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Weinar v. Lex

Superior Court of Pennsylvania

December 15, 2017

MARVIN WEINAR Appellee
v.
WILLIAM LEX Appellant MARVIN WEINAR Appellant
v.
WILLIAM LEX Appellee

         Appeal from the Judgment Entered July 5, 2016 In the Court of Common Pleas of Chester County Civil Division at No(s): 2015-08168, 2015-CV-08168

          BEFORE: DUBOW, J., SOLANO, J., and FORD ELLIOTT, P.J.E.

          OPINION

          SOLANO, J.

         Before the Court are consolidated cross-appeals filed by William F. Lex and Dr. Marvin Weinar from the trial court's April 28, 2016 order (1) granting Weinar's petition to confirm an arbitration award, and (2) sustaining Lex's preliminary objections and dismissing Weinar's second amended complaint. The appeals arise out of Weinar's efforts to enforce an arbitration award that was rendered in his favor on February 14, 2013. After unsuccessfully seeking to enforce the award in New York state and federal courts and in a federal court in Pennsylvania, Weinar initiated this action in the Chester County Court of Common Pleas, filing both a petition to enforce the arbitration award under Pennsylvania law and a complaint asserting numerous claims against Lex relating to Lex's failure to pay the arbitration award. The trial court granted Weinar's petition to enforce the arbitration award and dismissed his complaint. We affirm the granting of the petition, vacate the dismissal of the complaint, and remand for further proceedings.

         Lex, while working as a securities broker for McGinn Smith & Co., sold Weinar approximately $400, 000 in notes. In April of 2010, the Securities and Exchange Commission filed an action against McGinn Smith, its principals, and the issuers of all the notes sold to Weinar.[1] As a result of this and other legal actions, the notes became worthless. On December 14, 2000, Weinar filed a statement of claim against Lex pursuant to the Code of Arbitration Procedure of the Financial Institution Regulatory Authority (FINRA).[2] Weinar asserted that Lex acted negligently and breached various fiduciary and contractual duties by, among other things, recommending investments that were unsuitable to Weinar's objectives and not properly diversified. On February 14, 2013, after an arbitration proceeding in Pennsylvania, a panel of arbitrators issued an award in favor of Weinar that included $270, 000 in compensatory damages, plus interest at a rate of 6%, compounded annually, and fees of $7, 862.50.

         That same day, Weinar filed a petition to enforce the arbitration award in a New York state court under Section 7510 of the New York Civil Practice Law and Rules.[3] Lex removed the action to the U.S. District Court for the Southern District of New York on the basis of diversity jurisdiction and then filed a motion to dismiss the case for lack of personal jurisdiction.

         On April 3, 2013, while Lex's motion to dismiss was pending in the Southern District of New York, Lex filed a petition in the U.S. District Court for the Eastern District of Pennsylvania (the "EDPA Action"), in which he sought to vacate the arbitration award under the Federal Arbitration Act (FAA). The EDPA Action was stayed until January 23, 2014, when the New York federal district court dismissed the New York action for lack of personal jurisdiction over Lex. On May 22, 2014, Weinar filed a cross-petition in the EDPA action to confirm the arbitration award. In the cross-petition, Weinar urged the court to apply Pennsylvania law, which "does not impose a time limit on motions to confirm an arbitration award." Weinar's Cross-Pet. to Confirm Arbitration Award at ¶ 12.

         On March 31, 2015, the Honorable Norma L. Shapiro entered an order in the EDPA action granting in part and denying in part Lex's petition to vacate the arbitration award. See Lex v. Weinar, Civ. A. No. 13-mc-96, 2015 WL 1455810 (E.D. Pa. Mar. 31, 2015).[4] Judge Shapiro also denied as untimely Weinar's cross-petition to confirm the award. She explained that even though federal jurisdiction in the case was based on diversity of citizenship, [5] the case was "brought under the FAA, " and she was required to apply the FAA's provisions, rather than state law, to an FAA case brought in federal court because the parties had not contractually opted out of the FAA's requirements. Id. at *2.[6] She held that Weinar's May 22, 2014 cross-petition to confirm the February 14, 2013 arbitration award was untimely because "[t]he FAA one-year deadline for moving to confirm the arbitration award" applied. Id. at *3, citing FAA § 9, 9 U.S.C. § 9 (stating that any party may apply for an order confirming an arbitration award "at any time within one year after the award is made").

