LSI Title Agency, Inc. v. Evaluation Services, Inc.

1 Evaluation Services, Inc. (ESI) appeals from the order, dated April 9,
2007, and entered April 11, 2007, that granted the motion for judgment on
the pleadings filed by LSI Title Agency, Inc. f/k/a Lender's Service, Inc.
(LSI). In the same order, the court precluded ESI from litigating and/or
continuing its breach of contract claim before the American Arbitration
Association and denied ESI's motion for judgment directing arbitration. For
the reasons that follow, we affirm.

2 This case has an extensive history that is related by this Court in an
earlier decision. See Evaluation Servs., Inc. v. Lender's Serv. Inc., No.
1713 and 1994 WDA 2006, unpublished memorandum (Pa. Super. filed
October 1, 2007) (prior action or ESI v. LSI I).1 Our Court in the prior
action affirmed the grant of summary judgment in favor of LSI. Based on
this Court's earlier memorandum and our own review of the record, we
provide background information and summarize that portion of the history of
this case that relates to the present action.

3 On September 30, 1997, the parties entered into several agreements,
namely, a Software Purchase Agreement (SPA), a Software License
Agreement (SLA), and a Consultant Agreement (CA), that together: (1)
facilitated the purchase by LSI of all rights, title and interest in software
used to value real estate, (2) granted ESI a license to use the software in
Colorado only, and (3) provided LSI with certain services by employees of
ESI to aid in the implementation and use of the software. In addition to the
purchase price, the SPA also provided for LSI to pay ESI royalties based
upon a percentage of LSI's earnings. All three agreements were amended a
number of times.

[O]n January 2, 2002, [ESI] advised [LSI] that it failed to
perform in accordance with the terms of the existing agreements
and requested compensation. Following negotiations, on
November 12, 2002, the parties entered into a settlement and
release agreement (release agreement), and [ESI] agreed to
release and discharge [LSI] from any and all claims pertaining to
royalties and the "valuations" prior to the execution of the
release. In return, [LSI] agreed to increase [ESI's] royalty rate,
guaranteeing $50,000 per year for the next seven years.

The record does not disclose any communication between
the parties following the execution of the release agreement. On
November 8, 2004, [ESI] filed a praecipe for Writ of Summons.
[ESI] thereafter filed a five count complaint on April 7, 2005. In
their complaint, [ESI] asserted that the release agreement was
invalid because [LSI] induced them to sign it by means of
fraudulent misrepresentations. On May 1, 2006, by the consent
of [ESI], the trial court issued an order discontinuing counts III,
IV and V of their complaint.[2] Accordingly, only counts I and II
of [ESI's] complaint proceeded to resolution on summary
judgment.

ESI v. LSI I at 5-6. On August 7, 2006, the trial court granted LSI's motion
for summary judgment and this Court affirmed that decision on October 1,
2007. Id.

4 On October 18, 2006, counsel for ESI sent a letter to the American
Arbitration Association (AAA), indicating that the CA entered into by the
parties and two amendments to the CA provide for arbitration and that
having received no response to its September 12, 2006 letter to counsel for
LSI, ESI was "now request[ing] that the American Arbitration Association
initiate the process through which an arbitrator will be appointed for the
claim initiated by [ESI]." ESI's Letter, 10/18/06. By letter, dated October
23, 2006, LSI's counsel replied to ESI, stating:

We received your letter of September 12, 2006 in which
you purport to request arbitration with respect to [ESI's] "claim
for breach of the Second Amendment to Consultant Agreement
due to [LSI's] failure to timely deliver release of the Non-
Compete." This claim was previously asserted in the Complaint
that [ESI] filed in the Pennsylvania Court of Common Pleas of
Allegheny County on April 7, 2005. Specifically, Count IV of the
Complaint asserts that LSI breached the implied covenant of
good faith and fair dealing by:

failing to waive, in a timely manner, the covenants
against competition contained in the Software
Purchase Agreement dated September 30, 1997, as
provided for in the Second Amendment to Consulting
Agreement executed on November 12, 2002.

