SCOTT M. DORFNER et al. v. POINT EMERGENCY PHYSICIANS, P.A., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2896-04T32896-04T3

SCOTT M. DORFNER and

DESMOND J. NUNAN, JR.,

Plaintiffs-Respondents,

v.

POINT EMERGENCY PHYSICIANS, P.A.,

SALVATORE A. PEPE, M.D., P.A.,

and EDITH PEPE, individually, jointly,

severally, and/or in the alternative,

Defendants-Appellants.

________________________________________________________________

 

Argued March 22, 2006 - Decided April 25, 2006

Before Judges Weissbard and Winkelstein.

On appeal from Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-127-97.

Michael O. Kassak argued the cause for appellants Point Emergency Physicians, P.A. and Salvatore A. Pepe (White and Williams, attorneys; Timothy M. Crammer,

on the brief).

Jack Meyerson argued the cause for appellant Edith Pepe (Meyerson & O'Neill, attorneys; Mr. Meyerson,

on the brief).

Steven B. Sacharow argued the cause for respondent Scott M. Dorfner (Flaster/Greenberg, attorneys;

Mr. Sacharow and Vincent J. Nolan, III, of counsel

and on the brief).

PER CURIAM

Defendants Point Emergency Physicians, P.A. (PEP or the Corporation), Dr. Salvatore A. Pepe and Edith Pepe appeal an order of the Law Division confirming an arbitration award in favor of plaintiff, Dr. Scott M. Dorfner. We affirm the award as to PEP and Dr. Pepe but reverse as to Edith Pepe.

PEP was a medical group that specialized in emergency medicine. Its patients were primarily vacationers who became injured and needed immediate medical assistance. Dr. Pepe owned and operated PEP. Dr. Dorfner worked for Dr. Pepe and PEP at Shore Memorial Hospital (the hospital). Pursuant to an employment agreement, Dr. Dorfner would be paid a regular salary and a bonus every three months based on the profits that he generated. The profits depended on the number of hours Dr. Dorfner worked, the number of patients he saw and the complexity of the procedures he performed. These constituted the Relative Value Units (RVUs) used to calculate the bonuses.

Dr. Pepe created the bonus pool plan to motivate the doctors to work harder, as the more they worked the larger their bonuses would be. However, during the time Dr. Dorfner worked for PEP, the bonus pool was allegedly depleted because Dr. Pepe was:

(i) improperly excluding monies from the revenue that should have been included; (ii) spending money on items of questionable business value; (iii) paying personal expenses; and (iv) awarding himself a generous fixed salary and large discretionary bonus despite his admissions that he performed very little clinical work to bring revenue into the Corporation.

By mistreating certain expenditures as expenses, the Corporation's profits were lowered, which in turn decreased the overall bonus pool and, therefore, Dr. Dorfner's individual bonus.

Also, Edith Pepe, Dr. Pepe's wife, was paid a salary despite not performing any services for the Corporation. Mrs. Pepe did serve as a trustee of PEP's pension plan; however, her primary responsibility in this role was signing reports prepared by other people.

Other alleged questionable accounting actions included: 1) Dr. Pepe keeping the entire $50,000 per annum stipend paid to the group by the hospital and not attributing it to the Corporation; 2) Dr. Pepe paying his personal legal bills using Corporation funds; 3) Dr. Pepe charging the Corporation $50,000 for commutation costs between California and New Jersey even though those costs were covered by other payments made by the Hospital; 4) automobile expenses being paid to Dr. Pepe even though all services to the Corporation were rendered on the premises of the Hospital; 5) loans being repaid out of corporate funds even though those loans should have been paid before the bonus pool program was instituted; 6) money used to buy equipment being treated as an expense rather than being capitalized; and 7) other miscellaneous expenses, such as medical licenses and personal bill payments, being inappropriately deducted.

Dr. Dorfner and Dr. Desmond J. Nunan, Jr., who also worked for PEP, originally filed suit in the Law Division on February 14, 1997, naming PEP, Dr. Pepe, and Edith Pepe as defendants. An amended complaint was filed on February 9, 1999.

On July 28, 1997, defendants moved to compel arbitration and for a stay pending arbitration. The motion was denied on November 7, 1997. Defendants sought leave to appeal, which was denied on December 13, 1997. Arbitration was ordered as to both Dr. Dorfner, who had an arbitration clause in his employment contract and as to Dr. Nunan, who did not have such a clause; the complaint was dismissed that same day. Defendants appealed, and we reversed as to Dr. Nunan, but affirmed arbitration in Dr. Dorfner's case.

Thereafter, Dr. Dorfner filed his demand for arbitration against Dr. Pepe and PEP along with an Arbitration Position Statement to which Dr. Pepe and PEP responded with their Arbitration Position Statement. Arbitration proceeded, with hearings held on December 3, 2003, January 19, 2004, March 18, 2004, and July 7, 2004.

Arbitrator Taylor issued her ruling on November 1, 2004, as follows:

1. RESPONDENTS shall jointly and severally pay to CLAIMANT the sum of Six Hundred Seventy-Three Thousand Four Hundred Ninety-Eight Dollars and Seventy-Three Cents ($673,498.73) for his claim.

