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LITTON RCS, INC. v. PENNSYLVANIA TURNPIKE COMMN.

May 15, 1974

LITTON RCS, INC., Movant,
v.
PENNSYLVANIA TURNPIKE COMMISSION, Respondent


Huyett, District Judge.


The opinion of the court was delivered by: HUYETT

HUYETT, District Judge.

Litton RCS, Inc. (Litton) moves for confirmation of an arbitrators' award entered in its favor by a panel of the American Arbitration Association. The arbitration proceeding was conducted pursuant to the following arbitration provision contained in a contract between Litton's corporate predecessor Taller & Cooper, Inc. ("T&C") and the Pennsylvania Turnpike Commission ("Commission"):

 
Any dispute between the parties hereto arising out of and under this agreement shall be submitted by them to the American Arbitration Association for arbitration of said dispute in accordance with its rules and the decision of said Association shall be binding upon all of the parties hereto. *fn1"

 The Commission vigorously opposes confirmation of the award raising questions concerning the jurisdiction of this court, the authority of the arbitrators to enter the award, and the merits of the award.

 The contract between T&C and the Commission, dated August 10, 1967, was a research and development agreement in which T&C agreed to use its best efforts to develop a modern weight classification system of toll collection equipment. Pursuant to a notice to proceed, Litton began work on the project on August 11, 1967. With the exception of research and development work on a "solid state" axle counting treadle, the agreement specified completion of all work up to installation of the equipment and personnel training within six months of the notice to proceed. Compensation was established on a cost plus a $20,000 fixed fee basis with T&C estimating total costs of $148,000. The Commission reserved the right to terminate the work required under the agreement at any time upon thirty (30) days prior written notice. It was contemplated by the parties that the toll equipment developed by T&C would be used to replace the Commission's existing equipment.

 After an initial billing of $74,594.92 on April 30, 1968, it became evident that the project would not be completed within the agreed upon time and the cost restraints. On March 6, 1969, the Commission gave notice of termination effective April 6, 1969. Litton made further billings for which the Commission refused to make payment. The matter was submitted to arbitration and an award in favor of Litton for $228,897.54 was entered on July 20, 1973. *fn2"

 The Commission has filed a motion to dismiss the action, and a motion to vacate or modify the arbitration award. Three grounds are urged in support of the motion to dismiss.

 First, it is argued that only the Common Pleas Courts of the Commonwealth of Pennsylvania have jurisdiction to confirm the arbitrators' award. The contract between the parties does not express any understanding regarding a specific court to confirm the award. The Commission contends, however, that pursuant to the provisions of the Pennsylvania Arbitration Act of April 25, 1927, P.L. 381, § 1 et seq., 5 P.S. § 161 et seq., only the Pennsylvania Common Pleas Courts can confirm an arbitrator's award based on a contract involving a public agency or instrumentality. Section 16 of the Pennsylvania Arbitration Act, 5 P.S. § 176, states as follows:

 
The provisions of this act shall apply to any written contract to which the Commonwealth of Pennsylvania, or any agency or subdivision thereof, or any municipal corporation or political division of the Commonwealth shall be a party.

  Federal and state court cases are relied on by the Commission for the proposition that § 16 of the Pennsylvania Arbitration Act, 5 P.S. § 176, is mandatorily applicable to all contracts to which the Commonwealth or its instrumentalities are a party. See Merritt-Chapman & Scott Corporation v. Pennsylvania Turnpike Commission, 387 F.2d 768 (3 Cir. 1967); Acchione v. Commonwealth, 347 Pa. 562, 32 A.2d 764 (1943). This is so even though applicability of the Act contravenes the express terms of the contract. See Seaboard Surety Co. v. Commonwealth, 345 Pa. 147, 27 A.2d 27 (1942); Philadelphia Housing Authority v. Turner Construction Co., 343 Pa. 512, 23 A.2d 426 (1942). Since the Commission is an instrumentality of the Commonwealth, Act of May 21, 1937, P.L. 774, No. 211, § 4 as amended 36 P.S. § 652d, any contract entered into by the Commission is governed by the Pennsylvania Arbitration Act.