         Weinar filed a motion for reconsideration of Judge Shapiro's March 31, 2015 order, requesting that Judge Shapiro confirm the arbitration award as modified by the March 31, 2015 order or remand the matter to FINRA Dispute Resolution for issuance of an amended award with recalculated interest in accordance with the March 31, 2015 order. On May 20, 2015, Judge Shapiro denied the motion for reconsideration, reiterating that Weinar's petition to confirm was untimely under the FAA and stating that the March 31, 2015 order left no confusion as to the calculation of interest. Weinar did not appeal from Judge Shapiro's March 31, 2015 or May 20, 2015 orders.

         On September 9, 2015, Weinar instituted the current action by filing a complaint against Lex in the Court of Common Pleas of Chester County, based on Lex's failure to pay the arbitration award. In his second amended complaint, Weinar asserted the following claims: (1) breach of contract, by failing to "abide by and perform" the arbitration award; (2) conversion, by retaining money out of which Weinar's demand for payment of the arbitration award could be satisfied; (3) unjust enrichment; (4) confirmation of the arbitration award; and (5) a request for a declaratory judgment regarding the amount of the arbitration award and any judgment to be entered upon it. In addition to declaratory relief, Weinar sought damages of $270, 000, plus interest, fees, and "such further relief as [the trial court] deems just and proper." Second Am. Compl. at 5, 6, 8.

         Lex filed preliminary objections to Weinar's second amended complaint, arguing that, because of the EDPA ruling, the requested relief was barred in its entirety by the doctrine of res judicata. In addition, Lex contended that Weinar failed to state a claim for breach of contract; Weinar's conversion claim was barred by the gist of the action doctrine and failed to state a claim upon which relief could be granted; Weinar's unjust enrichment claim was barred by res judicata and/or collateral estoppel; Weinar's claim for confirmation of the award should be dismissed because an application for confirmation of an arbitration award must be made by petition; and Weinar could not obtain a declaratory judgment on an uncontroverted and finally litigated issue. Weinar responded by filing preliminary objections to Lex's preliminary objections, arguing that (1) Pennsylvania law does not permit preliminary objections based on res judicata or collateral estoppel; (2) Pennsylvania law does not permit preliminary objections based on matters outside the complaint; (3) Weinar's complaint was not barred by res judicata; (4) Lex's objections to Weinar's breach of contract and conversion claims were impermissible "speaking demurrers"; and (5) Lex's objection to Weinar's claim for confirmation of the award was moot in light of Weinar's filing of a petition to confirm the award.[7]

         Meanwhile, on December 15, 2015, Weinar filed a petition to confirm the arbitration award under Section 7342(b) of the Judicial Code, which provides that "the court shall enter an order confirming the award and shall enter a judgment or decree in conformity with the order" if a party applies for such relief "more than 30 days after an award is made." See 42 Pa. C.S. § 7342(b). Lex opposed that petition, arguing that it was barred by res judicata and that the FAA's one-year statute of limitations for confirming an arbitration award preempted Section 7342(b), which contains no statute of limitations.

         The trial court held a hearing on April 15, 2016, [8] and both parties submitted post-hearing letters to the court. On April 28, 2016, the trial court issued an opinion and order (1) granting Weinar's petition to confirm the arbitration award, and (2) sustaining Lex's preliminary objections and dismissing Weinar's second amended complaint. The trial court did not rule on Weinar's preliminary objections to Lex's preliminary objections.

         The trial court held that "the FAA does not preempt the Pennsylvania Arbitration Statutes regarding the time limit within which a party must petition to confirm an arbitration award." Trial Ct. Op., 4/28/16, at 7. The court reasoned that the lack of a one-year time limit for confirming an arbitration award under 42 Pa. C.S. § 7342(b) was a mere procedural matter that did not interfere with the federal policy of ensuring enforceability of arbitration agreements. Id. at 10-12. The trial court further explained that it sustained Lex's preliminary objections because Weinar's second amended complaint "merely seeks to re-litigate the arbitration." Id. at 13.

         On May 12, 2016 Lex filed a notice of appeal from the trial court's confirmation of the arbitration award. On May 26, 2016, Weinar filed a notice of cross-appeal from the order sustaining Lex's preliminary objections to Weinar's second amended complaint.

