LANGLAIS et al v. PENNMONT BENEFIT SERVICES, INC. et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 7/10/12. 7/11/12 ENTERED AND COPIES E-MAILED.(kw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MELISSA LANGLAIS, et al.
PENNMONT BENEFIT SERVICES,
INC., et al.
July 10, 2012
This case arises from a $3.8 million arbitration award
that petitioners Melissa Langlais, Rebecca Edmundson, Rob Peritz,
Rachel Martone, Jaime Farrel, Katrina Kniest, and George McLain
(the “Petitioners” or the “McLain Family”) procured against
respondents John J. Koresko, V (“Koresko”), the Koresko Law Firm,
P.C., PennMont Benefit Services, Inc. (“PennMont”), and Regional
Employers Assurance Leagues Voluntary Employee Beneficiary
Association Trust (“REAL VEBA Trust”) (collectively “Respondents”
or the “Koresko Parties”).
Petitioners have moved to confirm the
arbitration award issued in their favor and against the Koresko
The Court will grant the motion as to PennMont, as to
the corpus of the REAL VEBA Trust, but deny it as to the other
Factual & Procedural History
The arbitration in this case arose out of the denial of
the McLain Family’s claim for $3.8 million in death benefits
under an employee benefit arrangement that the Koresko Parties
are involved in administering.
Award, Ex. 2.
See Mot. to Confirm Arbitration
Following the denial of their benefits claim, the
McLain Family made an arbitration demand through counsel with the
American Arbitration Association (“AAA”) on November 11, 2010.
Koresko informed the AAA by letter dated December 1, 2010 of his
position that the McLain Family’s “demand for arbitration [was]
The documents governing this matter provide that a
decision of the Board of Trustees, after administrative process
is first required.”
ECF No. 13, Ex. D.
When the AAA did not terminate the arbitration, Koresko
emailed Claire Connelly, an assistant supervisor at the AAA.
again informed the AAA of his position that he “reject[s] AAA at
this point,” and that “there will be no arbitration.”
Connelly replied that AAA would cease administration if Koresko
presented the AAA with a court order that stays the matter,
It is not my responsibility to do any such thing. What you
are doing is meddling in the affairs of another person. How
dare you purport to give us any instructions.
If you do not stop, we will sue you, personally, and AAA for
tortuous interference with contract. We will then force you
to get a court order. While you are doing this, you are
violating the “bad boy” clause of the trust instrument . . .
There was no decision of any Board of Trustees. Therefore,
[the McLain Family’s counsel] never had any right to contact
you. Kindly get your nose out of our affairs . . . .
There will be no further warnings.
ECF No. 13, Ex. E.
According to the findings of fact in the
arbitration award, Koresko subsequently made an ex parte phone
call to the AAA-appointed arbitrator and said that he would name
the arbitrator in a lawsuit for allegedly interfering with a
business if he did not withdraw as arbitrator.
See Mot. to
Confirm Arb. Award, Ex. 3 (“Arbitration Award”), at 2.
then advised AAA again that the Koresko Parties would not
participate in the arbitration, maintaining that no decision of a
Board of Trustees had triggered an arbitration.
Parties did not participate in the arbitration hearing, which was
held on June 21, 2011.
Rather than present his objections to the arbitrator or
move to enjoin the McLain Family from proceeding with the
arbitration, Koresko sued the AAA, the arbitrator, and Ms.
Connelly (an AAA employee) on behalf of the Koresko Parties.
Those cases were ultimately removed to this Court.
See Case Nos.
11-cv-5276, 11-cv-5276, 11-cv-5277, 11-cv-5431 (collectively the
The Koresko Parties requested that this Court
enjoin the AAA from proceeding with arbitration, claiming that no
Board of Trustees decision had triggered arbitration and that the
arbitration violated plan documents.
The Court dismissed the AAA
cases on the basis of arbitral immunity.
The Koresko Parties
appealed, and the Court of Appeals for the Third Circuit granted
a motion by the appellees to dismiss the appeals as moot.
ECF No. 27 in 11-cv-5276; ECF No. 20 in 11-cv-5277.
