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Maxatawny Twp. v. Kutztown Borough

Commonwealth Court of Pennsylvania

April 10, 2015

Maxatawny Township and Maxatawny Township Municipal Authority, Appellants
Kutztown Borough and Kutztown Municipal Authority Kutztown Borough and Kutztown Municipal Authority
Maxatawny Township and Maxatawny Township Municipal Authority Maxatawny Township and Maxatawny Township Municipal Authority, Appellants
Kutztown Borough and Kutztown Municipal Authority

Argued December 8, 2014

Page 896

Appealed from No. 13-27327. Common Pleas Court of the County of Berks. Judge Rowley, J.

Jill E. Nagy and Sean E. Summers, York, for appellants.

George C. Werner, Jr., Lancaster, for appellees.




Page 897

Maxatawny Township and Maxatawny Township Municipal Authority (collectively, Maxatawny) appeal from two orders of the Court of Common Pleas of Berks County (trial court). The first order overruled Maxatawny's preliminary objections to the counterclaim of Kutztown Borough and Kutztown Municipal Authority (collectively, Kutztown). The second order stayed an arbitration initiated by Kutztown pending our disposition of the issues on appeal arising out of the first order. For the reasons that follow, although we find no error in the trial court's decision to stay the arbitration, we reverse the trial court's order overruling Maxatawny's preliminary objections.


The following facts are not in dispute. Maxatawny and Kutztown entered into an Inter-municipal Sanitary Sewage Service and Treatment Agreement (Agreement) pursuant to which they agreed to cooperate in creating an inter-municipal sewage treatment authority and in constructing a treatment facility to provide for their future sewage needs. The Agreement obligated Maxatawny to construct the treatment facility and to convey it to the new treatment authority by December 31, 2013.

On October 25, 2012, Maxatawny informed Kutztown that it could not comply with certain duties under the Agreement and that it intended to dissolve the Agreement. By letter to Kutztown dated November 30, 2012, Maxatawny confirmed its position, stating that it intended to withdraw from the Agreement and proposing general settlement terms. Over a year later, on December 10, 2013, Kutztown rejected Maxatawny's proposal, demanded compliance with the Agreement as written, and stated its intention to " enforce all of [the Agreement's] rights and remedies, at law, in equity and pursuant to other causes of action, to compel performance of the Agreements." (Reproduced Record (R.R.) at 47a.)

Maxatawny initiated this declaratory judgment action on or about December 27, 2013, shortly after it learned that Kutztown intended to seek enforcement of the agreement. Importantly, Maxatawny's Declaratory Judgment Complaint does not seek relief based on the parties' disagreement over whether Maxatawny can perform under the terms of the Agreement-- i.e., the merits of the parties' dispute. Instead, Maxatawny seeks declaratory relief in the nature of enforcing the dispute resolution provisions of the Agreement. Specifically, Article XI, Section 11.02 of the Agreement provides:

Arbitration shall be demanded within ninety (90) calendar days from the time when the demanding party . . . knows or should have known of the event or events giving rise to the claim. Failure to demand arbitration within this time limit shall forever foreclose the right of the demanding party to review its alleged claim.

( Agreement art. XI, § 11.02 (emphasis added).) Maxatawny alleges that because Kutztown failed to demand arbitration within ninety (90) days of learning in late 2012 that Maxatawny intended to withdraw from the agreement, Kutztown was now contractually barred from contesting that withdrawal. The single count Declaratory Judgment Complaint provides, in relevant part:

29. There is now existing an actual justiciable controversy concerning whether all rights to arbitration or moving forward with any of the provisions of the Agreement have been waived because the facts, circumstances, conditions set forth above constitute a waiver,

Page 898

based upon the actual and express contract terms.
30. On October 25, 2012 and in writing on November 25, 2012, [Maxatawny] gave notice to [Kutztown] that [Maxatawny] terminated the Agreement.
31. The Kutztown Parties have waived their rights to arbitration based upon the plain and unambiguous language in the contract and any claims are barred, as a matter of law.
32. The mandate for arbitration is express and not implied within said Agreement.
. . .
34. Notwithstanding the foregoing, [Kutztown has] asserted that the contract is viable and the parties should move forward with the requirements of the Agreement and escrow arrangements.
35. [Maxatawny seeks] a declaration from this Court concerning the respective rights of the parties under the Agreement, a determination whether the Agreement has been terminated as of the notice provided in 2012 and that [Maxatawny has] no liability to [Kutztown].

( R.R. 9a).

In response, Kutztown filed an answer with new matter and a counterclaim against Maxatawny, Maxatawny Township's supervisors, and Maxatawny Township Municipal Authority's members, seeking a writ of mandamus under Section 2315 of the General Local Government Code, 53 Pa. C.S. § 2315,[2] to direct Maxatawny to perform its obligations under the Agreement. Kutztown also asserted a claim for specific performance and, in the alternative, for monetary damages stemming from Maxatawny's alleged breach of the Agreement. Kutztown alleged that notwithstanding the Agreement's arbitration clause, Maxatawny assented to the trial court's jurisdiction by filing its Declaratory Judgment Complaint there, and thus Kutztown could proceed with its counterclaims in that forum. Kutztown did not seek to compel arbitration.

Maxatawny filed preliminary objections to the counterclaim, contending that the trial court lacked jurisdiction over the dispute raised in the counterclaims because Kutztown had an adequate remedy at law insofar as the Agreement provided for mandatory arbitration. In the preliminary objections, Maxatawny noted specifically that it had commenced its declaratory judgment action for the purpose of seeking a ruling that Kutztown was required to bring a challenge to Maxatawny's withdrawal from the Agreement within 90 days of the date it knew or should have known of a dispute. (R.R. 150a.) It did not commence the action concerning the merits of that withdrawal-- i.e., the substantive merits of the parties' dispute. (R.R. 151a.) In its jurisdictional preliminary objection, Maxatawny contended that it initiated the declaratory judgment action because of a threat by Kutztown to bring a time-barred claim. (R.R. 152a.) It claimed that Kutztown agreed to arbitrate the merits dispute between the parties, but Kutztown failed to bring that claim in arbitration within the 90 days provided in the Agreement.

Page 899

In essence, Maxatawny argued that the trial court lacks subject matter jurisdiction because of the parties' agreement to arbitrate, notwithstanding Kutztown's alleged failure to commence timely arbitration. (R.R. 152a-53a.) Maxatawny further challenged joinder of the individual supervisors and members.[3] By order dated March 10, 2014 (Preliminary Objection Order), the trial court overruled the preliminary objections in principal part, refusing to dismiss the counterclaim for lack of jurisdiction but sustaining the preliminary objections with regard to the individual defendants.

Maxatawny appealed the Preliminary Objection Order,[4] after which Kutztown filed a " precautionary" demand for arbitration. Subsequently, Kutztown requested a stay of the arbitration, contending that the arbitration should be held in abeyance pending disposition of Maxatawny's appeal of the Preliminary Objection Order. Two days later, without response from Maxatawny, the trial court granted ...

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