         In a June 22, 2016 opinion issued in response to Lex's appeal from the confirmation ruling, the trial court explained that it rejected Lex's res judicata argument because there was no identity of the two causes of action (the EDPA action and the present action) and it rejected Lex's collateral estoppel argument because the EDPA court "never evaluated whether the petition to confirm would have been granted under Pennsylvania law." Trial Ct. Op., 6/22/16, at 13-14. In an opinion issued on July 13, 2016, in response to Weinar's appeal from the dismissal of his complaint, the court reasoned that Weinar's breach of contract claim was barred by res judicata, his unjust enrichment claim was barred by collateral estoppel, and his conversion claim was barred by the "gist of the action" doctrine. Trial Ct. Op., 7/13/16, at 7-9.

         The trial court entered judgment on July 5, 2016. Under Pa.R.A.P. 905(a)(5), the previously filed notices of appeal are treated as if filed following the entry of judgment. The cross-appeals therefore are now properly before this Court.

         No. 1467 EDA 2016

         (Lex's Appeal From the Confirmation of the Arbitration Award)

         In his appeal, Lex raises the following issues:

1. In light of the 2011 U.S. Supreme Court case AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)[, ] which holds that states cannot enforce laws or "procedures inconsistent with the FAA, " did the [t]rial [c]ourt err by applying Pennsylvania's unlimited statute of limitations to enforce an arbitration award when this statute of limitations is inconsistent with the one-year time period prescribed by the FAA?
2. Did the [t]rial court err in its finding that the unlimited statute of limitations provided by 42 Pa.C.S. § 7342(b) does not conflict with the policies and goals of the FAA, even though the FAA has an identified goal of facilitating expeditious resolution of disputes?
3. In determining whether Pennsylvania's statute of limitations to confirm an arbitration was preempted by the FAA, was it an error for the [t]rial [c]ourt to reject preemption based upon a purported distinction as to whether the issue was "procedural" as opposed to "substantive["]?
4. Was it error for the [t]rial [c]ourt to rely upon pre-Concepcion decisions to reach its conclusion that the FAA did not preempt 42 Pa.C.S. § 7342(b)?
5. Does the doctrine of res judicata bar a court from considering the timeliness of the filing of a petition where that same issue has already been finally adjudicated by a court of competent jurisdiction?

Lex's Brief at 2.

         Lex's issues challenge the trial court's confirmation of the arbitration award in favor of Weinar. Arbitration is a non-judicial means of resolving disputes. Although parties may voluntarily agree to comply with an arbitration award, enforcement of the award cannot be compelled unless the prevailing party has the award "confirmed" in a judicial proceeding that then gives the arbitrators' ruling the effect of a court judgment. See Thomas H. Oehmke, Commercial Arbitration § 133:1 (3d ed. 2017).

         Both federal and Pennsylvania law provide means by which an arbitration award may be confirmed. The relevant federal statute is the FAA, which applies to "a written agreement to arbitrate 'in any maritime transaction or a contract evidencing a transaction involving commerce.'" Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) (quoting FAA, 9 U.S.C. § 2). Neither Lex nor Weinar disputes that their agreement to arbitrate under the FINRA Code is subject to the FAA. See Moscatiello v. Hilliard, 939 A.2d 325, 326 (Pa. 2007) (noting that FAA governs arbitration under rules of the National Association of Securities Dealers (FINRA's predecessor)). The FAA "create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone, 460 U.S. at 24. One of its provisions, Section 9, authorizes "any party to the arbitration" to apply to a state or federal court for an order confirming an arbitration award. 9 U.S.C. § 9. Section 13 provides:

The judgment so entered shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered.

