IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
March 1, 2012
TOTAL LANDSCAPING CARE, LLC, PLAINTIFF,
TOWER CLEANING SYSTEMS, INC., D/B/A US MAINTENANCE OR USM DEFENDANT.
The opinion of the court was delivered by: Tucker, J.
February ___, 2012
Presently before the Court are Plaintiff's Motion for Judgment on the Pleadings (Doc. 10), Defendant's Response and Cross Motion for Judgment on the Pleadings and/or Summary Judgment (Doc. 11), and Plaintiff's Response (Doc. 13). Upon consideration of the parties' motions with exhibits and declarations, the Court will: (1) deny Plaintiff's Motion for Judgment on the Pleadings in part, and (2) grant Defendant's Cross Motion for Judgment on the Pleadings and/or Summary Judgment.
This case arises out of an alleged unlawful arbitration finding. Plaintiff, Total Landscaping, LLC ("Total Landscaping"), a Connecticut limited liability company, brings this action against Defendant, Tower Cleaning Systems, Inc., doing business as US Maintenance or USM ("Tower Cleaning", or "USM"), a Pennsylvania corporation.
On November 12, 2006, Plaintiff Total Landscaping entered into a Subcontractor Agreement with Defendant USM. Under the Subcontractor Agreement, Total Landscaping, the subcontractor, was to provide snow and ice removal services at locations designated by USM. As the general contractor, USM entered into agreements with its retail store customers, including but not limited to Home Depot, for the provision of snow and ice removal services.
In an underlying lawsuit filed in the Superior Court of Connecticut, both USM and Home Depot were named defendants in an action brought by Karen Salva, a patron who claims she was injured on January 1, 2008 in a slip-and-fall incident caused by ice at a Home Depot location in Darby, Connecticut (the "Salva lawsuit"). This Home Depot location, at the time of the slip-and-fall incident, was being serviced for snow and ice removal by Total Landscaping under its Subcontractor Agreement with USM. Under its customer contract with Home Depot, USM agreed to indemnify Home Depot and assumed Home Depot's defense costs in the Salva lawsuit. Subsequently, USM tendered defense of itself and Home Depot to Total Landscaping, which Total Landscaping declined to accept under the Subcontractor Agreement. To date, the Salva lawsuit is pending in the Superior Court of Connecticut, and is scheduled to proceed to trial in a few weeks from the date of the present opinion.
As a result of Total Landscaping's refusal to indemnify and accept tender of defense for USM and Home Depot in the Salva lawsuit, on or about May 17, 2010, USM submitted a demand for arbitration to the AAA, seeking defense and indemnification costs from Total Landscaping for USM and Home Depot in connection with the Salva lawsuit. Total Landscaping objected to the demand for arbitration via letter to the AAA, Tower Cleaning submitted a response dated September 17, 2010, and Total Landscaping submitted an Answering Statement to the AAA thereafter. Despite the written objections of Total Landscaping, the arbitration proceeded and USM and Total Landscaping submitted Arbitration Briefs and exhibits, along with a Reply and Sur-Reply.
On October 18, 2010, upon conclusion of the arbitration process, arbitrator Walter R. Milbourne issued an award (the "Award") which is the subject of the present matter. In the Award, Mr. Milbourne entered judgment in favor of USM, and granted declaratory relief to both USM and Home Depot. The Award order set forth that Total Landscaping: (1) "shall immediately assume the defense of ; and (2) "shall reimburse USM all costs consisting of attorneys fees and AAA fees incurred in bringing this action with the [AAA]. The Administrative fees of the [AAA] totaling $975.00, and the compensation of the arbitrator totaling $900.00 shall be borne Respondent (sic.). Therefore, [Total Landscaping] shall reimburse [USM] the sum of $1,425.00, representing that portion of said fees in excess of the apportioned costs previously incurred by [USM]."