2. RESPONDENTS shall jointly and severally pay to CLAIMANT pre-judgment interest on the amount of Four Hundred Seven Thousand Seventy Dollars ($407,070.00) calculated commencing on March 30, 1996 pursuant to R. 4:42-11(b).

3. RESPONDENTS shall jointly and severally pay to CLAIMANT post-judgment interest pursuant to R. 4:42-11.

4. The administrative fees and expenses of the American Arbitration Association ("the Association") totaling $13,000.00 and the compensation and expenses of the arbitrator totaling $19,349.20 shall be borne by RESPONDENTS. Therefore, RESPONDENTS shall pay to Claimant the sum of $17,450.00, representing its share of amounts previously advanced to the Association. RESPONDENTS shall pay to the Association the sum of $4,849.20, representing amounts still due the Association. These amounts reflect all payments made to date.

On November 10, 2004, plaintiff filed a Verified Complaint with the Law Division to confirm the arbitration award. On January 5, 2005, the trial judge issued an Order and written decision confirming the arbitration award and entering judgment in favor of plaintiff, against Dr. Pepe, PEP and Edith Pepe. An Order certifying the judgment as final was entered on March 4, 2005.

On appeal Dr. Pepe and PEP argue:

I. THE ARBITRATOR'S AWARD AGAINST EDITH PEPE DEMONSTRATES EVIDENT PARTIALITY AND REQUIRES THAT THE AWARD BE VACATED.

II. THE TOTALITY OF THE CIRCUMSTANCES DEMONSTRATES EVIDENT PARTIALITY AND REQUIRES THAT THE AWARD BE VACATED.

III. THE PLAINTIFF DID NOT SUBMIT ANY CLAIM AGAINST EDITH PEPE TO ARBITRATION AND, ALTERNATIVELY, THE COURT SHOULD EXCLUDE HER FROM THE AWARD AND JUDGMENT.

IV. THE AWARD AND JUDGMENT MUST BE VACATED DUE TO THE ARBITRATOR'S MISCONDUCT IN REFUSING TO HEAR EVIDENCE THAT WAS PERTINENT AND MATERIAL TO THE CASE.

V. THE AWARD AND JUDGMENT MUST BE VACATED BASED ON THE ARBITRATOR'S MISCONDUCT IN REFUSING TO HEAR EVIDENCE THAT WAS PERTINENT AND MATERIAL TO THE CASE.

VI. THE ARBITRATOR'S AWARD OF ATTORNEYS' FEES FOR SERVICES RENDERED PRIOR TO THE DATE THE DEMAND FOR ARBITRATION WAS FILED EXCEEDED HER AUTHORITY.

Edith Pepe argues:

A. THIS COURT SHOULD MODIFY THE ORDER OF [THE TRIAL JUDGE] AND MODIFY THE ARBITRATOR'S AWARD AS TO REVERSE THE AWARD OF JOINT AND SEVERAL LIABILITY AGAINST APPELLANT, EDITH PEPE.

B. THIS COURT SHOULD REVERSE THE AWARD TO DR. DORFNER OF HIS COMPLETE ATTORNEY FEES AND COSTS BECAUSE THE ARBITRATOR EXCEEDED HER SCOPE OF AUTHORITY.

Our review of arbitration awards is limited. N.J.S.A. 2A:24-8 provides that an arbitration award shall be vacated in the following instances:

a. Where the award was procured by corruption, fraud or undue means;

b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;

c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefore, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party;

d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.

[N.J.S.A. 2A:24-8.]

The statute further provides for modification or correction of the award in the following instances:

a. Where there was evident miscalculation of figures or an evident mistake in the description of a person, thing or property referred to therein;

b. Where the arbitrators awarded upon a matter not submitted to them unless it affects the merit of the decision upon the matter submitted; and

c. Where the award is imperfect in a matter of form not affecting the merits of the controversy.

[N.J.S.A. 2A:24-9.]

In Tretina Printing, Inc. v. Fitzpatrick & Assocs, Inc., 135 N.J. 349, 358 (1994), the Court adopted the view of Chief Justice Wilentz in his concurring opinion in Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479 (1992), as the proper standard of review in private arbitration awards. The Chief Justice said:

Basically, arbitration awards may be vacated only for fraud, corruption, or similar wrongdoing on the part of the arbitrators. [They] can be corrected or modified only for very specifically defined mistakes as set forth in [N.J.S.A. 2A:24-9]. If the arbitrators decide a matter not even submitted to them, that matter can be excluded from the award. For those who think the parties are entitled to a greater share of justice, and that such justice exists only in the care of the court, I would hold that the parties are free to expand the scope of judicial review by providing for such expansion in their contract; that they may, for example, specifically provide that the arbitrators shall render their decision only in conformance with New Jersey law, and that such awards may be reversed either for mere errors of New Jersey law, substantial errors, or gross errors of New Jersey law and define therein what they mean by that. I doubt if many will. And if they do, they should abandon arbitration and go directly to the law courts.

