Soft Pretzel Franchise Systems, Inc. (Soft Pretzel) appeals a December 15, 2017 order from the Philadelphia Court of Common Pleas that denied its petition to compel mediation and arbitration with UC Twister, LLC (UC). The appeal is based on a factory franchise agreement signed on May 22, 2006, which established that any disputes between the parties must first undergo mediation in Philadelphia County, followed by arbitration if necessary, in accordance with the American Arbitration Association's rules. The agreement also granted UC an exclusive right of first refusal for a franchise at Amtrak’s 30th Street Station.
On April 4, 2016, Ronald Heil entered into an agreement with UC, which involved the sale of UC's right of first refusal for $115,000, later adjusted to $103,000. This April Agreement included a provision stipulating that any related legal proceedings should be exclusively conducted in Philadelphia County. UC and Heil designated Soft Pretzel as the escrow agent for the purchase funds. After Heil was awarded the right to open the franchise at 30th Street on September 8, 2016, UC requested the release of the escrowed funds. However, Soft Pretzel insisted on receiving a release from UC that confirmed the sale of the right of first refusal to Heil and acknowledged the release of the purchase price. The court affirmed the trial court's order denying Soft Pretzel's request to compel arbitration and mediation.
UC filed a lawsuit against Soft Pretzel and Heil on August 4, 2017, seeking recovery of the purchase price after Soft Pretzel withheld payment. On September 14, 2017, Soft Pretzel issued a check for the full purchase price, but disputes over statutory interest remained unresolved. Heil raised preliminary objections regarding UC’s initial pleading on September 5, 2017, leading UC to file an amended complaint on September 26, 2017. Subsequently, Soft Pretzel challenged this amended complaint on October 27, 2017, prompting UC to submit a second amended complaint.
On November 16, 2017, Soft Pretzel filed further preliminary objections, requesting mediation and, if that failed, arbitration. Soft Pretzel then petitioned the court to compel mediation and arbitration on November 20, 2017. However, the trial court ultimately dismissed this petition, noting that the controversy stemmed from the April 4 agreement, which did not mention mediation or arbitration, and that the principal amount had been paid. The court suggested that the parties might benefit from a meeting with a Judge Pro Tem or consider arbitration due to the amount in controversy.
Soft Pretzel appealed, arguing that the lower court erred by not compelling mediation and arbitration under the Franchise Agreement, which mandates mediation for disputes related to it. Soft Pretzel contended that the oral escrow agreement falls under this scope. The court clarified that the Franchise Agreement’s language pertains only to disputes among the parties involved, excluding third parties like Heil. Contract interpretation principles dictate that a clear agreement's intent is derived from its unambiguous language.
In determining the intent of the contracting parties, all provisions of the agreement must be interpreted collectively, ensuring each provision is effective (Murphy v. Duquesne Univ., 777 A.2d 418, 429 (Pa. 2001)). The April Agreement designates Soft Pretzel as the escrow agent for the Heil-UC right of first refusal concerning the 30th Street location. It specifies that the purchase price must be paid via certified bank check or money order to Soft Pretzel Franchise Systems, Inc. (SPFS), and that funds will be held in escrow until specified contingencies are met. The parties have irrevocably agreed that any legal proceedings related to this agreement or its transactions must occur exclusively in the courts of Philadelphia County. The trial court found that the April Agreement addresses the core issue of the lawsuit, which pertains to Soft Pretzel’s failure to pay statutory interest on the escrowed funds for Heil’s franchise. The lawsuit is distinct from the franchisor-franchisee relationship outlined in the Franchise Agreement, even though Soft Pretzel is not a named party in the April Agreement. The dispute arises directly from the April Agreement where Soft Pretzel serves as the escrow agent. Consequently, the trial court's denial of the petition to compel was appropriate, and the matter was correctly filed in the Philadelphia Court of Common Pleas according to the April Agreement’s 'Governing Law' provision. The order has been affirmed, and judgment entered.