In the meantime, after the AAA cases were dismissed,
the arbitrator entered an arbitration award for $3.8 million and
attorneys’ fees in favor of the Petitioners and against the
Koresko Parties on September 20, 2011.1
The McLain Family moved
to confirm the award on September 26, 2011.
ECF No. 10.
Court rejected the Koresko Parties’ request for additional
discovery as inappropriate and permitted the Koresko Parties to
oppose the motion to confirm.
ECF Nos. 19, 21.
thereafter, the Court requested and the parties submitted
supplemental briefing on the issue of whether non-signatories to
an arbitration agreement could be bound to the award.
24, 29, 30.
The Koresko Parties have not moved to vacate the
arbitration award, but have asserted in opposition that vacatur
Judicial Review of Arbitration Awards
Judicial review of arbitration awards is very limited.
See, e.g., Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003);
Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625 (6th
Three days later, Koresko filed a state court petition to
enjoin the McLain Family from recording or enforcing the award.
That suit was subsequently removed to this Court on October 6,
2011, and has been inactive since removal. See Case No. 11-cv6290.
Cir. 2002) (“When courts are called on to review an arbitrator's
decision, the review is very narrow; one of the narrowest
standards of judicial review in all of American jurisprudence.”)
There is a strong presumption in favor of
Brentwood Med. Assocs. v. United Mine Workers,
396 F.3d 237, 241 (3d Cir. 2005).
Courts are not authorized to
review arbitration decisions on the merits even if the decision
rests on factual errors or misinterpretations of the parties’
See Major League Baseball Players Ass’n v. Garvey,
532 U.S. 504, 509 (2001).
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et
seq., provides for judicial review to confirm, vacate, or modify
Hall Street Assocs., LLC v. Mattel, Inc.,
552 U.S. 576, 578 (2008).
Under the terms of § 9 of the FAA, a
court must confirm an arbitration award unless it is vacated,
modified, or corrected as prescribed in §§ 10 and 11.
lists statutory grounds for vacating an award, and § 11 lists
those for modifying or correcting one.
Id. at 582.
Under § 10 of the FAA, a court may vacate an award in
four limited circumstances:
(1) where the award was procured by corruption, fraud, or
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
9 U.S.C. § 10.
There may also be a fifth, judicially-created basis for
To the extent manifest disregard of the law survives
Hall Street, it is available only in those “exceedingly narrow”
circumstances in which an “arbitrator (1) knew of the relevant
legal principle, (2) appreciated that this principle controlled
the outcome of the disputed issue, and (3) nonetheless willfully
flouted the governing law by refusing to apply it.”
389 F. App’x at 176; Metromedia Energy, Inc. v. Enserch Energy
Prior to the Supreme Court’s decision in Hall Street, the
Third Circuit, along with other circuit courts, had held that an
arbitrator’s decision could also be vacated on the ground that
the arbitrator exhibited “manifest disregard for the law.”
Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003). In Hall
Street, the Supreme Court held that the statutory grounds for
vacatur established in the FAA are exclusive and may not be
supplemented by contract. 552 U.S. at 580. However, Hall Street
left open the question of whether manifest disregard remains a
valid basis for vacatur.
Subsequent to Hall Street, both the Supreme Court and the
Third Circuit have declined to resolve the question of whether
manifest disregard of the law remains a valid basis for vacatur.
Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., –– U.S. ––, 130
S.Ct. 1758, 1768 n. 3 (2010); Paul Green Sch. of Rock Music
Franchising, LLC v. Smith, 389 F. App’x 172, 176 n.5, 177 (3d
Cir. 2010). In the absence of controlling authority stating
otherwise, at least one court in this district has assumed
without deciding that manifest disregard remains a valid ground
for vacating an arbitration award. See Fluke v. CashCall, Inc.,
792 F. Supp. 2d 782, 785-86 (E.D. Pa. 2011).
Servs., Inc., 409 F.3d 574, 578 (3d Cir. 2005).
manifest disregard for the law is distinct from a merely
erroneous application of the law.
Even an arbitrator’s incorrect
legal conclusion is entitled to deference.
