorney for Defendants Wayne M. Pecht, Esquire Rob Bleecher, Esquire 1205 Manor Drive, Suite 200 Mechanicsburg, PA 17055 717-691-9808 Attorneys for Plaintiffs 2 ROBERT L. and ALICE S. GOODALL, : Husband and Wife, : Plaintiffs : IN THE COURT OF COMMON PLEAS : CUMBERLAND COUNTY, : PENNSYLVANIA : : v. : : : TRADITIONS OF AMERICA, LP, et al., : Defendants : NO. 09-1094 CIVIL TERM IN RE: DEFENDANT’S MOTION TO COMPEL ARBITRATION AND STAY JUDICIAL PROCEEDINGS BEFORE HESS, J., AND EBERT, J. OPINION AND ORDER OF COURT EBERT, J., June 25, 2009 - STATEMENT OF FACTS Plaintiffs are Robert L. Goodall and Alice S. Goodall, husband and wife. Plaintiffs currently reside at 2304 Arcona Road, Mechanicsburg, Pennsylvania. Defendant Traditions of America, L.P. is a Pennsylvania Limited Partnership with a principal place of business at 201 King of Prussia Road, Radnor, Pennsylvania. Co-Defendant TOA PA VII, LP is a real estate development company owned by Traditions of America, LP. Defendants are residential developers specializing in building and selling homes in communities for people age 55 and older. Defendants advertised a home, the “Lincoln” model, in the “Parade of Homes” tour. Plaintiffs toured the “Lincoln” model and subsequently purchased the same from Defendants. The Parade of Homes participation agreement requires the cost of any and all “extras” contained 3 1 in the home, including the lot, to be included in the listing price of each home. Plaintiffs therefore believed that the Parade of Homes tour required builders to build houses for buyers at 2 the price advertised in the circular. The model home was listed in the Parade of Homes circular 3 for $468,000. Plaintiffs believed, based on conversations with Defendants’ representative about a less expensive lot price and additional discounts, that the final price for the home would not 4 exceed $448,000. Plaintiffs signed a Non-Binding Reservation Form on August 4, 2008 which listed the base model of the home at $346,300. Plaintiffs signed an Agreement of Sale (hereinafter “the agreement”) on August 11, 2008 for Defendants to build the “Lincoln” model which they saw on display in the Parade of Homes. Plaintiffs paid $34,630 in earnest money when they signed the agreement. A final price for the home was not listed in the Agreement of Sale. Plaintiffs were later told that the home with the features they saw in the Parade of Homes 5 would cost a total of $550,000. Plaintiffs did not agree to the final price requested by Defendants for the house, and asked for a refund of their deposit, which Defendants refused. The agreement contained an arbitration clause requiring all unresolved disputes arising before or after settlement to be resolved by arbitration. This action arises out of a dispute over whether or not the arbitration clause applies to a dispute about formation of contract itself, as opposed to specific terms contained within the contract. 1 Exhibit B at ¶ 3 (2008 Parade of Homes Participation Agreement). 2 Complaint at ¶ 16. 3 Complaint at ¶ 17, filed Jan. 14, 2009. Note that Exhibit A containing a photocopy of the circular does not include Defendants’ “Lincoln” model. 4 Complaint at ¶ 19. 5 Complaint at ¶ 24. 4 PROCEDURAL HISTORY Plaintiffs filed a Complaint against Defendants on January 14, 2009 which included claims of Negligent Misrepresentation, Breach of Contract, Unjust Enrichment, Conversion, and Violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Defendants filed a Motion to Compel Arbitration and Stay Judicial Proceedings on February 10, 2009. Plaintiffs filed a Response in Opposition to Defendants’ Motion to Compel Arbitration on March 12, 2009. DISCUSSION A. Standard of Review – Arbitration The Supreme Court of Pennsylvania favors the settlement of disputes by arbitration to promote the swift and orderly disposition of claims. Elkins & Co. v. Suplee, 538 A.2d 883 (Pa. Super. 1998) (citing Waddell v. Shriber, 348 A.2d 96 (Pa. 1975)). The standard of review for a petition to compel arbitration is well established. When one party to an agreement seeks to enjoin the other from proceeding to arbitration, judicial inquiry is limited to the questions of “(1) whether an agreement to arbitrate was entered into and (2) whether the dispute involved comes within the ambit of the arbitration provision.” Messa v. State Farm Ins. Co., 641 A.2d 1167, 1168 (Pa. Super. 1994) (citing Rocca v. Pennsylvania General Ins. Co., 516 A.2d 772, 773 (Pa. Super. 1986)). The court’s only role is to determine whether an arbitration clause exists. The court is not to rule on the merits of the dispute. The judicial role in arbitration is reflected in Pennsylvania Statutes at 42 Pa.C.S. § 7304(a) and (e), in pertinent part, as follows: § 7304. Court proceedings to compel or stay arbitration (a) Compelling arbitration.