Chongqing Kangning v. Conrex Pharmaceutical Corp. ( 2021 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
CHONGQING KANGNING : IN THE SUPERIOR COURT OF
BIOENGINEERING CO., LTD : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 939 EDA 2020
CONREX PHARMACEUTICAL CORP :
Appeal from the Order Entered February 20, 2020
In the Court of Common Pleas of Chester County Civil Division at No(s):
No. 2019-08925-CT
BEFORE: KUNSELMAN, J., NICHOLS, J., and PELLEGRINI, J.*
MEMORANDUM BY NICHOLS, J.: FILED: APRIL 19, 2021
Appellant Chongquing Kangning Bioengineering Co., Ltd., appeals from
the order overruling its preliminary objections, which requested arbitration on
the counterclaims filed by Appellee Conrex Pharmaceutical Corp.1 Appellant
contends that the trial court erred by not recognizing that the two agreements
at issue are related but separate independent agreements and by holding that
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* Retired Senior Judge assigned to the Superior Court.
1 “An order overruling preliminary objections is an interlocutory order. The
law is clear, however, that an order overruling preliminary objections that seek
to compel arbitration is an interlocutory order appealable as of right pursuant
to 42 Pa.C.S. § 7320(a)(1) and Pa.R.A.P. 311(a)(8).” In re Estate of
Atkinson, 231 A.3d 891, 897-98 (Pa. Super. 2020). “Because this case was
decided on preliminary objections, we rely on the facts as alleged in the
complaint, including its exhibits.” Khawaja v. RE/MAX Central, 151 A.3d
626, 627 n.1 (Pa. Super. 2016) (citation omitted). We may cite to the parties’
reproduced record for their convenience.
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Appellant waived its right to arbitration. Appellant concedes in its brief that
the agreements are related, but argues that as a matter of law that the
agreements are treated as separate. We agree and reverse.
We state the facts as pled in Appellant’s complaint. Appellant is a
Chinese corporation, and Appellee is a Pennsylvania corporation. R.R. at 1a.
On October 18, 2012, the parties executed a contract (October 2012 contract)
in which Appellant was the exclusive agent of Appellee’s skincare products in
China. Id. at 2a. The October 2012 contract contains a mandatory arbitration
clause, which states in relevant part that “the parties shall resolve any dispute
arising from this contract through negotiation. If no agreement can be
reached, [the parties] both agree” to arbitration. Id. at 58a (formatting
altered).
Per the October 2012 contract, Appellant paid Appellee $599,985.00 “for
products and services and also advances for future products and services.”
Id. at 2a. Appellee delivered goods and services worth around $354,811.13.
Id. Appellant contends that after costs and other expenses, Appellee still
owes Appellant at least $243,192.41. Id.In a November 16, 2018 letter (2018 confirmation letter) signed by the
parties, they agreed that Appellee owed Appellant $243,192.41:
[Appellant] and [Appellee] executed the [October 2012 contract].
[Appellant’s] financial records show we made a number of
payments totaling $599,985.00 US dollars for the ordered goods
pursuant to the above Agreement and [Appellee] has delivered
goods and charged for the associated costs, which total
$345,811.13 US dollars, as of October 12, 2018.
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Our President Wang Qiong and your President Phyllis Hsieh hereby
agree on the following accounts after their audit of the delivery of
goods and the transfer of funds: . . . .
Id. at 79a. Attached to the letter were tables and exhibits listing financial
transactions, which essentially showed that Appellee owed Appellant
$243,192.41. See, e.g., id. at 91a.
On March 6, 2019, Appellee sent a letter to Appellant to terminate the
October 2012 contract. Id. at 3a. Appellant countered that Appellee could
not unilaterally terminate the October 2012 contract, but was willing to end
the business relationship as long as Appellee repaid Appellant the amount still
owed. Id.Appellee failed to repay, however, which resulted in Appellant filling the
instant complaint on September 4, 2019, against Appellee. Id. at 1a.
Appellant sued Appellee for breach of the 2018 confirmation letter, unjust
enrichment, conversion, and account stated. Id. at 1a-5a. Appellant
requested damages in the amount owed of $243,192.41, plus interest, costs,
and expenses. Id. at 5a.