Local 863 Int'l Bhd.
v. Jersey Coast Egg Producers, 773 F.2d 530, 533 (3d Cir. 1985);
Commc'n Consultant, Inc. v. Nextel Commc’n of Mid–A., Inc., 146
F. App’x 550, 553 (3d Cir. 2005).
“[T]here must be absolutely no
support at all in the record justifying the arbitrator's
determinations for a court to deny enforcement of an award.”
News Am. Publ'ns, Inc. Daily Racing Form Div. v. Newark
Typographical Union, 918 F.2d 21, 24 (3d Cir. 1990) (internal
Procedural v. Substantive Arbitrability
“[A]rbitration is a matter of contract and a party
cannot be required to submit to arbitration any dispute which he
has not agreed so to submit.”
Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83 (2002).
The question of whether the
parties have submitted a particular dispute to arbitration i.e., the question of substantive arbitrability - is an issue for
judicial determination unless the parties clearly and
unmistakably provide otherwise.3
AT&T Tech., Inc. v. Commc’ns
Parties may, as a matter of contract, agree to arbitrate
the question of substantive arbitrability. Whether they have so
agreed, however, is a question for a court, not an arbitrator, to
Workers, 475 U.S. 643, 649 (1986); Howsam, 537 U.S. at 83-84.
The Third Circuit has explained that a question of
substantive arbitrability arises in two circumstances: (1) first,
when there is a threshold dispute over whether the parties have a
valid arbitration agreement, and (2) second, when the parties
dispute whether a concededly binding arbitration clause applies
to a certain type of controversy.
See Puleo v. Chase Bank USA,
N.A., 605 F.3d 172, 178-79 (3d Cir. 2010).
The first is a
question of whether there is a valid contract, and the second is
a question of whether the dispute falls within the scope of that
As to the first question, the Third Circuit applies
ordinary state law principles of contract law.
Indem. Co. v. Certain Underwriters at Lloyd’s, 584 F.3d 513, 532
(3d Cir. 2009).
The Supreme Court has contrasted questions of
substantive arbitrability, which are questions for the court,
with disputes over procedure.
Procedural questions over whether
prerequisites such as time limits, notice, laches, estoppel, and
other conditions precedent to an obligation to arbitrate have
been met are matters for the arbitrator.
Puleo, 605 F.3d at 179,
183 (citing Howsam, 537 U.S. at 85) (internal quotation marks
decide. A court will not assume that a party has agreed to
arbitrate arbitrability unless there is clear and unmistakable
evidence that it did so. Howsam, 537 U.S. at 83-84; First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-45 (1995);
Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000).
Procedural questions include whether prerequisites
such as internal grievance procedures have been followed.
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 555-59
(1964) (holding that an arbitrator should decide whether the
first two steps of a grievance procedure were completed, where
these steps are prerequisites to arbitration).
Much of the Koresko Parties’ briefing in this case
amounts to a request for judicial review of the merits of the
However, the Court’s role in reviewing the
merits of arbitration awards is extraordinarily limited.
League Umpires Ass’n v. Am. League of Prof. Baseball Clubs, 357
F.3d 272, 289 (3d Cir. 2004).
The Court cannot refuse to enforce
an award even if based on factual errors or misinterpretations of
the parties’ agreements.
To do so would impermissibly substitute
a judicial determination for the arbitrator’s decision that was
See Major League Baseball Players Ass’n v.
Garvey, 532 U.S. 504, 509 (2001); Arco-Polymers, Inc. v. Local 874, 671 F.2d 752, 755 (3d Cir. 1982).
Furthermore, where the
Koresko Parties were notified of but did not appear at the
arbitration hearing, review of the merits is foreclosed entirely.
See Teamsters Local Union No. 764 v. J.H. Merritt & Co., 770 F.2d
40, 42-43 (3d Cir. 1985); see also Dean v. Sullivan, 118 F.3d
1170, 1172 (7th Cir. 1997) (“The scope for a federal court to
review tardy arguments is compressed still further, to nil.
Johnny-come-lately arguments are prohibited.”).
