Salutations, Inc. v. Paradies Shops

J-A05020-19
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SALUTATIONS, INC. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
PARADIES SHOPS, L.L.C., A LIMITED :
LIABILITY COMPANY, PARADIES :
HOLDINGS, LLC, A LIMITED : No. 957 WDA 2018
LIABILITY COMPANY, THE PARADIES :
SHOPS, INC., A CORPORATION, THE :
PARADIES SHOPS, LLC, A LIMITED :
LIABILITY COMPANY, PARADIES- :
PITTSBURGH, LLC, A LIMITED :
LIABILITY COMPANY, PARADIES-PIT, :
LLC, A LIMITED LIABILITY COMPANY, :
GREGG PARADIES, AN INDIVIDUAL, :
JAMES PARADIES, AN INDIVIDUAL, :
RICHARD L. DICKSON, AN :
INDIVIDUAL, DON MAREK, AN :
INDIVIDUAL, AND KAREN LEACH :
SUTTLE, AN INDIVIDUAL :
:
Appellants :
Appeal from the Order Entered June 4, 2018
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): GD-16-23964
BEFORE: GANTMAN, P.J.E., SHOGAN, J., and MURRAY, J.
MEMORANDUM BY SHOGAN, J.: FILED OCTOBER 29, 2019
J-A05020-19
Appellants, Paradies Shops, L.L.C., et al., appeal from the order
overruling their preliminary objections seeking to compel arbitration in this
civil matter brought by Appellee, Salutations, Inc.1 We affirm.
Appellants are in the business of securing retail concession opportunities
in public airports throughout the United States. Amended Complaint, 3/29/17,
at ¶ 28. Pursuant to federal law, a certain percentage of concessions at
publicly funded airports should include small business concerns owned and
controlled by socially and economically disadvantaged individuals as defined
in Section 47113(a) of Title 49 of the United States Code. 49 U.S.C.
§§47107(e) and 47113(a). In 2001, Appellants reached an agreement with
Pittsburgh International Airport’s leasing company to become a concessionaire
of at least seven shops at the airport, with the requirement that Appellants
would do so with a disadvantaged partner. Amended Complaint, 3/29/17, at
¶ 52-53. As a possible partner, Appellants sought out Appellee, a local
____________________________________________
1 “As a general rule, an order [overruling] a party’s preliminary objections is
interlocutory and, thus, not appealable as of right.” Callan v. Oxford Land
Development, Inc., 858 A.2d 1229, 1232 (Pa. Super. 2004). However, we
note that the appeal, taken from an order denying a motion to compel
arbitration in the form of a preliminary objection, is properly before us
pursuant to Pa.R.C.P. 1028(a)(6) and Pa.R.A.P. 311(a)(8). See also Midomo
Company Inc. v. Presbyterian Housing Development Company, 739
A.2d 180, 183 (Pa. Super. 1999) (holding an order denying the preliminary
objections alleging alternative dispute resolution and requesting that the court
order a party to arbitrate the dispute is an interlocutory order appealable as
of right pursuant to Pa.R.A.P. 311(a)(8), Pa.R.C.P. 1028(a)(6), and 42 Pa.C.S.
§§ 7342(a), 7320(a)(1), and 7304(a)). Therefore, this appeal is properly
before this Court.
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company owned by an African American. Id. at 56-57. Eventually, Appellee
agreed to form a company with Appellants in exchange for twenty percent
ownership interest in the enterprise, a management fee equal to one percent
of the gross revenues, and a substantive managerial role in the operation.
The parties executed an Operating Agreement with an effective date of April
26, 2001.
On December 8, 2016, Appellee filed a complaint raising seven counts.
On February 6, 2017, Appellants filed preliminary objections attempting to
compel arbitration as to the breach of contract claim. On March 29, 2017,
Appellee filed an amended complaint raising eight counts. On May 3, 2017,
Appellants filed second preliminary objections seeking to compel arbitration of
all counts in the amended complaint based upon a provision in an unsigned
management agreement. On June 8, 2017, Appellee filed preliminary
objections and an answer alleging there was no legal basis upon which to
compel arbitration. On June 30, 2017, Appellants filed amended preliminary
objections.