-- On application to a court to compel arbitration made by a party showing an agreement described in section 7303 (relating to validity of agreement to arbitrate) and a showing that an opposing party refused to arbitrate, the court shall order the parties to proceed with arbitration. If the 5 opposing party denies the existence of an agreement to arbitrate, the court shall proceed summarily to determine the issue so raised and shall order the parties to proceed with arbitration if it finds for the moving party. Otherwise, the application shall be denied. (e) No examination of merits.-- An application for a court order to proceed with arbitration shall not be refused, nor shall an application to stay arbitration be granted, by the court on the ground that the controversy lacks merit or bona fides or on the ground that no fault or basis for the controversy sought to be arbitrated has been shown. 42 Pa.C.S.A. § 7304. B. Existence of Valid Arbitration Clause If a valid arbitration agreement exists between the parties and the claim is within the scope of the agreement, the controversy must be submitted to arbitration. Messa v. State Farm Ins. Co., 641 A.2d 1167, 1170 (Pa. Super. 1994). In considering a motion to compel arbitration, judicial inquiry is limited to the questions of whether an agreement to arbitrate was entered into and whether the dispute involved falls within the scope of the arbitration provision. Flightways, 331 A.2d at 185 (citing Borough of Ambridge Water Authority v. J.Z. Columbia, 328 A.2d 498 (Pa. 1974). Generally accepted contract defenses such as duress, illegality, fraud or unconscionability can be used to challenge the application of an arbitration provision. McNulty v. H&R Block, Inc., 843 A.2d 1267, 1272 (Pa. Super. 2004) (citing Lytle v. CitiFinancial Services, Inc., 810 A.2d 643, 656 (Pa. Super. 2002)). While there is no dispute about the existence of an arbitration clause, Plaintiffs argue that the clause is void for lack of mutual assent. Plaintiffs claim that there was no meeting of the minds as to the applicability of the arbitration clause, and claim that they were not aware that the arbitration clause applied to matters unrelated to the Agreement of Sale. Plaintiffs argue that claims related to fraud and the resulting disputes over the final price of the home are unrelated to the Agreement of Sale. Plaintiffs cannot claim there was no mutual assent when they made 6 changes to certain clauses in the agreement and when they initialed each page of the agreement. They had the opportunity to discuss and change provisions they did not understand or did not agree with. We find that because Plaintiffs read and signed the agreement with the opportunity to make changes, a valid arbitration clause did exist. C. Scope of Arbitration Clause In Pennsylvania, the issue of whether a particular dispute falls within a contractual arbitration provision is a matter of law for a court decide. Huegel v. Mifflin Const. Co., Inc., 796 A.2d 350, 354 (Pa. Super. 2002) (citing Shadduck v. Christopher J. Kaclik, Inc., 713 A.2d 635, 637 (Pa. Super. 1998)). The arbitration clause in the present case reads as follows: Purchaser and Declarant agree that all disputes which before or after the Settlement arise or maintain unresolved between the parties, shall be resolved by binding arbitration in accordance with 42 Pa. Cons. Stat. section 7301 et seq. and the Commercial Rules of the American Arbitration Association, as in effect on the date of the recordation of the Declaration. The decision of the arbitrator shall be final and the arbitrator shall have authority to award attorneys' fees and allocate the costs of arbitration as part of any final award. In the event the parties cannot agree on the selection of the arbitrator, the parties shall submit the dispute to the American Arbitration Association., which shall select the arbitrator. Notwithstanding the foregoing, if Declarant provides a warranty to the Purchaser, either directly or through a third party, the terms, provisions, procedures and requirements of that warranty must first be followed and completely exhausted 6 before Purchaser can pursue any claim for arbitration described herein. Plaintiffs argue that even if an arbitration clause exists, the claims of Negligent Misrepresentation and Violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law are not within the scope of the arbitration clause because they occurred before the signing of the agreement and do not arise from the agreement. Plaintiffs also argue that the arbitration clause is overly broad and that because there was no agreement on what was covered under the arbitration clause, the arbitration clause is void for mutual assent. The Pennsylvania 6 Agreement of Sale, p. 7, ¶ 8(g). 