Churchill Cmty. Dev. v. Churchill Crossings, LLC

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CHURCHILL COMMUNITY DEVELOPMENT, L.P. AND PARADIGM CONSULTANTS, LLC Appellant v. CHURCHILL CROSSINGS, LLC AND CHURCHILL CROSSINGS PARTNERS, L.P.

No. 58 WDA 2022

No. J-A29039-22

Superior Court of Pennsylvania

June 9, 2023

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT OP 65.37

Appeal from the Order Entered December 15, 2021, in the Court of Common Pleas of Allegheny County, Civil Division at No(s) G.D. 21-001097.

BEFORE: BENDER, P.J.E., OLSON, J., and KUNSELMAN, J.

MEMORANDUM

KUNSELMAN, J.

Churchill Community Development, L.P., et al. ("Seller") appeals from the order denying its motion to vacate an arbitration award entered in favor of Churchill Crossings LLC ("Buyer 1") and Churchill Crossings Partners, L.P. ("Buyer 2") in this breach of contract case. Upon review, we affirm.

On May 17, 2012, Seller^[1] acquired the George Westinghouse Research Park, consisting of approximately 135 acres and improvements, located in Churchill Borough, Allegheny County, Pennsylvania ("Property"). While attempting to develop the Property, Seller ran afoul of various environmental laws.

As a result, in 2017, Seller asked a real estate group, NAI Pittsburgh to manage and remediate the property. The owners of NAI Pittsburgh, Charles DiLoreto and Nicole Deluca, eventually formed a separate company, Buyer 1, to handle all issues related to the Property. As problems continued, Seller talked with Buyer 1 about acquiring the Property.

In March 2018, Seller and Buyer 1 entered into an Agreement of Sale ("Agreement")^[2] for the sale of the Property. Seller and Buyer 1 also executed an Addendum^[3] to the Agreement. In relevant part it provided:

Any time within 2 1/2 years from the date of the closing on the Property, Seller or the current officers or directors of Seller, shall have the right to acquire ninety-two (92%) percent of the membership units of [Buyer 1], provided that Seller pays to the members of [Buyer 1], any and all current debt and the purchase price that [Buyer 1] has incurred and used in the Sale, Leasing, Development, Management, or Maintenance of the Property ("Option").

Arbitration Ex. 4, ¶ 6.^[4]

The owners of Buyer 1, along with another individual, formed another entity, Buyer 2. Subsequently, the Agreement was amended several times. Notably, one of the amendments, dated July 23, 2018, which addressed various terms regarding the Property's closing, indicated that it was entered into between Seller and Buyer 2. It was signed by Seller and Buyer 2 but not Buyer 1. Thereafter, none of the documents involved Buyer 1.

On August 14, 2018, Seller and Buyer 2 closed on the Property. Buyer 2 executed a note and mortgage for the Property and another amendment to the Agreement.^[5] Subsequently, the Property was transferred to Buyer 2 by special warranty deed, effective November 2, 2018.

In July of 2019, Buyer 2 executed a document for the potential sale of the Property to another developer who planned to develop it as a large-scale fulfillment site for Amazon.

On December 4, 2020, Seller sent a letter to Buyer 2 indicating its intent to exercise the Option in the Addendum. In response, Buyer 2 stated it would not honor the Option. It set forth two reasons for refusing to do so: 1) the Option had been terminated,^[6] and 2) the Agreement and its Addendum only pertained to Buyer 1, not Buyer 2. Buyer 2 noted that an amendment to the Agreement identified Buyer 2 as the buyer, and because the Agreement with the Option was never exercised, Seller had no right to acquire any interest in Buyer 1.

As a result of Buyer 2's refusal to honor the Option, Seller filed a lis pendens against the Property by filing a praecipe for writ of summons involving real estate. Buyer 1 and Buyer 2 sought to strike the lis pendens and filed an emergency motion. No complaint was filed in the civil action, but the parties agreed to arbitrate their dispute, in accordance with 72 Pa.C.S.A. section 7341, Common law arbitration. To accommodate a sale of the Property, the trial court temporarily lifted the lis pendens pending the outcome of the arbitration.

At the outset of the arbitration, the chief arbitrator stated, "I perceive this to be like any other type of court proceeding and it's going to be up to the parties to present their cases." N.T., 7/14/21, at 3. Seller proceeded to present its case. Notably, Seller only introduced various documents pertaining to the transaction; it presented no witnesses to explain anything or testify about the documents or transaction. Seller then rested.

