The Subrogation Strategist

In Morse v. Fisher Asset Management, LLC, 2019 Pa. Super. 78, the Superior Court of Pennsylvania considered whether the plaintiff’s action was stayed when the trial court dismissed the plaintiff’s complaint after sustaining the defendants’ preliminary objections seeking enforcement of an arbitration clause in the contract at issue. The Superior Court—distinguishing between a defendant who files a motion to compel arbitration and a defendant who files preliminary objections based on an arbitration clause—held that, in the latter scenario, if the defendant’s preliminary objections are sustained, the statute of limitations is not tolled. This case establishes that, in Pennsylvania, plaintiffs seeking to defeat a challenge to a lawsuit based on a purported agreement to arbitrate need to pay close attention to the type of motion the defendant files to defeat the plaintiff’s lawsuit.

In Morse, the plaintiff entered into a contract with Fisher Asset Management (Fisher) in 2008 for investment-advisor services. The contract included a provision stating that any dispute, claim or controversy arising out of the agreement between the parties shall be determined by arbitration. In June 2009, the plaintiff filed a complaint against Fisher and two of its employees in the Court of Common Pleas of Allegheny County, alleging breach of fiduciary duty, breach of contract, negligence, and other claims. The defendants filed preliminary objections to the complaint seeking dismissal on grounds that the contract between the plaintiff and Fisher required that the dispute be determined by arbitration. The court sustained the preliminary objections and dismissed the complaint. The plaintiff did not appeal the court’s ruling.

Nearly six years later, the plaintiff filed an “Arbitration Statement of Claim” with a private mediation company. The arbitrator dismissed the case on the basis that the plaintiff’s claims were barred by the applicable statutes of limitations, which was two years for the plaintiff’s negligence and four years for her breach of contract claims. The plaintiff filed a petition to vacate the arbitration decision, arguing, among other things, that the 2009 complaint was timely filed and the court’s dismissal stayed the proceedings. The lower court upheld the arbitration award, finding that the plaintiff’s claims were time-barred. The plaintiff then filed an appeal to the Superior Court of Pennsylvania.

The Superior Court acknowledged that, in response to the 2009 complaint, the defendants had two options for raising its arbitration defense. One option was to file a petition under section 7304 of the Pennsylvania Judicial Code to compel arbitration and appoint an arbitrator. The second option was to file preliminary objections under section 1028 of the Pennsylvania Rules of Civil Procedure. The defendants chose option two and filed preliminary objections, which the lower court sustained.

On appeal, the Superior Court found that, unlike in situations where a court grants a defendant’s 42 Pa. C.S.A. § 7304 motion to compel arbitration and, in conjunction therewith, stays the action, see 42 Pa. C.S.A. § 7304(d), there is no rule or other authority providing that an order sustaining preliminary objections stays an action. In this case, because the plaintiff never appealed the lower court’s order sustaining the defendants’ preliminary objections, the plaintiff’s 2009 action was not stayed upon the trial court’s dismissal of the complaint and the statute of limitations continued to run. Thus, after addressing and dismissing several related arguments, the Superior Court affirmed the lower court’s decision upholding the arbitration award.

The Morse case serves as a critical reminder that if a defendant’s preliminary objections seeking to enforce an arbitration clause are sustained and the case is dismissed, the case is not automatically stayed. Rather, as noted, the case is dismissed. In these situations, a plaintiff seeking to challenge the defendant’s preliminary objections should file an appeal. Otherwise, absent a separate agreement with the defendant tolling the statute of limitations, the plaintiff’s subsequent arbitration action may be dismissed based on the statute of limitations.