CRCP Fox Chase v. Sustain Afton

• Court: Superior Court of Pennsylvania
• Decided: April 9, 2024
• Docket: 209 EDA 2023
• Status: Unpublished

Opinion

J-S40033-23

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37

CRCP FOX CHASE HOLDINGS, LLC : IN THE SUPERIOR COURT OF : PENNSYLVANIA Appellant : : : v. : : : SUSTAIN AFTON, L.P. AND SUSTAIN : No. 209 EDA 2023 JACKSON, L.P. :

Appeal from the Order Entered December 19, 2022 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): 221000807

CRCP FOX CHASE HOLDINGS, LLC : IN THE SUPERIOR COURT OF : PENNSYLVANIA : v. : : : SUSTAIN AFTON, L.P. AND SUSTAIN : JACKSON, L.P. : : No. 210 EDA 2023 Appellant :

Appeal from the Order Entered December 19, 2022 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): 221000807

BEFORE: NICHOLS, J., SULLIVAN, J., and COLINS, J.*

MEMORANDUM BY COLINS, J.: FILED APRIL 9, 2024

These matters are consolidated cross-appeals from an order of the Court

of Common Pleas of Philadelphia County (trial court) that denied the petition

of CRCP Fox Chase Holdings, LLC (CRCP) to vacate an arbitration award in

____________________________________________

* Retired Senior Judge assigned to the Superior Court. J-S40033-23

favor of Sustain Afton, L.P. (Sustain Afton) and Sustain Jackson, L.P. (Sustain

Jackson) (collectively, Claimants) and confirmed the award. CRCP appeals

the denial of its petition to vacate the award and the confirmation of the

award. Claimants cross-appeal from the trial court’s denial of their request

for attorney fees and costs in the litigation of CRCP’s petition to vacate and

their petition to confirm the award. For the reasons set forth below, we affirm

the trial court’s denial of the petition to vacate and its confirmation of the

arbitration award but reverse its denial of attorney fees and costs.

This case arises out of two contracts for the sale of commercial real

estate. On March 22, 2021, CRCP entered into a contract with Sustain Afton

to purchase an apartment complex and related property on Rising Sun Avenue

and Afton Street in Philadelphia (the Afton Property) from Sustain Afton for

$10 million. CRCP-Sustain Afton Agreement for Sale of Commercial Real

Estate (CRCP-SA Agreement); 3/22/21 Addendum to CRCP-SA Agreement

(CRCP-SA Addendum). On March 26, 2021, CRCP and Sustain Afton modified

that contract to reduce the purchase price to $9.6 million. 3/26/21

Addendum/Endorsement to CRCP-SA Agreement. On March 26, 2021, CRCP

also entered into a contract with Sustain Jackon to purchase an apartment

building on Jackson Street in Philadelphia (the Jackson Property) from Sustain

Jackson for $1.4 million. CRCP-Sustain Jackson Agreement for Sale of

Commercial Real Estate (CRCP-SJ Agreement); 3/26/21 Addendum to CRCP-

SJ Agreement (CRCP-SJ Addendum). CRCP’s contract with Sustain Afton

-2- J-S40033-23

provided that closing was to occur on May 6, 2021 and that CRCP was to make

two deposits of $250,000 each, one on signing of the agreement and the

second at the end of a five-day due diligence period. CRCP-SA Agreement §§

2, 3(A). CRCP’s contract with Sustain Jackson provided that closing was to

occur on May 13, 2021 and that CRCP was to make two deposits of $50,000

each, one within two days of signing the agreement and the second after a

five-day due diligence period. CRCP-SJ Agreement §§ 2, 3(A).

Both contracts provided that CRCP’s deposits would be refundable if

CRCP terminated the contract on or before the expiration of the contingency

period provided in the contract or in the event that the seller under the

contract (Sustain Afton or Sustain Jackson) defaulted, but that Sustain Afton

and Sustain Jackson were entitled to receive the deposits that CRCP made

under their respective contracts as liquidated damages if CRCP defaulted.

