Food Lion LLC v. Lebanon Retail Investors, LLC

IN THE COURT OF COMMON PLEAS

OF LEBANON COUNTY, PENNSYLVANIA

 

CIVIL ACTION-LAW

 

FOOD LION, LLC,                                       :

            Petitioner,                                           :

                                                                        :           No. 2011-01443

            v.                                                         :          

                                                                        :

LEBANON RETAIL INVESTORS, LLC,  :

            Respondent                                        :

 

ORDER OF COURT

 

            AND NOW, to wit, this 23^rd day of March, 2012, upon careful consideration of the Petition to Vacate Arbitration Award, the Response filed thereto, the legal memoranda submitted and the record of this case, it is hereby Ordered that the Petition to Vacate Arbitration Award is dismissed for the reasons set forth in the attached Opinion.

                                                                                    BY THE COURT:

 

                                                                                    __________________________, P.J.

                                                                                    JOHN C. TYLWALK

 

JCT/aa

 

pc:       Daniel B. Huyett, Esq. (Regular Mail at Stevens & Lee, 111 North Sixth Street, P.O.   Box 679, Reading, PA  19603-0679)

            Timothy J. Woolford, Esq. (Regular Mail at Woolford Law, P.C., Wheatland Place,      

            941 Wheatland Avenue, Suite 402, Lancaster, PA  17603)

 

 

 

IN THE COURT OF COMMON PLEAS

OF LEBANON COUNTY, PENNSYLVANIA

 

CIVIL ACTION-LAW

 

FOOD LION, LLC,                                       :

            Petitioner,                                           :

                                                                        :           No. 2011-01443

            v.                                                         :          

                                                                        :

LEBANON RETAIL INVESTORS, LLC,  :

            Respondent                                        :

 

APPEARANCES:

 

DANIEL B. HUYETT, ESQUIRE                            For Petitioner

Stevens & Lee

 

TIMOTHY J. WOOLFORD, ESQUIRE                 For Respondent

Woolford Law, P.C.

 

OPINION BY TYLWALK, P.J., MARCH 23, 2012:

Before the Court is Petitioner’s (“Food Lion’s”) Petition to Vacate an arbitration award entered on June 30, 2011 by a panel of three (3) arbitrators in Charlotte, North Carolina as a result of the parties’ dispute over the interpretation of a lease agreement.  By way of background gleaned from the voluminous filings in this case, the parties are North Carolina business entities.  On May 12, 2009, these parties executed a written lease agreement.  In general terms, the lease agreement required Respondent (“Lebanon Retail Investors”) to acquire property and to construct a retail grocery store in Lebanon County to Food Lion’s specifications.  Food Lion, in turn, was to rent that grocery store space from Lebanon Retail Investors for a minimum of twenty (20) years.  The lease agreement contains a provision requiring any dispute relating to the lease agreement to be settled through arbitration.  The arbitration provision provides, in relevant part:

“17.B.  Arbitration

1.  Availability.  Any controversy or dispute arising out of or relating to this                                Lease, which cannot be satisfactorily resolved by Landlord and Tenant (including                                  a dispute with respect to ejectment or eviction), shall be resolved by arbitration                            conducted in accordance with this Article 17.B.

 

***

 

5.  Conduct of Arbitration.  Except as otherwise provided herein, the arbitration                                    proceeding shall be governed by the Commercial Arbitration Rules of the                                               American Arbitration Association…The arbitrators shall base their decisions on                             the provisions of this Lease and, as appropriate, applicable Law…

 

6.  Effect of Determination.  The determination of the majority of the arbitrators                          shall be conclusive upon the parties; provided, however, that (i) the arbitrators                           shall be directed to interpret and apply the terms of this Lease, and (ii) the                                               arbitrators shall not have the authority to make any determination which would                                increase the Base Rent or Percentage Rent under this Lease, or which would result                in a reformation of any of the terms of this Lease.  Judgment may be entered upon                      the award of the arbitrators by either party in the applicable court for the county in                 which the Demised Premises are located.”

 

Notably, the lease agreement does not specify a particular forum or venue in which arbitration proceedings are to be conducted.