The Court thus does not consider, for example, the
following arguments, which occupy a substantial portion of the
Koresko Parties’ opposition to the motion to confirm: that the
award was not based on the governing documents and exceeded the
multiple set forth in the Adoption Agreement; that the arbitrator
based his decision on parol evidence; that the arbitrator
manifestly disregarded the record and the evidence; that the
arbitrator disregarded releases of liability signed by employees;
that the McLain Family did not have any vested property right;
that it was in the plan administrator’s discretion to choose the
alternative dispute resolution provider; that venue should have
been in Montgomery County, Pennsylvania; or that the arbitrator
misinterpreted the plan documents.
Nor does the Court consider the Koresko Parties’
arguments that prerequisites to or triggers for arbitration such as a decision from the Board of Trustees and exhaustion of
the administrative process - were not met and that the matter was
not ripe for arbitration.
Such arguments are questions of
procedural arbitrability, which lie in the province of the
See John Wiley & Sons, Inc. v. Livingston, 376 U.S.
543, 555-59 (1964); Puleo, 605 F.3d at 179, 183 (citing Howsam,
537 U.S. at 85).
The Koresko Parties cannot refuse to
participate in the arbitration and then raise procedural
arbitrability objections for the first time in federal court.
See Int’l Brotherhood of Elec. Wkrs. v. Hope Elec. Corp., 380
F.3d 1084, 1101 (8th Cir. 2004); Dean v. Sullivan, 118 F.3d 1170,
1172 (7th Cir. 1997); see also Able Bldg. Maintenance Co. v. Bd.
of Trustees, 175 F. App’x 118, 119-20 (9th Cir. 2006) (finding
procedural arbitrability questions waived after party failed to
appear at arbitration).
The McLain Family suggests that the Koresko Parties
have, in fact, waived all of their arguments - including
substantive challenges to the arbitrator’s jurisdiction - by
failing to appear at the arbitration hearing.
n.1 (ECF No. 23).
Pet’rs.’ Reply 4
The Court considers and rejects this argument
before analyzing the Koresko Parties’ substantive arbitrability
objection to the arbitration award.
The Court finds that the Koresko Parties did not waive
The Koresko Parties suggests that in the ERISA context,
the notion that procedural arbitrability questions should be
decided by arbitrators does not apply. See Koresko Opp. to Mot.
to Confirm 47-48. However, they cite no cases that stand for
this proposition, and the Court has not found any.
their substantive challenge to the arbitrator’s jurisdiction by
failing to appear and raise it at the arbitration hearing.
The McLain Family cites Teamsters Local No. 764 v. J.H.
Merritt & Co., 770 F.2d 40 (3d Cir. 1985), in support of their
waiver argument, but Merritt is distinguishable.
In Merritt, a
labor union arbitrated an employee’s claim of unfair discharge
against an employer.
The employer contested the merits of the
employee’s claim at the arbitration hearing, but did not argue
that the arbitration board lacked jurisdiction.
challenged the board’s jurisdiction for the first time only after
the board ruled in favor of the employee and the union moved to
confirm the award in district court.
Merritt, 770 F.2d at 41-42.
The Court of Appeals for the Third Circuit held that Merritt was
bound by the arbitration board’s decision based on either (1) an
implied contract theory or (2) a waiver theory.
court found that the employer’s conduct manifested a clear intent
Id. at 42.
Alternatively, the court stated that
“a party may waive its right to raise on appeal an objection to
the decision of an arbitrator when the party failed to address
the objection before the arbitrator in the first instance.”
In doing so, the court specifically rejected the
employer’s argument that the waiver rule did not extend to a
Id. at 43.
Although the Merritt court set forth waiver as an
alternative basis for its decision, this Court does not read
Merritt to extend to cases, as here, where the party resisting
arbitration has not manifested clear intent to arbitrate by, for
example, appearing at arbitration.
Such a reading of Merritt is
consistent with the legal framework outlined above regarding the
difference between procedural and substantive arbitrability, and
the apportionment of authority between judges and arbitrators.
