Philadelphia Commerce Court Holds Common Law Indemnity Claim Outside Scope of ADR Agreement

In James D. Morrissey, Inc. v. FedEx Ground Packaging System, Inc., Philadelphia Commerce Court Judge Nina Wright Padilla held that an arbitration agreement only encompassed claims for breach of contract and contractual indemnity, but not common law indemnity.  A copy of the Commerce Court’s opinion can be found here.

FedEx engaged BMC as a general contractor to construct a package distribution center. The FedEx-BMC primary contract included lengthy ADR provisions for mediation and arbitration under the AAA’s Construction Industry Arbitration Rules. BMC entered a separate subcontract with Morrissey to do topsoil removal and earthwork, among other things. The BMC-Morrissey subcontract similarly included ADR provisions for mediation and arbitration under the AAA’s Construction Industry Arbitration Rules.

Morrissey brought suit against FedEx, not BMC, for FedEx’s alleged failure to disclose arsenic contamination. FedEx filed a joinder complaint to bring in BMC as an additional defendant, claiming breach of contract, contractual indemnity, and common law indemnity. While BMC had ADR agreements with both Morrissey and FedEx, there was no direct ADR agreement between Morrissey and FedEx.

BMC moved to dismiss the joinder complaint per both ADR provisions. It argued that arbitration was the proper forum for all claims, and that a prior arbitration with identical claims was pending. The Court agreed that the contract based claims, i.e., the breach of contract and contractual indemnity claims, should be dismissed under the mandatory ADR provisions, as “more appropriate to be handled in arbitration.”

Judge Wright Padilla concluded, however, that the common law indemnity claims are tort based, and “do not arise out of a contractual relationship. Accordingly, the appropriate forum for the resolution of this claim is before this Court, rather than in arbitration.”

The Commerce Court’s decision is pending on appeal.