The trial court held a hearing on May 15, 2018. On June 4, 2018, the
trial court entered an order overruling Appellants’ preliminary objections
seeking arbitration. This timely appeal followed. The trial court did not order
Appellants to file a Pa.R.A.P. 1925(b) statement. The trial court entered an
order pursuant to Pa.R.A.P. 1925(a), indicating that the reasons for its
decision are found in the June 4, 2018 opinion.
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Appellants present the following issues for our review:
1. Did the trial court commit an error of law by overruling
[Appellants’] Preliminary Objections and refusing to compel
arbitration where there exists a valid, enforceable arbitration
agreement between the parties?
1a. Did the trial court err by applying Pennsylvania law to interpret
enforceability of the Management Agreement written under and
incorporating Georgia law, including the arbitration provision
contained therein?
1b. Did the trial court err by holding that the Management
Agreement, and the arbitration provision contained therein, is
unenforceable because that [sic] the Agreement is unsigned?
1c. Did the trial court err by failing to consider the signed
Promissory Note that ratifies the Management Agreement by
word, act, and course of conduct?
1d. Did the trial court err by holding that [Appellee’s] conduct over
the course of a 15-year period (during which time it assented to
the essential terms of the Management Agreement) would result
in only piecemeal ratification and not ratification of the Agreement
in toto, including the arbitration provision?
1e. Did the trial court err by holding that Salutations’ did not waive
its right to enforce the provision in the parties’ Operating
Agreement requiring the written consent of at least eighty-one
percent (81%) of the members holding an equity interest in
Paradies-Pittsburgh prior to entering into the Management
Agreement?
1f. Did the trial court err by failing to determine whether
Salutations’ claims against Paradies are within the scope of the
arbitration provision in the Management Agreement?
Appellant’s Brief at 5-6 (footnote omitted) (reordered for disposition).
First, we note appellate briefs must materially conform to the briefing
requirements set forth in the Pennsylvania Rules of Appellate Procedure.
Pursuant to Pa.R.A.P. 2101, when a party’s brief fails to conform to the rules
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of appellate procedure and the defects are substantial, an appellate court may,
in its discretion, quash or dismiss the appeal. Pa.R.A.P. 2101.
Here, we observe that Appellants’ brief does not comply with Pa.R.A.P.
2119, which provides, in pertinent part, as follows:
(a) General rule. The argument shall be divided into as
many parts as there are questions to be argued; and shall
have at the head of each part--in distinctive type or in type
distinctively displayed--the particular point treated therein,
followed by such discussion and citation of authorities as are
deemed pertinent.
Pa.R.A.P. 2119(a) (emphasis added). The argument portion of Appellants’
brief is not divided into as many parts as there are questions to be argued
because the argument portion contains one main issue that is divided into
eight distinctive subparts, yet Appellants list one main issue with six subparts
in their “statement of the questions presented.” Appellants’ Brief at 5-6.
Because each of the points raised by Appellants in the argument portion of
their brief and each of the points presented in the “statement of the questions
presented” essentially challenges whether the trial court properly overruled
Appellants’ preliminary objections, we will consider Appellants’ claims. Thus,
while these defects in Appellant’s brief are significant, they do not preclude
our review of this matter and we will proceed with our review.
Appellants first argue that Georgia law applies to determine the
enforceability of the management agreement. Appellants’ Brief at 17-20.
Appellants contend that the trial court erred in concluding that Pennsylvania
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law applies to the validity and enforcement of a management agreement and
its arbitration clause. Id. at 17.
To determine whether Pennsylvania law or Georgia law applies to the
current dispute, we apply Pennsylvania choice of law principles, which use a
combination of the “government interest” analysis and the “significant
relationship” approach of Section 145 of the Restatement (Second) of
Conflicts. Griffith v. United Air Lines, Inc., 203 A.2d 796, 805 (Pa. 1964).
By using this hybrid test, courts can analyze “the policies and interests
underlying the particular issue before the court.” Id. Under Pennsylvania
choice of law rules, we first look to see if the laws of the competing states
actually differ. Ratti v. Wheeling Pittsburgh Steel Corp., 758 A.2d 695,
702 (Pa. Super. 2000). If there is no conflict, the inquiry ends; Pennsylvania
law applies. Id.
