Peltz Ex Rel. Estate of Peltz v. SEARS, ROEBUCK

Citations: 367 F. Supp. 2d 711; 2005 U.S. Dist. LEXIS 3602; 2005 WL 555369Docket: Civ.A.04-1712

Court: District Court, E.D. Pennsylvania; March 8, 2005; Federal District Court

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Joseph F. Peltz, as Administrator of the Estate of Elizabeth Ann Peltz, along with Henry Vahey, initiated a diversity action against Sears, Roebuck and Company, claiming negligence, strict liability, and breach of warranty under the Pennsylvania Wrongful Death Act and the Pennsylvania Survival Act. The plaintiffs allege that Elizabeth Ann Peltz and John Leo Vahey died from heat exposure due to a malfunctioning air-conditioner, which Sears failed to repair in a timely manner. 

The case was originally filed in the Court of Common Pleas of Philadelphia County and was removed to the United States District Court based on diversity jurisdiction. The plaintiffs later amended their complaint to reference a Sears maintenance agreement and filed a second action against additional defendants, including home health care providers. 

Sears filed a motion to compel arbitration based on the maintenance agreement, while the plaintiffs sought voluntary dismissal of the federal action without prejudice under Rule 41(a)(2) of the Federal Rules of Civil Procedure. The court evaluates the dismissal request by considering factors such as potential prejudice to the defendant, expenses of duplicate litigation, the current progress of the case, the plaintiffs’ diligence, and whether the dismissal seeks to evade federal jurisdiction.

In the case referenced, the plaintiff aimed to dismiss a recently removed federal action to pursue a similar state court lawsuit. This was due to the inclusion of two employees of the defendant, whose negligence could be attributed to the employer under the doctrine of respondeat superior. These employees were residents of the forum state, making their inclusion in the federal case impermissible under 28 U.S.C. 1441(b). The plaintiff had known their identities when initially filing the suit and sought no additional damages from them. The court determined that the motion to dismiss appeared to be a strategy to evade federal jurisdiction.

The current case mirrors the circumstances in Myers, as the two home health care providers cannot be added to the federal case without jeopardizing diversity jurisdiction. The plaintiffs were aware of the home health care situation at the time of filing and had ample time to identify and include the providers in a single lawsuit. Their motion to dismiss was filed only after the defendant, Sears, sought arbitration, indicating a tactical maneuver to avoid federal court.

Additionally, the defendant's motion to compel arbitration was addressed. Ms. Peltz's Maintenance Agreement included a broad arbitration clause covering all claims arising from the agreement and stipulated that disputes would be resolved by an experienced arbitrator. This clause mandates individual arbitration and waives the right to a jury trial or class actions. The arbitration agreement is governed by the Federal Arbitration Act, which promotes arbitration, and any invalid portion of the agreement does not affect the validity of the remaining provisions.

The Act aims to address historical opposition to arbitration and preempts state laws that restrict arbitration related to commercial contracts. Arbitration is fundamentally based on contractual agreement, and contracts with written arbitration provisions involving commerce are governed by the Federal Arbitration Act (FAA). The matter of arbitrability is typically resolved by courts unless the parties have explicitly indicated otherwise. The Supreme Court has clarified that disputes over arbitrability are for the court when it is likely the parties expected judicial resolution, otherwise they are for the arbitrator. There exists a presumption favoring arbitration, asserting that arbitration should not be denied unless it is clear that the arbitration clause does not cover the dispute. Federal law dictates that any ambiguities regarding arbitrable issues should be interpreted in favor of arbitration, with federal law superseding state laws that restrict arbitration under FAA-governed contracts. However, state law still governs issues of contract validity and enforceability. 

In reviewing the plaintiffs' claims, which include negligence, strict liability, and breach of warranties arising from the deaths of Elizabeth Ann Peltz and John Leo Vahey, the broad arbitration clause within the relevant contract (MA) encompasses all claims related to the agreement and its resulting relationships. The term "relates to" is broadly interpreted to include any reference to the agreement. The plaintiffs have amended their complaint to specifically reference the MA and its provisions, indicating it was active at the time of the incidents that led to the claims.

Plaintiffs assert that all claims against Sears for damages are supported by the Master Agreement (MA), arguing Sears was aware of potential health risks from a malfunctioning air conditioner. The claims, which include tort and contract issues, are deemed related to the MA and thus subject to its arbitration clause. The court must first ascertain whether the plaintiffs are bound by the arbitration agreement, as individuals cannot be compelled to arbitrate unless they are bound under traditional contract and agency law principles. Ms. Peltz, a signatory to the MA, and her estate are required to arbitrate. Joseph Peltz, as her Administrator, brings survival claims on her behalf, which survive her death, and he also asserts a wrongful death claim for Ms. Peltz's beneficiaries, who are not signatories to the MA. 