7 Supreme Court has held that when an arbitration agreement is framed in broad language, it "must be concluded that the parties intended the scope of the submission to be unlimited." Borough of Ambridge Water Authority v. Columbia, 328 A.2d 498 (Pa. 1974). We find that the scope of the arbitration clause in question is not overly broad and properly covers Plaintiffs’ claims against Defendants. This court cannot accept Plaintiffs’ argument that actions occurring before the agreement of sale are totally unrelated to the agreement and are therefore not subject to the arbitration clause. Plaintiffs signed the Non-Binding Reservation Form (“the Form”) three days before they signed the Agreement of Sale and the Form referenced the Agreement of Sale. Plaintiffs presumably signed the Form based on discussions with Defendants about the final cost of the home. The agreement was clearly was based on the prices and terms now in dispute. before or after the Settlement Furthermore, the arbitration clause states that “all disputes which arise or maintain unresolved between the parties. . .” shall be resolved by arbitration. It does not, as Plaintiffs argue, limit arbitration to disputes relating specifically to the Agreement of Sale. All claims against Defendant can clearly be classified as occurring before the Settlement, which subjects them to the arbitration clause. Even with Plaintiffs’ interpretation, it is clear that the price of the home is significantly related to the Agreement of Sale. Accordingly, we find that all Plaintiffs’ claims are subject to the arbitration clause. D. Fraud and Unconscionability of Arbitration Clause Pennsylvania law requires enforcement of arbitration provisions as written, permitting such provisions to be set aside only for generally recognized contract defenses such as duress, illegality, fraud, unconscionability. Lytle v. CitiFinancial Services, Inc., 810 A.2d 643, 656 (Pa. Super. 2002, overruled on other grounds). Plaintiffs argue that even if this Court finds that there 8 was mutual assent with regard to the arbitration clause, the clause is void because it is unconscionable. Plaintiffs also argue that they would not have signed the contract if not for the representations made by Defendants, and therefore any claims relating to actions before the contract was signed are not subject to arbitration. The Supreme Court of Pennsylvania has held that an arbitration clause "cannot be circumvented by an allegation that the contract was void ab initio because of fraud in the inducement or mutual mistake." Flightways Corp. v. Keystone Helicopter Corp., 331 A.2d 184, 185 (Pa. 1975). We are bound by case law that requires us to enforce the arbitration clause even if Plaintiffs were fraudulently induced into the agreement. Plaintiffs argue that the arbitration clause is unconscionable because it is a contract of adhesion and because it unreasonably favors the Defendant. A declaration of unconscionability requires a two-fold determination: 1) that the contractual terms are unreasonably favorable to the drafter, and 2) that there is no meaningful choice on the part of the other party regarding the acceptance of the provisions. McNulty v. H&R Block, Inc., 843 A.2d 1267, 1273 (Pa. Super. 2004) (citing Lytle, Lytle v. CitiFinancial Services, Inc., 810 A.2d 643, 658-59). We do not believe that the arbitration clause is unconscionable. An adhesion contract is a ‘standard form contract prepared by one party, to be signed by the party in a weaker position, [usually] a consumer, who has little choice about the terms.’ Bayne v. Smith, 965 A.2d 265, 267 (Pa. Super. 2009) (quoting Robson v. EMC Ins. Cos., 785 A.2d 507, 510 (Pa. Super. 2001), quoting ' (7th ed.1999)). The Pennsylvania Supreme Court has held BLACKS LAW DICTIONARY that a contract or term is unconscionable and therefore avoidable, where there is a lack of meaningful choice in the acceptance of the challenged provision and the provision unreasonably favors the party asserting it. Bayne v. Smith, 965 A.2d at 267 (citing Denlinger, Inc. v. Dendler, 608 A.2d 1061, 1068 (Pa. Super. 1992)). 9 It cannot be said that in this case the arbitration clause is a contract of adhesion or that Plaintiffs lacked meaningful choice in acceptance of the arbitration clause. Plaintiffs had the opportunity to review the contract and had the option to change provisions before signing. In fact, they did make a change to another section of the agreement. Plaintiffs argue that the arbitration clause was “hidden” in the contract and it was not prominently visible like other sections of the contract. While it is true that the arbitration clause is not specifically labeled like other parts of the agreement, it is clear that Plaintiffs reviewed each page of the contract because they initialed the bottom of each page. Plaintiffs present no claims that Defendants would have refused to make changes to the section of the agreement containing the arbitration clause. Without such evidence, we are unable to conclude that Plaintiffs had no meaningful choice in accepting the arbitration clause as part of the agreement. E. Waiver of Right to Arbitration Plaintiffs’ final argument is that Defendants waived their right to arbitration and accepted resolution by judicial process when they included the phrase “Jury Trial Demanded” in the caption of their Acceptance of Service when they were not required to do so. It is possible for a party to waive its right to arbitration. Stanley-Laman Group, Ltd. v. Hyldahl , 939 A.2d 378, 382 (Pa. Super. 