At the conciliation before Judge Scanlon on May 1, 2006, the
Court – by consent of [ESI] – dismissed Count IV with prejudice.
Therefore, [ESI is] barred from reasserting this claim against
LSI. If [ESI] persist[s] in seeking arbitration with respect to this
claim, LSI will take appropriate action in response thereto.
LSI's Letter, 10/23/06 (emphasis in original).

5 By letter, dated October 30, 2006, ESI's counsel informed the AAA
that its October 18th letter was not a formal demand for arbitration, but
rather was a request for advice "as to how to proceed" and that if a case
number had been assigned it should be voided. ESI's Letter, 10/30/06.

Thereafter, the AAA closed the matter, but on November 21, 2006, ESI
again corresponded with the AAA and formally demanded that arbitration be
initiated against LSI. ESI's Letter to AAA, 11/21/06. Also, on November 21,
2006, ESI sent a letter to LSI's attorney stating:

Please note that pursuant to the Commercial Arbitration
Rules of the American Arbitration Association, specifically, R-4,
my client, Evaluation Services, Inc., demands arbitration on its
claim for breach of the Second Amendment to Consultant
Agreement due to Lender's Service, Inc.'s failure to timely
deliver release of the non-compete. The damages sought in this
dispute are $216,000, together with interest. The locale
requested is Pittsburgh, PA. The responding party is Lender's
Service, Inc.

ESI's Letter to LSI, 11/21/06.

6 LSI responded to ESI's November 21, 2006 letter, again asserting that
the claim ESI was attempting to submit to arbitration was the same as the
claim that ESI agreed to withdraw with prejudice during the pre-trial
conciliation before Judge Scanlon and as memorialized by the May 1, 2006
court order. In LSI's letter, dated December 1, 2006, to ESI's attorney,
LSI's attorney stated:

The claim that you are attempting to arbitrate is in fact the same
claim that ESI asserted in the Complaint in state court and
subsequently dismissed with prejudice. Paragraph 73(c) of the
Complaint alleged that LSI breached the Consultant Agreement
by "failing to waive, in a timely manner, the covenants against
competition…." The fact that you included this claim as part of
Count IV for breach of the implied covenant of good faith and
fair dealing does not change anything. A claim for breach of the
implied covenant of good faith and fair dealing is a claim for
breach of contract. Even if that were not the case, you are
precluded from asserting such a claim by the doctrine of
merger/bar. See Day v. Volkswagenwerk Aktiengesellschaft,
464 A.2d 1313, 1316 (Pa. Super. 1983) ("a party is commonly
forbidden to raise issues that could have been litigated in the
first suit but were not…").

LSI's Letter, 12/1/06.

7 Receiving no response to its December 1, 2006 letter, LSI filed a
complaint on December 14, 2006, seeking "a declaratory judgment that
[ESI] cannot re-litigate in arbitration a claim that was previously dismissed
with prejudice…." LSI's Complaint, 1. Numerous pleadings and supporting
briefs were filed by both parties, including LSI's "motion for judgment on the
pleadings or, in the alternative, summary judgment" and ESI's "cross-motion
for judgment on the pleadings or, alternatively, motion for summary
judgment." On April 9, 2007, the order granting LSI's motion for judgment
on the pleadings and denying ESI's motion was filed and the present appeal
ensued. On May 9, 2007, the trial court ordered ESI to file a concise
statement of matters complained of on appeal pursuant to Pa.R.A.P.
1925(b). ESI's Rule 1925(b) statement was timely filed on May 21, 2007.

8 On appeal, ESI raises the following issues for our review:

1. Whether ESI's Statement of Matters Complained of on Appeal
is so vague or overly broad so to preclude meaningful review
of the issues on appeal.

