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SCHNEIDER, INC. v. RESEARCH-COTTRELL

July 17, 1979

Schneider, Inc., a Pennsylvania Corporation, Plaintiff,
v.
Research-Cottrell, Inc., a New Jersey Corporation, Defendant.



The opinion of the court was delivered by: DIAMOND

Plaintiff, Schneider, Inc., and defendant, Research-Cottrell, Inc., were parties to an agreement under which plaintiff was to erect and install certain electrostatic precipitation equipment and auxiliaries at a project in Homer City, Pennsylvania. Plaintiff claims that as a result of defendant's deceit plaintiff was required to purchase and utilize considerably more materials in completing performance than it believed the contract originally specified. However, in spite of the dispute that arose when plaintiff discovered this discrepancy, it continued work without interruption until performance of the contract was completed then brought this diversity action seeking to recover payment for the additional work it performed.

 The arbitration provision at issue is P 56 of the contract which provides as follows:

 
"56.0 ARBITRATION OF DISPUTES
 
56.1 All claims, disputes and other matters in question arising out of, or relating to, this subcontract or the breach thereof, except for claims which have been waived by the mailing or acceptance of final payment, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties agree otherwise. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law of the State of New Jersey and arbitration proceedings shall take place in that state. The award rendered by the arbitrators shall be final and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction thereof.
 
56.2 Notice of the demand for arbitration shall be filed in writing with the other party to the subcontract and with the American Arbitration Association. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.
 
56.3 The subcontractor shall carry on the work and maintain the progress schedule during any arbitration proceedings, unless otherwise agreed by him and purchaser in writing."

 While the parties disagree as to whose law governs the interpretation of the above provision, the defendant contending that New Jersey law applies and that it would stay these proceedings, and plaintiff arguing that Pennsylvania law governs and that it would not stay them, we need not resolve this conflicts of law problem, since, as we indicate later, we believe that both New Jersey and Pennsylvania would require the issuance of a stay under the circumstances of this case.

 We first address the question of whether the present dispute is within the ambit of P 56, looking initially to the law of Pennsylvania. Pennsylvania statutes provide that arbitration agreements are enforceable, and if satisfied that a dispute is within the scope of such an agreement, courts are empowered to stay legal proceedings pending arbitration. *fn1" Plaintiff does not question this as being the law of Pennsylvania. Rather, it argues that the instant claim is beyond the scope of P 56 because the duty to arbitrate thereunder expired when the contract was terminated, which in this case was when plaintiff completed performance. Plaintiff cites the following Pennsylvania and Third Circuit cases in support of its position: Westmoreland Hospital Association v. Westmoreland Construction Co., 423 Pa. 255, 223 A.2d 681 (1961); Emmaus Municipal Authority v. Eltz, 416 Pa. 123, 204 A.2d 926 (1964); Hussey Metal Division v. Lectromelt Furnace Division, 471 F.2d 556 (3rd Cir. 1972). And these cases do appear to lend weight to plaintiff's argument. However, the Pennsylvania Supreme Court's later ruling in Chester City School Authority v. Aberthaw Construction Company, 460 Pa. 343, 333 A.2d 758 (1975) erodes whatever support Westmoreland Hospital And Emmaus may have provided, and, we believe, is entirely dispositive of the issue concerning the scope of P 56.

 In Chester the plaintiff school authority terminated a contract with the defendant contractor as a result of defendant's refusal to perform certain repair work and thereafter sued for breach of the contract. The defendant moved to have the suit stayed pending arbitration and cited the arbitration provision of the contract, which provided as follows:

 
"7.10 ARBITRATION
 
7.10.1 All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, except as set forth in Subparagraph 2.2.9 with respect to the Architect's decisions on matters relating to artistic effect, and except for claims which have been waived by the making or acceptance of final payments as provided by Subparagraphs 9.7.5 and 9.7.6, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.
 
7.10.2 Notice of the demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect. The demand for arbitration shall be made within the time limits specified in Subparagraphs 2.2.10 and 2.2.11 where applicable, and in all other cases within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.
 
7.10.3 The Contractor shall carry on the Work and maintain the progress schedule during any arbitration proceedings, unless otherwise ...

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