Casualty

Key Points:

• A recent ruling in the Pennsylvania Superior Court limits the time for a party to seek to enforce an arbitration provision.
• A party must seek to enforce an arbitration provision before it seeks to obtain other favorable rulings from the court to prevent waiver of the right to seek arbitration.
• Waiver can occur even if the pleadings remain open if the parties have sought other rulings from the court prior to requesting arbitration.

As a matter of public policy, the Courts of the Commonwealth of Pennsylvania continue to strongly favor the settlement of disputes by arbitration. However, a party wishing to enforce an arbitration provision can waive its right to elect arbitration if it does not promptly seek to enforce such a contractual provision. In the recent case DiDonato v. Ski Shawnee, Inc., 2020 WL 6280080 (Pa. Super. Oct. 27, 2020), the Pennsylvania Superior Court further clarified and limited the circumstances under which a party may seek to enforce an agreement to arbitrate. Specifically, the Superior Court found that two defendants who sought to enforce an arbitration agreement contained within an enrollment contract for the defendant, Blair Academy, signed by the decedent’s mother, waived their right to assert arbitration because they participated in the judicial process, particularly by attempting to obtain favorable rulings from the court prior to seeking to enforce the arbitration agreement.

Specifically, in DiDonato, the plaintiff, Ruth DiDonato, administratrix of the estate of J.D., a minor, initiated a lawsuit in the Court of Common Pleas of Philadelphia County against the defendant, Ski Shawnee, and defendants Blair Academy and John Padden (the Academy defendants), arising from a skiing accident that resulted in the death of a student at Blair Academy. In response to the complaint, the Academy defendants and Ski Shawnee filed preliminary objections as to venue, alleging that venue in Philadelphia County was improper and that the case should be transferred to the Monroe County Court of Common Pleas. The Academy defendants did not raise the existence of a contract requiring the arbitration of the plaintiffs’ claims in their preliminary objections. Thereafter, both the Academy defendants and Ski Shawnee entered into a stipulation with the plaintiff to strike certain paragraphs and claims from the complaint.

Further, while the preliminary objections were pending, the Academy defendants filed a petition for removal to the United States District Court for the Eastern District of Pennsylvania. Ultimately, the District Court ruled that removal was improper and remanded the case to state court. Upon remand, the parties engaged in discovery limited to the issue of venue raised in both defendants’ preliminary objections. During this discovery period, the Academy defendants did not produce the enrollment contract in response to a request for “any document which refers, relates to or evidences any communication between you and [Decedent].” Approximately nine months after the complaint was filed, the Philadelphia Court of Common Pleas granted the preliminary objections as to venue and transferred the case to the Court of Common Pleas of Monroe County.

Upon transfer to Monroe County, prior to filing an answer to the complaint, the Academy defendants filed a motion to sever and to compel arbitration. In their motion, for the first time, the Academy defendants produced and sought to enforce the enrollment contract which contained a clause requiring any and all claims against the Academy defendants to be resolved in arbitration. The Academy defendants also filed an answer, raising the arbitration clause in its new matter. The plaintiff opposed the motion to compel arbitration, arguing, among on other grounds, that the defendant waived the right to arbitration by waiting nearly a year to raise the issue. The trial court granted the motion, in part, compelling the estate’s survival claim and the mother’s wrongful death claim against the Academy defendants to arbitration.

On appeal, the Pennsylvania Superior Court reversed, holding that the Academy defendants waived their right to assert the arbitration clause because of their delay in seeking arbitration. Despite the public policy in favor of arbitration, the court noted that when “a party avails itself of the judicial process,” including by attempting to win favorable rulings through the courts, that party waives the right to assert and enforce an arbitration provision. The court set forth the following factors to assess whether a party has availed itself of the judicial process such that the right to arbitration is waived, specifically, whether the party:

(1) failed to raise the issue of arbitration promptly;

(2) engaged in discovery;

(3) filed pretrial motions that do not raise the issue of arbitration;

(4) waited for adverse rulings on pre-trial motions before asserting arbitration; or

(5) waited until the case is ready for trial before asserting arbitration.

O’Donnell v. Hovanian Enterprises, Inc., 29 A.3d 1183, 1187 (Pa. Super. 2011). 

Of significance for the court was the Academy defendants’ use of court proceedings in an apparent attempt to gain a strategic advantage in the case, specifically by: (1) filing preliminary objections as to venue; (2) seeking to remove the case to federal court; and (3) entering stipulations to dismiss various counts within the complaint prior to raising the issuing of arbitration. Further, the court was troubled by the fact that the Academy defendants had not produced, cited to, or in any way referenced the enrollment contract containing the arbitration provision for nearly a year, until they attached it to their motion to compel arbitration. Although the court rejected the plaintiff’s argument that the failure to raise the arbitration provision in preliminary objection, as a matter of law, waives the defendants’ right to assert arbitration, the Superior Court stressed that, in this case, the totality of the defendants’ actions as described above—requiring the plaintiff to extensively litigate the removal and venue issues prior to the defendant raising the claim for arbitration, prejudiced the plaintiff such that a waiver was warranted.

Given the ruling in DiDonato, it is imperative to assess at the very beginning of the litigation whether an applicable arbitration provision exists and to make the strategic assessment whether to raise the provision or to proceed in court. The decision to assert an arbitration provision cannot be considered a “back-up” strategy prior to other legal maneuverings, as courts are likely to rule that the party has waived the right to assert the arbitration provision if it is not raised as the primary defense to a complaint.

*Beth is a shareholder in our Philadelphia, Pennsylvania office. She can be reached at (215) 575-2599 or eapope@mdwcg.com.

_{Defense Digest, Vol. 27, No. 1, January 2021 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}