 
[Perini, supra, 129 N.J. at 548-49 (Wilentz, C.J., concurring.]

As we said in Commerce Bank v. DiMaria Const., 300 N.J. Super. 9, 19 (App. Div.), certif. denied, 151 N.J. 76 (1997), cert. denied, 522 U.S. 1116, 118 S. Ct. 1053, 140 L. Ed. 2d 116 (1998), under the Tretina/Perini concurrence standard, "arbitrators have no obligation to follow the principles of law which would govern an action in a court of law." Perhaps recognizing the formidable hurdles attendant to overturning an arbitration award based upon mistakes of fact or law made by the arbitrator, defendants contend that the constellation of errors allegedly made by arbitrator Taylor demonstrate bias or partiality.

We have reviewed defendants' arguments in light of the record and applicable law and, while we agree that an award against Edith Pepe was unwarranted, we conclude that defendants have not otherwise demonstrated a basis upon which the award may be vacated. The arbitrator's choice of language in rendering her decision, and in particular commenting adversely on Dr. Pepe's credibility, which defendants describe as "venomous," was clearly based on what she heard at the hearings and does not alter our view that the award should, except in one instance, be upheld. With that exception, we affirm substantially for the reasons expressed by the trial judge in his articulate and focused written opinion of January 5, 2005.

Each side presented the arbitrator with Position Statements. In his Position Statement, plaintiff sought no relief against Edith Pepe individually. Indeed, he argued that Dr. Pepe should be held personally liable based on a piercing of the corporate veil theory, and jointly and severally liable with PEP. In her decision, the arbitrator's only mention of Edith Pepe was that she performed no services for PEP "for which she would have earned (as distinguished from having been paid) a salary." As a result, all money paid to Mrs. Pepe, including pension contributions made on her behalf, "should have been included in the bonus pool." In her conclusion, the arbitrator repeatedly referred to the actions of Dr. Pepe, never to Mrs. Pepe. Most significantly, in concluding that the award should be against Dr. Pepe, PEP and Mrs. Pepe, jointly and severally, the arbitrator noted that Dr. Pepe might have already distributed or transferred "to family members" money from accounts receivable owing or paid to PEP after its business had terminated, and that, "so as to reduce the difficulty of Claimant collecting on the amount awarded, all Respondents are liable."

While we fully appreciate the arbitrator's intentions, we conclude that an award against Edith Pepe was not warranted simply as a method to ease plaintiff's ability to collect the award against Dr. Pepe. It is noteworthy that Mrs. Pepe was not a party to the arbitration agreement. In his amended complaint, plaintiff named Edith Pepe as a defendant, based upon her participation in a civil conspiracy with her husband and PEP, to deprive plaintiff of the money owed to him under his employment agreement. The arbitrator made no such finding of a civil conspiracy including Mrs. Pepe. Indeed, in the ad damnum clause of his civil conspiracy count, plaintiff did not seek damages against Mrs. Pepe.

As a result, we conclude that in rendering an award against Edith Pepe, the arbitrator exceeded her powers. N.J.S.A. 2A:24-8d. We are not persuaded that because Mrs. Pepe appeared through counsel in the arbitration proceedings, and never sought to be dismissed from the proceedings, the arbitrator could make any award against her that seemed prudent, even if only for purposes of effectuating a remedy against the other defendants. Participation does not cure a lack of evidence nor does it substitute for findings upon which liability might be based. We disagree with plaintiff's reliance on Commerce Bank, supra, and High Voltage Eng'g Corp. v. Pride Solvents and Chem. Co. of N.J., Inc., 326 N.J. Super. 356 (App. Div. 1999). Both of those cases approved an award of counsel fees to the prevailing party in an arbitration as a way of providing complete relief, even though the arbitration agreement was silent on that issue. Commerce Bank, supra, 300 N.J. Super. at 19; High Voltage, supra, 326 N.J. Super. at 363. That conclusion provides no support for an award against an individual solely as a means of effectuating collection.

We do not brush aside the arbitrator's concern that Dr. Pepe may have sought to render himself judgment-proof by transferring assets to his wife. If so, plaintiff will have his remedies. See N.J.S.A. 25:2-20 to -34.

 
Finally, we comment briefly on defendant's argument that the arbitrator's award must be vacated to the extent that it awarded counsel fees based on services rendered during the Law Division litigation, prior to the arbitration. In this regard, we find Commerce Bank and High Voltage to be persuasive. The arbitrator's decision as to the scope of fees to be awarded under the employment contract provision was well within her powers.

Affirmed in part; reversed in part.

The arbitration statute, N.J.S.A. 2A:24-1 to -11, was repealed effective January 1, 2003 and replaced by N.J.S.A. 2A:23B-1 to

-32. However, the new statute only applies to arbitrations required by agreements entered into after the effective date. Dr. Dorfner's employment agreement pre-dates January 1, 2003.

(continued)

(continued)

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A-2896-04T3

April 25, 2006