Appeal from the Order of the Superior Court entered May 9, 2008 at No. 1226 WDA 2007, reversing the Order of the Court of Common Pleas of Allegheny County entered June 26, 2007 at No. GD-: 03-22790. 950 A.2d 980 (Pa. Super. 2008)
The opinion of the court was delivered by: Madame Justice Todd
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
ARGUED: September 16, 2009
In this case, we review a trial court's termination of a common law arbitration proceeding after the arbitrator has entered "findings" which do not resolve all outstanding issues between the parties. Following our review, we conclude the arbitrator's interim "findings" in this case do not constitute an award within the meaning of Section 7341 of our Commonwealth's Uniform Arbitration Act,*fn1 and, thus, that the trial court had no authority under that section to review such findings. Moreover, we determine that the trial court did not possess inherent equitable authority to end the arbitration proceedings before the arbitrator made a final award. Consequently, we affirm the order of the Superior Court.
This case arises out of a contentious dissolution of a familial partnership. The following sequence of events gave rise to the present appeal, as aptly described by the Superior Court in its opinion,*fn2 and further gleaned from the record in this matter. In 1972, Appellant, Diane L. Fastuca, in conjunction with her siblings, Louis W. Molnar, Jr. and Mary Lou Molnar, formed L.W. Molnar and Associates (collectively "Appellees"). The partnership managed real estate investment properties, and it endured for nearly 26 years with no major disputes among the partners until 1998 when Appellant became disenchanted with the way partnership revenues were being divided. Although Appellant tried, with the aid of counsel, to work out her dispute with the other partners for nearly five years thereafter, no amicable resolution could be reached. Accordingly, she sent Appellees a letter on September 20, 2003, notifying them of her intent to dissolve the partnership under Section 8353 of our Commonwealth's Uniform Partnership Act,*fn3 15 Pa.C.S.A. § 8353, and requesting that her partnership share be distributed to her.
On November 17, 2003, Appellant filed a complaint in equity in the Court of Common Pleas of Allegheny County which requested the dissolution and winding up of the partnership, and also the issuance of a preliminary injunction to prevent any dissipation of partnership assets. In response, Appellees filed a motion to compel arbitration pursuant to the partnership agreement, which provides in relevant part: 14. Arbitration. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the rules then obtaining of the American Arbitration Association, and judgment upon an award rendered may be entered in any court having jurisdiction thereof.
Partnership Agreement, 9/11/72, at ¶ 14 (R.R. at 189a).
On February 4, 2004, the presiding motions judge of Allegheny County, then-Judge, now former-Justice, Cynthia Baldwin, heard argument on Appellant's motion and, thereafter, entered an order denying Appellant's request for a preliminary injunction and dismissing her complaint in equity, without prejudice. The order also directed the parties to proceed to arbitration on "all issues raised in [Appellant's] Motion for Preliminary Injunction and [Appellant's] Complaint in Equity, in accordance with the terms of the partnership agreement among the parties." Trial Court Order, 2/4/04 (R.R. at 64a).
The parties mutually selected David B. Fawcett, Esquire ("arbitrator") to conduct the arbitration under the rules of the American Arbitration Association. By agreement of the parties, on September 15, 2004, the arbitrator entertained arguments and received written submissions from them outlining their respective positions as to the legal issues surrounding the dissolution of the partnership.*fn4 On September 17, 2004, the arbitrator issued a document entitled "Findings of Arbitrator" in which he made the following determinations relevant to this appeal. The arbitrator found that Appellant had validly exercised her right to dissolve the partnership under Section 8353(2)*fn5 of the Uniform Partnership Act, which allows a partner to dissolve a partnership even if done in violation of the partnership agreement. Findings of Arbitrator, 9/17/04, ¶ 3 (R.R. at 346a). However, the arbitrator also found that, because this dissolution had contravened the terms of the written partnership agreement, which the arbitrator had determined to be the law of the partnership between the parties, he concluded Appellees had a right to continue the business and, also, to receive damages from Appellant for breach of contract. Id. at ¶ 7 (R.R. at 347a). Therefore, the arbitrator required Appellees to pay Appellant the value of her interest in the partnership at the time of dissolution, less any damages Appellees suffered on account of the wrongful dissolution. Id. The arbitrator further decreed that the purchase price for Appellant's partnership interest was to be computed according to either ¶12(d) of the partnership agreement, which provided the purchase price of the partners' share was to be its fair market value for the latest fiscal year preceding the sale as determined by general accounting principles,*fn6 or under Section 8360(b)(2) of the Uniform Partnership Act.*fn7 Findings of Arbitrator at ¶ 9. The arbitrator also directed Appellees to grant Appellant prompt access "to all the Partnership books, records and accounts and any other relevant information" which would establish its value. Id. at ¶ 11. Additionally, the arbitrator specified he retained jurisdiction "to resolve any controversy or claim regarding the purchase price and/or the value of the interest that [Appellant] is entitled to, or any further dispute between the parties pertaining to the dissolution of [the partnership]." Id. at ¶ 14.