Choice of law analysis is limited to conflicts of substantive law. Wilson
v. Transport Ins. Co., 889 A.2d 563, 571 (Pa. Super. 2005). “Substantive
law is the portion of the law which creates the rights and duties of the parties
to a judicial proceeding, whereas procedural law is the set of rules which
prescribe the steps by which the parties may have their respective rights and
duties judicially enforced.” Ferraro v. McCarthy-Pascuzzo, 777 A.2d 1128,
1137 (Pa. Super. 2001).
We begin by considering whether the laws of Pennsylvania and Georgia
differ with regard to the validity and enforcement of the management
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agreement and its arbitration clause. As Appellee aptly states, “[Appellants
do] not argue, nor can [they], that an actual conflict exists.” Appellee’s Brief
at 23 (citing Appellants’ Brief at 18-19). Further, Appellee asserts that “no
distinction exists between Pennsylvania law and Georgia law regarding the
validity and enforceability of a purported agreement to arbitrate.” Appellee’s
Brief at 22. In addition, the trial court reached the same conclusion, stating:
“[The trial court] conclude[s] that there is no material or meaningful
substantive distinction between the law of Pennsylvania and the law of Georgia
with respect to the contested issues between the parties, including the
question of the arbitrability of their disagreements.” Trial Court Opinion,
6/4/18, at 2.
Our review reflects that Appellants concede there is no conflict. In their
appellate brief, Appellants state, “[E]ven if Pennsylvania law were applicable,
the outcome remains the same, as both Georgia and Pennsylvania law concur
that [Appellee’s] claims for management fees in this case are arbitrable as a
matter of law.” Appellants’ Brief at 17-18. Because the parties have neither
identified nor established any conflict between the laws of Pennsylvania and
the laws of Georgia in this matter, we decline to engage in a choice of law
analysis. Hence, we will apply Pennsylvania law in determining the issues
presented herein.
The remainder of Appellants’ arguments purport to prove the existence
of a management agreement between the parties, which included an
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arbitration provision. Appellants contend that the management agreement,
along with its arbitration clause, is enforceable despite the fact that the
document was not signed. Appellants’ Brief at 22-25. Appellants claim the
fact that there is no signed management agreement is of no moment because
Appellee’s “assent [to the terms of the agreement] was unequivocally
manifested through words and conduct, and the fact that the Management
Agreement is unsigned is inconsequential to its enforceability.” Id. at 23.
Our review of the denial of the 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.” Pisano v. Extendicare Homes, Inc., 77 A.3d 651, 654 (Pa.
Super. 2013). The party alleging the existence of a valid arbitration
agreement has the burden of proof on that issue. Washburn v. Northern
Health Facilities, Inc., 121 A.3d 1008 (Pa. Super. 2015). We apply a two-
part test. “First, we examine whether a valid agreement to arbitrate exists.
Second, we must determine whether the dispute is within the scope of the
agreement.” Pisano, 77 A.3d at 654-655.
Since arbitration is a matter of contract, a party cannot be compelled to
arbitrate unless he or his agent have agreed to do so. Bair v. Manor Care
of Elizabethtown, PA, LLC, 108 A.3d 94 (Pa. Super. 2015). “Whether an
agreement to arbitrate disputes exists is a question of law.” Neuhard v.
Travelers Ins. Co., 831 A.2d 602, 604 (Pa. Super. 2003). Thus, our standard
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of review is limited to determining whether the trial court committed an error
of law and our scope of review is plenary. McNulty v. H&R Block, Inc., 843
A.2d 1267, 1271 (Pa. Super. 2004).
In addition, “arbitration agreements are to be strictly construed and not
extended by implication.” Fellerman v. PECO Energy Co., 159 A.3d 22, 26-
27 (Pa. Super. 2017). “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.” Id.
However, “[b]efore a contract can be found, all of the essential elements
of the contract must exist.” Johnston the Florist, Inc. v. TEDCO Constr.
Corp., 657 A.2d 511, 516 (Pa. Super. 1995). “It is black letter law that in
order to form an enforceable contract, there must be an offer, acceptance,
consideration, or mutual meeting of the minds.” Walton v. Johnson, 66 A.3d
782, 786 n.3 (Pa. Super. 2013) (citation omitted).
The question whether an undisputed set of facts establishes
a contract is a matter of law. Because contract interpretation is a
question of law, this court is not bound by the trial court’s
interpretation. An offer may be accepted by conduct and what the
parties do pursuant to the offer is germane to show whether the
offer is accepted. Furthermore, it is a basic principle of the law of
contracts that an acceptance must be unconditional and absolute.
