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Home My WebLink About2009-6772 Civil BLACK LANDSCAPE : IN THE COURT OF COMMON PLEAS OF CONTRACTING, INC., : CUMBERLAND COUNTY, PENNSYLVANIA PLAINTIFF : V. : : LOBAR ASSOCIATES, INC., : DEFENDANT : 09-6772 CIVIL TERM BEFORE OLER, J., GUIDO, J., AND MASLAND, J. OPINION AND ORDER OF COURT Masland, J., June 25, 2010:-- Before the court is defendant Lobar Associates Inc.’s (Contractor) preliminary objection to the complaint filed against it by plaintiff, Black Landscaping Contracting, Inc. (Subcontractor) seeking payment due for landscaping services. Contractor objects to the complaint on the grounds that the parties are contractually obligated to resolve all disputes via arbitration. Subcontractor argues no arbitration agreement exists between the parties. Following argument en banc, we sustain Contractor’s preliminary objection and dismiss Subcontractor's complaint. I. Background th On July 9, 2007, Contractor entered an agreement with Harrisburg Foot and Ankle Center (Owner) for the construction of a commercial property in Dauphin County. The relationship between Contractor and Owner was governed by a contract (prime contract) that included a provision requiring the parties to 09-6772 CIVIL TERM 1 resolve disputes by arbitration rather than traditional litigation. Subcontractor was not a signatory to the prime contract. Subsequently, Contractor entered into an agreement (subcontract) with Subcontractor for the completion of landscaping associated with Owner's construction project. The subcontract does not contain an express arbitration provision. However, the subcontract does include an incorporation provision that is the subject of the instant litigation. Contractor argues the incorporation provision in the subcontract binds Subcontractor to all terms of the prime contract, including the arbitration provision. In response, Subcontractor contends the incorporation provision is ambiguous and therefore does not bind it to the arbitration provision in the prime contract. Specifically, Subcontractor argues “unless the subcontract unmistakably incorporates the arbitration provision of the general contract … the provisions at issue cannot be reasonably construed as binding [Subcontractor] to a prior agreement to arbitrate its claims.” Pl.'s Br. at 4 (footnote omitted). Following briefing by the parties and argument en banc, we reach the following conclusions: (1) arbitration provisions may be incorporated by reference through general incorporation provisions; (2) the subcontract's incorporation provision is unambiguous; and (3) the instant dispute is within the 1 See Def.'s Ex. 2. “If Arbitration is selected by the parties as the method of binding dispute resolution, then any claim, dispute or other matter in question arising out of or related to this Agreement shall be subject to arbitration ….” Prime Contract, § A.6.3.1 (emphasis added). -2- 09-6772 CIVIL TERM scope of the arbitration provision. Accordingly, we sustain Contractor's preliminary objection and dismiss Subcontractor's complaint. II. Existence of Agreement to Arbitrate A. General Principles At the outset we note our courts “strongly favor the settlement of disputes by arbitration.” Langston v. National Media Corp., 596 A.2d 860, 864 (Pa. Super. 1991). Where the parties’ agreement to arbitrate is sufficiently clear, we make all reasonable efforts to favor such agreements. DiLucente Corp. v. Pennsylvania Roofing Co., Inc., 655 A.2d 1035, 1038 (Pa. Super. 1995). If a valid arbitration agreement exists between the parties, and the dispute is within the scope of the agreement, then the parties must submit to arbitration. Messa v. State Farm Ins. Co., 641 A.2d 1167, 1170 (Pa. Super. 1994). However, if a party can establish that it did not agree to arbitrate disputes it may be entitled to enjoin arbitration. Smith v. Cumberland Group, Ltd., 687 A.2d 1167, 1171 (Pa. Super. 1997). When a party to an agreement seeks to avoid proceeding to arbitration, we must determine whether a valid agreement to arbitrate exists between the parties and, if so, whether the dispute involved is within the scope of the arbitration provision. Midomo Co., Inc. v. Presbyterian Housing Development Co., 739 A.2d 180, 186-87 (Pa. Super. 