Court Opinion

ID: 4678538
Source: CourtListenerOpinion
Date Created: 2021-04-19 16:14:32.831125+00
Date Added: 2024-06-11T09:00:31.522379
License: Public Domain

J-A23017-20

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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

____________________________________________

*   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.
J-A23017-20

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?

____________________________________________

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

____________________________________________

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)

____________________________________________

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

____________________________________________

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.

                                           -9-
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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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