Whether particular conduct expresses an offer and acceptance
must be determined on the basis of what a reasonable person in
the position of the parties would be led to understand by such
conduct under all of the surrounding circumstances.
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Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alternatives, Inc., 764
A.2d 587, 593 (Pa. Super. 2000) (citations and quotation marks omitted).
An alleged acceptance of an offer is not unconditional and,
therefore, is not an “acceptance” if it materially alters the terms
of the offer. As such, a reply which purports to accept an offer,
but instead changes the terms of the offer, is not an acceptance,
but, rather, is a counter-offer, which has the effect of terminating
the original offer. Further, it is well established that the
acceptance of any offer or counter-offer must be “unconditional
and absolute.”
Yarnall v. Almy, 703 A.2d 535, 538-539 (Pa. Super. 1997) (citations
omitted). In addition, an offeree’s power of acceptance may be terminated
by rejection or by a counteroffer that materially alters the terms of the offer.
Shaer v. Orthopaedic Surgeons of Cent. Pa., LTD., 938 A.2d 457, 463 n.5
(Pa. Super. 2007).
Our review of the certified record reflects that Appellants have failed to
present a signed document reflecting an agreement to arbitrate. Instead, the
record reveals that Appellants appended to their preliminary objections filed
on February 6, 2017, an unsigned copy of a management agreement
between the parties. Preliminary Objections, 2/6/17, Exhibit B. This
management agreement contains an arbitration provision.2 Id. at 8, § 8.8.
____________________________________________
2 The arbitration provision consists of the following language:
8.8. Arbitration; Sole Remedy. Any controversy or claim arising
out of or relating to this Agreement, or the breach thereof, shall
be settled only by arbitration in Atlanta, Georgia in accordance
with the Commercial Arbitration Rules of the American Arbitration
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In his deposition testimony, Andre L. Young, the sole owner of Appellee,
testified that when presented with this particular management agreement Mr.
Young and his attorney, Edward J. Kabala, rejected it. Young Deposition,
2/12/18, at 76-78. Mr. Young explained that he had never signed the
document or agreed to its terms. Id. at 174-175. In addition, Mr. Young
stated that “[a]fter [the management agreement] was rejected, it was never
mentioned again, never brought up again.” Id. at 78. Likewise, Mr. Kabala
testified that the management agreement was among the documents rejected
in a letter sent July 19, 2001, from Mr. Kabala to Richard L. Dickson, an officer
of the entities comprising Appellees. Kabala Deposition, 3/20/18, at 68-71.
Furthermore, it is undisputed that, although Appellee rejected the
management agreement, the parties subsequently signed an Operating
____________________________________________
Association (“AAA”). The arbitrator shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
within thirty (30) days after the notice of such party’s desire to
have the question settled by arbitration, then the arbitrator shall
be selected by the AAA. The determination reached in such
arbitration shall be final and binding on all parties hereto without
any right of appeal or further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. Unless otherwise agreed by the parties,
any such arbitration shall be conducted in accordance with the
rules of the AAA. The party not prevailing in arbitration shall bear
all of the costs (including attorneys’ fees and expenses) of each
party participating in the arbitration[.]
Preliminary Objections, 2/6/17, Exhibit B, at 8, § 8.8 (emphasis in original).
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Agreement with an effective date of April 26, 2001. The Operating Agreement
does not contain an arbitration clause.
Our review also reveals that in May of 2010, Appellee received another
proposed management agreement from Appellants, Young Deposition, Exhibit
19, which Appellee also refused to sign. Young Deposition, 2/12/18, at 167-
170. Mr. Young stated that he did not sign the management agreement he
received because “[t]hey had terms in them that we didn’t agree with.” Id.
at 169. Mr. Young indicated that he rejected the document in a May 2010
conversation with Don Marek, the vice-president of finance for all of the
Paradies entities. Id. at 51-53.
