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TTSP Corp. v. The Rose Corp.

Superior Court of Pennsylvania

August 27, 2019

TTSP CORPORATION F/K/A THE ROSE LOU CORPORATION F/K/A THE ROSE CORPORATION Appellee
v.
THE ROSE CORPORATION (AS SUCCESSOR IN INTEREST TO ROSE ACQUISITION SUB 1, LLC AS ASSIGNEE OF ROSE ACQUISITION COMPANY, LLC. Appellant

          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

          STABILE, J.

         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 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 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 [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, 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, 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.

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.

         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 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 ...


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