2007) (citing Goral v. Fox Ridge, Inc., 683 A.2d 931, 933 (Pa. Super. 1996)). “Waiver may be established by a party's express declaration or by a party's undisputed acts or language so inconsistent with a purpose to stand on the contract provisions as to leave no opportunity for a reasonable inference to the contrary.” Stanley-Laman Group, Ltd. v. Hyldahl , 939 A.2d 378, 382 (Pa. Super. 2007) (citing Samuel J. Marranca Gen. Contracting Co., Inc. v. Amerimar Cherry Hill Assocs. Ltd. P'ship, 610 A.2d 499, 501 (Pa. Super. 1992)). Defendants clearly intend for the dispute to be resolved through arbitration and not by a jury trial, and their 10 right to petition to compel arbitration was certainly not waived simply by the caption on their Acceptance of Service. Defendants have committed no other acts that would indicate anything other than their desire to proceed by arbitration. F. Subsequent Remedies Upon reading the complaint and the Agreement of Sale between the parties, it is very hard to understand how anyone could believe that the Goodalls were not agreeing to purchase a home from the Defendants for $346,300.00, which the Defendants described as the “total purchase price.” This document is signed, $34,630.00 in earnest money is paid by the Plaintiffs to the Defendants, and then the Plaintiffs claim that they are informed that the cost of their home will be approximately $550,000.00. Under paragraph 8 (c) of the Agreement of Sale, entitled “Defaults” it states: (c) if the purchaser shall default hereunder, then, at the declarant’s election (as declarant’s sole remedy) all earnest money with interest earned thereon and other sums theretofore paid by the purchaser with respect to the unit shall be forfeited as liquidated damages… Just below this paragraph at paragraph 8 (g) is the unlabeled Arbitration Clause. While this Court obviously offers no opinion, there would be many that would view the situation described above as a classic “bait and switch” tactic. The Plaintiffs’ $34,630.00 earnest money is now at risk, and they have gotten absolutely nothing of value for their money. These Defendants specialize in building developments for people over the age of 55, and we question whether Defendants’ practices unfairly lock buyers into an agreement which then compels them to arbitration. In any regard, we are bound by Pennsylvania precedent that requires the dispute to be submitted to arbitration as mandated by the clause in the agreement. Plaintiffs presumably still 11 have a remedy through the judicial process in the form of an appeal from arbitration pursuant to Pa. C.S.A. § 7315, Modification of Correction of Award by Court, should arbitration provide an unjust result. We find that the arbitration clause is valid and does apply to all Plaintiffs’ claims, and that Defendants have not waived their right to arbitration. Public policy in Pennsylvania favors arbitration, and controlling case law requires us to rule in favor of finding the arbitration clause valid and covering all of Plaintiffs’ claims against Defendants. We find no merit to Plaintiffs’ argument that the arbitration clause is unconscionable or that it should not apply to all claims, including claims of Negligent Misrepresentation and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Accordingly, the following Order shall be entered: ORDER OF COURT th AND NOW , this 25 day of June, 2009, after consideration of Defendant’s Motion to Compel Arbitration and Stay Judicial Proceedings, Plaintiffs’ Response to the Motion, and briefs and arguments of counsel, IT IS HEREBY ORDERED GRANTED that the Motion is and that: 1. The parties are ordered to proceed with arbitration of all claims raised in the Complaint in accordance with paragraph 8(g) of the Agreement of Sale dated August 11, 2008; and 2. All actions and proceeding in this Court are stayed pending the outcome of arbitration. By the Court, M. L. Ebert, Jr., J. 12 Daniel L., Sullivan, Esquire 2109 Market Street Camp Hill, PA 17011 717-737-3405 Attorney for Defendants Wayne M. Pecht, Esquire Rob Bleecher, Esquire 1205 Manor Drive, Suite 200 Mechanicsburg, PA 17055 717-691-9808 Attorneys for Plaintiffs 13