Thereafter, Appellant filed a motion for clarification arguing the arbitrator's finding that the partnership "was for a definite term and a specific purpose" was "contrary to the written Partnership Agreement and contrary to applicable precedent." Appellant's Motion to Clarify/Modify Ruling, 9/27/04, at ¶¶'s 3-5 (R.R. at 351a). Additionally, although Appellees granted Appellant access to some partnership records, a dispute arose regarding Appellant's request that Appellees grant her experts access to certain documents which Appellant claimed were pertinent to the determination of the value of the partnership-a claim which Appellees contested. Further, Appellant sought the release of a master's report regarding the value of the partnership prepared as part of the divorce case of Appellee, Mary Lou Molnar, and Appellees requested a copy of Appellant's expert report valuing the partnership. On November 2, 2004, the arbitrator denied Appellant's motion for clarification, directed the parties to provide the judge overseeing the divorce case a consent order to release the master's report, instructed Appellees' counsel to meet with her clients and submit a status report on the disclosure of documents, and required Appellant to submit a status report estimating the time necessary to review the documents and prepare an appraisal of the partnership value.
This order, however, did not resolve the continuing conflicts between Appellant and Appellees. On March 4, 2005, Appellant filed a motion with the arbitrator to compel the distribution of partnership profits for 2003 and 2004 on March 15, 2005, and for distribution of partnership profits from every preceding calendar year to occur annually thereafter on March 15th. Appellees filed a response on June 4, 2005, contending the motion should be denied since the valuation process ordered by the arbitrator was ongoing. The arbitrator did not rule on this motion.
Due to further inability of the parties to agree on the manner of production of documents, the time for such review to occur, and the appraisal of the value of the partnership, the arbitrator ordered the parties to appear in his office on September 15, 2005 with a written proposal for implementing both his findings of September 17, 2004, and his letter of November 4, 2004. Arbitrator's Letter, 9/8/05 (R.R. at 397a). After the conference, the arbitrator issued a written determination that the partnership was to produce the requested partnership documents promptly, Appellant's expert was to review the accountant's report on those documents and forward a copy to Appellees' counsel, and a date was to be set for a mutual exchange of reports on the value of the partnership interest. Arbitrator's Letter, 9/16/05 (R.R. at 402a).
Appellant contended that she still did not receive the partnership records from Appellees which she sought, and, after a telephone conference among the parties and the arbitrator, the arbitrator issued an order on November 7, 2005 directing that Appellant prepare a request for production of documents itemizing the documents not produced and, also, requiring Appellees to file a formal response under oath, and either produce the documents or explain why such documents could not be produced. After Appellant had prepared her request and Appellees had filed their response, in late November 2005, Appellant filed a motion with the arbitrator to find Appellees in contempt, and for leave to enforce any contempt order in the Court of Common Pleas of Allegheny County.
The arbitrator convened a meeting of the parties on December 15, 2005,*fn8 after which he directed Appellant prepare a summary of the issues discussed regarding the production and preparation of the documents, and he required Appellant to send the summary to Appellees in order for them to respond and indicate their agreement or disagreement with the matters contained in the summary. The arbitrator did not rule on the contempt request. The summary was sent by Appellant on March 15, 2006, and the arbitrator directed Appellees to answer and send a copy to him by May 31, 2006. Letter of Arbitrator, 5/22/06 (R.R. at 426-27a).
Once the arbitrator received Appellees' response, he ordered them to resubmit it to him in a different format, which they did, along with signed authorizations permitting Appellant to examine certain bank and real estate records of the partnership. On July 17, 2006, the arbitrator directed Appellant to use the authorizations "in a timely fashion and make immediate arrangements to review and/or copy any of the documents requested produced and/or available in the Request for Production of Documents." Letter of Arbitrator, 7/17/06 (R.R. at 458a).*fn9
Appellant next filed a motion in the Allegheny County Court of Common Pleas on November 10, 2006 to terminate the arbitration, contending, inter alia, that the records provided to her were incomplete,*fn10 that the arbitrator was "ineffective in achieving complete compliance with Judge Baldwin's order," and that continuation of the arbitration would be "futile." Motion to Terminate Arbitration, 11/10/06, at 11, 13-14, (R.R. at 81a, 83a-84a). The presiding motions judge, Judge Timothy O'Reilly, conducted oral argument on the motion on November 20, 2006, but held his final decision in abeyance as he, thereafter, attempted to settle the case by conducting mediation among the parties.
Also on November 20, 2006, the arbitrator issued an order scheduling a hearing for January 8, 2007 in order to finally determine the value of Appellant's purchase price for her partnership share in accordance with his prior findings of September 17, 2004. The arbitrator also required each party to submit to him a written summary of their respective factual and legal positions, a witness list, expert reports, and copies of exhibits. Order of Arbitrator, 11/20/06 (R.R. at 462a). The trial judge, however, stayed the arbitrator's scheduled hearing by order dated January 2, 2007, pending further order, so he could conduct more settlement negotiations. Trial Court Order, 1/2/07 (R.R. at 66a). Appellees filed a notice of appeal of this order with the Superior Court, but that appeal was quashed for failure to file a statement of matters complained of on appeal. The trial judge still considered the matter under advisement, and he later issued an order on June 26, 2007, which terminated the arbitration and directed the parties to proceed with actions in partition to divide real estate held by the partnership. Appellees appealed again to the Superior Court.
