MEMORANDUM

EDUARDO C. ROBRENO, United States District Judge.

This is an action brought by the law firm Dilworth Paxson, LLP, ("Dilworth") against its former client, Manuel Asensio ("Asensio") to compel arbitration of a dispute arising out of the nonpayment of legal fees. The issue before the court is whether or not an agreement to arbitrate, which on its face requires the arbitration of "any future dispute" between the parties, is voidable if one of the parties shows that, at the time he entered the agreement, the other party, which drafted the agreement, informed him either that the agreement to arbitrate was "unenforceable," or, in the alternative, that the drafter did not intend to enforce the arbitration agreement. Answering this question requires the court to consider (1) the admissibility under Pennsylvania's parol evidence rule of testimony by a party to an arbitration agreement that, despite clear language requiring the arbitration of all disputes within the scope of the agreement, he was "fraudulently induced" by the drafter to enter into the arbitration agreement by promises that the arbitration clause was, in fact, unenforceable, as well as (2) whether or not under the totality of circumstances, the party who allegedly agreed to arbitrate was in fact fraudulently induced to do so. The court must also ultimately consider whether, given a valid arbitration clause, the dispute at issue falls within the clause's substantive scope.

The court conducted a hearing on Dilworth's motion to compel arbitration and a bench trial on the issue of fraudulent inducement. For the reasons set forth below, the court concludes that Pennsylvania's parol evidence rule bars testimony of the type proffered in this case as proof that an agreement was fraudulently induced, and that the totality of circumstances in this case reveals that Asensio voluntarily agreed to arbitrate his future disputes with Dilworth. Therefore, the court will grant Dilworth's motion to compel arbitration, and will dismiss the instant action.

I. FINDINGS OF FACT

In or around October 1998, Manuel Asensio engaged the law firm of Dilworth Paxson to defend him and his affiliates, Asensio Company and Asensio.com, in a lawsuit. In October 1999, citing differences with respect to the representation and unpaid legal fees, Dilworth withdrew from representing Asensio with Asensio's consent, and Asensio retained substitute counsel. In March 2000, however, following the withdrawal of substitute counsel, Asensio approached Lawrence McMichael, a Dilworth partner, and attempted to persuade Dilworth to resume its representation of him in the still ongoing litigation. As part of his efforts, Asensio paid all outstanding legal fees.

On March 16, 2000, as they negotiated the terms of the renewed representation, Asensio and Dilworth executed a "Fee Agreement," which purported to modify the terms of the agreement that formerly governed the relationship between the parties. The Fee Agreement contained an arbitration clause that provided as follows:

Any future dispute between you, Asensio Company or Asensio.com on the one hand and Dilworth Paxson LLP on the other hand will be arbitrated in Philadelphia by a neutral arbitrator selected in accordance with the Philadelphia Bar Association's client dispute procedures. If for any reason such procedure is unavailable or determined to be inappropriate, then a neutral arbitrator will be selected by the parties. If the parties are unable to reach an agreement, the arbitrator shall be appointed by the Philadelphia Court of Common Pleas . . . The arbitration shall be final, binding and not appealable. In connection with any such future dispute, all claims will be strictly limited to actual and direct economic loss. You, Asensio Company, Asensio.com and Dilworth Paxson LLP waive any right to claim consequential or punitive damages. The prevailing party in the resolution of any dispute shall have the right to be reimbursed by the other party for all fees and expenses, including attorney's fees, incurred in the dispute.

Fee Agreement ¶ 3. The Fee Agreement also stated, "You [Asensio] have also advised us [Dilworth] that you have obtained the advice of separate counsel with respect to this agreement before entering into it with us." Fee Agreement ¶ 7. Both McMichael and Asensio signed the Fee Agreement. In addition to signing the document, Asensio initialed each page.