Additionally, the lease agreement provides as follows regarding the law that governs its construction:

“20.D Construction of Agreement

 

8.  Governing Law.  This Lease shall be governed by, construed and interpreted in                     accordance with the laws of the State, without regard to the State’s choice of law                             rules.”

 

“State” is defined by the lease agreement as “…the state or commonwealth in which the Shopping Center is situated.”  Article 1.25.

On April 29, 2011, Lebanon Retail Investors presented a demand for non-judicial arbitration, alleging that Food Lion repudiated and breached the lease agreement and, alternatively, that Food Lion breached an oral settlement agreement to pay Lebanon Retail Investors’ fees and development expenses in exchange for Lebanon Retail Investors’ agreement to terminate the lease agreement. [1]  Three (3) arbitrators presided over a hearing that was held on June 6-7, 2011 in Charlotte, North Carolina.[2]  The arbitrators issued a final award on June 30, 2011 finding that Food Lion had not breached or repudiated the terms of the lease agreement but had breached the terms of a settlement agreement.  The arbitrators awarded Lebanon Retail Investors damages in the amount of $977,073.64.[3]  Additionally, the award provided that upon payment of the sums specified, all rights, liabilities and obligations under the lease agreement would be canceled and terminated.

On July 20, 2011, Food Lion filed its Petition to Vacate Arbitration Award in this Court.[4]  Therein, Food Lion argues that the final award exceeded the scope of the arbitrators’ authority in two (2) respects.  First, Food Lion asserts that the parties agreed in the lease agreement that the arbitrators would interpret the terms of the lease agreement, the arbitrators could not make any determination that would result in a reformation of the lease agreement and that the lease agreement could not be modified except in writing and signed by the parties.  Food Lion argues that by considering and finding that it breached the terms of an oral settlement agreement, the arbitrators failed to interpret the terms of the lease agreement and reformed the lease agreement even though there was no written modification of its terms signed by the parties.  Second, Food Lion asserts that by directing the cancellation and termination of the lease agreement upon payment of damages to Lebanon Retail Investors, the arbitrators again failed to interpret and reformed the terms of the lease agreement, which contained its own provisions for cancellation and termination.  Food Lion argues that the award rendered was outside of the scope of the arbitrators’ authority and constitutes an irregularity in the proceedings that requires vacation.  On July 21, 2011, the Court issued a Rule upon Lebanon Retail Investors to show cause why the relief sought should not be granted.

On August 11, 2011, Lebanon Retail Investors filed its Answer with New Matter to the Petition to Vacate.  Therein, Lebanon Retail Investors asserts that this Court has no jurisdiction to vacate the arbitration award because there was no agreement in the lease agreement to arbitrate in this Commonwealth and the arbitration proceedings between these North Carolina residents occurred in North Carolina.  As such, Lebanon Retail Investors argue that subject matter jurisdiction to vacate the arbitration award lies exclusively with the North Carolina court system.  Further, Lebanon Retail Investors argue that even if we were to find that we have jurisdiction over the arbitration award, Food Lion has failed to establish by clear and convincing evidence that any irregularity occurred in the arbitration process so as to permit vacation of the arbitration award.  On August 30, 2011, Food Lion filed its Reply to the New Matter.

Food Lion’s Petition to Vacate Arbitration Award subsequently was listed for disposition through Argument Court, and the parties have filed extensive legal memoranda and attachments in support of their respective positions.  Additionally, on February 23, 2012, Lebanon Retail Investors filed a “Brief Identifying Supplemental Authority in Further Opposition to Petition to Vacate Arbitration Award,” namely an Order and Opinion entered by the Lancaster Court of Common Pleas on February 21, 2012 in the Food Lion v. Elizabethtown Retail Investors case.  In the Opinion and Order appended to the Brief, the Lancaster County Court of Common Pleas concluded that it lacked subject matter jurisdiction to vacate the arbitration award entered in North Carolina and dismissed Food Lion’s Petition to Vacate on that basis.  On March 2, 2012, Food Lion filed a “Response to Respondent’s Brief Identifying Supplemental Authority,” asserting therein that the Lancaster County Court of Common Pleas erred in its determination that it was without subject matter jurisdiction to rule upon the Petition to Vacate.  Additionally, in that Response, Food Lion avers that petitions to confirm arbitration awards lodged by Lebanon Retail Investors and Elizabethtown Retail Investors in the Mecklenburg Superior Court in North Carolina have been dismissed on jurisdictional grounds.  We did not locate any reference whether the dismissal of those petitions has been appealed.

