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Elwyn v. James J. Deluca

July 2, 2012


Appeal from the Order Entered June 3, 2011 In the Court of Common Pleas of Delaware County Civil No(s).: 11-001200

The opinion of the court was delivered by: Fitzgerald, J.



Appellant, James J. DeLuca, appeals from the order entered in the Delaware County Court of Common Pleas overruling his preliminary objection to the complaint of Appellee, Elwyn. We are presented with the question: When an organization executes a contract with a second organization that is owned or led by one of its board members, and the first organization subsequently brings a breach of fiduciary duty suit against the board member relating to his duties as a board member and a separate breach of contract suit against the second organization, is the breach of fiduciary duty claim bound by a mandatory arbitration clause in the contract between the first and second organizations? We hold that it is not. Thus, we affirm the court's order.

Appellee is a non-profit human services organization and is managed by a board of directors. Appellee's Compl., 2/11/11, at ¶¶ 4-5. Appellant was a member of the board;*fn2 he is also the co-owner, president, and CEO of J. J. DeLuca Company, Inc. ("JJDC"), a construction corporation. Appellee engaged JJDC to construct a residential building. On July 27, 2009,*fn3

Appellee, as "Owner," and JJDC, as "Construction Manager," executed a contract, which was "an industry standard American Institute of Architects (AIA) form document modified by [the parties] for the Project, and consist[ed] of two principal parts: a Standard Form of Agreement between Owner and Construction Manager . . . and the General Conditions of the Contract for Construction" (collectively, the "Contract"). Appellant's Brief at

5. The trial court summarized:

Under the terms of the Contract, JJDC was to make the appropriate proportional payments to subcontractors for their completed work once payment was received from [Appellee. Appellee] claim[ed] that, although contracts were entered between JJDC and subcontractors for the building project and [Appellee] paid the invoices received from JJDC for the subcontractor's work, JJDC failed to pay the subcontractors, thereby breaching the Contract with [Appellee].

Trial Ct. Op., 8/31/11, at 1-2.

On February 11, 2011, Appellee filed a complaint against Appellant, claiming breach of fiduciary duty and, in the alternative, seeking common law indemnity. On the same day, Appellee also initiated a suit against JJDC,

claiming breach of contract, unjust enrichment, fraudulent misrepresentation, negligent misrepresentation, and indemnification.*fn4 In the instant matter, Appellee's complaint asserted that Appellant, as a board member of Appellee, lobbied his fellow board members to select his company, JJDC, for the building project, and willfully influenced the Board to award the contract to his company without disclosing all material facts and intentionally withholding facts, by acting in his overall self interest and not disclosing the extent of his profits from the building project, by failing to advise [Appellee] that the subcontractors were not being paid when it was within his knowledge, by misapplying funds received from [Appellee] in his capacity as President and CEO of JJDC, and by accepting payments on behalf of JJDC to which it was not entitled.

Id. at 2. Appellee's alternative claim for common law indemnity alleg[ed] that [Appellant] is primarily responsible for funds due to subcontractors for which the subcontractors have sought payment from [Appellee. Appellee] requested that the Court indemnify [it] from the costs owed to subcontractors to whom JJDC never made payment. Id.

On March 25, 2011, Appellant filed preliminary objections, arguing, inter alia, "that the claims set forth in [Appellee's] Complaint were subject to an agreement for alternative dispute resolution which mandated mediation and binding arbitration of all disputes between the parties." Id. at 2. On June 3rd, the court overruled the preliminary objections and directed Appellant to file an answer to Appellee's complaint. Appellant instead took this timely appeal, presenting three issues for our review, which we address together.*fn5

Appellant first avers that the Contract between Appellee and JJDC includes an enforceable agreement to arbitrate, and that he "is only seeking to hold [Appellee] to the contractual terms to which it has bound itself." Appellant's Brief at 15. Appellant contends that although he was not a signatory to the contract, he has standing to enforce the agreement in this suit. He cites to Dodds v. Pulte Home Corp., 909 A.2d 348 (Pa. Super. 2006), in arguing Appellee's claim against him "is closely intertwined with the contractual claims, stems from the same facts and implicates the same legal [principles and thus] also subject to arbitration." Appellant's Brief at 12-13. Appellant also asserts that while the trial court concluded Appellee's breach of fiduciary claim against him was separate from its breach of contract claim against JJDC, the court failed to look beyond "the labels applied to the claims" in Appellee's complaint and address the inclusion of the breach of contract claims. Id. at 13-14. Instead, Appellant reasons, the gist of Appellee's actions against him "arise from the Contract and are inextricably entwined with its claims against" ...

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