Before presenting any evidence, Buyer 1 and Buyer 2 moved for a "directed verdict"^[7] and argued: "[Seller] has not submitted evidence of a valid option, excuse me, there is no evidence they exercised the option." They further argued: "There is no evidence either that the exercise of the option was prevented by [Buyer 1 or Buyer 2]. There's no proof of a breach, there's no damages or proof of damages that have been submitted to the [c]ourt . . . . The Addendum speaks only of an interest in [Buyer 1], not in the ownership . . . in [Buyer 2]." Id. at 24-25.

Following argument from both sides and deliberation by the panel, a majority of the arbitrators announced to the parties that they found that the documents submitted by Seller were ambiguous, and Seller failed to explain or clarify those ambiguities by presenting any evidence or testimony. Consequently, the majority concluded that Seller did not establish any of the rights it claimed under the Option.

In response, Seller argued:

Except that we're on a motion to dismiss, and you were acting as a court. On a motion to dismiss every part of the document was to be construed in our client's favor. So if you found an ambiguity, that ambiguity on a motion to dismiss is always construed in favor of the party who had presented. So you're doing the opposite of what case law requires.

Id. at 62. The chief arbitrator disagreed, and the proceedings concluded.

Subsequently, a majority of the arbitrators issued a written award granting Buyer 1 and Buyer 2's motion for "directed verdict." Specifically, the majority permanently struck the lis pendens and concluded that Seller failed to prove the existence of and its exercise of the Option.

Thereafter, Seller filed a motion to vacate the arbitration award with the trial court; Buyer 1 and Buyer 2 filed a motion to confirm the award. Upon review, the trial court concluded that Seller failed to assert any irregularity in the arbitration proceedings. Consequently, the court denied Seller's motion and confirmed the arbitration award in favor of Buyer 1 and Buyer 2.

Seller filed this timely appeal.

On appeal, Seller raises the following issues:

1. Whether an appropriate standard of review was applied when reviewing a non-unanimous arbitration award where the arbitration record and written decision of the majority arbitrators reflects that the arbitrators did not honor or observe the procedural process the [panel] established?

2.Whether an inappropriate standard of review was applied when reviewing a non-unanimous arbitration award where the arbitration record and the written decision of the majority arbitrators reflected ignorance of procedural and contract law; a record existed of the arbitration proceeding; and the decision rested on misreading of documents which documents were undisputed and consented to as authentic and admissible?

3. Whether the [c]ourt erred in finding that the arbitration proceeding had the necessary essentials of due process when the majority arbitrators determined issues that had not been raised by the other side and otherwise misconstrued uncontested documentary evidence as if there had been testimony from the [Buyer 1 and Buyer 2] thereby denying [Seller] the necessary essential of due process, i.e., notice and opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the arbitration.

4.Whether the [c]ourt erred in failing to find that the arbitration and the majority's arbitration award imported such bad faith, ignorance of the law and indifference to the justice of the result as to constitute an "other irregularity" leading to an unjust, inequitable, or unconscionable award requiring a vacation of the award.

Seller's Brief at 2-4.

Judicial review of a common law arbitration award is very narrow. It is prescribed by statute, under a provision of the Pennsylvania Judicial Code:

§ 7341. Common law arbitration The award of an arbitrator in a nonjudicial arbitration ... is binding and may not be vacated or modified unless it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.

42 Pa.C.S.A. § 7341 (emphasis added). Arbitrators are the final judges of law and fact and their award will not be disturbed for mistakes of either. Vogt v. Liberty Mut. Fire Ins. Co., 900 A.2d 912, 919 (Pa. Super. 2006) (quotations and citations omitted) (emphasis added). This Court has stated:

[A]n appellant bears the burden to establish both the underlying irregularity and the resulting inequity by "clear, precise and indubitable evidence." In this context, irregularity refers to the process employed in reaching the result of the arbitration, not the result itself. A cognizable irregularity may appear in the conduct of either the arbitrators or the parties. Our Supreme Court has stated that the phrase "other irregularity" in the process employed imports such bad faith, ignorance of the law and indifference to the justice of the result as would cause a court to vacate an arbitration award.

F.J. Busse Co. v. Zipporah, L.P., 879 A.2d 809, 811 (Pa. Super. 2005) (some quotations omitted) (emphasis added). Neither ...