9 U.S.C. § 13.

         Although, as discussed below, the FAA robustly preempts any state law that interferes with the enforceability of an agreement to arbitrate, it creates "no federal policy favoring arbitration under a certain set of procedural rules, " Volt Info. Sci. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989), and leaves the parties free to seek enforcement of their arbitration award under state law, rather than the FAA. Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 590 (2008). Pennsylvania makes available two statutory schemes for arbitration of cases not filed in court. One, the Uniform Arbitration Act, 42 Pa. C.S. §§ 7301-7320, governs arbitrations under agreements that "expressly provide[]" that they are subject to that Act "or any other similar statute." 42 Pa. C.S. § 7302(a). All other arbitration agreements are "conclusively presumed" to be governed by what the Judicial Code calls "common law arbitration" under 42 Pa. C.S. §§ 7341-7342. See Moscatiello, 939 A.2d at 327. No party to this case contends that the arbitration agreement at issue here falls under the Uniform Act; accordingly, the Judicial Code's "common law" provisions apply to this case. Among the "common law" provisions is Section 7342(b), which states that if a party makes an appropriate application, "the court shall enter an order confirming the award and shall enter a judgment or decree in conformity with the order." 42 Pa. C.S. § 7342(b).

         After unsuccessfully seeking confirmation of the award in federal court under the FAA, Weinar successfully applied for confirmation in the Chester County Court of Common Pleas under Section 7342(b). Lex now contends that the trial court erred in confirming the award because the federal order declining confirmation precluded confirmation by the court in Chester County and, alternatively, because confirmation is barred by the FAA's one-year statute of limitations, which preempts the longer period for filing a confirmation application under Pennsylvania law.

         "A trial court order confirming a common law arbitration award will be reversed only for an abuse of discretion or an error of law." Sage v. Greenspan, 765 A.2d 1139, 1142 (Pa. Super. 2000), appeal denied, 784 A.2d 119 (Pa. 2001). As we discuss below, each of Lex's contentions presents a question of law as to which our standard of review is de novo.

         Res Judicata

         (Lex's issue 5)

         Because a court should avoid constitutional issues if possible, see Commonwealth v. Karetny, 880 A.2d 505, 519 (Pa. 2005), and because Lex's preemption issues ultimately are grounded in the U.S. Constitution's Supremacy Clause, Art. VI cl. 2, we begin our analysis with Lex's fifth issue, in which Lex contends that confirmation of the arbitration award under Pennsylvania law is barred by res judicata (claim preclusion) as a result of Judge Shapiro's decision in the EDPA action.[9] The trial court held that res judicata did not apply because there was no identity of the two causes of action (the cause of action in the EDPA case and the cause of action in the instant case). Trial Ct. Op., 6/22/16, at 13.

         We have explained the res judicata doctrine as follows:

The doctrine of res judicata prevents a party from instituting litigation that has been the subject of a lawsuit. We explained the concept in Stoeckinger v. Presidential Financial Corp. of Delaware Valley, 948 A.2d 828, 832 n.2 (Pa. Super. 2008) (footnote omitted):
"Res judicata" means "a thing adjudged" or a matter settled by judgment. Traditionally, American courts have used the term res judicata to indicate claim preclusion, i.e., the rule that a final judgment rendered by a court of competent jurisdiction on the merits is conclusive as to the rights of the parties and constitutes for them an absolute bar to a subsequent action involving the same claim, demand or cause of action.

Robinson Coal Co. v. Goodall, 72 A.3d 685, 689 (Pa. Super. 2013).[10] Preclusion is a question of law, and our review is de novo. See Rickard v. Am. Nat'l Prop. & Cas. Co., ___ A.3d ___, 2017 WL 4803951, at * 3 (Pa. Super., Oct. 25, 2017) (en banc).

         In the EDPA action, Judge Shapiro declined to confirm the FINRA arbitration award because Weinar did not seek confirmation until May 22, 2014, more than one year after the February 14, 2013 date of the award. Noting that Section 9 of the FAA requires that a request for confirmation be made "within one year after the award is made, " 9 U.S.C. § 9, she held that Weinar's request for confirmation was time-barred. Although Weinar asked Judge Shapiro to confirm the award pursuant to Pennsylvania law, which does not require a confirmation request to be made within one year, Judge Shapiro held that she was required to apply the FAA's one-year deadline in a case brought under the FAA. Lex contends that Judge Shapiro's statute of limitations decision bars Weinar's state-law confirmation request in the Chester County court, but we disagree.

         The preclusive effect of a federal judgment is a question of federal law. Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 507 (2001); In re Stevenson, 40 A.3d 1212, 1223 (Pa. 2012). However, federal law permits a state court to accord a judgment in a federal diversity case the same preclusive effect as it would have if it were a judgment of a state court in that state, unless the state preclusion rule would be ...


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