Because the arbitration agreement in this case does
not clearly and unmistakably specify who determines the
arbitrability question, substantive arbitrability is a question
for judicial determination.
537 U.S. at 83-84.
AT&T Tech., 475 U.S. at 649; Howsam,
It would thus make little sense to require
the Koresko Parties to appear before the arbitrator and raise
their substantive jurisdictional challenges in order to preserve
See Int’l Brotherhood of Elec. Wkrs. v. Hope Elec., 380
F.3d 1084, 1103 (8th Cir. 2004) (“[P]resentation and preservation
of the issue before the courts is sufficient because only the
courts are empowered to decide the issue of arbitrability
. . . .”); MCI Telecommunc’ns Corp. v. Exalon Indus., Inc., 138
F.3d 426, 429-30 (1st Cir. 1998) (holding that a party that
contends it is not bound by an arbitration agreement can simply
abstain from participation in the proceedings and raise the lack
of agreement as a defense to confirmation).
Comprehensive Accounting Corp. v. Rudell, 760 F.2d 138, 140 (7th
Cir. 1985) (holding that it was too late at the confirmation
stage to challenge the validity of signatures on the arbitration
agreement, where respondents were notified of arbitration, did
not participate, and did not put the arbitrator on notice of
their substantive jurisdictional objections).
Therefore, Merritt does not control the outcome in this
case, and the Court will analyze the Koresko Parties’ substantive
jurisdictional challenges to the arbitration award.
The Arbitration Clause
The Koresko Parties argue that the arbitration clause
did not include any agreement to arbitrate by Koresko, PennMont,
or Koresko Law Firm, P.C.
Koresko Opp. 65.
The Court considers
this argument to be a substantive arbitrability challenge to the
The arbitration clause at issue is located in section
10.24 of a July 29, 2009 amendment to the REAL VEBA Plan and
The signature page states that Pennmont
executed the amendment, and is signed by Larry Koresko as
The Koresko Parties note that the Department of Labor
challenges the validity of the amendment in other litigation
surrounding this employee welfare benefits arrangement. Koresko
Opp. 66 (referring to Solis v. Koresko, Case No. 09-cv-988).
However, none of the parties actually challenges the validity of
the amendment containing the arbitration clause in this case.
The Court therefore expresses no view on the validity of the
amendment for the purposes of this litigation.
PennMont’s vice president.
John Koresko also signed the
amendment twice with the title “President, Pennmont Benefit
Services, Inc.,” but “AS ATTORNEY IN FACT FOR ALL PARTICIPATING
EMPLOYEES” and “AS ATTORNEY IN FACT FOR ALL PARTICIPATING
There is a signature line for F&M Trust Co., the
trustee for the REAL VEBA Trust, but it is unsigned.
Opp. to Pet’rs.’ Supp. Brief, Ex. 1 (“Amendment”) (ECF No. 30).
The arbitration clause states, in relevant part:
Section 10.24 Arbitration - Each Participant, Participating
Employer, Beneficiary, and Trustees of the Fund hereby
agrees to submit any appeal from an adverse decision of the
Trustees or Administrator to an arbitrator. Any arbitration
request shall include, as a mandatory part thereof, any
assertions of any claims under any federal or state law
arising with reference to the claimant’s association or
participation with any plan or trust arrangement of the
Administrator, its employees, officers, agents, attorneys,
directors successors and assigns. . . . The Trustees,
Participants, Beneficiaries and Employers who are the
subject to the Plan are bound by the decision of the
arbitrator; and the arbitrator’s decision may be recorded in
any court of competent jurisdiction as a judgment.
Id. (emphasis added).
Despite the fact that only PennMont and John Koresko
signed the amendment containing the arbitration clause, the
arbitrator entered the award against PennMont, the “Regional
Employers Insurance Trust,” the “Employer’s Health & Welfare
Benefit Plan,” John Koresko, and the Koresko Law Firm, P.C.
Arbitration Award, caption (ECF No. 10-3).
The McLain Family now
moves to confirm the award against PennMont, the Regional
Employers Assurance Leagues Voluntary Employee Beneficiary
Association Trust (“REAL VEBA Trust”), John Koresko, the Koresko
Law Firm, P.C.6
Mot. to Confirm Arb. Award (ECF No. 10).