Following the trial in which Asensio used Dilworth's services, a fee dispute arose between the parties regarding Asensio's refusal to pay certain legal bills that Dilworth contends were owed. Dilworth filed a motion to compel arbitration of the dispute in the Philadelphia Court of Common Pleas. Asensio removed the action to federal district court on the basis of diversity, and filed counterclaims for negligence and professional malpractice, fraud and misrepresentation, and breach of contract. The court conducted a hearing on Dilworth's motion to compel arbitration, and, given the conflicting accounts of the relationship between Asensio and McMichael, held a one-day bench trial to determine the merits of Asensio's fraudulent inducement defense to the enforceability of the arbitration clause.

II. CONCLUSIONS OF LAW

A. The Law of Arbitration Clauses

The Federal Arbitration Act (FAA) provides that "[a] written provision in any . . . contract involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA also provides that "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4.

In enacting the FAA and providing for the enforcement of arbitration agreements through the federal courts, Congress intended "to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts."Green Tree Fin. Corp. — Ala. v. Randolph, 531 U.S. 79, 89 (2000) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)); see also Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) (noting the development in the courts of appeals of "a healthy regard for the federal policy favoring arbitration" in the wake of the passage of the FAA). To this end, "[t]he Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses Cone, 460 U.S. at 24-25.

Before a federal district court entertaining a motion to compel arbitration may order a reluctant party to arbitrate, however, the FAA "requires the court to engage in a limited review to ensure that the dispute is arbitrable — i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement." PaineWebber, Inc. v. Hartmann, 921 F.3d 507, 511 (3d Cir. 1990). As the Supreme Court taught in Prima Paint, the focus of the inquiry is on the validity and scope of the arbitration clause, rather than on that of the contract as a whole. See Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 402, 403-04 (1967) (stating that "if the claim is fraud in the inducement of the arbitration clause itself . . . the federal court may proceed to adjudicate it. But the statutory language [of the FAA] does not permit the federal court to consider claims of fraud in the inducement of the contract generally"). Thus, "[t]he teaching of Prima Paint is that a federal court must not remove from the arbitrator consideration of a substantive challenge to a contract unless there has been an independent challenge to the making of the arbitration clause itself." Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 53 (1st Cir. 2002) (quotingUnionmutual Stock Life Ins. Co. of America v. Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir. 1985)) (emphasis supplied). In this case, Asensio has mounted independent challenges to the validity and scope of the arbitration clause, and the court, rather than an arbitrator, may consider those claims.

With respect to the first prong of the inquiry set forth inPaineWebber, "[t]he federal policy encouraging recourse to arbitration requires federal courts to look first to the relevant state law of contracts . . . in deciding whether an arbitration agreement is valid under the FAA." Spinetti v. Service Corp. Int'l, 324 F.3d 212, 214 (3d Cir. 2003). Because the FAA provides that arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract," federal courts must apply state law contract defenses to invalidate arbitration agreements.Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir. 1999).

By contrast, the court's inquiry with respect to the second prong, i.e., whether the dispute at issue falls within the substantive scope of the valid agreement to arbitrate, is guided by federal common law principles of interpretation and construction. Id. These principles limit the court's interpretive role to that of "ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract." Medtronic Ave, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 55 (3d Cir. 2001). At the same time, the court's approach is guided by a "presumption of arbitrability." PaineWebber, 921 F.2d at 511 (citing ATT Technologies v. Communications Workers of America, 475 U.S. 643, 650 (1986) and United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)), such that "[a]n order to arbitrate `should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Medtronic, 247 F.3d at 55 (quoting Warrior Gulf Navigation Co., 363 U.S. at 582-83) (emphasis supplied).

1. Fraudulent inducement and validity

A party may invoke the state law defense of fraudulent inducement to invalidate a contract into which he has entered in situations when the other party to the contract made fraudulent misrepresentations to him during the negotiations leading up to the formation of the contract, and that, but for those representations, he would never have entered into the agreement. See 1726 Cherry St. P'ship v. Bell Atl. Props., Inc., 653 A.2d 663, 666 (Pa.Super. 1995). A party seeking to assert this defense must show that he was induced to enter the contract at issue because the other party to the contract made factual misrepresentations that were material to the transaction and with respect to which his reliance was reasonable. See In re Allegheny Int'l, Inc., 954 F.2d 167, 178 (3d Cir. 1975).