2. Whether the trial court erred in granting [LSI's] Motion for
Judgment on the Pleadings.

3. Whether the lower Court erred in its conclusion that [ESI] is
precluded from litigating before the [AAA] its breach of
contract claim that LSI failed to timely deliver a release from
a non-compete clause and concluding that said claim was
previously dismissed with prejudice by the Court.

4. Whether the trial court erred in its conclusion that ESI is
prohibited from continuing the arbitration proceeding initiated
before the AAA, and in ordering ESI to immediately terminate
that proceeding.

5. Whether the trial court erred in denying ESI's Motion for
Judgment on the Pleadings or for Summary Judgment.
ESI's brief at 4.

9 To begin, we note that the trial court found ESI's 22-paragraph Rule
1925 statement to be "far from concise and replete with argument" and
ESI's answer to LSI's complaint to be "as prolix and ultimately uninformative
as its [s]tatement." Trial Court Opinion (T.C.O.), 6/25/07, at 1.

Consequently, the trial court suggested that ESI's appeal should be
dismissed "for failure to state concisely and with clarity the issues it intends
to raise on appeal. Id. at 2. However, despite these deficiencies, the court
also indicated that it compared Count IV of ESI's complaint in the prior
action with the issue ESI seeks to arbitrate in the present action and
concluded that ESI should be "barred from re-litigating any part of its
dispute with [LSI] in any forum, including arbitration, because [ESI] had
previously caused the claims it now seeks to arbitrate to be dismissed with
prejudice by this Court." Id. at 2-3 (emphasis in original).

10 On appeal, ESI first contends that its Rule 1925(b) statement is
neither vague nor overly broad, and that its detailed statement was
necessary to respond to all the issues raised by LSI in its "dispositive
Motion" and "those presented by counsel and ostensibly considered by the
lower Court at the time of argument…." ESI's brief at 21. Specifically, ESI
asserts that even if its Rule 1925(b) statement "is longer than the lower
Court may have preferred [, the statement] does not amount to a waiver of
the issues raised therein, or a ground for dismissal of this appeal." Id. at
24.

11 Although we agree with the trial court that ESI's Rule 1925(b)
statement is not concise and that it contains proscribed argument, we will
not deem ESI's issues waived. See Eiser v. Brown & Williamson
Tobacco Corp., 938 A.2d 417, 427-28 (Pa. 2007) (stating that "the number
of issues raised in a Rule 1925(b) statement does not, without more, provide
a basis upon which to deny appellate review where an appeal otherwise
complies with the mandate of appellate practice"). The Eiser decision
essentially propounds that a good faith inquiry be made by the trial court to
determine "whether the circumstance of the lawsuit at issue suggest[s]
there is a lack of good faith involved." Id. at 427 n.16. The trial court here
did not indicate that it found a lack of good faith with regard to ESI's
presentation of issues in its Rule 1925(b) statement. Thus, we will not deny
appellate review.

12 However, we also note with disapproval ESI's failure to conform its
brief to the dictates of Pa.R.A.P. 2119(a) ("The argument shall be divided
into as many parts as there are questions to be argued…." (emphasis
added)). Although ESI designated five issues in its "Statement of Issues
Involved," its argument section in its brief contains only two designated
sections, the second of which has two subsections. See Forrester v.
Hanson, 901 A.2d 548, 551 n.2 (Pa. Super. 2006) (stating that the failure
to divide into appropriate subsections which correspond to the questions
raised could result in quashal, but since the ability to review the issues
presented was not substantially impaired review proceeded). As in
Forrester, we will likewise attempt to address the merits of the issue
concerning the trial court's determination that ESI should be precluded from
litigating its claim before the AAA in light of the dismissal with prejudice of
Count IV of ESI's complaint in the prior action.

