J-A11045-19
2019 PA Super 262
TTSP CORPORATION F/K/A THE ROSE IN THE SUPERIOR COURT LOU CORPORATION F/K/A THE ROSE OF PENNSYLVANIA CORPORATION
Appellee
v.
THE ROSE CORPORATION (AS SUCCESSOR IN INTEREST TO ROSE ACQUISITION SUB 1, LLC AS ASSIGNEE OF ROSE ACQUISITION COMPANY, LLC.
Appellant No. 1498 MDA 2018
Appeal from the Order Entered August 23, 2018 In the Court of Common Pleas of Berks County Civil Division at Nos.: 17-18175; 18-885
BEFORE: BOWES, OLSON, and STABILE, JJ.
OPINION BY STABILE, J.: FILED AUGUST 27, 2019
The Rose Corporation, as successor in interest to Rose Acquisition Sub
1, LLC as assignee of Rose Acquisition Company, LLC (hereinafter “Appellant”
or “Buyer”), appeals from the August 23, 2018 order of the Court of Common
Pleas of Berks County, which overruled Appellant’s preliminary objections in
favor of TTSP Corporation, f/k/a The Rose Lou Corporation, f/k/a The Rose
Corporation (hereinafter “Appellee” or “Seller”). Upon careful review, we
reverse and remand.
The facts and procedural history of this case are long, tortured and, at
times, convoluted. On November 4, 2016, Buyer and Seller entered into an
asset purchase agreement (the “Agreement”) pursuant to which Buyer J-A11045-19
purchased for $1,250,000.00 Seller’s business that provided contract
manufacturing, industrial fabrication and related installation services. The
Agreement, 11/4/16, at ¶ 2.1.1. The Agreement contained a purchase price
adjustment (“PPA”) provision, increasing or decreasing the purchase price “by
the amount by which the extent that Seller’s Closing Working Capital on the
Closing Date is less than or greater than” $519,394.00. Id. at ¶ 2.2.1. The
Agreement defined Closing Working Capital as “(x) accounts receivable (net
of reserves), plus useable and saleable inventory, plus prepaid expenses,
minus (y) trade accounts payables, plus accrued liabilities.” Id. The
Agreement contemplated that the closing shall occur on December 1, 2016.
Id. at ¶ 3.1. The Agreement further provided:
2.2.2 Within thirty (30) days following the Closing Date, Buyer shall deliver to Seller Buyer’s calculation of the Purchase Price Adjustment, together with a written statement setting forth in reasonable detail Buyer’s calculation of Seller’s Closing Working Capital as of the Closing Date and December 31, 2015.
....
2.2.3 The Proposed Purchase Price shall become final and binding upon the parties on the thirtieth (30th) day following the date on which the Proposed Purchase Price Adjustment was given to Seller in accordance with Section 12.7 below, unless Seller delivers written notice of its disagreement with the Proposed Purchase Price Adjustment (“Notice of Disagreement”) to Buyer prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a Notice of Disagreement is received by Buyer in a timely manner, then during the thirty (30) day period following the delivery of the Notice of Disagreement, Buyer and Seller shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement. If at the end of such thirty (30) day period the Buyer and Seller have
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not resolved in writing the matters specified in the Notice of Disagreement, Buyer and Seller shall submit to an independent accounting firm (the Accounting Firm), as shall be agreed upon by Buyer and Seller in writing, for determination of the Purchase Price Adjustment. . . . The Accounting Firm will resolve the dispute pursuant to such procedures that it establishes and deems fair and equitable, provided that Buyer and Seller must each be afforded an opportunity to provide a written submission in support of its position and to advocate for its position personally before the Accounting Firm. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced.
Id. at ¶¶ 2.2.2 and 2.2.3 (emphasis added).
Eventually, a dispute arose concerning the amount of the proposed PPA,
in response to which, on August 23, 2017, Seller petitioned the trial court to
appoint “an independent accountant/arbitrator” under Section 2.2.3 of the
Agreement and Section 7305 of the Uniform Arbitration Act (“Act”), 42
Pa.C.S.A. § 7305.1 See Petition for Appointment of Independent
Accountant/Arbitrator (the “Petition”), 8/23/17, at ¶¶ 7-17. In particular,
Seller alleged that Buyer issued an untimely notice of PPA to Seller and that
“[p]ursuant to Section 2.2.3 of the Agreement, [Seller] served [Buyer] with a
____________________________________________
1 Section 7305 of the Act provides:
If the agreement to arbitrate prescribes a method of appointment of arbitrators, the prescribed method shall be followed. In the absence of a prescribed method or if the prescribed method fails or for any reason cannot be followed, or when an arbitrator appointed fails to act or is unable to act and his successor has not been appointed, the court on application of a party shall appoint one or more arbitrators. An arbitrator so appointed has all the powers of an arbitrator specifically named in the agreement. 42 Pa.C.S.A. § 7305.