At trial, Asensio was permitted to testify subject to objection, that, in the course of negotiating the renewed representation, he specifically questioned McMichael and expressed concern regarding the arbitration clause in the Fee Agreement. According to Asensio, McMichael allayed his concerns by informing him falsely that, notwithstanding its clear language, the arbitration clause was "unenforceable," and that it was contained in the agreement merely to assuage those on Dilworth's executive committee who had expressed concerns about returning into a relationship with Asensio, and, by implication, not because Dilworth actually intended to enforce any obligation to arbitrate. Asensio claims that but for this representation, he would not have signed off on the arbitration clause, or, indeed, on the Fee Agreement itself. Therefore, Asensio contends, the arbitration clause is invalid as fraudulently induced. For the reasons that follow, the court does not agree.

First, Asensio's trial testimony is barred by Pennsylvania's parol evidence rule as proof of fraudulent inducement. The parol evidence rule provides:

Where the parties to an agreement adopt a writing as the final and complete expression of their agreement, . . . evidence of negotiations leading to the formation of the agreement is inadmissible to show an intent at variance with the language of the written agreement. Alleged prior or contemporaneous oral representations or agreements concerning subjects that are specifically dealt with in the written contract are merged in or superseded by that contract. The effect of an integration clause is to make the parol evidence rule particularly applicable. Thus the written contract, if unambiguous, must be held to express all of the negotiations, conversations, and agreements made prior to its execution, and neither oral testimony, nor prior written agreements, or other writings, are admissible to explain or vary the terms of the contract.

Second, barred from introducing parol evidence, Asensio failed to meet the heavy burden of proving his fraudulent inducement claim by clear and convincing evidence through inference "from the totality of the circumstances surrounding the transaction, including subsequent conduct."Downes v. Morgan Stanley Dean Witter, No. 002985, 2002 WL 31247980, at *7 (Pa. Com. Pls. Sept. 23, 2002) (citing Rohm Haas Co. v. Continental Cas. Co., 781 A.2d 1172, 1179 (Pa. 2001) and Denny v. Cavalieri, 443 A.2d 333, 335-36 (Pa.Super. 1982).

As an initial matter, the court notes Asensio's repeated assertions that he was troubled by the presence of the arbitration clause in the Fee Agreement, and that he questioned McMichael extensively with respect to it. T.T. 4/29/03 (doc. no. 14) at 73-74. Indeed, Asensio states that he took the Fee Agreement as a whole quite seriously, an assertion corroborated by the fact that he not only signed the document, but initialed every page.

The practice of reviewing documents with great care is reflective of Asensio's background as a highly sophisticated, highly educated businessman, the president of an investment management and investment brokerage company. T.T. 4/29/03 (doc. no. 14) at 64-65. Moreover, Asensio is also a registered broker in an industry where arbitration is a common mechanism for dispute resolution, T.T. 4/29/03 (doc. no. 14) at 74, 80-81, and it is therefore logical to infer that he is familiar both with written agreements and with arbitration clauses.

The record reveals that Asensio is also no stranger to litigation and lawyers, and has ready access to legal advice other than that offered by Dilworth. Indeed, Asensio testified that he has been involved in several major litigations involving his business, that at one time or another as many as forty attorneys have reported either to him directly or to his companies' general counsel, who has worked for Asensio as an advisor and confidant for over ten years. T.T. 4/29/03 (doc. no. 14) at 66-68, 87. In fact, prior to the execution of the Fee Agreement, Asensio had made use of these and other resources to second guess Dilworth's decisions and strategy at trial. T.T. 4/29/03 (doc. no. 14) at 67-68. According to Asensio, he found the need to consult with other counsel during the litigation, because he had come to doubt Dilworth's legal acumen, based on the manner in which Dilworth had conducted his litigation, and because he had developed a distrust of the firm. T.T. 4/29/03 (doc. no. 14) at 68-70, 79.

