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Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission

United States District Court for the Middle District of Pennsylvania · Civil Procedure

Civil ProcedureArbitrationStay of ProceedingsContractual Arbitration Clausesarbitrationstay pending arbitrationfraud in the inducementwaiver

Facts

The parties entered into a contract for construction of Allegheny Tunnel No. 2, and the contract required that all claims for additional compensation or damages arising out of, related to, or based on breach of the contract be presented first to the Chief Engineer and then to a Board of Arbitration. Plaintiff submitted thirty-three claims to arbitration, designated its arbitrator, and engaged in discovery connected with those claims, but after discovery it brought this action asserting fraud, misrepresentation, and negligence based on geological information and other data allegedly possessed by defendant. The contract also required the contractor to familiarize itself with the site, permitted examination of borings and related information upon request, disclaimed any guarantee of that information, and placed responsibility for excavation methods and support sufficiency on the contractor. Plaintiff later also objected to the arbitral board because two of the three members were connected with the Commission.

Issue

Whether the court should stay the action because the plaintiff's claims, including allegations of fraud in inducing agreement to the arbitration clause and a count alleging the contract was voided by misrepresentation or fraud, were referable to arbitration under the contract. A further issue was whether plaintiff could resist arbitration by objecting to the composition of the Board of Arbitration.

Rule

Where a written arbitration agreement covers the issues raised in the action, the court must stay the action until arbitration has been had in accordance with the contract, so long as the party seeking the stay is not in default in proceeding with arbitration. Under a broad clause covering claims for additional compensation or damages in any manner related to the contract, breach, or any other cause, allegations of fraudulent inducement are referable to arbitration. A party cannot successfully object to the arbitral tribunal's composition if it knew of the allegedly disqualifying relationships when it entered the agreement or when it submitted claims, yet failed to object promptly.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Drilling, Inc. contracted with River Valley Transit Authority to excavate a rail tunnel near Pittsburgh, Pennsylvania. Their written contract required arbitration of all claims for additional compensation or damages arising out of the contract, related to it, based on breach, or asserted for any other cause. After disputes arose, Blue Mesa sued in federal court, and River Valley promptly moved to stay while insisting it was ready to arbitrate under the contract.

How should the court rule on the motion to stay?

Explanation. The governing rule is that the court must stay an action when the issues sued upon are referable to arbitration under a written arbitration agreement and the party seeking the stay is not in default in proceeding with arbitration. Here, the clause is broad and River Valley is ready to proceed under it, so the action should be stayed. (Derived from Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission (n.d.).)