In their preliminary objections to Appellee’s amended complaint filed
May 3, 2017, Appellants presented a copy of yet another unsigned
management agreement. Preliminary Objections, 5/3/17, Exhibit B. This
document also contains an arbitration provision, which consisted of the exact
language as the provision appearing in the prior management agreement
appended to the earlier preliminary objections. Id. at 9, § 8.8. In his
deposition testimony, Mr. Young expressed that he had never seen a copy of
the management agreement appended to Appellants’ preliminary objections
to Appellee’s amended complaint until Appellants filed the document on May
3, 2017. Young Deposition, 2/12/18, at 172. Specifically, the following
transpired during Mr. Young’s deposition testimony:
Q. Mr. Young, I’m showing you what we’ve marked as Deposition
Exhibit No. 20, and I apologize for the size of the document, but
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I’ll represent to you that this is the document that was filed on
May 3, 2017, by the [Appellants] in this litigation and the
document is entitled [Appellants’] Preliminary Objections to
[Appellee’s] First Amended Complaint Raising Issues of Fact. Do
you see that?
A. Yes.
Q. The last roughly ten pages of the document, of Exhibit 20 --
***
Q. -- contain a document bearing the caption Management
Agreement. See if you can get to that page.
***
Q. Okay. So this is a document that’s attached to [Appellants’]
Preliminary Objections to [Appellee’s] First Amended Complaint
Raising Issues of Fact filed on May 3, 2017. Do you see that?
A. Yes.
Q. Now, the document has a title on the first page called
Management Agreement. Do you see that?
A. Yes.
Q. And then it has -- in the first line it has some language. It
says, “Is made and entered into as of the 26th day of April, 2001.”
Do you --
A. Yes.
Q. -- see that language?
A. Yes.
Q. Okay. When was the first time that you ever saw that
document which is attached to Deposition Exhibit 20 filed on May
3, 2017?
A. On May the 17th when we received this, when I received this.
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Q. When I sent that to you
A. Yes, when you sent this to me.
Q. -- after they filed it?
A. Yes. That’s the first time I’ve seen that document.
Q. Was a copy of this document attached to Deposition Exhibit 20
filed on May 3, 2017, was a copy of that document in any of your
files prior to the filing of this lawsuit?
A. No.
Q. Did you ever sign the document attached to Deposition Exhibit
20?
A. No.
Q. Did you ever agree to the terms of the document attached to
Deposition Exhibit 20?
A. No.
Young Deposition, 2/12/18, at 170-173.
Ultimately, Mr. Young testified that he never entered into any agreement
with Appellants that would require disputes to be arbitrated in Georgia:
Q. Mr. Young, have you ever agreed to or signed any document
with any of [Appellants] in which Salutations agreed to arbitrate
disputes in the state of Georgia?
A. No.
Q. Did you ever enter into any oral agreement with any of
[Appellants] to arbitrate disputes in the state of Georgia?
A. No.
Id. at 175-176.
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In light of the facts set forth above, we conclude that Appellee never
accepted or entered into any management agreement with Appellants that
would have compelled arbitration. As the trial court aptly stated, “the lack of
the existence of a signed written agreement incorporating an arbitration
clause is ultimately fatal to [Appellants’] demand for arbitration.” Trial Court
Opinion, 6/4/18, at 2. Indeed, not only are the management agreements
contained in the record unsigned by either party, there is specific testimony
from Mr. Young that he rejected the two proposed management agreements
that were offered to him, and the third management agreement appended to
Appellants’ second set of preliminary objections was never presented to Mr.
Young. Hence, we discern no abuse of discretion by the trial court.
In order to circumvent the fact that they failed to present evidence of a
signed management agreement compelling arbitration, Appellants next argue
that a promissory note pertaining to a subsequent loan to Appellee is evidence
of ratification of the management agreement. Appellants’ Brief at 25-31.
Appellants assert that, by signing a promissory note on December 4, 2006,
Appellee ratified the management agreement. Id. at 26-28.
We have long noted that “[r]atification is the affirmance by a person of
a prior act which did not bind him but which was done or professedly done on
his account, whereby the act, as to some or all persons, is given effect as if
originally authorized by him.” Evans v. Ruth, 195 A. 163, 165 (Pa. Super.
1937). Thus, this area of the law pertains to contracts undertaken by an agent
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on behalf of a principal. Such is not the case in this matter, as there was no
agent performing acts on behalf of Appellee. Rather, as discussed in detail
above, the record reflects that when presented with two different
management agreements Appellee specifically rejected each of those
documents.
