Merritt-Chapman & Scott Corporation v. Pennsylvania Turnpike Commission, 387 F.2d 768, 3rd Cir. (1967)
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Scribd Government DocsMerritt-Chapman & Scott Corporation v. Pennsylvania Turnpike Commission, 387 F.2d 768, 3rd Cir. (1967)
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Scribd Government Docs387 F.
2d 768
MERRITT-CHAPMAN & SCOTT CORPORATION,
Appellant,
v.
PENNSYLVANIA TURNPIKE COMMISSION.
No. 16441.
United States Court of Appeals Third Circuit.
Argued October 17, 1967.
Decided November 29, 1967.
Martin S. Michelson, Michelson & Kane, Hartford, Conn. (J. Paul Kane,
Hartford, Conn., McNees, Wallace & Nurick, by Francis B. Haas,
Harrisburg, Pa., on the brief), for appellant.
Robert L. Rubendall, Metzger, Hafer, Keefer, Thomas & Wood,
Harrisburg, Pa., for appellee.
Before HASTIE, FREEDMAN and SEITZ, Circuit Judges.
OPINION OF THE COURT
FREEDMAN, Circuit Judge.
This seemingly simple case presents on careful examination a number of
difficult problems which were not presented to us by the parties or considered
in the district court.
Merritt-Chapman & Scott Corporation, as the successful bidder entered into a
contract with defendant, Pennsylvania Turnpike Commission, for the
construction of a tunnel known as Allegheny No. 2 on the Pennsylvania
Turnpike. It brought the present action alleging that it had made its bid and
entered upon the work under the contract in the belief derived from the plans
and specifications that the work could be performed by rock tunneling methods,
whereas it was required to change to earth tunneling methods which caused it
much extra work and serious delay, for which it sought to recover. The
complaint, in eleven counts, alleged negligence, arbitrary and unwarranted
interference and fraud resulting from the willful concealment by defendant of
its knowledge of geological and other information which indicated that earth
tunneling methods would be required.
3
The district court granted defendant's motion to stay the action pending
arbitration. From this order plaintiff has appealed. We have held that such an
order in an action at law is appealable as an interlocutory injunction under 28
U.S.C. 1292(a)(1), although it is not a final judgment. Kirschner v. West
Company, 300 F.2d 133 (3 Cir. 1962).
I.
4
Plaintiff contends that its claims are not within the scope of the arbitration
provision of the contract. The provision is comprehensive in its inclusion of the
controversies which must be submitted to arbitration. It provides for what
amounts to an appeal to a Board of Arbitration taken within fifteen days after
the decision of the Chief Engineer on claims submitted to him in writing.1 The
claims which are thus made subject to arbitration are described in the contract:
"All claims for additional compensation, or for damages, arising out of this
contract or in any manner related thereto, or any breach of said contract,
including claims for additional compensation for any work performed which
was or was not covered by the approved drawings, specifications or contract, or
for any other cause, including damages for delay".2
This language is very broad and includes the present claims which are "for
additional compensation" and "damages", and clearly are in some manner
"related" to or arise out of the contract, and also fall within the description of
claims for additional compensation "for any other cause, including damages for
delay". They are not excluded from the arbitration provision because they are
alleged to have been occasioned by fraud or negligence or unwarranted
interference by the defendant.3
We therefore approve the conclusion of the district court that the subject matter
of this action falls within the scope of the arbitration provision of the contract.
II.
7
Plaintiff argues that its claim of fraud in the inducement of the contract
prevents the use of arbitration to decide the question, because if fraud is proven
the entire contract, including the arbitration provision, would fall.
The district court held that a number of specific provisions of the contract
The district court held that a number of specific provisions of the contract
placed upon plaintiff complete responsibility for the soil conditions which
might affect the nature of the work and therefore barred a claim of fraud or
negligence against defendant. Evidently the parties in their briefs called the
district court's attention to what they deemed to be controlling provisions of the
contract, although the record before us contains merely the complaint and the
motion to stay the proceedings pending arbitration. But since the district court
held that the action should be stayed pending arbitration we assume that it did
not decide the important question of fraud but left it to be determined by the
Board of Arbitration.