On October 9, 2019, Appellee filed an answer, new matter, and
counterclaims. Id. at 12a. Specifically, Appellee filed counterclaims for
breach of the October 2012 contract and for unfair competition. Id. at 19a-
20a. On December 4, 2019, Appellant filed preliminary objections, which
contended that Appellee’s counterclaims based on the October 2012 contract
were subject to that contract’s mandatory arbitration clause. Id. at 36a, 40a.
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On February 20, 2020, the trial court overruled Appellant’s preliminary
objections and ordered Appellant to file an answer to Appellee’s counterclaims.
Order, 2/20/20. In relevant part, the trial court concisely held that the “two
alleged contracts are intertwined.” Id. at n.1.2 The trial court further held
that Appellant, “[b]y initiating the instant action for breach of the [2018
confirmation letter] which would not exist without the [October 2012 contract,
Appellant] has waived its right to demand arbitration on [Appellee’s]
counterclaims.” Id.; accord Trial Ct. Op., 4/29/20, at 2-3.
On March 20, 2020, Appellant filed a timely notice of appeal.3 Appellant
timely filed a court-ordered Pa.R.A.P. 1925(b) statement.
Appellant raises the following issue on appeal:
1. Did the trial court err as a matter of law by failing to recognize
that the 2018 confirmation letter—an agreement with no
arbitration provision—is separate and distinct from the [October
2012 contract]?
2. Did the trial court err as a matter of law in finding [Appellant]
intentionally waived the mandatory arbitration provision in the
[October 2012 contract] when [Appellant] only asserted claims
arising from a 2018 confirmation letter containing no such
provision, and [Appellant] used its first opportunity to seek
dismissal of counterclaims that are properly adjudicated through
binding arbitration?
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2The trial court cited no legal authorities in support of its holding or otherwise
explained its legal reasoning on this point.
3 Meanwhile, on March 5, 2020, Appellant filed a motion for reconsideration.
On March 25, 2020, the trial court dismissed Appellant’s motion for
reconsideration as moot due to the pending appeal. Order, 3/25/20.
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Appellant’s Brief at 5 (formatting altered).
In support of its first issue, Appellant argues that the 2018 confirmation
letter is an agreement separate from the October 2012 contract. Id. at 13.
In Appellant’s view, those two agreements are separate because there was no
integration clause in the 2018 confirmation letter incorporating the October
2012 contract. Id. at 13-14. Appellant notes that the October 2012 contract
“deals with the parties establishing their relationship six years [prior to the
2018 confirmation letter] and addresses events that might happen in the
future, such as trademark usage, product purchasing, and ownership of goods
outlined therein” and was made under circumstances different than the 2018
confirmation letter. Id. at 15. Appellant contends that because the 2018
confirmation letter stands independently and does not contain an arbitration
provision, the parties cannot arbitrate any counterclaims related to the 2018
confirmation letter.4 Id. at 15.
The Atkinson Court set forth our standard of review as follows:
[W]e employ a two-part test to determine 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 written contract includes an arbitration agreement and
whether the parties’ dispute is within the scope of the arbitration
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4 Appellee primarily argued that Appellant waived its right to arbitration.
Appellee’s Brief at 3-4. In response to Appellant’s contention that the 2018
confirmation letter is a separate agreement, Appellee concisely argued that
the 2018 confirmation letter “manifestly is not a separate agreement.” Id. at
4.
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agreement are questions of law subject to this Court’s plenary
review.
Atkinson, 231 A.3d at 897-98 (citations omitted and formatting altered).
Here, no party disputes that the October 2012 contract has a valid
arbitration clause. See R.R. at 58a; Order, 2/20/20, at 1 n.1; Atkinson, 231
A.3d at 897-98. Therefore, we examine whether the instant dispute involving
the 2018 confirmation letter is within the scope of the October 2012 contract’s
arbitration clause, i.e., whether the two writings are intertwined. See
Atkinson, 231 A.3d at 897-98.
In determining whether two writings should be considered the same or
distinct agreements, we are guided by the following:
If contracting parties choose, they may express their agreement
in one or more writings and, in such circumstances, the several
documents are to be interpreted together, each one contributing
(to the extent of its worth) to the ascertainment of the true intent
of the parties. And, where it can be shown by competent evidence
that no single writing embodied or was intended to embody the
whole of the parties’ understanding, the parol evidence rule has
no application.
