## Facts

- On January 7, 1987, Schneider Health Services, Inc., Orrie M. Rockwell, Jr., and Canter’s Pharmacy, Inc., doing business as Westbrook Pharmacy and Surgical Supply (Westbrook), entered a partnership agreement to operate a personal-care facility known as Elizabeth Associates (Elizabeth).
- The partnership agreement included an arbitration provision stating that if the partners could not agree on partnership matters, the dispute would be decided by three arbitrators (one selected by each partner), with the arbitrators’ decision final.
- The agreement did not set a definite term for the partnership or describe a specific, time-limited undertaking.
- The partnership began to incur financial losses, and additional capital contributions were demanded under the agreement.
- Westbrook refused to make additional capital contributions.
- Elizabeth filed a civil action in the Allegheny County Court of Common Pleas seeking to recover the allegedly owed capital contributions from Westbrook.
- Westbrook answered and filed a counterclaim seeking equitable relief: a partnership accounting and dissolution.
- Westbrook also filed a separate equity action alleging breaches of the partnership agreement; Elizabeth did not respond to that separate action.
- On Westbrook’s motion, the trial court consolidated Elizabeth’s civil action and Westbrook’s equity actions.
- Elizabeth moved to stay the consolidated proceedings pending arbitration under the partnership agreement, and the trial court entered an order staying the case.
- Westbrook appealed from the stay order, arguing that a dissolution claim in an at-will partnership is not for arbitration under the agreement’s arbitration clause.

## Issues

1. Where a partnership agreement is silent as to a definite term, does a partner’s filing of an equity action seeking dissolution constitute a dissolution by the partner’s express will under Pennsylvania partnership law?
2. Is a partner’s claim seeking dissolution (and related accounting relief) within the scope of a partnership agreement’s arbitration clause addressing disputes over “partnership affairs,” such that the trial court may stay consolidated court actions in favor of arbitration?

## Decision

- The Superior Court of Pennsylvania reversed the trial court’s order staying the consolidated proceedings pending arbitration.
- The court held that, because the partnership agreement set no definite term or particular undertaking, the partnership was at will.
- The court held that Westbrook’s equity action seeking dissolution operated as an expression of Westbrook’s will to dissolve the at-will partnership under the Pennsylvania Partnership Act.
- The court concluded that dissolution was controlled by the Partnership Act where the agreement did not address dissolution, and that the dissolution claim could not be sent to arbitration under the agreement’s general arbitration provision.
- Because the consolidated proceedings included a nonarbitrable dissolution claim, the stay pending arbitration was improper.

## Legal Principles

- When a party seeks to prevent arbitration, judicial review generally focuses on (1) whether the parties agreed to arbitrate and (2) whether the dispute falls within the scope of the arbitration provision.
- Pennsylvania law favors arbitration, but a court will not compel arbitration of a dispute that the parties’ agreement cannot reasonably be read to submit to arbitration.
- If a partnership agreement does not provide a definite term or a particular undertaking, the partnership is an at-will partnership, and dissolution may be caused “by the express will of any partner,” without a need to justify the decision.
- Dissolution is distinct from termination: dissolution changes the relationship among partners and starts the winding-up phase; termination occurs after winding up is completed.
- Where partners draft provisions about termination but leave dissolution unaddressed, statutory partnership law governs dissolution, and a general arbitration clause about partnership disagreements does not control the dissolution question.
- A partner can express the will to dissolve an at-will partnership by filing an action seeking dissolution, and the court will treat that filing as effecting dissolution.

## Conclusion

The Superior Court held that Elizabeth Associates was an at-will partnership because the agreement lacked a definite term, and Westbrook’s lawsuit seeking dissolution constituted an effective dissolution by express will under the Pennsylvania Partnership Act. Since the agreement did not address dissolution and the dissolution claim was not within the arbitration clause’s reach, the court reversed the order staying the consolidated proceedings pending arbitration.


Canter's Pharmacy, Inc. v. Elizabeth Associates, 578 A.2d 1326 (1990)