The trial judge, in his opinion prepared pursuant to Pa.R.A.P. 1925(a), acknowledged that arbitration is a favored means of dispute resolution. However, the trial judge expressed his view that he was "increasingly disenchanted with the quality of justice achieved before Arbitrators," and viewed the instant case as suffering from the infirmity of irregularity. Trial Court Opinion, 6/26/07, at 7. The trial judge characterized the arbitrator's findings made on September 17, 2004 as an "Award," which he regarded as "unjust, inequitable and unconscionable" because it rested on arguments and no sworn testimony was taken by the arbitrator, even though Appellant had requested it. Id. The trial judge also characterized as "mind boggling" the arbitrator's finding that Appellant's resort to the Uniform Partnership Act to dissolve the partnership was "wrongful" and a basis for the award of damages. The trial judge further observed that the arbitrator had not appointed a receiver to wind up the partnership affairs, nor did he obtain production of the documents Appellant had requested. Id. at 8. Noting the continuing dispute between the parties over the production of records, the trial judge stated: "Courts are much better equipped than Arbitrators to decide and enforce discovery issues." Id. The trial judge concluded by declaring he was terminating the arbitration and directing the parties to proceed to "enforce the award as modified via Partition." Id. at 9. The trial judge also stated that he specifically found "that this issue of wrongful termination and damages [is] contrary to law and indeed an unconscionable finding." Id.
A panel of the Superior Court reversed the trial judge and reinstated the arbitration in a published opinion, authored by Judge Bender and joined by Judges Bowes and Tamilia. Fastuca, supra. In its opinion, the Superior Court first determined whether the trial court's order of June 26, 2007 terminating the arbitration was final and, hence, appealable under Pa.R.A.P. 341.*fn11 The Superior Court remarked that the question of whether an order which terminates an ongoing arbitration is appealable was a question of first impression in Pennsylvania. In addressing this question, the Superior Court considered "whether the practical ramification of the order will be to dispose of the case." Fastuca, 950 A.2d at 986 (quoting Friia v. Friia, 780 A.2d 664, 667 (Pa. Super. 2001)). The Superior Court reasoned that, since the original complaint filed by Appellant had been dismissed by then-Judge Baldwin's order of February 4, 2004, which also directed the parties to arbitrate all issues raised in the complaint, "the arbitration process . . . was the only avenue of relief remaining, upon termination of which both the parties and their claims were 'out of court.'" Fastuca, 950 A.2d at 987. Thus, the Superior Court concluded that these "practical ramifications" of the trial judge's order rendered it final. Id. Accordingly, the Superior Court held that "a trial court's order purporting to terminate arbitration when the arbitration proceeding is the only means then of record for resolution of the parties' dispute is a final order for purposes of appellate review." Id.
The Superior Court then proceeded to consider the merits of Appellees' substantive claims raised in their appeal. Appellees contended that the trial judge abused his discretion with the entry of his order of June 26, 2007 terminating the arbitration, since the order professed to alter the arbitrator's findings. They also claimed that the trial judge exceeded his lawful authority when he terminated the ongoing arbitration. The Superior Court observed that the proper resolution of both questions was intertwined and dependent on the scope of the authority of a trial court to intervene in an arbitration before an arbitrator enters what he or she designates as an award.
The Superior Court began its determination of the extent of a trial court's power to intervene in ongoing arbitration proceedings by discussing the various types of arbitration authorized by Pennsylvania law: statutory arbitration, common law arbitration, compulsory arbitration, and voluntary arbitration of pending civil matters or issues.*fn12 The Superior Court noted that the specific type of arbitration the parties to the instant appeal had participated in was common law arbitration and, therefore, governed by Section 7341 of our Commonwealth's Uniform Arbitration Act which provides:
The award of an arbitrator in a non-judicial arbitration which is not subject to Subchapter A (relating to statutory arbitration) or a similar statute regulating non-judicial arbitration proceedings is binding and may not be vacated or modified unless it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.
The Superior Court interpreted Section 7341 as granting a trial court only the limited authority to vacate or modify an award of an arbitrator, based on its observation that the statute makes "no mention of preliminary determinations of any sort." Fastuca, 950 A.2d at 988. The Superior Court viewed this omission from the statute as an intentional restriction of the trial court's power, not an accidental one. The Superior Court noted that, prior to the arbitrator's entry of an award, the trial court is statutorily empowered to merely issue orders which compel or stay an arbitration proceeding, as authorized by Sections 7304(a) and (b) of the Uniform Arbitration Act.*fn13 The ...