In addition, our review of the record reveals a significant defect in
Appellants’ claim that the signing of a promissory note somehow triggered
ratification of the management agreement. Initially, we observe that the
“Maker” of the promissory note is “Andre Young,” personally, and not
Appellee. Amended Preliminary Objections, Exhibit C, at 1. In fact, Appellee’s
corporate name does not appear anywhere in the promissory note.3
Moreover, because the promissory note fails to ascribe a date to a referenced
“management agreement,” Appellants have failed to specify which of the
multiple management agreements was allegedly ratified by the promissory
note. Indeed, we note that the term “management agreement” appears twice
in the promissory note in the following paragraph:
____________________________________________
3 The promissory note specifies the following:
For value received, the undersigned, ANDRE YOUNG
(Maker) promises to pay to the order of The Paradies Shops, Inc.
(Holder) at 5950 Fulton Industrial Boulevard, S.W., Atlanta,
Georgia 30336 or such other place as Holder may designate to
Holder in writing, the principal sum of TWENTY FIVE
THOUSAND ($25,000.00).
Amended Preliminary Objections, Exhibit C, at 1 (emphasis in original).
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A monthly payment of principal shall be paid on the thirtieth
(30th) day of each month (the last day of the month for February)
commencing on January 31, 2006 and continuing until the loan is
repaid in full. The monthly amount to be paid to the Holder will
be 50% of the monthly management fees due to Maker under the
management agreement between Paradies-Pittsburgh, LLC, and
various parties including the Maker and Holder. All management
fees due to Maker will be deemed paid to the Maker in satisfaction
of the obligations under the Management Agreement, but 50% of
the management fees shall be paid to the Holder and credited
towards payment of the principal due under this loan agreement.
Monthly installments of principal not paid when due shall bear
interest at a rate of 12% per annum until paid.
Amended Preliminary Objections, Exhibit C, at 1. We cannot agree that these
two vague references to a management agreement are sufficient to overturn
Appellee’s specific rejection of the management agreements presented to it.
Moreover, we note that the loan document does not contain an
arbitration clause. Rather, the promissory note states the following:
The undersigned expressly consents to personal jurisdiction and
venue in any court of competent jurisdiction in Fulton County,
Georgia, in any action which, in whole or in part, seeks to enforce
or collect the indebtedness evidenced by this Note.
Amended Preliminary Objections, Exhibit C, at 3. This language conflicts with
the suggestion that, by signing the promissory note, Appellee ratified any
management agreement containing a provision that would compel arbitration.
Consequently, Appellants’ claim that the signing of a promissory note acted
as a ratification of a management agreement lacks merit.
Appellants next argue that the trial court erred in holding that Appellee’s
conduct over the course of fifteen years did not result in ratification of the
management agreement, in toto. Appellants’ Brief at 31-50. Appellants
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contend that Appellee assented to the terms of the management agreement
through its course of conduct, i.e., by accepting management fees and in
remaining silent and never questioning references to a management
agreement. Id. at 35-50.
The trial court addressed this claim by Appellants as follows:
Moreover, to the extent [Appellants] attempt to avail
themselves of the argument that [Appellee] ratified the proffered
(though unsigned) management agreement, including its
arbitration provision, through [Appellee’s] many years of conduct
consistent with the work scope and compensation elements of the
management agreement, such conduct cannot properly be
deemed to ratify the otherwise unacted upon arbitration
provisions in the proffered management agreement. The [c]ourt
appreciates and understands the arguments regarding
[Appellee’s] conduct respecting scope of work and compensation.
. . . However, [Appellants] point to no conduct of [Appellee] from
which this [c]ourt can reasonably infer [Appellee] waived any
objection to, consented to, or ratified the management agreement
in toto. Indeed, there exists no competent evidence that any
authorized individual ever received or reviewed any proffered
management agreement that was not explicitly rejected.
Trial Court Opinion, 6/4/18, at 2-3.
Upon review of the certified record, we are constrained to agree with
the trial court’s determination. As discussed above, Appellants presented
Appellee with two proposed management agreements, and Appellee
specifically rejected both documents. The record further reveals that
Appellants did not present Appellee with additional management agreements.
Accordingly, we cannot conclude that any conduct by Appellee could overcome
the outright rejection of the only two management agreements set before it.
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Hence, it is our determination that the trial court did not abuse its discretion
in this regard.
