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Commercial Litigation Alert

Pennsylvania Superior Court Declines to Compel Arbitration of Tort Claims Despite Broad Arbitration Clause

Monday, November 12, 2012

Among the basic principles in arbitration law are: (1) courts should favor and defer where possible to a valid arbitration clause and (2) an arbitration clause that intends to arbitrate “any dispute” “arising out of or in connection with” the underlying agreement should be construed broadly to include any claims relating to the agreement, including tort claims. On October 23, 2012, the Pennsylvania Superior Court chose not to follow these principles. Instead, in a 2-1 decision, it affirmed a trial court’s order dismissing the defendant’s petition to compel arbitration in Setlock v. Pinebrook Personal Care and Retirement Center, ruling that negligence claims filed by a deceased nursing home resident need not be arbitrated notwithstanding the existence of a broad arbitration clause. While the court’s opinion appears to be the product of bad facts, it is not clear how confined the ruling will be to those facts. Pending clarification by future cases, there are present steps parties can take to avoid the same fate.

In Setlock, the appellee was a wheelchair-bound nursing home resident. According to the amended complaint, an employee of the appellant negligently used a wheelchair to transport the appellee from the nursing home to her treating physician for an appointment. Due to the appellant employee’s negligence, the appellee fell out of the wheelchair during the trip, causing injuries that allegedly led to her death. Her estate filed a wrongful death and right of survivorship action seeking punitive damages and pain and suffering. The appellant sought to compel arbitration based on an arbitration clause that existed in the Resident Agreement signed by both parties. The trial court denied the request.

On appeal, the Superior Court recognized the arbitration clause was valid. It also recognized it was broad, since the clause stated “[a]ny Dispute controversy arising out of or in connection with under or pursuant to this Agreement shall be determined by arbitration ....” Nevertheless, the court ruled the clause did not cover the appellee’s causes of action. In reaching this result, the Superior Court relied on two prior decisions, but in a curious way. First, it referred to a 1999 Superior Court decision, Midomo Co. v. Presbyterian Housing Development Co. There, the court declined to order arbitration based on an arbitration clause that was completely different from the clause currently before the court in Setlock. The clause in Midomo expressly limited arbitration to five specifically enumerated instances, which is quite different from the broad “any dispute” language employed in the Setlock Resident Agreement. The second case referenced by the Setlock court, Smay v. E.R. Stuebner, Inc., did have a similar arbitration clause and, contrary to Midomo, the court ruled that, based on such “broad” language, the tort claim asserted there was subject to arbitration.

Despite the obvious distinction between Setlock and Midomo and the obvious similarity with Smay, the Setlock court nevertheless reached the same conclusion as in Midomo and not Smay. The court concluded the various obligations set forth in the Resident Agreement, which included the appellant’s obligation to provide “Routine Personal Care Services” and “Visits to a Physician” and “Transportation,” did not encompass the appellee’s wrongful death action arising from appellant’s allegedly negligent transportation services. The court instead characterized the Resident Agreement as governing “the financial options and obligations of the residents and their representatives” and ruled that it was “far too attenuated” to conclude this encompassed tort liability for the appellee’s wrongful death action. The majority emphasized that nowhere in the Resident Agreement did there exist a clause “governing the standard of medical care to be provided” by the appellant.

In dissent, Judge Gantman argued the wrongful death action was “not a distinctly different cause of action from anything contemplated by the terms of the Resident Agreement”, especially because the agreement included the same services that gave rise to the wrongful death action. Calling the arbitration clause “unlimited”, Judge Gantman wrote that the majority minimized the importance of this broad provision “and, instead, applies and extends Midomo ... as if Midomo were the general rule (while at the same time calling that case into question), and not the exception to the general rule of enforcing arbitration agreements.” (emphasis in original). Judge Gantman also opined that it is irrelevant whether or not the agreement referenced the standard of medical care because the amended complaint did not address medical care. Instead, the facts in the amended complaint all related to the precise services contemplated in the Resident Agreement and thus should be subject to that agreement’s arbitration clause.

The majority may have been troubled by the disparate bargaining power and relative positions of the parties. That said, the majority went out of its way to clarify its holding. The court expressly stated “our holding does not preclude all contracts which include an arbitration clause from encompassing tort liability.” Instead, the court clarified “we hold that where a contract in no way discusses liability for a cause of action, the arbitration clause in the unrelated contract between the parties cannot be read so broadly as to encompass any and all disputes that arise between the parties.”

As a consequence, an arbitration clause that says it applies to “any dispute” “arising out of” an agreement appears not to apply to all disputes between the parties to that agreement (at least in Pennsylvania). Instead, Pennsylvania courts will limit such clauses to the scope of the agreement, and will strictly scrutinize the contours of that scope. As a result, if Pennsylvania litigants want to avoid this scrutiny, they should include language in the clause that extends the scope of the clause to any claims, including tort claims, arising between the parties. Based on the majority’s reasoning in Setlock, such a clause likely would have led to arbitration of the appellee’s claims.

Brian A. Berkley and Matthew H. Adler

Written by

Brian A. Berkley
Phone: 215.981.4198
Fax: 215.981.4750
berkleyb@pepperlaw.com

Matthew H. Adler
Phone: 215.981.4802
Fax: 215.981.4750
adlerm@pepperlaw.com


The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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