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[n]otice of [d]isagreement to the proposed purchase price adjustment”. Id.
at ¶¶ 6-7. Seller alleged that Section 2.2.3 of the Agreement calls for the
appointment of an independent accounting firm, as agreed upon by the
parties, to resolve any PPA disagreement. See id. at ¶ 10. However, Seller
alleged that the parties “have not been able to agree upon an accounting firm
to resolve the dispute between the parties.” Id. at ¶ 14. Finally, Seller alleged
that “[u]nder the Agreement, the accounting firm serves as the function of an
arbitrator.” Id. at ¶ 15. Based on its allegations, Seller requested that the
trial court issue an order “appointing an independent and objective accounting
firm to serve as if appointed by the parties in accordance with the provisions
of the Agreement.” Id. at 3. The Petition was docketed at 17-16574 (“Docket
1”).
On October 3, 2017, Buyer filed a complaint against Seller. The next
day, on October 4, 2017, Buyer filed an amended complaint, asserting claims
for breach of contract and seeking injunctive and declaratory relief.2 At the
core of Buyer’s complaint lies its allegation that Seller failed to comply with
Section 2.2.3 of the Agreement by failing to negotiate in good faith with Buyer
to appoint an independent and impartial accountant. See Amended
Complaint, 10/16/17, at ¶¶ 59-67. Specifically, and among other things,
Buyer alleged that Seller “baselessly declared an impasse, stonewalled, ____________________________________________
2 Buyer’s other breach of contract claim pertaining to Seller’s alleged use of a
business name confusingly similar to “The Rose Corporation” in violation of the Agreement is not presently before us, as that issue is currently pending in the trial court.
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sought to circumvent the [Agreement] and its duties under it by claiming a
right to ‘arbitrate’ when none existed, and refused to agree in writing to the
selection of an independent accountant.” Id. at ¶ 70. Nonetheless, Buyer
requested as relief, inter alia, that the trial court appoint “one of the
independent accountants identified and proposed to [Seller], or,
alternatively, that [Buyer] and [Seller] each be directed to select one
independent accountant and each to jointly agree on a third
accountant (to serve individually or on a panel of three).” Id. at 14
(emphasis added). Buyer’s complaint was docketed at 17-18175 (“Docket
2”).
On October 16, 2017, Buyer filed an answer and new matter to Seller’s
Petition, wherein it specifically noted that Seller failed to negotiate in good
faith to select a mutually agreeable independent accountant under the terms
of the Agreement. Answer to the Petition, 10/16/17, at ¶¶ 9-14. Buyer also
denied that the Agreement “calls for an ‘arbitrator.’” Id. at ¶ 17.
On the same day and concurrently with its answer, Buyer also filed
preliminary objections to the Petition, wherein Buyer alleged that the
Agreement did not contain an arbitration provision. See Buyer’s Preliminary
Objections to the Petition, 10/16/17, at ¶¶ 1-8 (“The parties nowhere in their
35-page contract agreed to arbitration”); see also id. at ¶ 22 (“The parties
did not bargain for an arbitrator and nowhere include that word in their
agreement with regard to their obligations to one another.”). Accordingly,
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Buyer requested that the Petition be dismissed for legal insufficiency because
Seller’s claim rested on a non-existent contractual duty. Id. at ¶¶ 30-35.
On October 20, 2017, based on the parties’ stipulation to the relief
requested in Buyer’s October 4, 2017 “petition for consolidation,” the trial
court ordered that Docket 1 and Docket 2 be consolidated.
On November 13, 2017, Seller filed preliminary objections to Buyer’s
amended complaint, noting that Seller did not dispute Buyer’s calculation of
the proposed PPA amount. See Seller’s Preliminary Objections to Amended
Complaint, 11/13/17, at ¶ 8. In seeking the dismissal of Buyer’s amended
complaint, Seller asserted that Buyer did not cite any provision of the
Agreement that justifies the relief requested by Buyer, i.e., the appointment
of an accountant. Id. at ¶¶ 10-11. Also, on November 13, 2017, Seller filed
a preliminary objection to Buyer’s preliminary objections to the Petition,
asserting that because Buyer “has already answered the Petition, [Buyer] has
waived any preliminary objections.” See Seller’s Preliminary Objections to
Buyer’s Preliminary Objections to the Petition, 11/13/17, at ¶ 4. On December
4, 2017, Buyer filed a second amended complaint.
On December 19, 2017, the trial court issued the following order:
[U]pon the Petition by [Seller], and the responses thereto by [Buyer], and preliminary objections thereto and oral argument thereon, it is hereby ORDERED that each party shall select an accountant, and those accountants shall agree on a third-party, independent accountant to act individually and in accordance with the parties’ contract.