 Section 9 of the Pennsylvania Arbitration Act, 5 P.S. § 169, provides that "any party to the arbitration may apply to the court having jurisdiction for an order confirming the award, and thereupon the court shall grant such an order. . . ." Section 18 of the Pennsylvania Arbitration Act, 5 P.S. § 178, then defines "courts" as the "common pleas courts of the county having jurisdiction of the parties or the subject matter." Thus, it is reasoned that only the Pennsylvania Common Pleas courts have authority to entertain the motion to confirm the arbitrators' award.

 Secondly, it is argued that as a result of the failure to state in the contract that a judgment of a court shall be entered upon the arbitrators' award, a federal court under § 9 of the United States Arbitration Act, 9 U.S.C. § 9 (1970) *fn3" lacks power to confirm the award. Varley v. Tarrytown Associates, Inc., 477 F.2d 208 (2d Cir. 1973) so held with respect to a contract arbitration clause that stated: "Any controversy arising under this agreement or breach thereof shall be settled by arbitration pursuant to the rules of American Arbitration Association." See also, Lehigh Structural Steel Co. v. Rust Engineering, 61 App. D.C. 224, 59 F.2d 1038 (1933).

 Finally, with respect to the motion to dismiss, the Commission argues that the contract between the parties does not evidence a transaction involving commerce as required by § 2 of the United States Arbitration Act, 9 U.S.C. § 2 (1970). *fn4" It is thus contended that this court lacks jurisdiction to confirm the arbitrators' award under that Act.

 In its motion to vacate or modify the arbitrators' award the Commission makes essentially three arguments. First, it is contended that the arbitrators lacked jurisdiction to grant an award because exclusive jurisdiction to hear claims against the Commission is cognizable only before the Board of Arbitration of Claims established pursuant to the Board of Arbitration of Claims Act, Act of May 20, 1937, P.L. 728, No. 193, § 1 et seq. as amended, 72 P.S. § 4651-1 et seq. *fn5" In support of this position the Commission does not rely on any explicit provision of exclusivity contained in the Board of Arbitration of Claims Act. Rather the Commission bases its argument of exclusivity on the state doctrine of sovereign immunity. It is contended that, under the Act creating the Commission, *fn6" the Commission is an instrumentality of the Commonwealth, and "functions as the 'alter ego ' of the Commonwealth in the performance of essential governmental functions and is subject to the same immunity conferred upon the Commonwealth by Article 1, Section 11 of the Pennsylvania Constitution [P.S.]." *fn7" Although it is admitted that the Commission has the power to sue and be sued, *fn8" that exception to sovereign immunity must be strictly construed to provide a remedy for claims arising from contracts with the Commission enforceable by arbitration only before the Board of Arbitration of Claims.

 Maintenance of the Commission's position that the Board of Arbitration of Claims Act provides the exclusive procedure governing arbitration with the Commission necessitates arguing that the Board of Arbitration of Claims Act impliedly repealed § 16 of the Pennsylvania Arbitration Act, 5 P.S. § 176. The two Acts are said to be incompatible in two respects. The Pennsylvania Arbitration Act, by failing to speak to the issue, incorporates rules governing private arbitration into contracts with the Commission. The result is that there exists no explicit statutory rule concerning when arbitration must be demanded under a contract with the Commission. Absent an express provision in the contract to the contrary, when a party to a contract containing provision for arbitration may seek the arbitration of a claim arising under the contract will depend on the scope of the arbitration clause and the breadth in terms of time given to this clause by the parties in their agreement. See United States Fidelity and Guaranty Co. v. Bangor Area Joint School Authority, 355 F. Supp. 913 (E.D. Pa. 1973). The Arbitration of Claims Act, however, provides that any claim against the Commonwealth and its instrumentalities must be brought before the Board of Arbitration of Claims within six months after the claim accrues. *fn9" Furthermore, the forums in which arbitration takes place are in conflict under the two Acts. The Pennsylvania Arbitration Act leaves the matter to the parties; the Arbitration of Claims Act establishes a particular body whose members are appointed in a certain manner to hear claims against the Commonwealth and its instrumentalities. *fn10"

 The second contention proffered by the Commission in support of its motion to vacate or modify the arbitrators' award is that, assuming the lack of exclusive jurisdiction before the Board of Arbitration of Claims, the contract between T&C and the Commission is not subject to arbitration because it was a contract for personal services under the Pennsylvania Arbitration Act. *fn11" The contract with T&C is characterized by the Commission as a personal services contract similar to ...


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