1999). “[A]rbitration is a matter of contract and, as such, it is for the court to determine whether an express agreement between the parties to arbitrate exists.” Id. at 187. -3- 09-6772 CIVIL TERM Here, it is undisputed Subcontractor was not a signatory to the prime contract between Contractor and Owner. As such, no express agreement to arbitrate exists between Contractor and Subcontractor. Nonetheless, Contractor asserts Subcontractor is bound by the arbitration provision in the prime contract by the incorporation provision in the subcontract. We agree. B. Incorporation by Reference “As a matter of contract law, incorporation by reference is generally effective to accomplish its intended purpose where ... the provision to which reference is made has a reasonably clear and ascertainable meaning." Bernotas v. Super Fresh Food Mkts., Inc., 816 A.2d 225, 231 (2002) (internal quotation marks omitted), rev'd on other grounds, 581 Pa. 12, 863 A.2d 478 (2004). In dicta, our courts have recognized incorporation by reference provisions in the context of arbitration. Integrated Project Servs. v. HMS Interiors, Inc., 931 A.2d 724, 734-36 (Pa. Super. 2007). However, Pennsylvania state courts have not squarely addressed the issue now before us. Restated for clarity, we now address whether, and under what circumstances, a third-party nonsignatory may be bound to an arbitration agreement on a theory of incorporation by reference. In Bernotas, our Supreme Court held a general incorporation clause will not incorporate indemnification provisions absent express and specific contract language to that effect because of the longstanding policy to construe indemnification provisions narrowly. Bernotas, 863 A.2d at 484. Subcontractor urges us to apply a similarly strict standard where, as here, we must determine -4- 09-6772 CIVIL TERM whether a subcontract's incorporation provision encompasses an arbitration provision. For the following reasons, we decline to do so. As previously stated, Pennsylvania state courts have yet to speak directly to the question now before us; however, the United States Court of Appeals for the Third Circuit recently addressed this issue in a comprehensive and well- reasoned opinion, the reasoning of which we now adopt. See Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513 (3d Cir. Pa. 2009) (interpreting substantive Pennsylvania law). Relevant here, the Third Circuit concluded there was no reason to apply the narrow interpretation associated with an indemnification agreement to the interpretation of an arbitration clause, “because such a clause is quite different from an indemnification clause.” Id. at 534. As our Supreme Court stated, indemnification provisions “impose[] an ‘unusual’ and ‘extraordinary’ obligation ….” Bernotas, 581 Pa. at 21, 863 A.2d at 483. Arbitration agreements present no similar difficulties. On the contrary, “[p]ublic policy favors arbitration to settle disputes quickly, fairly, and economically.” Smay v. E.R. Stuebner, Inc., 864 A.2d 1266, 1272 (Pa. Super. 2004). For these reasons, we agree with the Third Circuit and conclude “under Pennsylvania law, arbitration provisions, like other contractual provisions, may be incorporated by reference through general incorporation provisions.” Century Indem. Co., 584 F.3d at 534. -5- 09-6772 CIVIL TERM C. Sufficiency of Subcontract's Incorporation Provision Based on the foregoing principles, we now turn to the incorporation provision itself. Subcontractor argues the incorporation provision is fatally ambiguous and in support proffers an alternative interpretation of the provision in which Subcontractor is not bound to the arbitration agreement in the prime contract. Specifically, Subcontractor argues the provision only incorporates prime contract documents for the “agreed purpose of [Subcontractor's] furnishing of all materials and performance of all work … in accordance therewith.” Pl.'s Br. at 7. Subcontractor further notes Contractor drafted the subcontract and thus all ambiguities must be interpreted against that party. “A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense.” Insurance Adjustment Bureau v. Allstate, 588 Pa. 470, 481, 905 A.2d 462, 468- 69 (2006). Notably, “[t]he 'reasonably' qualifier is important: there is no ambiguity if one of the two proffered meanings is unreasonable.” Trizechahn Gateway LLC v. Titus, 601 Pa. 637, 652-653, 976 A.2d 474, 483 (Pa. 2009). We will not “distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity.” Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 606, 735 A.2d 100, 106 (1999). Further, “[a]ll parts of the contract should be interpreted together, with the goal of giving effect to each of its provisions.” Midomo, 739 A.2d at 191. -6- 09-6772 CIVIL TERM Here, we conclude the incorporation provision, though inartfully drafted, is unambiguous. It reads, in relevant part: ARTICLE I. The [S]ubcontractor agrees to furnish all material and perform all work as described in article ii hereof for: Hsbrg Foot&Ankl Grossmn PA For LOBAR ASSOCIATES, INC. in accordance with this agreement, the agreement between the owner & contractor, & in accordance with the general conditions of the contract, supplementary conditions, the drawings, specifications, amendments, and/or addenda prepared by __, hereinafter called the architect or owner's authorized agent, all of which documents, signed by the parties thereto or identified by the architect or owner’s authorized agent, form a part of a contract between the contractor and the owner dated 8/3/2007 & hereby become a part of this contract & herein referred to as the contract documents, & shall be available to the subcontractor upon his request prior to and anytime subsequent to signing this subcontract. Def.’s Ex. 1 (emphasis added) (errors in original). The incorporation provision is riddled with spelling errors and identifies the prime contract by an erroneous date. However, it identified the parties to the prime contract by name and broadly stated all documents forming a part of the prime contract “hereby become a part of this contract ….” Def.'s Ex. 1. Further, the final line of the provision notified Subcontractor of the existence of external contract documents and empowered it to request those documents prior to signing the subcontract. -7- 09-6772 CIVIL TERM Based on our reading of the incorporation provision, we reject Subcontractor's proffered interpretation as overly narrow and failing to effectuate the provision as a whole. Midomo, 739 A.2d at 191. We find the only reasonable interpretation of the incorporation provision is that it amounts to a general incorporation of the terms of the prime contract, including the arbitration provision, into the subcontract. Century Indem. Co., 584 F.3d at 534. Accordingly, we conclude the incorporation provision is unambiguous and serves to bind subcontractor to the arbitration agreement in the prime contract. III. Scope of Arbitration Agreement Having concluded the parties have entered an agreement to arbitrate, we must now determine whether the instant dispute is within the scope of the arbitration agreement. Midomo, 739 A.2d at 186-87. We analyze arbitration agreements according to the rules of contractual construction and adopt an interpretation giving paramount importance to the intent of the parties and ascribe “the most reasonable, probable, and natural conduct to the parties.” Id. at 191. Here, we have little difficulty concluding Subcontractor's payment dispute is within the scope of the arbitration agreement in the prime contract. Section 6.3.1. of the prime contract states “any claim, dispute or other matter in question arising out of or related to [the prime contract] shall be subject to arbitration ….” Def.'s Ex. 2, Prime Contract, § A.6.3.1. This provision is clearly “framed in the broadest conceivable language” and thus encompasses the dispute between -8- 09-6772 CIVIL TERM contractor and subcontractor regarding payment due under the subcontract. See Two Rivers Terminal L.P. v. Benatec Assocs. Inc., 40 Pa. D. & C. 4th 497, 502 (C.P. Dauphin 1998). IV. Conclusion In sum, we reach the following conclusions: (1) arbitration provisions may be incorporated by reference through general incorporation provisions; (2) the subcontract's incorporation provision is unambiguous; and (3) the instant dispute is within the scope of the arbitration provision. Accordingly, we sustain Contractor's preliminary objection and dismiss Subcontractor's complaint. ORDER OF COURT AND NOW, this day of June, 2010, defendant’s preliminary IS SUSTAINEDIS DISMISSED. objection, . Plaintiff’s complaint, By the Court, Albert H. Masland, J. Gerald S. Gaetano, Esquire For Plaintiff Veronica J. Finkelstein, Esquire For Defendant :sal -9- BLACK LANDSCAPE : IN THE COURT OF COMMON PLEAS OF CONTRACTING, INC., : CUMBERLAND COUNTY, PENNSYLVANIA PLAINTIFF : V. : : LOBAR ASSOCIATES, INC., : DEFENDANT : 09-6772 CIVIL TERM BEFORE OLER, J., GUIDO, J., AND MASLAND, J. ORDER OF COURT AND NOW, this day of June, 2010, defendant’s preliminary IS SUSTAINEDIS DISMISSED. objection, . Plaintiff’s complaint, By the Court, Albert H. Masland, J. Gerald S. Gaetano, Esquire For Plaintiff Veronica J. Finkelstein, Esquire For Defendant :sal