Monte v. Southern Delaware County Authority

321 F.2d 870

• Court: Court of Appeals for the Third Circuit
• Decided: August 26, 1963
• Docket: Nos. 14366, 14367
• Status: Published

Opinions

STALEY, Circuit Judge.

The narrow question presented by this appeal is whether the district court is precluded from reviewing an arbitrators’ award because the parties have contractually agreed that such review would be limited to the common pleas courts of Pennsylvania. The district court concluded that the award was properly before it,¹ but certified the case for immediate appeal pursuant to the Interlocutory Decisions Appeals Act, 28 U.S.C.A. § 1292(b). We granted Southern Delaware County Authority’s application for permission to appeal.

In 1958 John Monte Company, a Michigan partnership, entered into a contract with the Authority covering the construction and installation of certain portions of a sanitary sewer system in Delaware County, Pennsylvania. While the contract was being performed, disputes arose, and in May 1960 Monte filed suit in the Court of Common Pleas of Delaware County, seeking a declaratory judgment that it was not to be surcharged for tardy completion of the contract, and requesting money damages for certain payments alleged to have been wrongfully withheld under the contract. When the Authority filed a motion for stay pending arbitration, Monte served notice of its demand for arbitration in accordance with the contract. The Authority did likewise, and the declaratory judgment action was apparently abandoned.

Following hearings before the selected arbitrators, an award was made on behalf of Monte on August 31, 1962. On September 4, 1962, the Authority filed a motion in the Court of Common Pleas of Delaware County to modify, correct, or vacate the award. On that very day Monte, basing jurisdiction on diversity of citizenship,'jurisdictional amount, and the United States Arbitration Act, 9 U.S.C.A. §§ 1-14, filed a motion in the District Court for the Eastern District of Pennsylvania to confirm the award, and subsequently removed the Authority’s state court motion to that court. The Authority then filed a motion in the district court to dismiss Monte’s motion to confirm as well as a motion to dismiss or remand the removal of the Authority’s state court motion. It is from the denial of these latter motions that this appeal was taken.

The Authority’s challenge to the decision of the district court is premised on its view that the Pennsylvania Arbitration Act, Chapter 4, 5 Purdon’s Pa. Stat. Ann. §§ 161-181, including that Act’s court review and enforcement provisions, is an integral part of the contract, and further, that the contract as so construed precludes review in the district court. The state Act is said to be incorporated in the contract both as a matter of law and by the express agreement of the parties. Additionally, the Authority urges that the contract is not one “evidencing a transaction involving commerce” as required by § 2 of the United States Arbitration Act, 9 U.S.C.A. § 2.

Since it goes to the question of federal jurisdiction, we must first decide whether this contract evidences a transaction involving commerce.² The Authority argues that it does not, because the construction project was within the confines of the state of Pennsylvania. But such a narrow interpretation of this remedial Act finds no support in the cases. Indeed, in holding that the contract before it did not involve commerce, the Supreme Court in Bernhardt v. Polygraphic Co., 350 U.S. 198, 200-201, 76 S.Ct. 273, 275, 100 L.Ed. 199 (1956), articulated the standard to be applied in the following words:

“ * * * Nor does this contract evidence ‘a transaction involving commerce’ within the meaning of § 2 of the Act. There is no showing that petitioner while performing his duties under the employment contract was working ‘in’ commerce, was producing goods for commerce, or was engaging in activity that affected commerce, within the meaning of our decisions.”

In Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382 (C.A.2, 1961), the facts of which are strikingly similar to those of the instant case, the court held that the presence of many interstate elements in the performance of the contract satisfied the jurisdictional prerequisite. Here the district court fully set forth the facts upon which it based its conclusion that this contract evidenced a transaction involving interstate commerce. 212 F.Supp. at 610-611. We need not again recite them, but need only say that they amply support its conclusion.

As the district court pointed out, the parties concede that they followed the state Act throughout the arbitration hearings. Moreover, the district court properly held that the Authority is a corporate agency of the state, In re Municipal Authority of Twp. of Upper St. Clair, 408 Pa. 464, 184 A.2d 695 (1962), and that, as such, the provisions of the

Pennsylvania Arbitration Act apply to this contract.³ The relevant portion of § 178 of that Act, 5 Purdon’s Pa.Stat.Ann. § 178, 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. If prior to the award, any court of common pleas shall have entertained any motion in respect to said arbitration, such court shall retain jurisdiction, and all subsequent proceedings shall be filed in said court. * * * ” (Emphasis supplied.)

In rejecting the Authority’s contention that this section precluded review by it,⁴ the district court held:

“ " * * This is indeed a tortured construction of the Act. The Federal Arbitration Act is coextensive with the Pennsylvania Arbitration Act. If the jurisdictional requirements are met, then the Federal Act controls because the parties never specified in the contract which court would be proper for such proceedings. * * * ”

We think that the district court’s conclusion was based on a misconception of the agreement to arbitrate. As the court acknowledged, the Pennsylvania Arbitration Act must be applied to the contract. Moreover, the parties expressly recognized this requirement by agreeing in paragraph 28 of the contract that:

“Each and every provision of law and clause required by law to be inserted in this Contract shall be deemed to be inserted herein and this Contract shall be read and enforced as though it were included herein, and, if through mere mistake or otherwise any such provision is not inserted, or is not correctly inserted, then upon the application of either party hereto, the Contract shall forthwith be physically amended to make such insertion.”