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Trial Court Order, 12/19/17 (unnecessary capitalization omitted). 3 The trial
court also overruled Seller’s preliminary objections to Buyer’s preliminary
objections to the Petition. Id. Finally, the trial court sustained Buyer’s
preliminary objections to the Petition that asserted the Agreement did not call
for an arbitrator. Id.
On December 27, 2017, Seller filed preliminary objections in the nature
of a demurrer to Buyer’s second amended complaint.
On January 24, 2018, more than thirty days following the issuance of
the trial court’s December 19, 2017 order directing the selection of
accountants, Seller filed a praecipe to discontinue its action at Docket 1, i.e.,
the Petition, which sought the appointment of an accounting firm.
On January 24, 2018, Seller filed a complaint against Buyer, docketed
at 18-885 (“Docket 3”), asserting claims for breach of contract and unjust
enrichment. Seller alleged that, on December 28, 2016, Buyer delivered its
proposed PPA of $601,438.00 to Seller and that Seller did not disagree with
Buyer’s PPA calculation. See Seller’s Complaint, 1/24/18, at ¶¶ 64-65. As a
result, Seller argued that Buyer’s proposed PPA of $601,438.00 became final
and binding upon the parties. Id. at ¶ 66.
3 Although Section 2.2.3 of the Agreement provides for the appointment of an
independent accounting firm, the parties never appealed the December 19, 2017 order sustaining Buyer’s preliminary objections to the Petition and directing the parties to each select an accountant and for those to then select a third. We, however, decline to resolve this issue, as it is not presently before us.
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A day after Seller discontinued the action at Docket 1, on January 25,
2018, the trial court granted in part and denied in part Seller’s request to
reconsider the court’s December 19, 2017 order directing the selection of
accountants. Specifically, the court granted reconsideration only with respect
to the issue of attorney’s fees, but denied it in all other aspects.
On February 21, 2018, the trial court overruled Seller’s preliminary
objections to Buyer’s second amended complaint (Docket 2), which alleged
breach of contract and sought declaratory and injunctive relief.
On the same day, Buyer filed the instant preliminary objections to
Seller’s complaint (Docket 3) that sought to enforce Buyer’s proposed PPA of
$601,438.00, arguing, inter alia, that Seller was “legally barred by its own
previous petition which sought [the appointment of an accounting firm] and
resulted in relief contradictory to what it now seeks.” Buyer’s Preliminary
Objections to Seller’s Complaint, 2/21/18, at ¶ 9. Specifically, Buyer asserted
the doctrine of judicial estoppel in objecting to Seller’s refusal to submit the
PPA dispute before an independent accountant based on Seller’s allegation
that it did not disagree with Buyer’s proposed PPA calculation. Id. at ¶ 10.
Additionally, Buyer alleged that, contrary to Seller’s claim, Buyer did not
provide a proposed PPA calculation to Seller on December 28, 2016. Id. at
¶¶ 3-4. In fact, Buyer alleged that it provided a proposed PPA calculation to
Seller on April 21, 2017,4 and that Seller issued a notice of disagreement ____________________________________________
4 We observe that Buyer provided the proposed PPA more than thirty days after the December 1, 2016 closing.
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thereto on May 3, 2017. Id. at ¶ 8. Thus, Buyer urged the trial court to take
judicial notice of Seller’s admission, as contained in the Petition, that Seller
had sent a notice of disagreement to Buyer following Seller’s receipt of the
proposed PPA calculation. Id. Finally and most importantly, Buyer asserted
that Seller’s complaint be dismissed for legal insufficiency under Pa.R.C.P. No.
1028(a)(4) because the Agreement required the parties to submit their
dispute to an independent accountant.5 Id. at ¶ 20.
On March 8, 2018, Buyer petitioned the trial court to consolidate Docket
2 and Docket 3, which the trial court granted on March 27, 2018.
On March 13, 2018, Seller filed an answer and new matter to Buyer’s
second amended complaint. In its answer, Seller once again asserted that
Buyer issued a proposed PPA calculation of $601,438.00 on December 28,
2016 with which Seller did not disagree. Likewise, on March 13, 2018, Seller
filed an answer to Buyer’s preliminary objections to Seller’s complaint, denying
Buyer’s allegations. On August 23, 2018, and noting only Docket 3 (Seller’s
complaint) in the caption of its order, the trial court overruled Buyer’s
preliminary objections to Seller’s complaint and directed Buyer to file an ____________________________________________
5 We note that Buyer did not assert dismissal of Seller’s complaint under Pa.R.C.P. No. 1028(a)(6), relating to agreement for alternative dispute resolution. Differently put, Buyer did not assert preliminary objections in the nature of petition to compel arbitration. Nonetheless, given the relief requested, i.e., referral of the PPA dispute to an independent accountant consistent with Section 2.2.3 of the Agreement, we conclude that Buyer, in essence, sought to compel arbitration.