13 We are mindful that this appeal arises from the order granting LSI's
motion for judgment on the pleadings. In reviewing such an order, we do so
in accordance with the following:

Our scope and standard of review in an appeal of an order
granting a motion for judgment on the pleadings is well settled:
this Court applies the same standard as the trial court and
confines its consideration to the pleadings and documents
properly attached thereto. We must determine whether the trial
court's action respecting the motion for judgment on the
pleadings was based on a clear error of law or whether there
were facts disclosed by the pleadings which should properly go
to the jury. We will affirm the grant of judgment on the
pleadings only if the moving party's right to succeed is certain
and the case is so free from doubt that trial would clearly be a
fruitless exercise.

Plasticert, Inc. v. Westfield Ins. Co., 923 A.2d 489, 492 (Pa. Super.
2007) (quoting DeSantis v. Prothero, 916 A.2d 671 (Pa. Super. 2007)).
14 At the heart of this dispute is whether ESI is attempting under the
guise of arbitration to relitigate a claim that it agreed to have dismissed with
prejudice in the prior action between these same parties. We begin our
review by setting forth the pertinent part of ESI's complaint in the prior
action. The exact language of Count IV that is at issue provides:

73. By virtue of the parties' Software Purchase Agreement, the
amendments thereto, the Software License Agreements and
amendments thereto, as well as the Agreements executed
November 12, 2002, there arose a duty on the part of LSI
to act in good faith and with fair dealing with regard to its
performance of its obligations in favor of … ESI. Your
Plaintiffs aver that LSI has engaged in bad-faith conduct
throughout the course of the respective parties' contractual
obligations and course of dealing in the following respects:

. . .

c. In failing to waive, in a timely manner, the covenants
against competition contained in the Software Purchase
Agreement dated September 30, 1997, as provided for
in the Second Amendment to Consulting Agreement
executed on November 12, 2002.

ESI's Complaint, Count IV 73. c. (filed in prior action) (emphasis added).
We also reiterate the pertinent language contained in ESI's November 21,
2006 letter to the AAA, which contains the following:

Please note that pursuant to the Commercial Arbitration
Rules of the American Arbitration Association, specifically, R-4,
my client, Evaluation Services, Inc., demands arbitration on its
claim for breach of the Second Amendment to Consultant
Agreement due to Lender's Service, Inc.'s failure to timely
deliver release of the non-compete.

ESI's Letter to LSI, 11/21/06 (emphasis added).

15 ESI begins its first argument referencing the doctrines of res judicata
and collateral estoppel, contending that neither prevents it from asserting an
arbitration claim against LSI for breach of the second amendment to the CA.
It cites these doctrines to counter LSI's reliance on ESI's pretrial statement,
its settlement letter, and Mr. Stockton's testimony,3 all part of the prior
action, to illustrate "that there is a lack of identity of issues foreclosing ESI's
arbitration claim." ESI's brief at 28. Rather, ESI contends that its claim in
the prior action "sets forth a cause of action for breach of an implied
covenant of good faith and fair dealing," and "did not assert a claim or cause
of action for breach of the Second Amendment to the Consultant Agreement
at any time." ESI's brief at 25 (emphasis deleted). It appears that ESI is
claiming that its agreement to discontinue Count IV in the prior action only
forecloses its ability to claim bad faith against LSI for failure to deliver the
release of the non-compete under the second amendment to the CA, but
does not foreclose a claim against LSI for its breach of any contractual
obligation under the CA. This distinction rests on ESI's belief that it did not
assert a breach of contract claim as to the second amendment to the CA in
the prior action.

16 In support of this argument, ESI relies on Pa.R.C.P. 1020(a), which
states that "[t]he plaintiff may state in the complaint more than one cause
of action cognizable in a civil action against the same defendant. Each cause
of action and any special damages related thereto shall be stated in a
separate count containing a demand for relief." This reliance is puzzling in
that subsection (d) of Rule 1020 provides:

(d) If a transaction or occurrence gives rise to more than one
cause of action heretofore asserted in assumpsit and trespass,
against the same person, including cause of action in the
alternative, they shall be joined in separate counts in the action
against any such person. Failure to join a cause of action as
required by this subdivision shall be deemed a waiver of that
cause of action as against all parties to the action.
Pa.R.C.P. 1020(d) (emphasis added).