The facts above and the language of the arbitration
clause raise the question of whether the Court can confirm an
arbitration award against: (1) non-signatories to the amendment
containing the arbitration clause; (2) John Koresko,
individually, when the signature page indicates that he signed as
attorney in fact for employers and participating employees; and
(3) PennMont, which executed the amendment containing the clause
but is not named in the clause itself.
The Court examines each
of these questions below.
Although courts, not arbitrators, generally decide
whether non-signatories to an arbitration agreement can be bound
thereby,7 persuasive case law suggests that a motion to confirm
In their reply and supplemental briefing, the McLain
Family asserts that they also move to confirm against Single
Employer Welfare Benefit Plan Trust and Penn Public Trust.
Pet’rs.’ Reply 1 (ECF No. 23); Pet’rs.’ Supp. Br. 12 (ECF No.
28). However, neither their opening motion to confirm nor the
arbitration award names them. The Court therefore does not
consider confirming the award as to Single Employer Welfare
Benefit Plan Trust and Penn Public Trust.
See Laborers Int’l Union v. Foster Wheeler Corp., 26 F.3d
375, 399 n. 27 (3d Cir. 1994); N.J. Regional Council of
Carpenters v. K&M Gen., No. 11-1645, 2011 WL 3475532, at *3
(D.N.J. Aug. 9, 2011); Bricklayers & Allied Craftwkrs. Admin.
Dist. Council v. Kal-Tech Engineering, No. 10-4467, 2011 WL
32509, at *1-2 (D.N.J. Jan. 4, 2011).
is not the proper time or procedural vehicle to make such
In Orion Shipping & Trading Co. v. E. States Petroleum
Corp., 312 F.2d 299 (2d Cir. 1963), the Second Circuit held that
an arbitration award could not be enforced under an alter-ego
theory against the parent corporation of one of the parties
subject to the award.
The parent corporation was not party to
Although the court recognized that it “may well
be” that the subsidiary was completely dominated by the parent
corporation, the court reasoned that a confirmation action was
not the proper time to attempt to pierce the corporate veil, due
to the potentially complex fact-finding involved:
The usual officer of the confirmation action under 9 U.S.C.
§ 9 is simply to determine whether the arbitrator’s award
falls within the four corners of the dispute as submitted to
him. This action is one where the judge’s powers are
narrowly circumscribed and best exercised with expedition.
Id. at 301.
The court noted that the party seeking confirmation
could prosecute an action against the parent corporation as
guarantor of the subsidiary’s obligations, or initiate a separate
action against the parent to enforce the award confirmed against
“But an action to confirm the arbitrator’s award
cannot be employed as a substitute for either of these two quite
distinct causes of action.”
Similarly, in Truck Drivers, Chauffeurs & Helpers,
Local Union No. 384 v. Stearly Motor Freight, Inc., 544 F. Supp.
623 (E.D. Pa. 1982), a labor arbitration case, a local union
attempted to enforce an arbitration award as to three defendants:
(1) an employer named Stearly, with which the union had entered
into a collective bargaining agreement and against which the
award was entered, and (2) Rex and Kelly, two other companies
that were not named in the arbitration proceedings.
argued that Stearly, Rex, and Kelly were in fact a “single
Although the Truck Drivers court agreed that the
three companies might well be found to be a single employer, it
held that it could not enforce the arbitration award against Rex
and Kelly because they were not parties to the arbitration.
But cf. Serv. Empl. Int’l Union v. Legacy Health
Network, LLC, No. 08-138, 2008 WL 2942140 (W.D. Pa. July 30,
2008) (distinguishing Stearly).
The Court finds the reasoning in Orion Shipping and
Truck Drivers persuasive.
Determining at this point whether the
non-signatory respondents in this case are bound to the
arbitration clause would overly complicate the confirmation
The McLain Family claims that the non-signatory
respondents are bound under agency, veil piercing/alter ego, or
estoppel theories, but they have not set forth sufficient facts
in support of those theories.
