South High Development v. Estate of Morgan, J.

J-S66038-15
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P 65.37
SOUTH HIGH DEVELOPMENT, L.P., : IN THE SUPERIOR COURT OF
GREGORY DEVELOPMENT AND : PENNSYLVANIA
MANAGEMENT, INC., AND CARLISLE :
HISTORIC TAX CREDIT FUND 1 LP, :
:
Appellants :
:
v. :
:
ESTATE OF JAMES A. MORGAN, :
MARGARET A. MORGAN, :
ADMINISTRATRIX, JAMES A. MORGAN, :
INC., DAVID J. MORGAN D/B/A :
MORGAN ASSOCIATES/ARCHITECTS, :
JAMES A. MORGAN D/B/A MORGAN :
ASSOCIATES/ARCHITECTS, DELATTRE :
CORP., CHARLES UHL, D/B/A HISTORIC :
PRESERVATION SERVICES, HISTORIC :
PRESERVATION SERVICES, INC., AND : No. 839 WDA 2015
MORGAN ARCHITECTURE + DESIGN,
LLC
Appeal from the Order Entered April 27, 2015,
in the Court of Common Pleas of Allegheny County,
Civil Division, at No(s): G.D. No. 14-015368
BEFORE: OLSON, STABILE, and STRASSBURGER,* JJ.
MEMORANDUM BY STRASSBURGER, J.: FILED DECEMBER 02, 2015
South High Development, L.P. (South High), Gregory Development
and Management, Inc. (GDM), and Carlisle Historic Tax Credit Fund 1 LP
(Carlisle) (collectively Appellants) appeal from an order that granted a
motion to stay arbitration1 filed by James A. Morgan, Inc. and James A.
1
Such an order is immediately appealable. Sch. Dist. of City of Monessen
v. Apostolou Associates, Inc., 761 A.2d 597, 599-600 (Pa. Super. 2000).
*Retired Senior Judge assigned to the Superior Court.
J-S66038-15
Morgan d/b/a Morgan Associates/Architects (Architects). We reverse and
remand.
The trial court summarized the background underlying this matter as
follows.
This litigation arises out of the design and historic
renovation of the former South Side High School in Pittsburgh,
Pennsylvania. The South Side High School was originally built in
1897, with additions completed in 1923 and 1935. The South
Side High School operated as such from 1897 until 2002. The
complex is located in the South Side of the City of Pittsburgh in a
Registered Historic District and is listed on the National Register
of Historic Places.
In 2008, [South High] acquired the South Side High School
building. In 2008, [GDM], acting on behalf of South High,
retained [Architects] to prepare preliminary drawings and
specifications for conversion of the former high school. On June
29, 2009, South High entered into an [A]rchitect [A]greement
with [Architects]. The project was intended to convert the
historic high school building complex into no less [sic] than [72]
apartment units (the parties differ as to whether the original
plan encompassed 72 or 76 units).
Due to the historic nature of the building, South High
expected to receive Historic Tax Credits in order to finance the
project. The Architect Agreement expressly stated, “[I]t is
intended that the building will be altered in a manner that
[South High] can receive Historic Tax Credits.” In order to
finance the project[,] South High sold its future Historic Tax
Credits to Carlisle….
At the completion of the project, Carlisle failed to receive
the Historic Tax Credits. By letter dated May 15, 2013, the
National Park Service denied [Appellants’] Part 3 Application and
determined that the project was not eligible for the investment
tax credits for historic preservation. The National Park Service
specifically pointed out the “intrusive installation of the exposed
HVAC ducts and other building systems throughout the building”
did not meet the standards required to achieve a Historic
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Preservation Certification of Completed Work. [Appellants]
appealed the denial letter[,] but the National Park Service’s
certification denial was upheld on January 26, 2014.
[Appellants] assert that as a consequence of the denial in
certification they have suffered costs associated with loan
extension fees, the potential loss of tax investment credits[,]
and additional design and construction costs to remediate design
errors in the HVAC system.
South High and Carlisle pursued legal action against
[Architects] through two distinctly different avenues, an AAA
Arbitration, as well as a civil action in the Allegheny County
Court of Common Pleas.
On August 29, 2014, South High and [Carlisle] filed a
demand for arbitration against [Architects] with the American
Arbitration Association. On April 14, 2015, [Appellants] filed a
complaint in civil action against [Architects] and a host of other
defendants.
Although the Architect Agreement contained an Arbitration
Provision, [Architects] requested the [trial c]ourt to stay the
arbitration due to the fact that Carlisle was not a party to the
[]Architect Agreement or its arbitration provision. [Architects]
claim that it is Carlisle, not South High[,] that is the real party in
interest as it relates to a claim for damages and that a civil
action would include parties not included in the AAA Arbitration
yet germane to the litigation. For instance, [Architects] assert[]
that named defendant, Delattre Corporation, designed and
constructed the HVAC systems under contracts with Gregory
Coyle and/or New Belle Construction, or one of [Appellants] and
that any liability is directly attributable to Delattre, if not then by
and through indemnification.
