Paone v. Dean Witter Reynolds, Inc.

KELLY, J.,

dissenting.

¶ 1 I depart from the majority disposition because I believe that where a contract contains an arbitration provision, any challenge to the validity of that contract must be submitted to arbitration unless the attack specifically targets the arbitration provision, even where a confidential relationship between the contracting parties exists. Hence, I dissent.

¶ 2 Our Supreme Court has stated:

It is unquestioned that arbitration is a process favored today in this Commonwealth to resolve disputes. By now it has become well established that settlement of disputes by arbitration are no longer deemed contrary to public policy. In fact, our statutes encourage arbitration and with our dockets crowded and in some jurisdictions congested, arbitration is favored by the courts.

Office of Administration v. Labor Relations Board, 528 Pa. 472, 480 , 598 A.2d 1274, 1277-78 (1991). See also Flightways Corp. v. Keystone Helicopter Corp., 459 Pa. 660 , 331 A.2d 184 (1975); Dickler v. Shearson Lehman Hutton, Inc., 408 Pa.Super. 286 , 596 A.2d 860 (1991), appeal denied, 532 Pa. 663 , 616 A.2d 984 (1992).

¶ 3 Although no case in this Commonwealth has specifically addressed the enforceability of an arbitration provision in the face of a general attack on a contract alleging the existence of a confidential relationship, there are cases that have addressed the enforceability of an arbitration provision in a contract that has been attacked as fraudulently induced. In those cases, Pennsylvania courts have consistently held an allegation that a contract is invalid as fraudulently induced does not affect the viability of an arbitration clause within that contract, unless the allegation of fraud specifically targets the arbitration provision and not just the contract generally. Flightways, supra. See also Smith v. Cumberland Group Ltd., 455 Pa.Super. 276 , 687 A.2d 1167 (1997) (citing Flightways, supra for proposition that arbitration clause is separable from contract and not rescinded by attempt to rescind entire contract); Anderson v. Erie Ins. Group, 384 Pa.Super. 387 , 558 A.2d 886 (1989) (citing Flightways, supra in holding claims of fraud and misrepresentation must be submitted to arbitrator where contract contained broad arbitration provision). If a party is permitted to challenge the validity of a contract containing an arbitration provision in court rather than in arbitration, then the viability of arbitration provisions will be vitiated. See generally, Flightways, supra; and progeny.

¶ 4 Guided by Pennsylvania’s strong policy favoring arbitration, the holdings of Flightways, supra and its progeny (reserving for the arbitrators general challenges to the validity of a contract), and to reinforce the vigor of arbitration clauses generally, I would send the instant dispute concerning the validity of the contract to arbitration.

¶ 5 I note also that the arbitration provision at issue includes a choice of law clause selecting New York law to govern the arbitration, and a clause limiting the selection of arbitrators to either the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., or the Municipal Securities Rule Making Board. Such clauses limiting the selection of arbitrators are valid in New York as well as Pennsylvania. See generally, Cowen & Co. *229 v. Anderson, 76 N.Y.2d 318 , 558 N.E.2d 27 , 559 N.Y.S.2d 225 (1990); Oscar Grass & Son Inc. v. Rosendorf, 183 A.D.2d 595 , 584 N.Y.S.2d 790 (N.Y.A.D. 1 Dept.1992); Williams v. Gruntal & Co., 447 Pa.Super. 357 , 669 A.2d 387 (1995), appeal denied, 545 Pa. 665 , 681 A.2d 179 (1996).

¶ 6 While I recognize why Appellee is hesitant to arbitrate his dispute before any of these bodies, I am confident that given the facts of this case, even the arbitration bodies named in the arbitration provision will be able to view the facts objectively and render a fair and just verdict. Accordingly, I dissent.