On November 15, 2010, Plaintiff Total Landscaping initiated the present action against Defendant USM, claiming that the Award was improperly issued. Accordingly, Plaintiff Total Landscaping seeks that the Court vacate the Award, and enjoin Defendant USM from further attempting to pursue its claims through the AAA. (Compl. ¶ 12.)
II. STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed, as long as the party does so "early enough not to delay trial."Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is subject to the same standard of review applicable to a motion to dismiss under Rule 12(b)(6). See Turbe v. Gov't of V.I., 938 F.2d 427, 428 (3d Cir. 1991). "The only notable difference between these two standards is that the court in a motion on the pleadings reviews not only the complaint but also the answer and written instruments attached to the pleadings." Sprague v. Neil, 2007 U.S. Dist. LEXIS 77767, 2007 WL 3085604, at *2 (M.D. Pa. Oct. 19, 2007) (citing 2 Moore's Fed. Practice Civil §
12.38 (2004)). Like a motion to dismiss, in considering a motion for judgment on the pleadings, the Court must accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff. See Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2005); Allah v. Al-Hafeez, 226 F.3d 247, 249 (3d Cir. 2000).
A motion for judgment on the pleadings should be granted only if it appears to a certainty that no relief could be granted under any set of facts that could be proved. See id. It must be shown that there remains no material issue of fact to be resolved and that he is entitled to judgment as a matter of law." Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008); Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005). The Court, under Federal Rule of Civil Procedure 56, may convert the 12(c) motions in the present matter to motions for summary judgment. Fed R. Civ P. 56. Thus, the motions presently before the Court will be evaluated under the standard set forth below.
Summary judgment is appropriate where the moving party establishes that "there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." Fed R. Civ P. 56(c). See Levy v. Sterling Holding Co., LLC, 544 F.3d 493, 501 (3d Cir. 2008). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Dee v. Borough of Dunmore, 549 F.3d 225, 229 (3d Cir. 2008). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. See Anderson, 477 U.S. at 248; Fakete v. Aetna, Inc., 308 F.3d 335, 337 (3d Cir. 2002).
The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). Under Fed. R. Civ. P. 56(e), the opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. See Martin v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007).
At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249; Jiminez v. All American Rathskeller, Inc., 503 F.3d 247, 253 (3d Cir. 2007). In doing so, the court must construe the facts and inferences in the light most favorable to the non-moving party. See Horsehead Indus., Inc. v. Paramount Communications, Inc., 258 F.3d 132 (3d Cir. 2001). The court must award summary judgment on all claims unless the non-moving party shows through affidavits or admissible evidence that an issue of material fact remains. See, e.g., Love v. Rancocas Hosp., 270 F.Supp.2d 576, 579 (D.N.J. 2003); Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d 324, 330 (D.N.J. 2002).
The facts of this case are undisputed. Accordingly, pursuant to Federal Rule of Civil Procedure 56, the Court must determine whether either party is entitled to judgment as a matter of law based on the record.
The Award will be examined pursuant to controlling law, the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, which grants federal courts the authority to vacate arbitration awards under the following limited circumstances:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made."
9 U.S.C. § 10(a).
Because federal policy favors the enforcement of arbitration agreements, the party attempting to prove that an arbitrator has exceeded his authority is faced with a great burden to overcome, and must prove that vacatur is appropriate. AAMCO Transmissions, Inc. v. Sally, 2008 U.S. Dist. LEXIS 102502, 2008 WL 5272449, at *3 (E.D. Pa. Dec. 17, 2008) (citation omitted); Ogden Allied Services Corp. v. Local 36, Service Employees Int'l Union, 1990 U.S. Dist. LEXIS 15976, at *14 (E.D. Pa. Nov. 27, 1990) (citations omitted).