It is against this backdrop that we consider the Petition to Vacate Arbitration Award in this case.  Clearly, a hotly contested issue is whether we have jurisdiction to vacate the arbitration award.  Before reaching that issue, however, it is helpful to address the applicable standards governing the arbitration agreed to by the parties in the lease agreement.  Non-judicial arbitration is purely a matter of contract.  Elkins & Co., v. Suplee, 538 A.2d 883, 885 (Pa.Super. 1988), citing Goodwin v. Elkins & Co., 730 F.2d 99, 108 (3^rd Cir. 1984).  As stated above, the lease agreement provides:

“5.  Conduct of Arbitration.  Except as otherwise provided herein, the arbitration                                   proceeding shall be governed by the Commercial Arbitration Rules of the                                               American Arbitration Association.”

 

Therefore, unless the lease agreement provides otherwise regarding the conduct of the arbitration, the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) are applicable.  It has been held that an agreement to arbitrate in accordance with the rules of the AAA is an agreement to arbitrate under common law principles as opposed to statutory provisions.  Midomo Co., Inc., v. Presbyterian Hous. Dev. Co., 739 A.2d 180, 183 (Pa.Super. 1999), citing Runewicz v. Keystone Ins. Co., 383 A.2d 189, 191 (Pa. 1978).  Even though Pennsylvania’s Uniform Arbitration Act (“UAA”), 42 Pa.C.S. § 7301 et seq., delineates provisions that are applicable to statutory arbitration (§ 7301-§ 7320) and provisions that are applicable to common law arbitration (§§ 7341 and 7342), the legislature made many of the UAA statutory provisions (§§ 7303, 7304, 7305, 7309, 7317, 7318, 7319 and 7320) applicable to common law arbitrations.  Therefore, while the arbitration contemplated by the parties in the lease agreement is subject to common law arbitration principles, the provisions of Pennsylvania’s UAA designated by the legislature to apply equally to both statutory and common law arbitration are applicable as well.

Before a court may determine a legal action, it must possess both subject matter and personal jurisdiction.  Fraisar v. Gillis, 892 A.2d 74, 77 (Pa.Cmwlth. 2006), citing Slezynger v. Bischak, 307 A.2d 405, 406 (Pa.Super. 1973).  Jurisdiction over the subject matter of a case relates to the competency of a court to hear and to determine controversies of the general nature of the matter involved.  Fraisar at 77, citing McGinley v. Scott, 164 A.2d 424, 427 (Pa. 1960).  The fact that a court of common pleas is competent to handle the general class of case allows a finding of subject matter jurisdiction regardless of whether the court ultimately can great relief in the case.  Hade v. Nationwide Ins. Co., 503 A.2d 980, 981 (Pa.Super. 1986), citing Schifano v. Schifano, 471 A.2d 839, 843 (Pa.Super. 1984).  Subject matter jurisdiction cannot be conferred upon a court by agreement.  First Union Commercial Corp., v. Med. Management Services, LLC, 2000 WL 33711037 * 3 (Pa.Com.Pl. 2000), citing Schleifer v. Zoning Bd. of Adjustments, 97 A.2d 782, 784 (Pa. 1953).  Section 7342 consistently has been interpreted to provide courts of common pleas with jurisdiction to hear petitions to vacate and to confirm arbitration awards.  Lundy v. Manchel, 2002 WL 31012284 * 3 (Pa.Com.Pl. 2002), citing Lowther v. Roxborough Mem’l Hosp., 738 A.2d 480, 485 (Pa.Super. 1999).  Since the courts of common pleas of this Commonwealth are empowered to vacate or confirm an award entered following a non-judicial arbitration, we have jurisdiction over the subject matter of the Petition to Vacate Arbitration Award.