There is presented, therefore, the interesting and controversial question whether
a claim of fraud in the inducement of a contract containing a provision for
arbitration must be decided by the court because it stands at the threshold of
the invocation of the arbitration provision of the contract. The question has
been put to rest in federal law by the recent decision in Prima Paint Corporation
v. Flood & Conklin Manufacturing Company, 388 U.S. 395, 87 S.Ct. 1801, 18
L.Ed.2d 1270 (1967), decided after the briefs were filed in this case. The
Supreme Court there held under the United States Arbitration Act of 19254 that
a general attack on a contract for fraud is to be decided under the applicable
arbitration provision as a severable part of the contract and that only where the
claim of fraud in the inducement goes specifically to the arbitration provision
itself should it be adjudicated by the court rather than the arbitrator. There
appear to be no Pennsylvania decisions on this question.5 In the absence of
Pennsylvania authority to the contrary we shall assume that the Pennsylvania
courts would take the view adopted by the Supreme Court of the United States.
10
We conclude, therefore, that either under federal or Pennsylvania law the claim
of fraud in the inducement of the contract is not enough to prevent the
invocation of the arbitration provision of the contract.
III.
11
Since the claims asserted in the action fall within the arbitration provision of
the contract it was proper for the district court to grant defendant's motion to
stay the proceeding pending arbitration.
12
The district court indicated that it took this action by virtue of the Pennsylvania
Arbitration Act of April 25, 1927,6 2 of which provides that where a suit is
brought on an issue which is referable to arbitration, "the court in which such
suit is pending * * * shall * * * stay the trial of the action" until arbitration is
had in accordance with the agreement.7 At this point we are presented with a
serious problem regarding the jurisdiction of a federal court to act under this
provision and the extent to which such action might rest under the substantially
similar provision of 3 of the United States Arbitration Act.8 The federal
statute applies only to contracts evidencing "a transaction involving
commerce".9 It is therefore inapplicable to the present case if there was no
commerce involved in the contract. Bernhardt v. Polygraphic Company of
America, Inc., 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199 (1956); see also
Prima Paint Corporation v. Flood & Conklin Manufacturing Company, supra.
The jurisdictional allegations of the complaint are founded on diversity of
citizenship and make no reference to commerce. Defendant's motion to dismiss
asserts no other basis for jurisdiction, nor does it make any claim that the
contract between the parties constituted a transaction involving commerce.
However much we may speculate on what may have been the nature of the
performance required by the contract, it is impossible for us to determine on
appeal whether the United States Arbitration Act applies. For to do so would
require us to make an initial factual determination whether the contract
evidenced "a transaction involving commerce" within the meaning of 2 of the
Act.
13
If we turn to 2 of the Pennsylvania Arbitration Act of 1927, which expressly
authorizes a stay of proceedings pending arbitration, we encounter what is only
an apparent simplicity. For although 2 of the Pennsylvania statute authorizes
such relief by "the court" in which the action is pending, a separate definition
section10 provides: "Except as otherwise specifically indicated, all references in
this act to the courts are to be construed to mean the common pleas courts of
the county having jurisdiction of the parties or the subject matter." At first sight
it would appear that this provision was intended merely to describe the court of
first instance as the appropriate tribunal, and that the legislature had given no
thought to the possibility of a diversity suit in the federal courts. On this
reading the definition section would be construed to specify the common pleas
court whenever the proceeding is brought in the state court, but would not be
considered an attempt to prevent the application of the remedial provisions of
the Pennsylvania statute in a diversity proceeding in the federal courts.11 This
would avoid any question of state invasion of federal diversity jurisdiction and
its validity under the Supremacy Clause, Article VI, Clause 2. We gave full
effect, however, to the definition provision of the Pennsylvania Act in Monte v.