17 ESI's apparent explanation to overcome a possible waiver of a cause of
action is to plead that the second amendment to the CA required that any
claims related to the CA must be submitted to arbitration and that,
therefore, it could not have brought its claim for breach of the CA in the
prior action. ESI quotes from a letter dated July 11, 2004, written by its
former counsel to LSI, wherein potential arbitration was referenced. The
letter indicated that " VII of Exhibit A to the Second Amendment to
Consultant Agreement contains a mandatory arbitration provision," and that
ESI would like to arbitrate. ESI's Letter to LSI, 7/11/04. Although the July
11, 2004 letter specifically addressed the second amendment to the CA
asserting that "LSI has refused to execute the releases of the covenants
against competition," id., the letter also discussed LSI's alleged breach of an
agreement impairing ESI's ability to mitigate damages "caused by LSI's
failure to provide access to the LSI model via the internet connection as
agreed in the Software Licensing Agreement(s), as well as other damages."
Id. Rather than supporting ESI's claim that it had not raised the release of
the non-compete in the prior action, the July 11, 2004 letter lends support
to the implication that it decided to litigate its claims and not arbitrate them.

18 LSI counters ESI's arguments by first noting that ESI does not dispute
that one cannot relitigate in arbitration that which was dismissed with
prejudice by a court, citing Vukmir v. University Anesthesiology and
Critical Care Med. Assocs., 41 Pa. D. & C.4th 325 (Allegheny Cty. 1999).

LSI then disputes ESI's allegations that the claim it wishes to arbitrate is
materially different from the one it asserted in the prior action. LSI
contends that solely based on the language of the complaint in comparison
to the language ESI used to demand arbitration, "[t]he two claims are
obviously identical." LSI's brief at 7. LSI further relies on ESI's pre-trial
statement in the prior action, wherein ESI listed $144,000 (one year's salary
for each of ESI's two principals) as the damage amount for LSI's failure to
provide the release of the non-compete, which mirrors damages sought by
ESI in the arbitration.

19 LSI relies on JHE, Inc. v. SEPTA, 2002 WL 1018941 (Phila. Com. Pl.
May 17, 2002), to support its argument that there is no distinction between
a claim for breach of the implied covenant of good faith and fair dealing
regarding delivery of the non-compete release with a claim for breach of
contract of the CA by failing to deliver the release of the non-compete
clause. The common pleas court opinion in JHE indicates that "[a]lthough
there is no Pennsylvania case on this subject, courts in other jurisdictions
have found that breach of the covenant of good faith is subsumed in a
breach of contract claim." Id. at *6. The JHE opinion then quotes McHale
v. NuEnergy Group, 2002 WL 321797 (E.D. Pa. Feb. 27, 2002), finding its
analysis insightful:

This court finds that Pennsylvania law would not recognize a
claim for breach of [a] covenant of good faith and fair dealing as
an independent cause of action separate from the breach of
contract claim since the actions forming the basis of the breach
of contract claim are essentially the same as the actions forming
the basis of the bad faith claim. Plaintiffs cite Somers v.
Somers, 418 Pa. Super. 131, 613 A.2d 1211, 1213 (Pa. Super.
Ct. 1992), in support of the claim for breach of implied covenant
of good faith and fair dealing. However, the majority in Somers
only stated that the general duty of good faith and fair dealing in
the performance of a contract has been adopted in this
Commonwealth, and that a party may bring a claim for breach of
contract. A breach of such covenant is a breach of contract
action, not an independent action for breach of a duty of good
faith and fair dealing.

JHE, at *6 (quoting McHale, at *8). See also Meyer v. Cuna Mut. Grp.,
2007 WL 2907276 *14 (W.D. Pa. Sept 28, 2007) (citing JHE and stating "[a]
party is generally precluded from maintaining a claim for the breach of the
implied duty of good faith and fair dealing separate and distinct from the
underlying breach of contract claim").

