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H. L. LIBBY CORP. v. SKELLY & LOY

December 21, 1995

H. L. LIBBY CORPORATION, an Ohio Corporation, plaintiff
v.
SKELLY AND LOY, INC., a Pennsylvania Corporation, Defendant



The opinion of the court was delivered by: CALDWELL

 We are considering Defendant's motion to compel mediation/arbitration and to dismiss or stay this action. Also pending is Plaintiff's motion for leave to file an amended complaint. We exercise jurisdiction pursuant to 28 U.S.C. § 1332.

 I. BACKGROUND

 In 1993, Plaintiff, H.B. Libby Corporation ("Libby"), was the contractor for the construction of a shopping center known as Lake Raystown Shopping Center in Huntingdon County, Pennsylvania ("the Project"). Libby retained Skelly & Loy, Inc. ("Skelly") for engineering related work at the Project, and Skelly proceeded to perform a variety of services for Libby.

 One of the services involved the preparation of a Highway Occupancy Permit ("HOP") application for the Project. The present action arises out of Skelly's performance in preparing this application. Libby instituted this action on March 21, 1995, in the United States District Court for the Western District of Pennsylvania. In its complaint, Libby advances claims for fraudulent misrepresentation (Count I) and professional negligence (Count II), and seeks punitive damages (Count III). On April 25, 1995, Skelly filed an answer and counterclaim for breach of contract.

 On that same date, Skelly filed a "Motion to Compel Mediation/Arbitration, to Dismiss the Action, to Stay the Action Pending Mediation/Arbitration, and to Transfer the Action to the United States District Court for the Middle District of Pennsylvania." In its motion, Skelly argues that Libby's claims emanate from a written contract between the parties that provides for arbitration of all disputes arising out of that contract.

 The court granted Skelly's motion to transfer the case here on August 25, 1995, without deciding the motion to compel arbitration and dismiss or stay. We directed the parties to file supplemental briefs, and the motion is now ripe for disposition. Additionally, on October 16, 1995, Libby filed a motion for leave to file an amended complaint.

 II. LAW AND ANALYSIS

 A. Motion to Compel Arbitration and Dismiss/Stay

 In its motion to compel, Skelly does not identify the authority upon which it relies in seeking to compel arbitration. There are, potentially, two statutes which could govern this action: the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., or Pennsylvania Uniform Arbitration Act ("UAA"), 42 Pa.C.S.A. § 7301 et seq. Although not raised by the parties, we must resolve whether this action falls within the FAA or the UAA.

 1. Applicability of Federal Arbitration Act

 "Federal law preempts state law on issues of arbitrability." Howard Fields & Associates v. Grand Wailea Co., 848 F. Supp. 890, 893 (D.Haw. 1993) (citing Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983)). "'Although state law is usually adopted in diversity cases, it is not followed in an action to enforce the arbitration provision of a contract in interstate commerce.'" Id. (citing Huber, Hunt & Nichols v. Architectural Stone Co., 625 F.2d 22, 25 (5th Cir. 1980)); see also Merrill Lynch, Pierce, Fenner & Smith v. Masland, 878 F. Supp. 710, 712 (M.D.Pa. 1995) (McClure, J.). Therefore, if the FAA is applicable in this action, it will control over the substantive state law, the Pennsylvania UAA.

 The FAA applies to contracts "evidencing a transaction involving commerce. . . ." 9 U.S.C. § 2. The term "commerce" is defined as "commerce among the several States. . . ." 9 U.S.C. § 1. In the present case, if the contract at issue involves commerce, as that term is defined in the FAA, the FAA governs the dispute. Howard Fields, 848 F. Supp. at 893. "If, however, the transaction does not implicate interstate commerce, the Erie rules governing diversity jurisdiction will apply," and we apply the substantive law of Pennsylvania, the UAA. Id.

 The Third Circuit has stated that "the federal Arbitration Act and the Pennsylvania Uniform Arbitration Act, and the case law that has developed under each, are functionally equivalent as regards the authority of a district court to review an agreement to arbitrate and to stay or compel arbitration. . . . Indeed, because the relevant federal and Pennsylvania case law is so clearly established and has evolved essentially in unison, we will refer to them interchangeably where helpful." PaineWebber Inc. v. Hartmann, 921 F.2d 507, 510 n.3 (3d Cir. 1990). Thus, in most circumstances it is irrelevant which law is applicable.

 However, there is some inconsistency in the two statutes with respect to the determination of whether an agreement to arbitrate exists. The FAA provides that

 
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction . . . of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. . . . If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. . . . Where such an issue is raised, the ...

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