The Third Circuit recognizes that claims brought under 9 U.S.C. § 10(a)(4), claiming that an arbitrator exceeding his powers, shall be subjected to a test of whether the arbitrator's award was irrational.*fn1 Additionally, the Court may consider, pursuant to 9 U.S.C. §§ 10(a)(3) and 10(a)(4), whether an arbitration award constitutes a "manifest disregard of law", justifying vacatur by the Court.*fn2 The court's review of arbitration awards pursuant to the FAA should give great deference to the award, as there is a strong presumption favoring their enforcement. Metromedia Energy, Inc. v. Enserch Energy Servs., 409 F.3d 574, 578 (3d Cir. 2005); Brentwood Med. Assocs. v. UMW, 396 F.3d 237, 241 (3d Cir. 2005). Thus, the allegations of Plaintiff Total Landscapingconcerning the arbitrator's award will be examined according these narrow allowances for vacatur under 9 U.S.C. § 10.
Total Landscaping requests that the Court vacate the Award entered against it on the following bases: (1) the arbitrator lacks the authority, because it is not a court of law, to enter judgment against a party; (2) generally, in order for contractual indemnification claims to be ripe, and for declaratory judgment to be appropriate, there must be a final resolution in the underlying litigation; (3) the arbitration award was lacking in contractual basis, as certain terms in the indemnification provision of the Subcontractor Agreement were ambiguous, and the pending claim did not fall within the scope of the indemnification provision; (4) the arbitration award violated the rules of the American Arbitration Association ("AAA"), which specify that arbitrators may grant relief only on matters within the scope of the parties' agreement; (5) the declaratory relief issued by the arbitrator violated the Pennsylvania Declaratory Judgments Act, 42 Pa. Cons. Stat. Ann. § 7540, as the arbitrator lacked subject matter jurisdiction due to the absence of indispensable and necessary parties during the arbitration proceedings; and (6) USM failed to prove the reasonableness and necessity of fees and costs incurred in the underlying litigation, and the Award renders Total Landscaping responsible for fees and costs without consideration of their reasonableness, necessity, or amount. (Compl. ¶¶ 1-8, 11-12.)
A. Subcontractor Agreement
Many of the allegations of Plaintiff Total Landscapingare centered around the contention that the arbitrator exceeded his authority in entering the Award, which requires Plaintiff to pay defense costs incurred by Defendant USM for both its own defense and that of Home Depot's.*fn3
Plaintiff submits that the contractual interpretation of the indemnification and waiver provisions of the Subcontractor Agreement between Total Landscaping and USM may only be read one way, and that reading would preclude the arbitrator from requiring Plaintiff to pay for defense costs and attorneys fees that were on behalf of a third party (Home Depot) with whom Plaintiff was not in privity, and that were not yet ripe due to lack of finality in the underlying litigation between Home Depot and Salva. The Court disagrees for the reasons set forth below.
The Subcontractor Agreement, entered into by Total Landscaping to provide snow and ice removal services to customers of USM, contains the following relevant provisions:
Indemnification. To the fullest extent permitted by applicable law, you shall defend and hold harmless us and our customer and our and our customer's respective officers, directors, employees, agents, subcontractors, partners, joint ventures, affiliates, successors and assigns ("Indemnified Parties") from and against all liabilities, obligation, claims, demands, causes of action, losses, expenses, damages, fines, judgments, settlements, and penalties, including, without limitation, costs, expenses and attorneys' fees incident thereto, arising out of, based upon, occasioned by or in connection with:
(1) Your performance of (or failure to perform) your duties under this Agreement;
(2) a violation of any law or any negligence, gross negligence, or willful misconduct by you or your affiliates, subcontractors, agents or employees during either your performance [of] your duties under this Agreement or otherwise while you are on the property of one of out customers;
(3) Damage to property and injuries, including without limitation death, to all persons, arising from any occurrence caused by any act or omission of you or your personnel related to the performance of this Agreement. ....
The indemnification obligation specified in this paragraph shall be construed so as to extend to all legal, defense and investigation costs, as well as other costs, expenses, and liabilities incurred by the Indemnified Parties, including but not limited to interest, penalties, and fees of attorneys and accountants (including expenses), from and after the time when any Indemnified Party receives notification (whether verbal or written) that a claim or demand has been made or is to be or may be made.
