TOX DESIGN GROUP, LLC v. RA PAIN SERVICES, PA
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4092-18T1
TOX DESIGN GROUP, LLC,
Plaintiff,
v.
RA PAIN SERVICES, PA,
Defendant/Third-Party
Plaintiff/Respondent,
v.
CENTRAL TOX, LLC, MICHAEL
SCHMITT, GREGORY KAPLAN,
BARRY CHAFFIN, and GARY BUCK,
Third-Party Defendants,
and
@MEDICAL LLC, and CHRISTOPHER
RYAN HERTING,
Third-Party Defendants/
Appellants.
__________________________________
Argued November 12, 2019 - Decided December 26, 2019
Before Judges Sumners and Geiger.
On appeal from the Superior Court of New Jersey, Law
Division, Camden County, Docket No. L-1485-18.
Michael William Bootier argued the cause for
appellants AtMedicalCo, LLC and Christopher Ryan
Herting (Buchanan Ingersoll & Rooney PC, attorneys;
Michael William Bootier and Shane P. Simon, on the
briefs).
Christopher L. Soriano argued the cause for respondent
RA Pain Services, PA (Duane Morris, LLP, attorneys;
Christopher L. Soriano and Samantha L. Haggerty, of
counsel and on the brief).
PER CURIAM
Third-party defendants AtMedicalCo, LLC1 (AtMedical) and Christopher
Ryan Herting, its Chief Executive Officer (collectively the AtMedical
Defendants), appeal from an April 12, 2019 Law Division order denying their
motion to compel binding arbitration and stay the third-party action filed by
defendant/third-party plaintiff RA Pain Services, P.A. (RA Pain) pending the
outcome of the arbitration. For the following reasons, we reverse and remand.
1
Improperly pleaded as @Medical, LLC.
A-4092-18T1
2
I.
RA Pain owns and operates an independent clinical laboratory that
provides toxicology and drug testing, medication monitoring, pharmacogenetic
testing, and other laboratory services. It sought to engage a manager to provide
management and operational services for its laboratory, including billing and
collection, finance and accounting, implementation of an information
management system, and laboratory design and setup.
On November 2, 2016, RA Pain entered into a Lab Management Services
Agreement (LMSA) with AtMedical to provide management and operational
services for its laboratory. The LMSA was executed on behalf of RA Pain by
its Chief Executive Officer and managing shareholder, Gary Buck, M.D., and
on behalf of AtMedical by its Chief Executive Officer, Herting. RA Pain
operates in both New Jersey and Pennsylvania while AtMedical operates only
in Pennsylvania.
The LMSA contained arbitration and forum selection clauses. Paragraph
fifteen of the LMSA (the Forum Selection Clause) states:
Governing Law. This Agreement shall be deemed to
have been made and shall be construed and interpreted
in accordance with the laws of the State of New Jersey
without regard to the state's conflict of laws provisions.
All litigation, claims and actions for the enforcement of
this Agreement or otherwise related to this Agreement
A-4092-18T1
3
shall commenced only in the State or Federal courts
located in Camden County, New Jersey, and each of the
parties hereto expressly submits to the personal
jurisdiction of such courts in any such litigation.
[(Emphasis added).]
Paragraph thirty-two of the LMSA (the Arbitration Clause) states:
Resolution of Disputes. In the event that a dispute
arises between two or more Parties under this
Agreement or regarding the subject matter of this
Agreement, the Parties will first negotiate in good faith
for up to thirty (30) days to try and resolve the dispute.
If the dispute cannot be settled through negotiation
within thirty (30) days, such dispute shall be settled by
final and binding arbitration to be conducted in
Philadelphia, Pennsylvania by one arbitrator with at
least ten (10) years of experience in health care matters,
such arbitration to be conducted in accordance with the
commercial arbitration rules of the American
Arbitration Association ("AAA").
[(Emphasis added).]
AAA Rule 7 was expressly incorporated into the LMSA. It sets forth the
broad jurisdiction of the arbitrator. Subsection (a) of the rule provides:
The arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect
to the existence, scope, or validity of the arbitration
agreement or to the arbitrability of any claim or
counterclaim.
Subsection (b) of the rule provides:
A-4092-18T1
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The arbitrator shall have the power to determine the
existence or validity of a contract of which an
arbitration clause forms a part. Such an arbitration
clause shall be treated as an agreement independent of
the other terms of the contract. A decision by the
arbitrator that the contract is null and void shall not for
that reason alone render invalid the arbitration clause.
RA Pain was subsequently named as a defendant in an action brought by
plaintiff Tox Design Group, LLC. RA Pain, in turn, filed a second amended
answer and third-party action against the AtMedical Defendants and six other
third-party defendants, including Buck. The third-party complaint alleged the
AtMedical Defendants were liable for: (1) civil conspiracy (count I); (2) aiding
and abetting breach of fiduciary duty (count IV); (3) breach of the LMSA (count
XII); (4) breach of the covenant of good faith and fair dealing (count XIII); (5)
promissory estoppel (count XIV); (6) unjust enrichment (count XV); and (7)
negligence (count XVI).2
The AtMedical Defendants moved to compel binding arbitration of the
claims asserted by RA Pain and stay the third-party action pending the outcome
of the arbitration. They contended that the Arbitration Clause required RA Pain
to submit its claims to binding arbitration. The AtMedical Defendants further
2
The remaining counts pertain to claims against other third-party defendants
not involved in this appeal.