CRCP-SA Addendum §§ 2, 6; CRCP-SJ Addendum §§ 2, 6. The contracts

further provided that receiving the deposits as liquidated damages was

Sustain Afton’s and Sustain Jackson’s sole remedy in the event of a default by

CRCP. CRCP-SA Agreement § 24(G); CRCP-SA Addendum § 6(b); CRCP-SJ

Agreement § 24(G); CRCP-SJ Addendum § 6(b). Both contracts provided that

they were governed by Pennsylvania law and contained an arbitration clause

stating that the parties agreed to common law arbitration of “any dispute

between them.” CRCP-SA Agreement §§ 19(A), 25; CRCP-SA Addendum § 9;

CRCP-SJ Agreement §§ 19(A), 25; CRCP-SJ Addendum § 9. Both contracts

-3- J-S40033-23

additionally provided that “[i]n the event a claim is brought under this

Agreement to enforce any of its terms, the parties agree that the substantially

prevailing party shall be entitled to collect its reasonable attorneys’ fees and

costs from the other party.” CRCP-SA Addendum § 9; CRCP-SJ Addendum §

9.

In May 2021, CRCP and Claimants agreed to amendments of both

contracts extending the closing date to June 4, 2021. Amendment to CRCP-

SA Agreement of Sale (CRCP-SA Amendment) ¶B(1); Amendment to CRCP-

SA Agreement of Sale (CRCP-SJ Amendment) ¶B(1). These amendments

provided that in consideration of the extension of the closing date, CRCP

agreed that “any and all contingencies set forth in the Agreement of Sale with

respect to the Property have been satisfied or are hereby waived by [CRCP]”

and that CRCP was to make additional deposits of $50,000 under the CRCP-

SA Agreement and $10,000 under the CRCP-SJ Agreement. CRCP-SA

Amendment ¶B(2); CRCP-SJ Amendment ¶B(2).

CRCP breached both contracts by failing to close on the transactions.

Interim Arbitration Award (Arbitration Award) at 7; CRCP Response to Petition

to Confirm Arbitration Award ¶¶6, 10; N.T., 12/16/22, at 6. After CRCP’s

breach, Claimants sold the Afton Property and the Jackson Property to another

buyer in October 2021 for $11 million and $1.5 million, respectively.

Arbitration Award at 7. On January 13, 2022, Claimants filed an arbitration

claim asserting that CRCP breached both contracts, seeking CRCP’s total

-4- J-S40033-23

deposits of $550,000 under the CRCP-SA Agreement and $110,000 under the

CRCP-SJ Agreement as liquidated damages, and also seeking their attorney

fees and costs. Following discovery, both CRCP and Claimants moved for

summary disposition on the issue of whether Claimants were entitled to the

deposits as liquidated damages for CRCP’s breach of the contracts. The

arbitrators heard oral argument on these cross-motions at which CRCP

admitted that it was liable to Claimants for breach of the contract and argued

that because Claimants sold the properties at a higher price shortly after

CRCP’s breach, the liquidated damages provisions of the contracts were an

unenforceable penalty. Arbitration Award at 7, 9; CRCP Response to Petition

to Confirm Arbitration Award ¶¶6, 10.

On July 11, 2022, the arbitrators issued an interim award rejecting

CRCP’s argument that the contracts’ liquidated damages provisions were

unenforceable, directing that the $550,000 in deposits under the CRCP-SA

Agreement be paid to Sustain Afton, and directing that the $110,000 in

deposits under the CRCP-SJ Agreement be paid to Sustain Jackson.

Arbitration Award at 7-11. The arbitrators further permitted Claimants, as

prevailing parties, to submit an application for reasonable attorney fees and

costs. Id. at 11. Claimants filed an application for $96,272.50 in attorney

fees and $23,034.70 in costs in litigating the arbitration and on September

19, 2022, the arbitration panel awarded Claimants $96,272.50 in attorney

fees and $1,692.59 in costs. Counsel Fee Award at 1, 3. The arbitrators

-5- J-S40033-23

issued the interim award and the counsel fee award as its final arbitration

award on September 30, 2022.

On October 11, 2022, CRCP filed a petition to vacate the arbitration

award asserting the award should be vacated because the arbitrators did not

hold a hearing and because the arbitration panel’s conclusion that the

liquidated damages provisions were enforceable was contrary to Pennsylvania

law. Petition to Vacate Arbitration Award ¶¶23-47. Claimants opposed CRCP’s

petition to vacate and moved to confirm the arbitration award. In their

petition to confirm, Claimants also requested that the trial court permit them

to file an application for attorney fees and costs and award them their

reasonable attorney fees and costs. Petition to Confirm Arbitration Award

¶¶21-26.

Following oral argument on December 16, 2022, the trial court entered

an order on December 19, 2022 denying the petition to vacate and confirming

the arbitration award without awarding attorney fees and costs to Claimants.