Personal jurisdiction, on the other hand, is the power of the court to render a judgment against a party to an action.  Black’s Law Dictionary 766 (5^th ed. 1979).  A court may exercise personal jurisdiction over nonresidents if jurisdiction is authorized by Pennsylvania’s long arm statute, 42 Pa.C.S. § 5322, and the exercise of jurisdiction meets constitutional standards of due process.  Crown-Globe, Inc., v. Grenoble Mills, Inc., 593 A.2d 906, 907 (Pa.Super. 1991), citing Kenneth H. Oaks, Ltd., v. Josephson, 568 A.2d 215, 216 (Pa.Super. 1998).  The long-arm statute authorizes a court to exercise jurisdiction to the fullest extent allowed under the United States Constitution.  Id.  Further, under the Due Process Clause of the Fourteenth Amendment, the exercise of personal jurisdiction is permitted if the defendant has certain minimum contacts such that the maintenance of a suit does not offend traditional notions of fair play and substantial justice.  Crown-Globe, Inc. at 908, citing Milliken v. Meyer, 311 U.S. 457, 463 (1940).

Unlike subject matter jurisdiction, parties may confer personal jurisdiction upon a court by agreement.  First Union Commercial Corp. at * 3, citing Schleifer at 784.  In fact, § 7318, the jurisdictional provision of Pennsylvania’s UAA that was made applicable by the legislature to common law arbitrations such as the one before us, provides that an agreement to arbitrate in Pennsylvania confers jurisdiction upon Pennsylvania courts to enforce that agreement and to enter judgment on an award entered.

In this case, the North Carolina parties agreed in the lease agreement to submit to arbitration but did not specify that arbitration must occur in Pennsylvania.  The agreement was silent as to the location or the forum of the arbitration.  The AAA Commercial Rules, which the parties agreed would govern the arbitration unless the lease agreement provided otherwise, provide as follows regarding the location of arbitration:

“R-10.  Fixing of Locale

 

The parties may mutually agree on the locale where the arbitration is to be held.                                     If any party requests that the hearing be held in a specific locale and the other                                party files no objection thereto within 15 days after notice of the request has been                                 sent to it by the AAA, the locale shall be the one requested.  If a party objects to                              the locale requested by the other party, the AAA shall have the power to                                              determine the locale, and its decision shall be final and binding.”

 

Under R-10, the AAA determines the location of the arbitration if the parties are unable to agree.  The AAA Rules do not indicate that the location of the arbitration is determinative of the jurisdiction over litigation regarding the award entered.  However, the lease agreement provides that a judgment entered upon an award of arbitrators may be entered in the applicable court for the county in which the demised premises are located, which in this case is Lebanon County.  Further, the lease agreement provides that the law of the state in which the property is located, in this case Pennsylvania, governs construction of the lease agreement.

We do not believe that the failure of a non-judicial arbitration agreement to specifically provide that arbitration occur in Pennsylvania wholly deprives a Pennsylvania court from exercising jurisdiction over the parties or the award entered.  While the legislature in § 7318 has established that the inclusion in an arbitration agreement of a provision providing for arbitration in this Commonwealth is a manner of conferring jurisdiction on Pennsylvania courts to enforce that agreement regardless of whether jurisdiction otherwise exists over the parties, we believe that this represents a non-exclusive manner by which jurisdiction may be conferred on Pennsylvania courts.  We reach this conclusion based upon review of relevant Pennsylvania case law.  In Elkins & Co., supra, residents of Pennsylvania agreed to arbitrate a dispute under the Constitution and Rules of the Board of Governors of the New York Stock Exchange.  The agreement, which was executed in Pennsylvania, provided that Pennsylvania law would govern its interpretation.  Arbitration proceedings occurred in New York City, both the parties and their counsel were present for those proceedings, and an award ultimately was rendered in New York City.  A petition to confirm the arbitration award was filed in the Chester County Court of Common Pleas of this Commonwealth.  Following the confirmation of that award, one of the parties appealed, arguing that the Chester County Court of Common Pleas lacked jurisdiction to confirm the award litigated and rendered in New York State because no statute enables a Pennsylvania Court to enforce, confirm or enter judgment on a foreign arbitration award.  The Pennsylvania Superior Court noted that the Rules of the New York Stock Exchange by which the parties agreed to be bound provided that an arbitration award may be entered as a judgment in any court of competent jurisdiction.  In addressing whether the Pennsylvania court was one of competent jurisdiction, the Pennsylvania Superior Court explained:

“The Supreme Court of this Commonwealth has determined that the parties may                                    by their agreement to arbitrate provide authority for entering judgment on the                                  award.