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answer within thirty days. On August 27, 2018, Buyer appealed. 6 The trial
court ordered Buyer to file a Pa.R.A.P. 1925(b) statement of errors complained
of on appeal. Buyer complied, raising a single assertion of error:
The trial court erred in overruling the preliminary objections of [Buyer] to [Seller’s] complaint where (a) each of [Seller’s] claims is subject to binding alternative dispute resolution before an accountant, to be mutually selected by the parties, pursuant to the [Agreement]; (b) [Seller] is judicially estopped from pursuing its claims other than through alternative dispute resolution by an accountant in light of its previous petition for appointment of an accountant; and (c) [Seller’s] petition for appointment of an accountant and related representations constituted a judicial admission that its claims are subject to binding alternative dispute resolution before an accountant.
Rule 1925(b) Statement, 9/24/18, 1-2 (unnumbered) (unnecessary
capitalization omitted). In response, the trial court issued a Pa.R.A.P. 1925(a)
opinion, determining that Section 2.2.3 of the Agreement was an arbitration
provision. In this regard, the court found that “[g]iven the detailed provisions
governing recourse to an independent accountant in this case, including
written and in-person presentation of positions and the ability to enter the
accountant’s determination as a judgment, it stands to reason that the
independent accountant option here should be treated as an arbitration ____________________________________________
6 Our review of Docket 2 and Docket 3 indicates that the order overruling Buyer’s preliminary objections to Seller’s complaint was recorded only on Docket 3. Nonetheless, presumably out of an abundance of caution, Buyer filed two separate notices of appeal, one at Docket 2 and the other at Docket 3. See Commonwealth v. Walker, 185 A.3d 969, 977 (Pa. 2018) (holding that, for any appeal filed after June 1, 2018, “when a single order resolves issues arising on more than one lower court docket, separate notices of appeal must be filed” in each case; “[t]he failure to do so will result in quashal of the appeal”) (footnote omitted).
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provision.” Trial Court Opinion, 11/13/18, at 6. Nonetheless, the trial court
concluded that a factual dispute existed with respect to whether Seller ever
issued a notice of disagreement to Buyer’s notice of PPA to trigger the dispute
resolution provision of Section 2.2.3 of the Agreement. As a result, the trial
court determined that it did not abuse its discretion in overruling Buyer’s
preliminary objections to Seller’s complaint at this procedural juncture and
declining to transfer the dispute to an independent accountant.
On appeal, Buyer presents the following issue for our review.
[I.] Did the trial court err in holding that the parties’ dispute is not within the scope of their agreement for alternative dispute resolution, where the trial court’s finding disregards the Commonwealth’s policy preference for alternative dispute resolution, fails to give effect to the parties’ intent as expressed in their agreement, and ignores that there is no factual dispute in light of [Seller’s] prior judicial admissions that the dispute should be submitted to resolution by an independent accountant?
Buyer’s Brief at 3 (unnecessary capitalization omitted).7
Before we may address the merits of Buyer’s issue, we first must
determine whether we have jurisdiction to entertain this appeal, given the
manner by which Buyer has come to this Court. See LeFlar v. Gulf Creek
Indus. Park No. 2, 515 A.2d 875, 879 (Pa. 1986) (noting a court may raise
the issue of subject matter jurisdiction at any time); accord Cont’l Bank v.
Andrew Bldg. Co., 648 A.2d 551, 553 (Pa. Super. 1994).
7 Based on the outcome of this case, we need not address Buyer’s argument
that Seller is barred by its own judicial admission from asserting that Seller never issued a notice of disagreement upon its receipt of the proposed PPA calculation from Buyer.
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In its brief, Buyer claims that this Court may exercise its appellate
jurisdiction by virtue of Pa.R.A.P. 311(a)(8) and Sections 7320(a)(1) and
7342(a) of the Act, 42 Pa.C.S.A. §§ 7320(a)(1), and 7342(a). See Buyer’s
Brief at 1 (unpaginated). We agree.
As a general rule:
An order overruling preliminary objections is interlocutory and not appealable as of right. There exists, however, a narrow exception to this oft-stated rule for cases in which appeal is taken from an order denying a petition to compel arbitration. Our decision law has made clear that the issue of whether a party agreed to arbitrate a dispute is a threshold, jurisdictional question that must be decided by the court.
