Scope of Amended Complaint Defeats Arbitration Clause in Ex-Business Partners' Dispute
The court agreed with the trial judge that three of the counts in Gallagher's complaint fell outside the scope of the arbitration provision of her partnership agreement with defendant Frank Mancuso because they arose from conduct involving members of Mancuso's family, who were not parties to the agreement.
November 08, 2018 at 11:42 AM
4 minute read
Agreeing with the trial judge that bifurcating the case would go against the public policy in favor of swift adjudications and would create piecemeal litigation, the Pennsylvania Superior Court has declined to separate arbitrable claims from nonarbitrable claims in a dispute over a business partnership, instead allowing the entire case to proceed in the Bucks County Court of Common Pleas.
In Gallagher v. M. Gallagher & F. Mancuso Partnership, a divided three-judge appellate panel upheld a Bucks County trial judge's decision to overrule and dismiss the defendants' preliminary objections to plaintiff Maryanne Gallagher's second amended complaint.
The court agreed with the trial judge that three of the counts in Gallagher's complaint fell outside the scope of the arbitration provision of her partnership agreement with defendant Frank Mancuso because they arose from conduct involving members of Mancuso's family, who were not parties to the agreement.
The Superior Court majority further supported the judge's decision to keep all of the claims together in court, rather than sending some of them to arbitration.
“In its opinion, the trial court properly concluded that the claims set forth in appellee's second amended complaint 'are inextricably linked to one another' because those claims arise from the alleged conduct of appellants acting in concert with one another,” Judge Kate Ford Elliott wrote for the majority in an unpublished memorandum, which was joined by Judge Paula Francisco Ott. ”Because of this inextricable link, the trial court also properly concluded that 'bifurcat[ion of] these proceedings would frustrate the public policy goals' of 'swift and efficient judicial decision making.'”
According to Ford Elliott's opinion, Gallagher and Mancuso were partners in a Levittown-based real estate brokerage business until Mancuso allegedly transferred some or all of his interests in the business to his children, defendants Robin Mancuso DeLuna and Jamie Mancuso, without giving Gallagher 120 days' notice to decide whether she wanted to purchase his interests herself, as is required under the partnership agreement.
Gallagher filed suit in Bucks County, ultimately amending her complaint twice. The issue on appeal concerned the arbitrability of three counts in the second amended complaint—Count I for breach of the partnership agreement against Frank Mancuso; Count II for unjust enrichment against Frank Mancuso, Robin Mancuso DeLuna and Jamie Mancuso; and Count V for breach of fiduciary duty against those defendants.
While the trial court found that Count I, if taken alone, would clearly be arbitrable under the partnership agreement, that count could not be severed from Counts II and V, which involve defendants who are not parties to the agreement.
Ford Elliott said this finding was proper.
“Therefore, the trial court did not commit an error of law when it overruled and dismissed appellants' preliminary objections to appellee's second amended complaint based on its finding that the claims set forth in Counts I, II, and V fall outside of the scope of the arbitration provision because the allegations clearly demonstrate that the 'underlying controversy in this action arises not from a dispute limited to [a]ppellee and Frank [Mancuso] concerning the partnership, but rather from the conduct of Frank [Mancuso] and third parties not subject to the original partnership agreement,'” Ford Elliott said.
Judge Mary Jane Bowes penned a concurring and dissenting memorandum in which she argued that the arbitrable claims were severable under the state Supreme Court's 2016 ruling in Taylor v. Extendicare Health Facilities, in which the justices held that the policy underlying the Federal Arbitration Act trumps other policy concerns.
“Despite piecemeal litigation, duplicative proof, and the potential for inconsistent verdicts, I believe Taylor mandates bifurcation on the facts herein to give effect to the arbitration provision,” Bowes said.
Counsel for Gallagher, George Bochetto of Bochetto & Lentz in Philadelphia, could not be reached for comment at press time; nor could counsel for the defendants, James Pearl.
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