 

“We agree with appellant that no enabling statute grants jurisdiction to a                                                 Pennsylvania Court of Common Pleas to confirm this arbitration award.  It is                              superfluous.

 

“The terms of this agreement, incorporating the rules of the NYSE, provide that                                     an award of arbitrators of the New York Stock Exchange may be entered as a                              judgment in any court of competent jurisdiction.  The parties presently before us                          agreed that arbitration was to be held according to the rules of the New York State                        Exchange; and they agreed to be bound by the result.  If appellant allowed this                               dispute to proceed to arbitration in the belief that he could unilaterally void a                              binding agreement, he is mistaken.”

 

Elkins & Co. at 886 (citation omitted).  The Pennsylvania Superior Court apparently determined that Pennsylvania was a court of competent jurisdiction to confirm the arbitration award despite the fact that the arbitration proceedings occurred by agreement in New York State and the arbitration agreement did not specifically provide for arbitration in Pennsylvania.  Although noting in its Opinion that the parties were Pennsylvania residents, the agreement was executed in Pennsylvania and the parties agreed to be bound by Pennsylvania law, the Pennsylvania Superior Court did not discuss whether these were factors it considered in concluding that Pennsylvania was competent to confirm the award.

In Renkun v. Pelaez, 976 A.2d 578 (Pa.Super. 2009), the parties agreed to arbitrate an insurance coverage claim before a former Pennsylvania Court of Common Pleas judge.  The arbitration occurred in Pennsylvania, and the award was confirmed by the Pike County Court of Common Pleas in Pennsylvania.  On appeal, a party argued that Pennsylvania had no jurisdiction over the dispute because the underlying accident occurred in New Jersey and the injured party lived and was served in New Jersey.  After recognizing that § 7318 provides that the making of an agreement for arbitration in Pennsylvania confers jurisdiction on the Courts in Pennsylvania to enforce the agreement, the Pennsylvania Superior Court found that Pennsylvania had jurisdiction to confirm and to enter judgment on the arbitration award because the parties agreed to private arbitration in Pennsylvania.  The parties’ agreement to arbitrate in Pennsylvania and the occurrence of the arbitration proceedings in Pennsylvania was sufficient to establish jurisdiction in Pennsylvania.

Finally, in Shapiro v. Keystone Ins. Co., 558 A.2d 891 (Pa.Super. 1989), a resident of New Jersey was injured in an accident that occurred in Camden County, New Jersey.  An arbitration provision of the insurance policy provided that unless both parties agreed otherwise, the arbitration was to take place in the county in which the covered person lived.  The insurance company filed a petition to compel arbitration in Philadelphia County, Pennsylvania.  The Philadelphia County Court of Common Pleas granted that petition and appointed arbitrators.  Following confirmation of the arbitration award by the Philadelphia County Court of Common Pleas, it was asserted on appeal that Philadelphia County was without jurisdiction to compel arbitration because the insurance contract provided that arbitration would occur in the county where the insured person lived unless the parties agreed otherwise.  In addressing this issue, the Pennsylvania Superior Court explained:

“…[T]he fact that an arbitration clause directs a specific venue generally has no                          effect on the jurisdiction of a court of common pleas of a different county to                           appoint arbitrators, compel arbitration, or confirm an award.

 

“Nevertheless, ‘when an arbitration clause calls for arbitration in one particular                           county, parties to the contract are limited to that single forum even though the                             general venue rule, Pa.R.Civ.P. 2179, might allow for arbitration in any of several                      counties.’  This limitation is consistent with the general rule that an arbitration                                  agreement must be given effect according to its terms.  It is only where the place                                     of arbitration is undetermined by the contract that the site of the arbitration                                 proceedings becomes a mere procedural matter which may be left to the discretion                    of the arbitrators.