Southern Delaware County Authority, 321 F.2d 870 (1963), and held that
because of it a district court had no power to exercise the authority given by the
Act to conform or to vacate or modify an award, because under the definition
provision exclusive jurisdiction was vested in the common pleas courts of the
state.12 We also held that in limiting the remedy to the Pennsylvania courts
there was no statutory interference by the state with federal diversity
jurisdiction,13 because we were enforcing the contract which the parties had
made rather than the Pennsylvania statute which they had contracted should
apply.
14
Section 16 of the Pennsylvania Arbitration Act of 1927 makes the Act
mandatory in all written contracts to which the Commonwealth or any of its
political subdivisions is a party.14 There may therefore be some difficulty in
maintaining a distinction between a provision of a contract by the
Commonwealth or one of its political subdivisions which expressly draws into
it the provisions of the Pennsylvania Arbitration Act of 1927 and one which is
silent on the subject but to which nevertheless all of the same provisions are
fully applicable because 16 makes them mandatory in such contracts. Indeed,
the Pennsylvania Supreme Court has held that in such public contracts the
statute automatically has full effect and that a provision contrary to it, such as
one that the award shall be final and conclusive with no right of appeal, must
fall. Philadelphia Housing Authority v. Turner Construction Company, 343 Pa.
512, 518, 23 A.2d 426, 429 (1942); Seaboard Surety Company v.
Commonwealth, 345 Pa. 147, 151, 27 A.2d 27, 29 (1942); Acchione v.
Commonwealth, 347 Pa. 562, 565, 32 A.2d 764, 765 (1943).
15
We need not, however, rest our conclusion on the distinction between a
provision in a public contract for the incorporation of the Act of 1927 and the
automatic effect of the statute on a silent contract. For the Monte case dealt
with the confirmation and vacation or modification of an award, whereas we
are here concerned only with a stay of proceedings pending arbitration. Such a
remedy is one which is within the inherent power of a court and does not
require statutory authority. As Mr. Justice Cardozo said in Landis v. North
American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 166, 81 L.Ed. 153 (1936), the
power to stay proceedings is "incidental to the power inherent in every court to
control the disposition of the causes on its docket with economy of time and
effort for itself, for counsel, and for litigants."15 Moreover, in staying the action
pending arbitration we do no more than what a Pennsylvania court would do if
the proceeding were before it, and we thereby effectuate in this diversity action
the policy of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82
L.Ed. 1188 (1938). See Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91
L.Ed. 832 (1947).
16
We hold, therefore, that the district court had power to stay the action pending
arbitration.
IV.
17
The problems of jurisdiction which we have discussed also affect plaintiff's
attack on the qualification of the Consulting Engineer who is one of the
designated members of the Board of Arbitration. The Board of Arbitration
consists of the Consulting Engineer or an engineer designated by him, an
engineer designated by the contractor and the Turnpike Commission's counsel.
The Board may in general act by a majority of its members. Plaintiff contends
that since its action claims misconduct by the Consulting Engineer, the Board
of Arbitration of which he is a member may not sit in judgment on its claims.
18
The present record affords no foundation for any sound judgment regarding the
qualification of the Consulting Engineer to act as a member of the Board of
Arbitration or to designate another engineer as a member in his place.
Moreover, the requirement of arbitration would not fail even if the Consulting
Engineer is disqualified to act directly and to designate another engineer in his
place. Here again, however, we encounter the difficulty which we have already
discussed. The United States Arbitration Act, 5,16 provides for the filling of
vacancies in the office of arbitrator by the courts. But the absence of a finding
that there is here involved a transaction involving commerce makes it
impossible to justify the filling of the vacancy by a district court under the
United States Arbitration Act. The Pennsylvania Arbitration Act of 1927, 4,17
contains the same authority with the additional express specification of the
disqualification of an arbitrator to sit as one of the reasons for which the court
may appoint an arbitrator. There is no doubt of the power of the Pennsylvania
courts to fill a vacancy in the office of arbitrator under this provision. See J. M.