It may well be that one or more of
the above theories could support liability as to the nonsignatories.
But a confirmation proceeding is not the
appropriate time to delve into those potentially fact-based
determinations, particularly in light of the federal policy in
favor of speedy confirmation of arbitration awards.
the Court declines to consider confirming the award against
anyone except PennMont or John Koresko, who are the only
respondents named in the award whose signatures appear on the
face of the arbitration agreement.
The McLain Family puts forth three theories in an
attempt to confirm the arbitration award as to John Koresko
personally even though he signed the amendment containing the
arbitration clause as attorney in fact for participating
employers and employees: (1) agency; (2) veil-piercing; and (3)
The Court is not convinced that any of the theories
support the confirmation of the award against Koresko personally.
The McLain Family cites Pritzker v. Merrill Lynch,
Peirce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993), for the
proposition that if “a principal is bound under the terms of a
valid arbitration clause, its agents, employees, and
representatives are also covered under the terms of such
Pet’rs.’ Supp. Br. 12 (ECF No. 28) (citing
Pritzker, 7 F.3d at 1121).
However, Pritzker does not control
As the Third Circuit explained in Bel-Ray Co., Inc. v.
Chemrite (Pty) Ltd., the issue in Pritzker was whether a
signatory to an arbitration agreement could be compelled to
arbitrate claims it had against the non-signatory agents of the
other signatory to the agreement.
181 F.3d 435, 444 (3d Cir.
In that case, the trustees of a pension plan executed an
agreement containing an arbitration clause with Merrill Lynch.
The trustees then argued that they could not be compelled to
arbitrate their claims against a Merrill Lynch employee and a
sister company of Merrill Lynch.
The Third Circuit disagreed,
holding that under the agreement they signed with Merrill Lynch,
the trustees had committed themselves to arbitrate claims against
Merrill Lynch as well as its agents.
7 F.3d at 1121-22.
Pritzker thus does not stand for the proposition that agents are
personally bound by agreements they sign on behalf of principals.
Rather, as the Bel-Ray court pointed out, Pritzker was based on
the interpretation of an arbitration agreement.
181 F.3d at 444.
In this case, the issue with respect to Koresko is not
whether the arbitration clause can be interpreted to compel a
signatory to arbitrate against a non-signatory, but rather
whether Koresko can be bound under traditional agency principles
by the terms of a contract which he signed with the title
“President, PennMont Benefit Services, Inc.” but with the
designations “AS ATTORNEY IN FACT FOR ALL PARTICIPATING
EMPLOYEES” and “AS ATTORNEY IN FACT FOR ALL PARTICIPATING
The arbitration clause evinces no agreement by John
Koresko to arbitrate matters in his individual capacity and
relating to his individual liability.
As stated in the signature
block, he signed and agreed as attorney in fact for the
participating employers and employees.
Restatement (Third) of
When an agent acting with actual or apparent authority makes
a contract on behalf of a disclosed principal, (1) the
principal and the third party are parties to the contract;
and (2) the agent is not a party to the contract unless the
agent and third party agree otherwise.
Restatement (Third) of Agency § 6.01 (2006) (emphasis added); see
also Restatement (Second) of Agency § 320 (1958) (“Unless
otherwise agreed, a person making or purporting to make a
contract with another as agent for a disclosed principal does not
become a party to the contract.”); DK Joint Venture 1 v. Weyand,
649 F.3d 310, 314-15 (5th Cir. 2011) (holding that the fact that
defendant corporations entered into the agreement did not cause
their agents, directors and officers of the corporation, to be
personally bound by those agreements).
The arbitration clause in this case does state that the
arbitration request shall include:
any assertions of claims under any federal or state law
arising with reference to the claimant’s association or
participation with any plan or trust arrangement of the
Administrator, its employees, officers, agents, attorneys,
directors successors and assigns.
Koresko Opp. to Pet’rs’ Supp. Brief, Ex. 1 § 10.24 (ECF No. 30).
However, under Pritzker and Bel-Ray, this language would be a
potential basis for Koresko to compel signatories to arbitrate
their claims against Koresko, not vice versa.