Pursuant to the indemnification obligation specified above, you agree to indemnify and hold harmless the Indemnified Parties regardless of whether the liability, obligation, claim, demand, cause of action, loss, expense, damage, fine, judgment, settlement and penalty was caused in whole or in part by a violation of any law or any negligence (excluding gross negligence or willful misconduct), including but not limited to business invitee premises liability, by the Indemnified Parties. . . . .
Arbitration: Waiver of Jury Trial and Punitive Damages: Governing Law and Jurisdiction:
A. Arbitration. All disputes . . . .
C. Waivers. ... No arbitration or action under this Agreement shall include, by consolidation, joinder, or any other manner, any claims by any person or entity in privity with or claiming through or on behalf [of] either you or us. Neither you nor we shall arbitrate or litigate as a representative on or behalf of any other person or entity, any dispute, controversy, or claim of any kind arising out of or relating to this Agreement, your or our respective rights and obligations, or any other claims or causes of action relating to your or our performance under this Agreement.
Subcontractor Agreement, Nov. 12, 2006. Emphasis added.
Plaintiff Total Landscaping submits the following assertions in support of its argument that the arbitration award exceeded the limits of the arbitrator's authority: (1) Total Landscaping had no arbitration agreement with Home Depot, and thus it was improper for the arbitrator to allow USM to arbitrate claims against Total Landscaping on behalf of this absent third party; (2) legal precedent prescribes that claims for indemnification become ripe only upon the finality of underlying claims, and not while such claims remain pending; (3) the award of attorneys fees and costs to USM for pursuit of its indemnification claim against Total Landscaping was not contemplated by the arbitration agreement provision of the Subcontractor Agreement; (4) legal precedent establishes that the indemnification language of the Subcontractor Agreement did not cover USM's separate contractual obligation to indemnify its customer, Home Depot; and (5) under common law, indemnitors are obliged to cover only those defense and settlement costs proven reasonable.
First, Plaintiff Total Landscaping's assertions that the arbitrator exceeded his power in awarding judgment benefitting a third party are meritless. There exists rational support for these portions of the Award. This Court, in determining whether an arbitrator exceeded authority under 9 U.S.C. §10, must review both the form and terms of the awarded remedy, to consider if such remedy may be rationally derived from the agreement in question or the parties' submissions to the arbitrator. Sherrock Bros. v. Daimler Chrysler Motors Co., LLC, 260 F. App'x. 497 501 (3d Cir. 1993).
Indeed, there existed no privity between Plaintiff and Home Depot. It is not, however, unreasonable to read the language of the indemnification and waiver provisions of the Subcontractor Agreement between Plaintiff and Defendant USM, and conclude that Plaintiff can and should be responsible for the defense costs for Home Depot, as assumed by Defendant USM. More specifically, the waiver provision of the Subcontractor Agreement prohibits either party from arbitrating on behalf of another party, or bringing forth a claim on behalf of another party. The language of the waiver provision does not prohibit Tower Cleaning from submitting a demand for arbitration to the AAA, as allowable under the Subcontractor Agreement, for its total costs of defense in the Salva litigation, including its assumed defense costs of Home Depot.
Under these set of facts, Home Depot has no direct claim for indemnification against USM, and thus the waiver provision did not prohibit USM's claim for indemnification. Additionally, the form of remedy set forth in the award is further supported by the indemnification provision of the Subcontractor Agreement, which triggers Plaintiff's indemnification obligation "from and after the time when any Indemnified Party receives notification (whether verbal or written) that a claim or demand has been made or is to be or may be made." Thus, the Court rejects Plaintiff's contention that "claims for indemnification [do] not accrue until the underlying claim has been paid by settlement or verdict, [and] cannot as a matter of law be pursued while the underlying claim is still pending."*fn4
Pennsylvania law pronounces that the court shall decide upon the interpretation of indemnity contracts, as a question of law. Invensys Inc. v. Am. Mfg. Corp., 2005 U.S. Dist. LEXIS 3961, at *12 (citing Jacobs Constructors, Inc. v. NPS Energy Services, Inc., 264 F.3d 365, 371 (3d Cir. 2001). Generally, indemnity clauses are to be construed against the party seeking indemnification, "because the nature and purpose of any indemnity agreement involves the shifting and voluntary assumption of legal obligations." In interpreting indemnity agreements, courts should examine the parties' intentions by reviewing the language of the indemnity provision at issue. Id. (Citations omitted). In the present matter, Plaintiff and Defendants expressly contracted to have Plaintiff's indemnification obligations conditioned upon the mere receipt of notification of a claim or demand by the indemnified parties. If the parties intended a different result, more general or differing indemnification language would have been used, showing an intention of the parties to have Plaintiff's indemnification obligation triggered solely by settlement or final judgment on the merits in the underlying claim. The indemnification clause at issue contains no such language.