Int’l Milling Co. v. Hachmeister, Inc., 110 A.2d 186, 191 (Pa. 1955)
(citations omitted).5 “So if two or more agreements are executed at different
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5 Like the Int’l Milling Court, in Neville v. Scott, 127 A.2d 755 (Pa. Super.
1956), the Court stated that “[w]here several instruments are made as part
of one transaction they will be read together, and each will be construed with
reference to the other; and this is so although the instruments may have been
executed at different times and do not in terms refer to each other.” Neville,
127 A.2d at 757 (citations omitted).
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times as parts of the same transaction they will be taken and construed
together.” Wilson v. Viking Corp., 3 A.2d 180, 183 (Pa. Super. 1938)
(citation omitted).
“Where contracts are put into several instruments, each of which has a
sensible meaning and may have a full operation by itself, it would be a
hazardous assumption to put them together for the purpose of making them
mean, as one, something different from what they could in a separate state.”
Small v. Small, 137 A.2d 870, 873 (Pa. Super. 1958) (citation omitted). If
the two contracts are separate and independent, then a “breach on one,
therefore, cannot be the basis of default in the other.” Id.There are several types of writings that are defined as contracts as a
matter of law. For example, an “account stated” is “an account in writing
examined and accepted by both parties.” Leinbach v. Wolle, 61 A. 248 (Pa.
1905) (per curiam). It is “an agreement to, or acquiescence in, the
correctness of the account [owed], so that in proving the account stated, it is
not necessary to show the nature of the original transaction, or indebtedness,
or to set forth the items entering into the account.” David v. Veitscher
Magnesitwerke Actien Gesellschaft, 35 A.2d 346, 349 (Pa. 1944).6 One
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6 Accord 13 Standard Pa. Practice 2d § 13:122 (explaining that an “‘account
stated’ is an independent contract that arises from the rendition of an account
and the failure of the debtor, for a reasonable time, to object thereto”
(footnote omitted)).
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federal district court aptly distilled Pennsylvania law in explaining that an
“account stated” is a form of contract:
an “account stated” is just a variety of contract. It is an
agreement between debtors and creditors. The parties agree to a
consolidated statement of debt, give up their right to bring suit on
any of the underlying debts, and create a duty to pay.
Restatement (Second) of Contracts § 282 (1981);[7] Restatement
of Contracts § 422(1) (1932). The “account stated” is “a debt as
a matter of contract implied by law. It is to be considered as one
debt, and a recovery may be had upon it without regard to the
items which compose it.” 29 Williston on Contracts § 73:58
(2007).
Richburg v. Palisades Collection LLC, 247 F.R.D. 457, 465 (E.D. Pa. 2008)
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7 The Restatement (Second) of Contracts § 282 defines “account stated” as
follows:
(1) An account stated is a manifestation of assent by debtor and
creditor to a stated sum as an accurate computation of an amount
due the creditor. A party’s retention without objection for an
unreasonably long time of a statement of account rendered by the
other party is a manifestation of assent.
(2) The account stated does not itself discharge any duty but is
an admission by each party of the facts asserted and a promise
by the debtor to pay according to its terms.
Restatement (Second) of Contracts § 282 (1981). Similarly, “an ‘account
stated’ is an agreement, based on prior transactions between the parties, that
the items of the account are true and that the balance previously arrived at is
due and owing by the debtor to the creditor. When the account has thus been
assented to, it becomes a new contract.” See 29 Williston on Contracts §
73:55 (4th ed.) (2020). “An account stated is nothing more or less than a
contract express or implied between the parties. It is an agreement which
they have come to regarding the amount due on past transactions.” Id.
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(summarizing Pennsylvania law);8 Donahue v. City of Phila., 41 A.2d 879,
880-81 (Pa. Super. 1945) (quoting Restatement of Contracts § 422, in
resolving account stated issue).
The effect of an account stated is that
the amount or balance so agreed upon constitutes a new
and independent cause of action, superseding and merging
the antecedent causes of action represented by the
particular items. It is a liquidated debt, as binding as if
evidenced by a note, bill or bond. Though there may be no
express promise to pay, yet from the very fact of stating the
account the law raises a promise as obligatory as if
expressed in writing, to which the same legal incidents
attach as if a note or bill were given for the balance.