Griest v. Griest, 183 A.3d 1015, 1021-22 (Pa. Super. 2018) (citations,
quotation marks and brackets omitted). It is well-settled that “[u]nder
Pennsylvania law, an appeal may only be taken from an interlocutory order as
of right (Pa.R.A.P. 311), from a final order (Pa.R.A.P. 341), from a collateral
order (Pa.R.A.P. 313), or from any interlocutory order by permission
(Pa.R.A.P. 31[2], [Pa.R.A.P.] 1311, 42 Pa.C.S.A. § 702(b)).” Cont’l Bank,
648 A.2d at 553. Buyer here argues jurisdiction only on the basis of Rule 311,
which enumerates several categories of interlocutory orders that are
appealable as of right. Specifically at issue here is Rule 311(a)(8), which
provides:
(a) General rule. An appeal may be taken as of right and without reference to Pa.R.A.P. 341(c) from: .... (8) Other cases. An order which is made appealable by statute or general rule.
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Pa.R.A.P. 311(a)(8) (emphasis added). Buyer claims only that, under Rule
311(a)(8), the order sub judice is rendered appealable by Sections 7320(a)(1)
and 7342(a) of the Act. Section 7320(a)(1) of the Act provides that “[a]n
appeal may be taken from . . . [a] court order denying an application to compel
arbitration made under section 7304 (relating to proceedings to compel or
stay arbitration).” 42 Pa.C.S.A. § 7320(a)(1). Section 7342(a), relating to
common law arbitration, provides, inter alia, that Section 7320(a) of the Act,
except subsection (a)(4), is applicable also to common law arbitration. See
42 Pa.C.S.A. § 7342(a).
To render an order overruling preliminary objections seeking to compel
arbitration appealable under the Act, a party must prove that the dispute is
bound by an arbitration agreement, which calls for either statutory or common
law arbitration. Armstrong v. Travelers Ins. Co., 115 A.3d 342, 345 (Pa.
Super. 2015), appeal denied, 128 A.3d 218 (Pa. 2015). Unless an arbitration
agreement expressly provides for statutory arbitration, the law presumes that
the parties intended to submit their disputes to common law arbitration. See
Derry Twp. Mun. Auth. v. Solomon & Davis, Inc., 539 A.2d 405, 410 (Pa.
Super. 1988) (“Because the arbitration provision contained in Derry’s
contracts with Solomon does not expressly provide for statutory arbitration,
the agreement does not overcome the presumption that the controversy will
be governed by the rules pertaining to common law arbitration.”). Indeed,
Section 7302 of the Act provides:
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An agreement to arbitrate a controversy on a nonjudicial basis shall be conclusively presumed to be an agreement to arbitrate pursuant to Subchapter B (relating to common law arbitration) unless the agreement to arbitrate is in writing and expressly provides for arbitration pursuant to this subchapter or any other similar statute, in which case the arbitration shall be governed by this subchapter.
42 Pa.C.S.A. 7302 (emphasis added).
With these principles in mind, we conclude that the Section 2.2.3 of the
Agreement contains a common law arbitration provision, even though the
provision does not contain the terms “arbitration” and “arbitrator.”8 As
previously noted, Section 2.2.3 of the Agreement provides in part:
If at the end of such thirty (30) day period the Buyer and Seller have not resolved in writing the matters specified in the Notice of Disagreement, Buyer and Seller shall submit to an independent accounting firm (the Accounting Firm), as shall be agreed upon by Buyer and Seller in writing, for determination of the Purchase Price Adjustment. . . . The Accounting Firm will resolve the dispute pursuant to such procedures that it establishes and deems fair and equitable, provided that Buyer and Seller must each be afforded an opportunity to provide a written submission in support of its position and to advocate for its position personally before the Accounting Firm. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced.
8 Moreover, as we noted earlier, Buyer’s preliminary objections to Seller’s complaint sought to transfer the PPA dispute to an independent accountant under Section 2.2.3 of the Agreement.