***
[On April 27, 2015, Architects filed in the trial court a
motion to stay arbitration. Appellants] filed a brief in opposition
to said motion with a cross-motion to stay the civil litigation
pending conclusion of the arbitration process.
Trial Court Opinion, 7/6/2015, at 1-4 (unnecessary capitalization omitted).
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On April 27, 2015, the trial court granted Architects’ motion to stay
arbitration. Appellants filed a motion for reconsideration, which the trial
court denied. Appellants timely filed a notice of appeal. The trial court
directed Appellants to comply with Pa.R.A.P. 1925(b), and Appellants filed a
1925(b) statement. The trial court later issued an opinion in compliance
with Pa.R.A.P. 1925(a).
Appellants have raised several issues on appeal. However, we need to
address only one of those issues, namely, whether Architects waived their
right to stay the arbitration by participating in the arbitration process. As to
this issue, Appellants contend as follows.
Under Pennsylvania law, a party who fails to seek a stay of
arbitration on the grounds that the issue is outside the scope of
the arbitration agreement and proceeds to arbitration waives the
objection. The trial court should have denied [Architects’]
motion to stay arbitration because [Architects] waived any right
to move for a stay of arbitration by participating in the AAA
arbitration proceeding for more than [eight] months and
particularly where a AAA hearing on the merits had already been
definitively scheduled.
Appellants’ Brief at 21 (citation, footnote, and unnecessary capitalization
omitted).
Pennsylvania has a well-established policy of not allowing parties to sit
on their right to assert an arbitration agreement. As this Court has
explained,
[a]lthough our Court has found that the mere filing of a
complaint does not demonstrate waiver of the right to
arbitration, a party that avails itself of the judicial process by
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attempting to win favorable rulings from the judicial system
following the filing of a complaint does waive [its] right to
proceed through arbitration. Among the factors to look at in
determining whether a party has accepted the judicial process
are whether the party (1) fail[ed] to raise the issue of arbitration
promptly, (2) engage[d] in discovery, (3) file[d] pretrial motions
which do not raise the issue of arbitration, (4) wait[ed] for
adverse rulings on pretrial motions before asserting arbitration,
or (5) wait[ed] until the case is ready for trial before asserting
arbitration.
O'Donnell v. Hovnanian Enterprises, Inc., 29 A.3d 1183, 1187 (Pa.
Super. 2011).
This policy is equally applicable to a party who has acted in a manner
which indicates acceptance of the arbitration process. That is to say, if a
party participates in the arbitration process and fails to present promptly a
motion to stay arbitration, then that party waives the right to seek a stay of
the arbitration proceedings in a court. See White v. Concord Mut. Ins.
Co., 442 A.2d 713, 717 (Pa. Super. 1982) (citations and quotation marks
omitted) (“For although [t]he issue of whether [a] dispute is one that is
covered by the terms of the arbitration agreement is one for the court to
determine, a party that proceeds to arbitration without objecting that the
matter at issue is outside the arbitration agreement waives that objection.”)
(citations omitted).
According to Appellants,
[Architects] fully participated in the AAA arbitration proceedings
for more than [eight] months. In that [eight] months,
[Architects] agreed on the appointment of an arbitrator,
participated in a pre-hearing conference with the arbitrator,
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agreed to schedule hearings for September 10-17, 2015,
propounded discovery requests, produced thousands of pages of
documents in response to discovery requests, served arbitration
subpoenas on third-party witnesses and received documents as
a result of those subpoenas.
Appellants’ Brief at 5-6 (citations omitted).
Architects do not dispute Appellants’ account of Architects’
involvement in the arbitration proceedings. Instead, Architects primarily
argue that they acted promptly in seeking a stay of the arbitration days after
Appellants filed their complaint in the trial court. Architects’ Brief at 17.
Architects maintain that only after Appellants filed their complaint did it
become clear that Carlisle was a third-party to the Architect Agreement. Id.
Such an argument is patently absurd, as Carlisle’s status as a third-party to
the Architect Agreement was clear when South High and Architects signed
the agreement.
By participating in the arbitration proceedings and failing to petition
promptly for a stay of those proceedings, Architects waived their objection.2
2
Architects also assert that “this Court has determined that an objection to
subject matter jurisdiction cannot be waived.” Architects’ Brief at 17-18.
While this proposition of law is accurate, Architects fail to explain its
relevance to this case, as Architects did not seek to stay the arbitration on
any grounds that qualify as a challenge to the arbitration panel’s
competency to determine a certain class of cases. In re Admin. Order No.
1-MD-2003, 936 A.2d 1, 5 (Pa. 2007) (“The test for whether a court has
subject matter jurisdiction inquires into the competency of the court to
determine controversies of the general class to which the case presented for
consideration belongs.”); compare with Barnes v. McKellar, 644 A.2d
770, 772-74 (Pa. Super. 1994) (concluding that, pursuant to 42 Pa.C.S.
§7361(b)(1), an arbitration panel lacked subject matter jurisdiction to
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For this reason, we reverse the trial court’s order and remand for
proceedings consistent with this memorandum.
Order reversed. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/2/2015
render an award regarding title to real property and that the subject-matter-
jurisdiction claim was not waived).
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