Moreover, to the extent that Appellants argue that Appellee’s
acceptance of the payment of management fees is an assent to the terms and
conditions of a written management agreement, Appellants ignore the fact
that the parties verbally agreed to the details of the payment of management
fees at the outset of their negotiations. With regard to a meeting that occurred
in August of 2001, Mr. Young testified as follows:
And at that particular time Dick Dickson reiterated the fact
that we will be getting $60,000 from the management fee that
was entered into and -- and there would be a 20 percent/80
percent partnership as we agreed to, and that the management
fee will be paid at 1 percent to the minority partner and 4
percent to the majority partner based upon the ownership
interest.
Young Deposition, 2/12/18, at 160 (emphasis added). Likewise, Mr. Dickson
testified that the percentage of ownership and division of management fees
was agreed to “from day one.” Specifically, the following transpired at Mr.
Dickson’s deposition:
Q Did you during the visit in the store, did you discuss with [Mr.
Young] the 80/20 ownership of the enterprise?
***
A There wouldn’t be -- there wouldn’t be any purpose for
discussing 80/20. He knew it was 80/20. There’s no discussion.
There’s no discussion to have. I mean the 80/20 was agreed
to from day one to, you know, whatever. There was nothing
to discuss. The confusion part, that’s all -- that was always there.
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Q And the 80/20 you’re referring to both the ownership
percentages and you’re also referring to the split of the
management fees; right?
A Sure.
Q Okay. And you’re saying that was agreed to from day one?
A Sure.
Dickson Deposition, 2/23/18, at 52-53 (emphases added). Thus, the record
belies Appellants’ claim that the management fees were paid to Appellee in
accordance with a written management agreement. Consequently, Appellee’s
acceptance of the payments is not an assent to the terms of a written
management agreement.
Appellants also argue that the trial court erred in holding that Appellee
did not waive its right to enforce a provision of the parties’ Operating
Agreement. Appellants’ Brief at 51-53. Specifically, Appellants assert that
the provision of the operating agreement that required the written consent of
eighty-one percent of the members to enter into a management agreement
was waived by Appellee through its course of conduct. Id. at 53.
It is undisputed that the Operating Agreement entered into by the
parties is binding. It is apparent that the Operating Agreement lacks any
arbitration clause. In addition, the Operating Agreement reflects that the
parties had not entered into a management agreement. The following
language manifests that fact:
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4.3 Limitation on Powers of Directors and President. The
authority of the Directors and the President under this
Agreement shall be limited as follows:
4.3.1. Without the written consent by Members
holding eighty-one percent (81%) or more of
the Equity Interests, neither the President nor
the Directors shall have authority to:
(n) Enter into, change, amend or
terminate the Management Agreement
intended to be entered into by the
Company and The Paradies Shops,
Inc. (“TPS”) and Salutations, Inc.
(“Salutations”) or any other agreement
between the Company and either TPS,
Paradies Shops, LLC (“PSLLC”) and/or
Salutations or an affiliate of either TPS,
PSLLC or Salutations
Operating Agreement, at 13-14, § 4.3.1(n) (bold emphases added). Indeed,
this language is indicative of the fact that the parties had not entered into a
management agreement at the time of the execution of the Operating
Agreement. In addition, this language expresses that no management
agreement may be entered into without the written consent of members
holding eighty-one percent of the equity interest. It is further undisputed that
Appellee holds a twenty percent equity interest. Consequently, a
management agreement would require the written consent of Appellee. The
record before us lacks any verification of written consent by the parties to
enter into a management agreement. As discussed supra, there is no merit
to the claims that Appellee’s conduct over the course of time indicated consent
to enter into the management agreements proposed by Appellants. Likewise,
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there is no indication that Appellee waived the requirements set forth in the
Operating Agreement, which were necessary in order to enter into a valid
management agreement. Therefore, Appellants’ claim lacks merit.
Appellants last argue that the trial court erred in failing to determine
whether Appellee’s claims against Appellants are within the scope of the
arbitration clause in the management agreement. Appellants’ Brief at 53-56.
Appellants assert that, because the arbitration provision in the management
agreement is binding, the trial court should have conducted an analysis to
determine whether Appellee’s claims fall within the scope of the arbitration
clause. Id. at 53-54.
Because a valid agreement to arbitrate did not exist between the parties,
the trial court did not err in refusing to consider whether Appellee’s claims
against Appellants fall within the scope of the purported arbitration clause.
Moreover, based on this conclusion, we do not need to address Appellants’
claim that the arbitration agreement encompassed Appellee’s claims.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/29/2019
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