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The Agreement, 11/4/16, at ¶ 2.2.3 (emphasis added). Section 2.2.3 of the
Agreement expressly provides that if the parties are unable to resolve their
PPA dispute amicably and in writing within thirty days, then they shall submit
the dispute to a jointly-selected independent accounting firm.9 Critically, the
accounting firm is to resolve the parties’ dispute, employing procedures that
the accounting firm establishes so long as they are fair and equitable to both
parties. Section 2.2.3 of the Agreement also requires that the parties be
afforded an opportunity to provide written submissions to, and appear
personally before, the accounting firm to advocate the parties’ respective
positions. Finally, the Agreement contemplates that the independent
accounting firm’s determinations regarding the PPA, upon which judgment
may be entered in any court having jurisdiction over the non-prevailing party,
is final and binding upon the parties. Thus, given the essence of Section 2.2.3
of the Agreement, it is clear that it provides for arbitration, even in the
absence of the terms “arbitration” or “arbitrator.”10 Section 2.2.3 contains ____________________________________________
9 We use the terms “accounting firm” and “accountant” interchangeably throughout this decision. 10 On this point, we find instructive and persuasive a number of state court
and federal district court decisions. See Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 397 (Del. 2010) (“We do not require the magic word, ‘arbitration,’ to find that parties intended to arbitrate.”); 2200 M St. LLC v. Mackell, 940 A.2d 143, 151 (D.C. 2007) (“Because “agreement to have third parties decide disputes [is] the essence of arbitration, no magic words such as ‘arbitrate’ or ‘binding arbitration’ or ‘final dispute resolution’ are needed to obtain the benefits of [an arbitration clause]); Yeransian v. Markel Corp., 2017 WL 3225987 (D. Del. July 21, 2017) (“While not a traditional arbitration agreement—in that it never mentions an arbitrator or
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sufficient hallmarks inherent to an arbitration proceeding.11 Accordingly,
because Section 2.2.3 is an arbitration provision within the meaning of
the term arbitrate—Section 3.2(d) of the [Contingent Value Rights Agreement] is still a contractually agreed upon dispute resolution process by which an Independent Actuary determines the final and binding Adjusted Principal Amount.”); Seed Holdings, Inc. v. Jiffy Int’l AS, 5 F. Supp. 3d 565, 576 (S.D.N.Y. 2014) (“While Section 2.8 does not use the term ‘arbitration,’ it requires the parties to submit their dispute with respect to working capital ‘to the binding determination of a third party accounting firm.’”); Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1208 (9th Cir. 1998) (Noting that “[n]o magic words such as “arbitrate” or “binding arbitration” or “final dispute resolution” are needed to obtain the benefits of [the Federal Arbitration Act]”); accord AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 460 (E.D.N.Y. 1985); McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988) (citing with approval cases where submission of disputes to independent appraisers and accountants qualified as arbitrations).
11 “Arbitration is a term that eludes easy definition.”AMF Inc., 621 F. Supp. at 459. Indeed, the Act does not define the term “arbitration.” The term, however, is defined in the Black’s Law Dictionary as “[a] method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding.” Black’s Law Dictionary (9th ed. 2009). Webster’s Third New International Dictionary defines “arbitration” as “the hearing and determination of a case between parties in controversy by a person or persons chosen by the parties or appointed under statutory authority instead of by a judicial tribunal provided by law.” Webster’s Third New International Dictionary, 110 (3d ed.1993). In AMF Inc., the court noted that Arbitration is a creature of contract, a device of the parties rather than the judicial process. If the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration. 621 F. Supp. at 460. “The arbitrator’s decision need not be binding in the same sense that a judicial decision needs to be to satisfy the constitutional requirement of a justiciable case or controversy.” Id.
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Sections 7320(a)(1) and 7342(a), we conclude that Buyer may invoke Rule
311(a)(8) to implicate the jurisdiction of this Court.12
Having concluded that we properly may exercise jurisdiction sub judice,
we now turn to the merits of the issue on appeal. Distilled to its essence,
Buyer principally argues that the trial court erred in deciding a question of
procedural arbitrability, when such a question should have been reserved for
the arbitrator. See Buyer’s Brief at 25-29. Consequently, Buyer argues that
the trial court abused its discretion in overruling its preliminary objection in
the nature of a petition to compel arbitration.13 We agree.
The relevant standard and scope of review in this context are as follows:
Our review of a claim that the trial court improperly denied the appellant’s preliminary objections in the nature of a petition to compel arbitration is limited to determining whether the trial court’s findings are supported by substantial evidence and whether the trial court abused its discretion in denying the petition. In doing so, we employ a two-part test to determine ____________________________________________
12 Buyer had to file an appeal to preserve its objections to the order. See Pa.R.A.P. 311(g)(1)(iv) (“Failure to file an appeal from an interlocutory order refusing to compel arbitration, appealable under 42 Pa.C.S.A. § 7320(a)(1) and subparagraph (a)(8) of this rule, shall constitute a waiver of all objections to such an order.”).
13 To the extent Seller invites us to quash Buyer’s appeal based on judicial estoppel or Buyer’s seeming acquiescence to the trial court’s jurisdiction, we decline the invitation. Seller raises for the first time on appeal the argument that Buyer is judicially estopped from arguing that the Agreement contains an arbitration provision or that Buyer has consented to the trial court’s jurisdiction by participating in this litigation. Differently put, because Seller did not raise these issues in its answer to Buyer’s preliminary objections to Seller’s complaint, or at any other time before the trial court, Seller has waived them. See Pa.R.A.P. 301(a) (“Issues not raised in the lower court are waived and cannot be raised for the first time on appeal.”).
