Charles F. Forer, Charles F. Forer Alternative Resolution Services

ADR

Editor's note: This article describes a hypothetical situation.

Bob, the "master" of arbitration, had never seen anything like it. In response to his state court complaint and in the absence of an arbitration agreement, his adversary filed a preliminary objection, asserting the parties must arbitrate their claims.

But there was no arbitration agreement. The underlying agreement was an asset purchase agreement. The agreement had a purchase price adjustment. This provision increased or decreased the purchase price "by the amount by which the seller's closing working capital on the closing date is more or less than $500,000."

If the parties disputed the amount of the purchase price adjustment, they then followed a simple process that was not called an arbitration process: "Buyer and seller shall submit to a mutually agreed upon independent accounting firm in any dispute regarding the purchase price adjustment. The accounting firm will resolve the dispute under procedures that it establishes and that it deems fair and equitable. The buyer and seller each can make a written submission in support of its position. The judgment may be entered upon the determination of the accounting firm in any court having jurisdiction."

Does this process mention arbitration? Nope. Does this process talk about an arbitrator? No. Does the process give the parties the right to design their dispute-resolution process? No.

So the preliminary objection, based on the supposed existence of an arbitration agreement, was silly. Bob's argument in response to the preliminary objection: "Arbitration agreements must mention 'arbitration.' They must appoint an arbitrator to resolve the parties' dispute. Otherwise, the parties have not bargained for arbitration. Absent the intention to arbitrate, the court cannot force the parties to arbitration. Here, the parties did not agree to arbitrate their disputes before an arbitrator in an arbitration proceeding.'"

Nice try. But the court sustained the preliminary objection. It sent the parties to arbitration to resolve their purchase price adjustment dispute. Why? Because the court said there was an arbitration agreement, even if the agreement did not mention arbitration, arbitrate and arbitrator. The result: the parties must arbitrate, and not litigate, their dispute regarding the purchase price adjustment issue.

In determining whether the parties entered into an arbitration agreement, how can you figure out the parties' intent in the absence of magic words, starting with arbitrate? Did Bob miss something when he responded to the preliminary objection?

In TTSP v. Rose, 2019 PA Super 262 (Pa. Super. Aug. 27, 2019), the Pennsylvania Superior Court acknowledged that "arbitration is a term that eludes easy definition." "At no time have the courts insisted on a rigid or formalistic approach to a definition of arbitration,"see AMF v. Brunswick, 621 F. Supp. 456, 460 (E.D.N.Y. 1985).

With no easy guideposts, the court in TTSP v. Rose identified the following "hallmarks" to help answer the "is-this-an-arbitration-agreement" question:

• No magic words such as arbitrate or arbitration or final dispute resolution—or any synonyms—are needed to conclude that the parties intended to arbitrate.

• The method chosen involves one or more neutral persons who make decisions regarding a dispute that the parties present to a neutral person(s). The parties need not refer to this person(s) as the "arbitrator(s)."

• The parties do not submit their dispute to a court.

• The person(s) deciding the dispute use(s) procedures that are fair and equitable to the parties.

• The parties can advocate, in writing or in person, their positions.

Maybe it is easy to figure out after all: "If the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration."  See AMF v. Brunswick, 621 F. Supp. at 460; see also 2200 M Street v. Mackell, 940 A.2d 143, 151 (D.C. App. 2007) ("Both documents direct that the resolution of certain disputes is to be decided by a third party, the project architect (and, in the case of the amended and restated certificate, an identified engineering services firm). Thus, we hold that there was an agreement between these parties to arbitrate some disputes.")

Arbitration does not necessarily involve certain procedures or rules. It does not require application of the rules of evidence, cross examination, an adversary process, the right to see or hear your adversary's submissions, or even a final and binding settlement of the controversy between the parties.

That said, arbitration"is not the Wild West. The Pennsylvania Uniform Arbitration Act provides basic rules for the process. For instance, the act specifies the procedures and powers of the arbitrator and the rights of the parties to seek review of an arbitration award. The parties can modify or even eliminate some of these rules. But these rules apply only in an arbitration proceeding—so you must figure out, in the first instance, whether you are involved in an arbitration.

Let's hand it to Bob. He was in rather large company when he unsuccessfully fought his adversary's attempt to arbitrate the dispute. Lots of litigants have likewise claimed, unsuccessfully, that you cannot have an arbitration agreement when the so-called agreement does not have easy identifying markers such as arbitration and arbitrator. On the other hand, if these prior arguments all were futile, did Bob waste his client's time and money in litigating an issue that was not so complicated to begin with?

Charles F. Forer independently provides arbitration, mediation and all other neutral services. He is the current co-chair of the Philadelphia Bar Association's alternative dispute resolution committee. He is a former chair of the association's fee disputes committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. Contact him at 610-999-5764 and [email protected].