Davis Co. v. Shaler Twp., 332 Pa. 134, 2 A.2d 708 (1938). Bias or
disqualification of an arbitrator therefore does not by itself require the
invalidation of an arbitration provision. But here arises again the limitation
created by 18 of the Pennsylvania statute in defining "court" as the common
pleas court of the county having jurisdiction of the parties or the subject matter.
19
At this stage of the proceeding, however, we are not called upon to determine
the power of the district court to disqualify the Consulting Engineer or an
appointee whom he may designate, or to fill a vacancy.18 For the attack on the
Consulting Engineer is directed only to the validity of the arbitration provision.
There has been no application to disqualify the Consulting Engineer and
consequently no request that the court fill a vacancy in the office of arbitrator.
The appeal before us is from the granting of the stay of proceedings and not
from a refusal to disqualify the Consulting Engineer or to appoint a successor to
him.
20
We conclude, therefore, that the stay of the action in the district court pending
arbitration was appropriate.
21
The judgment of the district court will be affirmed.
Notes:
1
Section 1.10 of the contract provides in part:
"The contractor is deemed to have accepted the decision of the Chief Engineer
unless he shall * * * have submitted the claim, in the precise language it was
presented to the Chief Engineer, to a Board of Arbitration. * * * Such claims
shall be submitted to the Board * * * and shall conform in every detail with the
claim as submitted to the Chief Engineer."
Section 1.9.9
See Robert Lawrence & Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 410-411
(2 Cir. 1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, cert.
dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960); Maxwell Shapiro
Woolen Co. v. Amerotron Corp., 339 Mass. 252, 158 N.E.2d 875 (1959)
43 Stat. 883, recodified 61 Stat. 669, 9 U.S.C. 1-14
It was presented but not decided in Jefferies v. Tucker, 7 D&C2d 172 (C.P.
Phila.), aff'd, 387 Pa. 234, 127 A.2d 657 (1956). There are, of course, certain
issues, such as the existence of any agreement at all between the parties, which
by their very nature cannot fall within the scope of arbitration. See Goldstein v.
International Ladies' Garment Workers Union, 328 Pa. 385, 196 A. 43 (1938)
P.L. 381, 5 Purdon's Pa.Stat.Annot. 161-179
5 Purdon's Pa.Stat.Annot. 162
9 U.S.C. 3
2, 9 U.S.C. 2
10
18, 5 Purdon's Pa.Stat.Annot. 178
11
Cf. Gerr v. Emrick, 283 F.2d 293, 297-298 (3 Cir. 1960) (construing "proper
courts at the county of Dauphin" to include federal district court); Markham v.
City of Newport News, 292 F.2d 711, 712-713 (4 Cir. 1961)
12
See also Formigli Corp. v. Alcar Builders, Inc., 236 F.Supp. 586 (E.D.Pa.1964)
13
See Railway Company v. Whitton's Administrator, 80 U.S. (13 Wall.) 270, 20
L.Ed. 57 (1872); Payne v. Hook, 74 U.S. (7 Wall.) 425, 19 L.Ed. 260 (1868);
Markham v. City of Newport News, 292 F.2d 711 (4 Cir. 1961)
14
Section 16 provides:
"The provisions of this act shall apply to any written contract to which the
Commonwealth of Pennsylvania, or any agency or subdivision thereof, or any
municipal corporation or political division of the Commonwealth shall be a
party."
15
Similarly, Nederlandse Erts-Tankers-maatschappij v. Isbrandtsen Co., 339 F.
2d 440 (1964), an arbitration case. See also Formigli Corp. v. Alcar Builders,
Inc., 329 F.2d 79 (3 Cir. 1964)
16
9 U.S.C. 5
17
5 Purdon's Pa.Stat.Annot. 164
18
See Formigli Corp. v. Alcar Builders, Inc., 236 F.Supp. 586 (E.D.Pa.1964)