As several circuit
courts have recognized, “it matters whether the party resisting
arbitration is a signatory or not.”
Merrill Lynch Investment
Mngrs. v. Optibase, Ltd., 337 F.3d 125, 131 (2d Cir. 2003); see
also DK Joint Venture 1 v. Weyand, 649 F.3d 310, 316 (5th Cir.
There is thus no basis under traditional agency
principles to confirm the award against John Koresko personally.
The McLain Family next proffers a veil piercing/alter
ego theory for why the non-signatory respondents are bound by the
However, although they claim that John Koresko completely
dominates the various entities involved in the REAL VEBA welfare
benefits arrangement, they never actually specify whose veil they
Nor do they set forth facts in support of this
Lastly, the McLain Family argues that because the
respondents have “actively exploited” the terms of the amendment,
they should be equitably estopped from asserting that the lack of
signature precludes enforcement of the arbitration clause.
Courts can “prevent a non-signatory from embracing a contract,
and then turning its back on the portions of the contract, such
as an arbitration clause, that it finds distasteful.”
DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin, 269 F.3d
187, 200 (3d Cir. 2001).
However, to find Koresko equitably
estopped from asserting that he is not personally bound by the
arbitration clause, this Court would have to find that he
personally benefitted from other portions of the amendment
containing the clause.
The McLain Family has cited nothing
except the entirety of the ongoing litigation in Solis v.
Koresko, Case No. 09-cv-988 and REAL VEBA v. Castellano, Case No.
03-cv-6903, in support of their claim that Koresko has benefitted
personally from other terms in the amendment.
See Pet’rs’ Supp.
This general citation is not enough to confirm a $3.8
million award against Koresko personally.
The Court confirms the award against PennMont, as to
the corpus of the REAL VEBA Trust (and not as to its corporate
assets) because, as Koresko concedes, PennMont signed the
amendment as plan administrator with respect to the corpus of the
See Koresko Opp. to Pet’rs’ Supp. Br. 5.
The REAL VEBA trust documents cede to PennMont any of
the trustees’ powers concerning plan administration.
of the REAL VEBA Master Trust Agreement states:
3.1 Payment of Benefit. At the direction of the Plan
Administrator, the Trustee shall pay such portion of the
Trust Fund as the Plan Administrator shall direct, to be
paid directly to or for the benefit of Employees of the
Adopting Employers and their beneficiaries.
. . . .
3.4 Trustee Not Responsible for Plan Administration. The
Trustee shall not be responsible under this Trust Agreement
. . . in any way respecting the determination, computation,
payment or application of any benefit . . . or for any other
matter affecting the administration of the Plan by the
Adopting Employers, Advisory Committee, Plan Administrator
. . . .
REAL VEBA Master Trust Agreement §§ 3.1, 3.4 (Pet’rs’ Supp. Br.,
Ex. C) (emphasis added).
Under these provisions, the trustee is
a directed trustee and pays benefits as directed by PennMont as
the plan administrator.
These provisions explain the disconnect in the
amendment with respect to PennMont.
Larry Koresko, Vice
President of PennMont, executed the amendment on behalf of
PennMont, but the text of the arbitration clause itself states
only that participants, participating employers, beneficiaries,
and the trustee have agreed to “submit any appeal from an adverse
decision of the Trustees or Administrator to an arbitration.”8
The language and context of the amendment suggest that the intent
of the arbitration clause was to submit disputes over PennMont’s
claim determination decisions to an arbitrator.
The trustee, as
directed trustee, would then pay whatever benefits the arbitrator
determined should have been paid out of the corpus of the REAL
At the time the amendment was executed, the trustee was
F&M Trust, which is neither named in the arbitration award nor a
signatory to the amendment (although there is a blank signature
block for F&M Trust).
Although the above is not sufficient to confirm the
award against PennMont with respect to PennMont’s corporate
assets, the Court finds that PennMont’s signature enables
confirmation of the arbitration award against PennMont in its
capacity as plan administrator and with respect to the corpus of
the REAL VEBA Trust.
An appropriate order follows.
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