 

“In the instant case, the Court of Common Pleas of Philadelphia County had                              jurisdiction of appellant’s person and could compel it to arbitrate Shapiro’s claim.               The court could enforce arbitration, however, only in accordance with the terms                               of the parties’ agreement.  Here, the parties had agreed to arbitrate only in                                                 Camden County, New Jersey, where the policy had been sold and the accident                                    had occurred.  Arbitration in Philadelphia was in violation of the agreement to                            arbitrate.”

 

Shapiro at 895 (citation and footnote omitted).

Applying the above-stated holdings and principles to the facts of this case, the lease agreement did not require that arbitration occur in any specific state, forum or locality.  By agreeing to submit to arbitration under the Commercial AAA rules, the parties agreed that if they could not agree on a location to arbitrate, the AAA would select the location of the arbitration proceedings.  While we did not locate in the voluminous record an indication of whether the parties agreed that the proceedings would occur in North Carolina or whether the AAA selected that location for the arbitration proceedings, there is no indication in the lease agreement or the AAA rules that selection of North Carolina as the location of the arbitration hearing would require that legal proceedings regarding the award only could be held in North Carolina.  Without such an agreement by the parties in their lease agreement or in the AAA rules, we will not infer that the fact that the arbitration hearings were held and the award entered in North Carolina renders jurisdiction over the arbitration award or the parties exclusively in the North Carolina Court system.  Rather, these are factors that may be considered in determining whether Pennsylvania’s exercise of personal jurisdiction over non-resident parties passes constitutional muster along with all other relevant factors, including that the property subject to the lease agreement is located in Pennsylvania, the lease agreement provides that judgment on an arbitration award may be enforced in Pennsylvania and the lease agreement provides that Pennsylvania law applies to its interpretation.

The record is not sufficient for us to conclude that we appropriately may exercise personal jurisdiction.  Lebanon Retail Investors raised a challenge to our jurisdiction in its Response to the Petition to Vacate Arbitration Award.[5]  Neither party requested an evidentiary hearing in order to establish a record upon which we could determine this issue.  On the record as it currently exists, the record is insufficient for us to find that Pennsylvania has personal jurisdiction over the non-resident parties to vacate the arbitration award entered in North Carolina in the absence of additional evidence relevant to the nature and the extent of the parties’ contacts with this Commonwealth.

We recognize that remand for hearing on this issue would be appropriate if we viewed this issue in a vacuum.  However, we are acutely aware of the fact that public policy favors the settlement of disputes by arbitration in order to promote the swift and orderly disposition of claims.  Elkins & Co. at 885, citing Waddell v. Shriber, 348 A.2d 96, 99 (Pa. 1975).  This concept is sorely lacking as it pertains to the arbitration award rendered.  As stated above, the arbitration award entered also involved a dispute over a project in Lancaster County, as well as disputes with regard to properties in North Carolina.  Throughout the parties’ legal memoranda, the parties apprise us that proceedings with regard to this arbitration award have been commenced in Lancaster County, Pennsylvania, as well as in the Mecklenburg Superior Court in North Carolina.  Food Lion has avowed in its legal memoranda that it will be appealing the determination of the Lancaster County Court of Common Pleas that it does not possess jurisdiction over the Petition to Vacate Arbitration Award pertaining to the Elizabethtown property.  Piecemeal litigation over parts of the award as they pertain to properties located in different jurisdictions and varying levels of appeal regarding that award by no definition can be construed as swift or orderly.  As a matter of practicality, we believe that the interests advanced by the concept of arbitration would be best served by having proceedings in the court system involving the arbitration award occur concurrently so as to give these parties consistency and a final disposition in the most expeditious manner.  Based upon the deficiency of the record currently before us to sustain a finding that we have jurisdiction to vacate the arbitration award and the considerations sought to be promoted by the process of arbitration, we will follow the Lancaster County Court of Common Pleas in dismissing the Petition to Vacate Arbitration Award.

We will enter an appropriate Order.