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whether the trial court should have compelled arbitration. First, we examine whether a valid agreement to arbitrate exists. Second, we must determine whether the dispute is within the scope of the agreement.
Whether a claim is within the scope of an arbitration provision is a matter of contract, and as with all questions of law, our review of the trial court’s conclusion is plenary. In making these determinations, courts must bear in mind: (1) arbitration agreements are to be strictly construed and not extended by implication; and (2) when parties have agreed to arbitrate in a clear and unmistakable manner, every reasonable effort should be made to favor the agreement unless it may be said with positive assurance that the arbitration clause involved is not susceptible to an interpretation that covers the asserted dispute. To resolve this tension, courts should apply the rules of contractual constructions, adopting an interpretation that gives paramount importance to the intent of the parties and ascribes the most reasonable, probable, and natural conduct to the parties. In interpreting a contract, the ultimate goal is to ascertain and give effect to the intent of the parties as reasonably manifested by the language of their written agreement.
Griest, 183 A.3d at 1022 (citations and quotation marks omitted).
“Pennsylvania has a well-established public policy that favors arbitration[.]”
MacPherson v. Magee Mem’l Hosp. for Convalescence, 128 A.3d 1209,
1219 (Pa. Super. 2015) (en banc) (citation omitted). In light of this policy
and as mentioned previously, “we employ a two-part test to determine
whether the trial court should have compelled arbitration.” Id. (citation
omitted). First, there must be a valid agreement between the parties to
arbitrate. Id. Second, the parties’ dispute must fall within the scope of the
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agreement.”14 Id. If the two-part test results in affirmative answers, then
“the controversy must be submitted to arbitration.” Davis v. Ctr. Mgmt.
Grp., LLC, 192 A.3d 173, 182 (Pa. Super. 2018) (citation omitted). The
resolution of the two-part test implicates substantive arbitrability, over which
the courts have jurisdiction. See Ross Dev. Co. v. Advanced Bldg. Dev.,
Inc., 803 A.2d 194, 199 (Pa. Super. 2002) (holding that courts, not
arbitrators, must decide questions of substantive arbitrability such as whether
there is a valid agreement to arbitrate and whether disputed claim is within
scope of agreement).
If, however, a trial court concludes that arbitration is not warranted
because of a party’s failure to satisfy certain conditions precedent necessary
to trigger arbitration, such a conclusion is in error. It is established that “the
question of substantive arbitration is for the courts while procedural arbitration
is left to the arbitrators.” Ross, 803 A.2d at 197. Procedural arbitration
subsumes issues relating to the satisfaction of conditions precedent to
arbitration.15 See id. at (“[T]he threshold issue of whether the failure to meet ____________________________________________
14“Whether a dispute is within the scope of an arbitration agreement is a question of law for which our scope of review is plenary.” Saltzman v. Thomas Jefferson Univ. Hosps., Inc., 166 A.3d 465, 471 (Pa. Super. 2017). 15 By way of background, the leading United States Supreme Court case on
procedural arbitrability is John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964). There, the Court explained the practical and policy reasons to separate procedural arbitrability from substantive arbitrability. See id. at 561-64 (“Once it is determined, as we have, that the parties are obligated to submit the subject matter of a dispute to arbitration, ‘procedural’ questions
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time limitations for submission of these claims to the architect is a condition
precedent for proceeding to arbitration is an issue for the arbitrators to initially
decide.”).
Here, the parties do not appear to dispute that the two-part test has
been satisfied, and we agree.16 As we have detailed above, Section 2.2.3 is
indeed an arbitration provision, even in the absence of the terms “arbitration”
or “arbitrator.” Furthermore, given the plain language of Section 2.2.3, the
parties’ dispute about the proposed PPA calculation squarely falls within the
scope of Section 2.2.3 of the Agreement, which expressly and only pertains
to the PPA.
The Proposed Purchase Price shall become final and binding upon the parties on the thirtieth (30th) day following the date on which the Proposed Purchase Price Adjustment was given to Seller in accordance with Section 12.7 below, unless Seller delivers ____________________________________________
which grow out of the dispute and bear on its final disposition should be left to the arbitrator.”). The Supreme Court reiterated this distinction in Howsam v. Dean Witters Reynolds, Inc., 537 U.S. 79 (2002). Substantive arbitrability issues are gateway questions about the scope of an arbitration provision and its applicability to a given dispute. Id. There is a presumption that the parties intended courts to decide issues of substantive arbitrability, that is, whether the provision covers the dispute. Id. at 82. The opposite presumption, however, applies to procedural arbitrability issues, such as waiver, or satisfaction of conditions precedent to arbitration. Id. at 83. That is, the parties presume that the arbitrator will decide these issues, and if a court decides them, the court commits reversible error. See id.