Thus, the entire Pennsylvania Arbitration Act was incorporated in this contract and formed an integral, essential part of its terms.

Monte does not dispute the applicability of the Pennsylvania Act. It seeks solace in § 9 of the United States Arbitration Act. 9 U.S.C.A. § 9, which provides that if no court is specified in the agreement for confirmation of the award, application may be made to the United States court in and for the district within which the award was made. Reference is then made to paragraph 26(c) of the contract concerning court review, and it is emphasized that this clause merely refers to “appropriate courts,” “a court,” and “a court of competent jurisdiction.” Monte urges that since no court is specified in the contract, review may be had in the federal district courts pursuant to the United States Arbitration Act. It should be noted that the following clause of the contract, paragraph 26(d), provides in relevant part, “Except as otherwise provided, the arbitration shall proceed under and pursuant to the rules of the State of Pennsylvania, the parties hereby certifying and agreeing that they have read and are familiar with said rules.” Monte says that this refers only to the procedure before the arbitrators, and has nothing to do with court review.

We find it unnecessary to construe the language of paragraph 26, for we think that Monte’s argument misses the mark. Whatever ambiguity there may be respecting court review in that clause, there is none in § 178 of the Pennsylvania Arbitration Act. That section defines with particularity all references to courts to mean, except as otherwise specifically indicated, “the common pleas courts of the county having jurisdiction of the parties or the subject matter.”

It is urged that the Pennsylvania legislature has no power to compel the parties to an arbitration proceeding to have the award reviewed only in the state courts. But the review of this award turns not upon the power of the state legislature to limit the jurisdiction of the federal courts, but upon the agreement of the parties that such review shall be had in the state common pleas courts. It is both confusing and erroneous to view this as an attempt by the state to oust federal jurisdiction by legislative fiat merely because the Authority, as an arm of the state, is a party to this agreement. The situation is no different than if two private parties entered into a contract which included a provision for arbitration in the very words of the Pennsylvania Arbitration Act. Surely, in these circumstances, it could not be said that this constituted an attempt by the state to oust federal jurisdiction.

Monte’s reliance on Hetherington & Berner, Inc. v. Melvin Pine & Co., 256 F.2d 103 (C.A.2, 1958), is misplaced. That case merely held that a provision that an agreement would be governed by the laws of the state of New York did not bar review of an arbitrators’ award in a federal district court. Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583 (1935), held only that a district court had power to grant a stay of a breach of contract suit pending arbitration in accordance with the terms of the contract.

Although they have not been cited by the parties on this point, several cases interpreting the United States Arbitration Act require discussion. These include Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (C.A.2,1959); American Airlines, Inc. v. Louisville and Jefferson County Air Board, 269 F.2d 811 (C.A.6, 1959); Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382 (C.A.2, 1961); Kentucky River Mills v. Jackson, 206 F.2d 111, 117 (C.A.6, 1953). See also, 69 Yale L.J. 847 (1959-1960). The essential holding of these cases can be found in the following excerpt from Robert Lawrence, 271 F.2d at 409:

“We, therefore, hold that the [United States] Arbitration Act in making agreements to arbitrate ‘valid, irrevocable, and enforceable’ created national substantive law clearly constitutional under the maritime and commerce powers of the Congress and that the rights thus created are to be adjudicated by the federal courts whenever such courts have subject matter jurisdiction, including diversity cases, just as the federal courts adjudicate controversies affecting other substantive rights when subject matter jurisdiction over the litigation exists. We hold that the body of law thus created is substantive not procedural in character and that it encompasses questions of interpretation and construction as well as questions of validity, -revocability and enforceability of arbitration agreements affecting interstate commerce or maritime affairs, since these two types of legal questions are inextricably intertwined.”

We agree with this conclusion. Therefore, since we have jurisdiction in this case based on diversity of citizenship, jurisdictional amount, and a “contract evidencing a transaction involving commerce,” federal substantive law must be applied. But in applying federal law we must enforce the agreement of the parties. Here such enforcement requires that review of the award be in the state common pleas courts. This is not an abdication of federal jurisdiction, but rather is a use of federal jurisdiction to enforce the agreement to arbitrate.⁵ To put the matter another way, by confirming the award we would be disregarding the agreement to arbitrate which would be directly contrary to the command of the United States Arbitration Act. This would be no different than ordering arbitration though the contract contained no agreement to arbitrate.

The order of the district court will be reversed and the cause remanded for further proceedings in conformity with this opinion.

1 . 212 F.Supp. 604 (E.D.Pa., 1963).

2 . “§ 1. ‘Maritime transactions’ and ‘commerce’ defined; exceptions to operation of title.

“* * * ‘[GJommerce,’ as herein defined, means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation * * 9 U.S.C.A. § 1.

3 . Ҥ 176. State and municipal contracts

“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.” 5 Purdon’s Pa.Stat.Ann. § 176.

4 . In the district court the Authority argued that its motion to stay filed in the Court of Common Pleas of Delaware County vested exclusive jurisdiction in that court under this section. That argument has been abandoned in this court.

5 . It cannot be said that our decision in any way impairs the policy of the United State Arbitration Act that agreements . to arbitrate “shall be valid, irrevocable, and enforceable.” 9 U.S.C.A. § 2. The Pennsylvania Act has an identical provision. 5 Purdon’s Pa.Stat.Ann. § 161. Compare Kentucky River Mills v. Jackson, 206 F.2d 111 (C.A.6, 1953).