20 LSI also counters ESI's argument that it could not have asserted a
claim for breach of the second amendment to the CA in the prior action
because that claim was subject to an arbitration clause. Rather, LSI argues
that the right to enforce an arbitration clause can be waived, citing
Keystone Tech. Group, Inc. v. Kerr Group, Inc., 824 A.2d 1223, 1226
(Pa. Super. 2003), which states:

It is well-settled that although "as a matter of public policy, our
courts favor the settlement of disputes by arbitration, . . . the
right to enforce an arbitration clause can be waived." Goral v.
Fox Ridge, Inc., 453 Pa. Super. 316, 321, 683 A.2d 931, 933
(1996). Moreover, "waiver of the right to proceed to arbitration
may be expressly stated, or it may be inferred from ‘a party's
undisputed acts or language so inconsistent with a purpose to
stand on the contract provisions as to leave no opportunity for a
reasonable inference to the contrary.'" Id. (quoting Samuel J.
Marranca Gen. Contracting Co., Inc. v. Amerimar Cherry
Hill Assocs. Ltd. P'ship., 416 Pa. Super. 45, 610 A.2d 499
(1992)). Finally, "a waiver of a right to proceed to arbitration
pursuant to the term of a contract providing for binding
arbitration should not be lightly inferred and unless one's
conduct has gained him an undue advantage or resulted in
prejudice to another he should not be held to have relinquished
the right." Kwalick v. Bosacco, 329 Pa. Super. 235, 238, 478
A.2d 50, 52 (1984).

Generally it is the defendant who seeks to invoke and
enforce an arbitration provision in a contract after having been
hailed to the civil courts by the plaintiff. The present case is
atypical, therefore, as Keystone is both the plaintiff in action
seeking specific performance of the contract at issue and the
party that now seeks to compel arbitration thereunder. In
Kwalick, however, this Court held that: the mere filing of a
complaint or an answer without resulting prejudice to the
objecting party will not justify a finding of waiver of the right to
arbitration. Thus, merely because plaintiff filed his Complaint in
Assumpsit[,] he is not automatically deemed to have waived his
rights to proceed to binding arbitration as set forth in [the]
contract. Id. (citations omitted).

21 Although LSI relies on deposition testimony given by one of ESI's
principals in the prior action, wherein the right to arbitration was
acknowledged, it is evident that ESI chose to litigate the claim in court.
Moreover, the case was litigated to conclusion, i.e., summary judgment was
entered in favor of LSI, and was not simply at the early stages of the
litigation. Accordingly, ESI by its course of conduct in the prior action
waived its right to arbitrate.

22 Having determined that ESI waived its right to arbitrate, and that the
claim for breach of the implied covenant of good faith and fair dealing is
subsumed in a breach of contract claim, we conclude that the trial court
correctly granted LSI's motion for judgment on the pleadings and denied
ESI's cross-motion to direct arbitration. ESI's allegations in Count IV of the
prior action, which was dismissed with prejudice, is part of the breach of
contract claim ESI attempted to submit to arbitration.

The doctrine of res judicata holds that an existing final judgment
rendered on the merits, without fraud or collusion, is conclusive
of causes of action and of facts and issues thereby litigated, and
also of those issues that could have been litigated in the first suit
but were not, between the parties of the first suit and their
privies. Day v. Volkswagenwerk Aktiengesellschaft, 318
Pa. Super. 225, 464 A.2d 1313, 1316 (1983).

Harter v. Reliance Ins. Co., 562 A.2d 330, 335 (Pa. Super. 1989). ESI
could either have demanded arbitration at the outset or brought an inclusive
breach of contract cause of action within the scope of its complaint in the
prior action. ESI's failure to do either precludes it from further litigating its
alleged breach of contract claim.

* * *

http://www.courts.state.pa.us/OpPosting/Superior/out/A09015_08.pdf

¶ 23 Order affirmed.

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