16 Seller does not argue that Section 2.2.3 of the Agreement is an arbitration
provision or that the PPA dispute would not be subject to Section 2.2.3. Rather, Seller contends that Buyer is judicially estopped from asserting that Section 2.2.3 is an arbitration provision and that Seller never issued a notice of disagreement to activate the appointment of an independent accounting firm under Section 2.2.3 of the Agreement.
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written notice of its disagreement with the Proposed Purchase Price Adjustment (“Notice of Disagreement”) to Buyer prior to such date. . . . If at the end of such thirty (30) day period the Buyer and Seller have not resolved in writing the matters specified in the Notice of Disagreement, Buyer and Seller shall submit to an independent accounting firm (the Accounting Firm), as shall be agreed upon by Buyer and Seller in writing, for determination of the Purchase Price Adjustment. . . . The Accounting Firm will resolve the dispute pursuant to such procedures that it establishes and deems fair and equitable, provided that Buyer and Seller must each be afforded an opportunity to provide a written submission in support of its position and to advocate for its position personally before the Accounting Firm. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced.
The Agreement, 11/4/16, at ¶ 2.2.3 (emphasis added). Based on the
foregoing, Section 2.2.3 of the Agreement contains an arbitration provision,
which covers the parties’ dispute relating to the PPA calculation.
Yet, the trial court reached an opposite conclusion with respect to
whether the parties’ PPA dispute fell within Section 2.2.3 of the Agreement.
In so doing, as Buyer points out, the trial court conflated the concepts of
substantive and procedural arbitrability. The court reasoned the PPA dispute
fell outside of the scope of Section 2.2.3 because it was unclear whether Seller
triggered the arbitration provision of Section 2.2.3 by issuing a notice of
disagreement. However, as mentioned earlier, the question of whether a
condition precedent to arbitration, such as a notice of disagreement here, has
been satisfied implicates procedural arbitrability, which is to be determined by
an arbitrator.
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In Ross, the appellant argued that once the trial court affirmatively
addressed questions of substantive arbitrability, it erred in resolving the issue
of whether the appellant had satisfied a condition precedent to arbitration,
i.e., submission of the appellant’s claim to an architect, under an arbitration
provision. On appeal, we agreed. In so doing, we noted:
[s]ince 1980, there has been a long line of cases that hold that if it appears that a dispute relates to a contract’s subject matter and the parties agreed to arbitrate, all issues of interpretation and procedure, including requirements preliminary to the presentation of any claims, are for the arbitrators to resolve.
Ross, 803 A.2d at 198-99 (citations omitted). We ultimately concluded that
the trial court may only address questions of substantive arbitrability such as
whether there is a valid arbitration agreement and whether the disputed claim
is within the scope of that agreement. Id. at 199. Because the trial court
ruled on a question of procedural arbitrability, such as timeliness in invoking
the arbitration clause and the merits of the dispute, we held that it “invaded
the province of the arbitrators when it considered questions of procedural
arbitrability.” Id.
Consistent with Ross and the foregoing authorities, we are constrained
to conclude that the trial court erred in failing to transfer the parties’ PPA
dispute to an independent accountant. Our review of the record reveals the
trial court decided an issue of procedural arbitrability, see Trial Court Opinon,
11/13/18, at 8 (“[I]t certainly appears that the independent accountant
process goes into effect only when there is a notice of disagreement.”), when
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it determined that it was unclear from the record whether Seller issued a
notice of disagreement sufficient to trigger the appointment of an accountant
under Section 2.2.3 of the Agreement. In so determining, the trial court
invaded the province of the arbitrator, tasked with resolving questions of
procedural arbitrability. Again, because the parties agreed to arbitration
(appointment of an independent accountant) under Section 2.2.3 of the
Agreement, which applies to their PPA dispute, it was an error for the trial
court to address procedural arbitrability. Accordingly, we conclude that the
trial court abused its discretion in overruling Buyer’s preliminary objections to
Seller’s complaint and failing to transfer the dispute to an independent
accountant.17, 18
Order reversed. Cased remanded. Jurisdiction relinquished.
17 “Typically, a trial court’s order directing a dispute to arbitration will not be
deemed final, as it does not address the merits of the parties’ claims but merely transfers their existing dispute to another forum in accordance with the arbitration provision of the underlying contract.” Fastuco v. L.W. Molnar & Assocs., 950 A.2d 980, 986 (Pa. Super. 2008) (citation omitted).
18 Although we discuss Dockets 1 and 2 for purposes of providing a complete
picture of the PPA dispute at issue, we note that our decision relates only to Docket 3 and does not affect the procedural posture of the Petition (Docket 1) or Buyer’s complaint (Docket 2).
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Judgment Entered.
Joseph D. Seletyn, Esq. Prothonotary
Date: 08/27/2019
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