Accordingly, the form and term of the arbitrator's award, ordering Plaintiff to "assume the defense of USM and Home Depot in [the] Salva litigation and reimburse USM all costs of defense, including attorneys fees, incurred to date and, [to] indemnify USM for any amounts paid or to be paid on its and/or Home Depot's behalf via settlement/verdict of the underlying Salva claim" was appropriate, and rationally supported by the Subcontractor Agreement between the parties. For the same reasons as stated above, the Court also finds that the Award did not show manifest disregard of the law.
Moreover, because neither Home Depot nor Salva have direct claims against USM under the Subcontractor Agreement, they were not required parties for the arbitrator proceedings, contrary to Plaintiff's assertion. This provides rational support for the arbitrator allowing the arbitration proceedings to proceed without Home Depot and Salva as parties.
Additionally, the Court declines to accept Plaintiff's contention that the award for attorneys fees was in appropriate. It is well established that arbitrators possess wide latitude to issue flexible remedies, including those outside of those contemplated under the agreement in question. Ogden Allied Services Corp. v. Local 36, Service Employees Int'l Union, 1990 U.S. Dist. LEXIS 15976, at *16 (E.D. Pa. Nov. 27, 1990) (citations omitted). Thus, the portion of the Award requiring Plaintiff to cover USM's arbitration costs was rational and appropriate given the latter's expenses to bring the arbitration claim, and the absences of a clause to the contrary in the Subcontractor Agreement.
In this case, Plaintiff Total Landscaping has failed to overcome its burden of providing sufficient evidence to prove that the arbitrator's award should be vacated under the narrow allowances of 9 U.S.C. §10. Accordingly, Plaintiff's motion for judgment on the pleadings, or judgment as a matter of law, also fail.
B. Plaintiff's Additional Claims
Additionally, Plaintiff Total Landscaping challenges the legality of the arbitrator's decision
under the Pennsylvania Declaratory Judgments Act, 42 Pa. Cons. Stat. Ann. § 7540, and questions whether an arbitrator has the authority to enter declaratory judgment.
The Court, under the authority granted to it pursuant to 9 U.S.C. § 9,*fn5 hereby upholds the arbitrator's award as a proper and appropriate judgment that is hereby deemed as entered by this Court, based on the rationale discussed above. Thus, the Plaintiff's challenges concerning the legality of the arbitrator's decision under the Pennsylvania Declaratory Judgments Act, and the arbitrator's authority to enter declaratory judgment are moot.
Lastly, Plaintiff alleges that the arbitrator's award ran afoul of the Rules of the AAA, as the award went beyond the scope of the Subcontractor Agreement. For the reasons discussed above, the Court rejects this argument, and finds that the Award was rational, and within the bounds of a reasonable interpretation of the Subcontractor Agreement.
For the foregoing reasons, this Court finds that as a matter of law, upon consideration of evidence presented by the Plaintiff, that the arbitration award in this matter must be confirmed.*fn6 Accordingly, Plaintiff Total Landscaping's motion for judgment on the pleadings is denied, and Defendant USM's motion for summary judgment is granted. An appropriate order follows.
BY THE COURT:
Hon. Petrese B. Tucker, U.S.D.J.