Richburg, 247 F.R.D. at 464-65 (some citations omitted and formatting
altered); accord Donahue, 41 A.2d at 880-81.
Here, Appellee has not argued or otherwise cited to anything of record
establishing that the October 2012 contract must be taken and construed
together with the 2018 confirmation letter, i.e., the October 2012 contract
was not “intended to embody the whole of the parties’ understanding.” See
Int’l Milling, 110 A.2d at 191; Wilson, 3 A.2d at 183; see also Appellee’s
Brief at 4 (asserting that the 2018 confirmation letter is “manifestly . . . not a
separate agreement”). In other words, Appellee has not identified “competent
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8 “Federal district court decisions offer this Court persuasive, but not binding,
authority.” Nicholas v. Hofmann, 158 A.3d 675, 690 n.21 (Pa. Super. 2017)
(citation omitted). The Richburg court was examining whether an account
stated claim was subject to Pennsylvania’s four-year statute of limitations for
contracts. Richburg, 247 F.R.D. at 464.
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evidence” that when the parties executed the October 2012 contract, they
intended to execute another instrument six years later that would form the
whole of the parties’ understanding. See Int’l Milling, 110 A.2d at 191;
Wilson, 3 A.2d at 183. To paraphrase Small, no evidence exists that the
instant parties contemplated or otherwise required the execution, six years
later, of the 2018 confirmation letter in order for them to comply with their
contractual obligations under the October 2012 contract, including “trademark
usage, product purchasing, and ownership of goods.” See Appellant’s Brief
at 15; Small, 137 A.2d at 873.
Furthermore, the 2018 confirmation letter states that the parties
“hereby agree on the following accounts after their audit of the delivery of
goods and the transfer of funds,” and the amount of $243,191.41 owed by
Appellee to Appellant. R.R. at 79a, 91a. In our view, the 2018 confirmation
letter fulfills the requirements of an “account stated,” i.e., an independent
contract. See David, 35 A.2d at 349; accord Richburg, 247 F.R.D. at 465.
As in David and Donohue, Appellant and Appellee agreed upon the
correctness of the amount owed. See David, 35 A.2d at 349; Donahue, 41
A.2d at 880-81; accord Richburg, 247 F.R.D. at 465. For these reasons, we
conclude the trial court erred as a matter of law in holding that the October
2012 contract was intertwined with the 2018 confirmation letter. See
Atkinson, 231 A.3d at 897-98.
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Because we have granted relief on Appellant’s first issue, we need not
address its remaining issue. See Fell v. 340 Assocs., LLC, 125 A.3d 75, 84
n.13 (Pa. Super. 2015). We note, however, that the trial court’s holding,
which was that Appellant waived its right to request arbitration on Appellee’s
counterclaims, is dependent upon its erroneous reasoning that the 2018
confirmation letter is intertwined with the October 2012 contract. See Trial
Ct. Op., 4/29/20, at 2; Order, 2/20/20, at 1 n.1. It follows that the trial court
erred in holding that Appellant waived its right to arbitrate any disputes arising
from the separate, distinct, and independent October 2012 contract. 9 See
Trial Ct. Op., 4/29/20, at 2.
In sum, we hold that the October 2012 contract and the 2018
confirmation letter, although related, are two distinct, separate, and
independent agreements. We also hold that the trial court erred in ruling that
Appellant waived its right to request arbitration of Appellee’s counterclaims.
For these reasons, we reverse the order overruling Appellant’s preliminary
objections.
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9 Regardless, the trial court erred by not properly applying the five-factor test
set forth in O’Donnell v. Hovnanian Enterprises, Inc., 29 A.3d 1183 (Pa.
Super. 2011), and Maxatawny Twp. v. Kutztown Borough, 113 A.3d 895(Pa. Cmwlth. 2015). Specifically, the trial court failed to resolve whether
Appellant “(1) failed to raise the issue of arbitration promptly, (2) engaged in
discovery, (3) filed pretrial motions which do not raise the issue of arbitration,
(4) waited for adverse rulings on pretrial motions before asserting arbitration,
or (5) waited until the case is ready for trial before asserting arbitration.” See
O’Donnell, 29 A.3d at 1187 (formatting altered).
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Order reversed. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/19/21
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