Notwithstanding his distrust of Dilworth and his ready access to other attorneys, however, Asensio claims that he blindly relied on McMichael's representations that an arbitration clause contained in a signed, written document was either unenforceable or not intended to be enforced. Asensio further contends that he signed the document even though he and McMichael knew that it contained another untruth, i.e., that he had consulted with an outside lawyer when he had not, in fact done so. Finally, assuming Asensio's testimony was true, the court concludes that for a sophisticated businessman of Asensio's caliber, the reliance evidenced by these actions is not reasonable.

Based upon the totality of circumstances, the court concludes that Asensio has failed to prove by clear and convincing evidence that he was fraudulently induced to enter into the arbitration agreement.

2. Scope

Having determined that the arbitration clause contained in the Fee Agreement is valid under the principles of contract law, the court must next determine whether the dispute at issue falls within the substantive scope of the arbitration clause. As noted above, the court's inquiry into the substantive scope of an arbitration clause is guided by a "presumption of arbitrability," PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990) (citing ATT Technologies v. Communications Workers of America, 475 U.S. 643, 650 (1986) and United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)), such that "`[a]n order to arbitrate `should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'"Medtronic Ave, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 55 (3d Cir. 2001) (quoting Warrior Gulf Navigation Co., 363 U.S. at 582-83)) (emphasis supplied).

"Positive assurance" is not, however, "absolute certainty."PaineWebber, 921 F.2d at 512. Even as it applies the presumption of arbitrability, however, a district court must still determine, and honor, "what appears to be most consistent with the intent of the parties," id. at 513, on the theory that arbitration clauses are creatures of contract, and, "[a]s a matter of contract, no party can be forced to arbitrate unless that party has entered into an agreement to do so." Id. at 511; see also Charles Shaid of Pa., Inc. v. George Hyman Constr. Co., Civ. A. No. 92-3654, 1995 WL 46702, at *2 (E.D. Pa. Jan. 31, 1995) (Robreno, J.) ("In construing a contract, a court's paramount consideration is the intent of the parties, and the strongest external sign of agreement between contracting parties is the words they use in their written contract."). Therefore, the positive assurance standard directs that "[g]enuine interpretive disputes" still be resolved in favor of arbitrability, but that "a compelling case for nonarbitrability should not be trumped by a flicker of interpretive doubt." PaineWebber, 921 F.2d at 513. Thus, once a court has determined that the dispute at issue falls within the substantive scope of the parties' arbitration clause, it is barred from hearing the merits of the suit, and must refer the matter to arbitration. Id. at 511.

In this case, the arbitration clause contained in the Fee Agreement purports to reach "any future dispute" between Dilworth and Asensio. Asensio argues that notwithstanding its broad language, the fact that the arbitration clause at issue is contained in a "Fee Agreement" that supercedes other fee agreements between the parties reveals that only fee disputes are covered by this provision, and that, therefore, he cannot be compelled to arbitrate his counterclaims for legal malpractice, fraud and breach of contract. Given the apparent breadth of this language, however, and the directive that courts must give effect to arbitration clauses as written, absent positive assurance that the parties did not intend to submit a particular dispute to arbitration, the court concludes that Asensio's malpractice and other claims fall within the scope of the language of the arbitration clause, and must be arbitrated, along with the fee dispute at issue in this case.

III. CONCLUSION

For the foregoing reasons, the court will compel arbitration of Dilworth's claims against Asensio and of Asensio's claims against Dilworth, and will dismiss the action from this court.

An appropriate order follows.

ORDER

AND NOW, this 5th day of May, 2003, it is hereby ORDERED that plaintiff's petition to compel arbitration (doc. no. 1) is GRANTED. IT IS FURTHER ORDERED that the case is DISMISSED.

AND IT IS SO ORDERED.