These timely cross-appeals followed.

CRCP in its appeal raises the following two issues: (1) whether the

arbitration award must be vacated because the arbitrators failed to hold an

evidentiary hearing and (2) whether the arbitration award must be vacated

because liquidated damages are an unenforceable penalty under Pennsylvania

law where they are disproportionate to the damages actually sustained by the

non-breaching party. Neither of these arguments has merit.

-6- J-S40033-23

The arbitration here was common law arbitration, as the parties in their

contracts expressly agreed that the arbitration of their disputes “will be

conducted in accordance with the provisions of Pennsylvania Common Law

Arbitration 42 Pa. C.S.A. §7341 et seq.” CRCP-SA Agreement § 25; CRCP-SJ

Agreement § 25. Court review of common law arbitration awards is very

limited. E. Allen Reeves, Inc. v. Old York, LLC, 293 A.3d 284, 293 (Pa.

Super. 2023); F.J. Busse Co. v. Sheila Zipporah, L.P., 879 A.2d 809, 811

(Pa. Super. 2005); McKenna v. Sosso, 745 A.2d 1, 4 (Pa. Super. 1999). A

common law arbitration award

is binding and may not be vacated or modified unless it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.

42 Pa.C.S. § 7341. The party challenging the arbitration award must prove

grounds to set aside the award by clear, precise, and indubitable evidence. E.

Allen Reeves, Inc., 293 A.3d at 293; Toll Naval Associates v. Chun-Fang

Hsu, 85 A.3d 521, 525 (Pa. Super. 2014); McKenna, 745 A.2d at 4.

CRCP’s first issue ignores the record in this case. Failure to hold an

evidentiary hearing can constitute grounds for vacating an arbitration award

where the issue before the arbitrators involves disputed facts. 42 Pa.C.S. §

7341; Andrew v. CUNA Brokerage Services, Inc., 976 A.2d 496, 502-03

(Pa. Super. 2009). Here, however, the arbitrators did not hold an evidentiary

hearing because both parties sought summary disposition on the ground that

the facts necessary to resolve the case were undisputed, and the arbitrators

-7- J-S40033-23

held an oral argument at which the parties argued the legal issue that they

both contended was dispositive. CRCP Response to Petition to Confirm

Arbitration Award ¶¶6, 9, 10. CRCP admitted liability and the only fact on

which CRCP based its contention that Claimants could not recover the

liquidated damages that they sought, that Claimants suffered no damages

because they resold the properties for $1.5 million more than they would have

received under the contracts, was accepted by the arbitrators as undisputed.

Id. ¶¶6, 10; Arbitration Award at 7, 9-10. Failure to hold an evidentiary

hearing does not constitute a denial of a hearing or a ground to vacate an

arbitration award where, as here, the issue before the arbitrators did not

involve disputed facts and the party challenging the award sought to have the

issue determined without an evidentiary hearing. Toll Naval Associates, 85

A.3d at 525-28; Jefferson Woodlands Partners, L.P. v. Jefferson Hills

Borough, 881 A.2d 44, 50 (Pa. Cmwlth. 2005).

CRCP argues in its second issue that the arbitration award must be

vacated because Pennsylvania law prohibits liquidated damages that are

disproportionate to the actual damages caused by the breach of contract.

Even if this argument were a correct statement of the law, 1 it would not be a

1 We do not hold that that CRCP’s claim of legal error is meritorious. The primary case on which CRCP relies, Holt's Cigar Co. v. 222 Liberty Associates, 591 A.2d 743 (Pa. Super. 1991), involved liquidated damages that benefited only one party and did not limit the maximum damages that the non-breaching party could recover. In contrast, liquidated damages in (Footnote Continued Next Page)

-8- J-S40033-23

sufficient ground for vacating the arbitration award. In common law

arbitration, the arbitrators are the final judges of the law and are not subject

to reversal for erroneous legal rulings. E. Allen Reeves, Inc., 293 A.3d at

293; F.J. Busse Co., 879 A.2d at 811. Errors of law do not constitute

irregularities and are not grounds for vacating a common law arbitration

award. Toll Naval Associates, 85 A.3d at 529; F.J. Busse Co., 879 A.2d at

811-12.