The court recognizes five circumstances under which non-signatories may be compelled to arbitrate, including equitable estoppel, which applies if a non-signatory knowingly exploits the agreement. Since Ms. Peltz's beneficiaries acknowledge that their claims derive from her claims, they are compelled to arbitrate. Even if their wrongful death claims were not directly derived from Ms. Peltz's claims, they still rely on the MA, thus estopping them from avoiding arbitration. Additionally, survival actions for the estate of John Leo Vahey, who may have paid for the MA renewal but was not a signatory, also fall under the equitable estoppel principle, binding his Administrator to arbitration.

Survival claims are dependent on the Maintenance Agreement (MA), which has been incorporated by reference in these claims. John Leo Vahey's beneficiaries are similarly affected in their wrongful death action, as the Administrator, Henry Vahey, acknowledges that these claims originate from John Leo Vahey’s claims. The wrongful death claim also references the MA. Due to equitable estoppel, Henry Vahey must arbitrate these claims. 

The limitation of liability clause in the MA states that neither Sears nor its representatives are liable for incidental or consequential damages related to serviced products. Plaintiffs argue this limitation violates Pennsylvania’s public policy, a matter for the court to decide. The Pennsylvania Superior Court has previously ruled that such limitations on damages in consumer agreements are unenforceable against public policy, as demonstrated in Carll v. Terminix International Co. If the Pennsylvania Supreme Court were to consider this issue, it would likely reach a similar conclusion regarding the MA.

Consequently, the limitation on damages for the plaintiffs' claims under the Survival and Wrongful Death Acts will be struck down as contrary to public policy. While Carll determined that damage limitations found within an arbitration clause rendered it void, the limitation here is in a separate section of the MA. Although the MA lacks a severance provision, the limitation can be severed, allowing the arbitration clause to remain enforceable. This is supported by precedent in Spinetti v. Service Corp. Int'l, where the court upheld an arbitration agreement despite public policy violations in other clauses, asserting that the stricken language was not essential to the arbitration agreement.

The court determined that it was appropriate to sever the unenforceable clause regarding damages from the arbitration agreement, emphasizing that the main purpose of the arbitration was to resolve disputes rather than to regulate costs or attorney's fees. It noted that federal policy would be undermined by invalidating the entire arbitration agreement based on one unenforceable term. The damage limitation within the Master Agreement (MA) is deemed non-essential to the arbitration clause, which will still be enforced, excluding the limitations on damages for personal injury and death. The court acknowledged the uncommon nature of contracts mandating arbitration for personal injury or death claims but referenced Supreme Court precedents that uphold such arbitration clauses, provided individuals can effectively vindicate their rights. The plaintiffs, who are invoking the arbitration provision of the MA, cannot selectively disregard its terms.

The court also addressed whether Sears waived its right to arbitration. Citing the Supreme Court's stance that arbitrators should decide waiver allegations, the court considered arguments from the plaintiffs that Sears had waived its right by not raising it in motions to dismiss and by engaging in discovery. However, the court clarified that waiver is determined by federal law, which requires a lengthy litigation process, extensive discovery, and demonstrable prejudice to the resisting party. Sears's failure to mention arbitration in its motions to dismiss was not decisive, as a motion to compel arbitration is akin to a motion to dismiss for failure to state a claim. The court highlighted a strong judicial preference for arbitration and noted that waiver should not be easily inferred, reinforcing that Sears maintained its arbitration rights by asserting it as an affirmative defense in its answer.

Defendants in a legal dispute have been found to have waived their right to compel arbitration due to extensive litigation activities prior to filing a motion to compel. In Hoxworth v. Blinder, Robinson, Co., the court noted that the defendants engaged in multiple motions, depositions, and discovery disputes over an eleven-month period before seeking arbitration, which indicated a course of litigation that could lead to prejudice against the plaintiffs. Similarly, Sears waited seven months after the plaintiffs filed their amended complaint before moving to compel arbitration, although it filed two motions to dismiss during that time. Despite the delay, the court determined that no significant prejudice to the plaintiffs had been demonstrated, which is crucial in assessing waiver. As a result, Sears' motion to compel arbitration was granted, and the action was stayed pending arbitration in accordance with the terms of the Sears Maintenance Agreement, with a specific provision regarding damage limits stricken. The Federal Arbitration Act's exclusions were noted as not applicable in this case. The court's order included the denial of the plaintiffs' motion to dismiss and directed immediate arbitration proceedings.