The Arbitration Clause Is Coming To Town… And You Better Check It Twice!

November 16, 2018

One extremely common provision in many commercial agreements is an agreement to arbitrate disputes. Arbitration is litigation-like process whereby disputes are handled outside of traditional court proceedings. The conventional wisdom is that arbitration is less cumbersome and expensive than traditional litigation and therefore preferred. Whether or not that conventional wisdom is actually correct is a topic for another day. The enforceability of such a provision was the subject of a recent Pennsylvania case involving a partnership agreement in business relationship gone sour.

The case Gallagher v. M. Gallagher & F. Mancuso Partnership, et. al., is a recent decision of the Pennsylvania Superior Court upholding the decision of a Bucks County trial judge refusing to send the case to arbitration. The Plaintiff Maryanne Gallagher and Defendant Frank Mancuso were involved in a partnership and they had a written partnership agreement. The partnership agreement required disputes relating to the agreement to be arbitrated. No one disputed the validity of the agreement. The Plaintiff's Complaint involved legal claims that involved the conduct of several members of Mancuso's family who were not parties to the agreement. The Court recognized that certain claims raised by the Plaintiff would not be subject to the arbitration agreement because they involved parties and actions that fell outside the agreement. That left the court with several claims within the arbitration agreement and several outside of the agreement.

As a result of the above, the Court dismissed the Defendant's claims that the matter should be arbitrated stating "the trial court properly concluded that the claims set forth in [Plaintiff's] second amended complaint 'are inextricably linked to one another' because those claims arise from the alleged conduct of [defendants] acting in concert with one another. Because of this inextricable link, the trial court also properly concluded that 'bifurcat[ion of] these proceedings would frustrate the public policy goals' of 'swift and efficient judicial decision making.'" All of that is to say plainly that the Court found that because all of the claims were linked together and because some subject to the arbitration agreement and some were not, it would be inefficient to have different claims involving the same parties litigated on separate tracks. Therefore, the Court found that the claims would remain in court and not be subject to arbitration.

The Court concluded that Defendants' requests for arbitration were properly denied "because the allegations clearly demonstrate that the 'underlying controversy in this action arises not from a dispute limited to [Plaintiff] and [Defendant Mancuso] concerning the Partnership, but rather from the conduct of [Defendant Mancuso] and third parties not subject to the original Partnership Agreement." The Parties to an admittedly valid arbitration provision were therefore not required to arbitrate because the core of the case fell outside the agreement and courts are loathe to engage in bifurcated, piecemeal litigation.

The case and the facts involved here serve as a lesson to both drafters of arbitration provisions and parties that are trying to enforce or avoid them. The lawyers at Conway Schadler have experience that can make the difference in these types of situations. Please contact our offices for a free consultation so we can discuss how this substantial experience can be used to your benefit.