Rather, an irregularity that can support vacating an arbitration award

must be an irregularity in the arbitrators’ process of reaching their decision,

not a deficiency in the result that they reach. E. Allen Reeves, Inc., 293

A.3d at 293; Toll Naval Associates, 85 A.3d at 529; F.J. Busse Co., 879

A.2d at 811. Here, there was no irregularity in the arbitrators’ process of

reaching the legal conclusion that the contracts’ liquidated damages provisions

were not unenforceable penalties. The arbitrators’ award shows that they

considered and applied Pennsylvania law. Arbitration Award at 7-10. CRCP’s

complaint concerning the arbitrators’ application of the law challenges the

real estate contracts, like those here, that both provide damages to the non- breaching party and limit the breaching party’s liability, have been upheld based solely on reasonableness in relation to the purchase price. Palmieri v. Partridge, 853 A.2d 1076, 1080-81 (Pa. Super. 2004); Kraft v. Michael, 70 A.2d 424, 426-27 (Pa. Super. 1950) (liquidated damages of 10% of purchase price held enforceable despite averment that the property was later sold for more than the amount that buyers had agreed to pay for it). We need not, however, resolve this legal issue, as CRCP would not have grounds to vacate the arbitration award even if its legal position were correct.

-9- J-S40033-23

result that the arbitrators reached and is solely a claim of error of law, and

therefore cannot be a valid ground for vacating the award. Toll Naval

Associates, 85 A.3d at 529; F.J. Busse Co., 879 A.2d at 811-12.

In its cross-appeal, Claimants argue that the trial court erred in denying

them attorney fees and costs incurred in this litigation following the

arbitrators’ fee award. We agree.

Where the parties agree in their contract that the losing party shall

reimburse the prevailing party for its attorney fees and costs, the prevailing

party is entitled to recover from the losing party its reasonable attorney fees

and costs in enforcing its rights under the contract. McMullen v. Kutz, 985

A.2d 769, 776-77 (Pa. 2009); Bert Co. v. Turk, 257 A.3d 93, 116-18 (Pa.

Super. 2021), aff'd, 298 A.3d 44 (Pa. 2023). In addition, a party that has a

right to attorney fees on an arbitrated claim may recover the reasonable

attorney fees that it incurred in successfully litigating petitions to vacate and

to confirm the award in the court proceedings on those petitions. E. Allen

Reeves, Inc., 293 A.3d at 296.

The contracts here provided that the prevailing party is entitled to collect

its reasonable attorney fees and costs from the other party. CRCP-SA

Addendum § 9; CRCP-SJ Addendum § 9. There is no question that Claimants

were the prevailing parties in the proceedings following the arbitrators’ fee

award, as the petition to vacate the arbitration award was denied and petition

to confirm the arbitration award was granted. The trial court, however,

- 10 - J-S40033-23

awarded Claimants no attorney fees or costs on the sole ground that awarding

them “additional attorney fees was not equitable under the circumstances.”

Trial Court Opinion at 6. That was error. While a court of common pleas has

discretion to determine the reasonableness of the attorney fees that a party

seeks, where a party is contractually entitled to attorney fees, refusal to award

any attorney fees without consideration of the fees incurred or whether they

were reasonable for the work in litigating the matter is a reversible abuse of

that discretion. Vinculum, Inc. v. Goli Technologies, LLC, 310 A.3d 231,

242, 244-45, 248 (Pa. 2024).

We therefore must reverse the trial court’s denial of attorney fees and

costs and remand with instructions that it permit Claimants to submit evidence

of their attorney fees and costs, permit CRCP to object to and challenge the

reasonableness of those fees and costs, and make an award of attorney fees

and costs that it determines to be reasonable based on the parties’

submissions and the nature of the work required. Because Claimants are also

prevailing parties in these appeals, the submissions and award shall also

include Claimants’ reasonable attorney fees and costs incurred in these

appeals.

For the foregoing reasons, we conclude that CRCP did not show any

sufficient ground for vacating the arbitration award and that the trial court

therefore did not err in denying its petition to vacate the award and in granting

Claimants’ petition to confirm the award. We conclude, however, that the trial

- 11 - J-S40033-23

court abused its discretion in failing to make any award of attorney fees and

costs to Claimants and remand for the trial court to receive evidence of

Claimants’ attorney fees and costs and make an award to Claimants of

reasonable attorney fees and costs incurred in this litigation subsequent to the

arbitrators’ fee award, including their reasonable attorney fees and costs in

this appeal.

Order affirmed. Case remanded for further proceedings in accordance

with this memorandum. Jurisdiction relinquished.

Date: 4/9/2024

- 12 -