A-4092-18T1
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contended that the Forum Selection Clause is "essentially . . . a fallback
provision to the arbitration provision" that would be used "in the event that the
arbitration is unsuccessful." By way of example, they aver that the Forum
Selection Clause requires applications to enforce arbitration subpoenas and
awards to be filed in the state or federal court in Camden County. The
AtMedical Defendants further argued that when parties incorporate the AAA
rules into a contract, the AAA rules "become express terms of the contract
itself." They pointed to the headings listed in the LMSA: the Forum Selection
Clause falls under "Governing Law," while the Arbitration Clause falls under
"Resolution of Disputes."
The AtMedical Defendants emphasize that the LMSA was a contract
between two sophisticated commercial entities, not individual consumers. They
therefore contend that the enhanced waiver of rights language requirement
imposed on consumer contract arbitration provisions do not apply to the LMSA.
Finally, the AtMedical Defendants contend RA Pain provided no facts for
the motion court to consider with respect to the validity of the agreement. It
submitted no affidavit or certification from any member or representative of RA
Pain attesting to any underlying facts. Accordingly, the motion court could not
consider the facts asserted in the unsworn statement of counsel.
A-4092-18T1
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RA Pain opposed the motion. It argued that the LMSA's Forum Selection
Clause and Arbitration Clause could not be complied with at the same time thus
making them irreconcilable. It further argued that the parties must have a
consensual understanding for an arbitration clause to be enforceable. In that
regard, RA Pain asserts on appeal:
Dr. Buck has since been removed from his position at
RA Pain due to his involvement in procuring fraudulent
agreements, working hand in glove with Christopher
Ryan Herting. RA Pain shareholders, apart from Dr.
Buck, never assented to the arbitration provision. . . .
Appellants, Dr. Buck's co-conspirators, should not be
able to take advantage of the undisclosed arbitration
clause.
RA Pain did not submit any affidavits or certifications based on personal
knowledge in support of its contentions. Notably, RA Pain did not argue that
the entire LMSA is invalid or unenforceable. Nevertheless, it contended the
court should permit limited discovery of the enforceability of the arbitration
clause before deciding the motion. The court did not address these contentions.
The court was skeptical of the AtMedical Defendant's interpretation of the
interplay between the Forum Selection and Arbitration Clauses, noting that the
Forum Selection Clause "doesn't say . . . in the event the arbitration fails this
clause applies." In response, the AtMedical Defendants argued that the clear
majority of federal circuits, including the Third Circuit, have found "that
A-4092-18T1
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incorporation [of] . . . the AAA rules constitutes an effective delegation to the
arbitrator." The court did not address this issue.
The court concluded that applicable precedent required the arbitration
agreement to make "clear that the parties have waived their access to the court
by electing arbitration," through "clear and unambiguous language."
Ultimately, it found "this agreement clearly . . . states two different ways to
commence an action," through either arbitration or litigation, with "exclusive
jurisdiction in Camden County courts." The judge determined the Forum
Selection and Arbitration Clauses were inconsistent, ambiguous, and thus
unenforceable. Accordingly, the judge denied the motion to compel arbitration
and stay the action pending outcome of the arbitration.
This appeal followed as of right.3 The AtMedical Defendants raise the
following points for our consideration:
I. AN ORDER COMPELLING OR DENYING
ARBITRATION, IN WHOLE OR IN PART, IS
APPEALABLE AS OF RIGHT (UNIQUE TO
APPEAL).
II. THE MOTION COURT ERRED BY DECLINING
TO ESPOUSE THE EMPHATIC FEDERAL AND
3
Any order compelling or denying arbitration is deemed a final judgment for
appeal purposes and is appealable as of right. R. 2:2-3(a); GMAC v. Pittella,
205 N.J. 572, 583-86 (2011).
A-4092-18T1
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STATE POLICIES FAVORING ARBITRATION AS
A METHOD OF DISPUTE RESOLUTION.
III. THE MOTION COURT ERRED BY HOLDING
THAT THE ARBITRATION CLAUSE AND FORUM
SELECTION PROVISION WERE
IRRECONCILABLE BECAUSE THOSE TWO
PROVISIONS ARE COMPLEMENTARY, NOT
CONFLICTING.
A. The Applicable Legal Framework Concerning
the Interplay between Arbitration Clauses and
Forum Selection Provisions demonstrates that
such Provisions are Complementary and that
Forum Selection Provisions rarely, if ever, Waive
the Right to Arbitration (Unique to Appeal).
B. The Forum Selection Provision in the
Agreement in this case does not Invalidate the
Arbitration Clause because it does not even
Mention, let alone Preclude, Arbitration (Unique
to Appeal).
IV. THE MOTION COURT ERRED BY NOT
DELEGATING THE ISSUE CONCERNING THE
INTERPLAY BETWEEN THE ARBITRATION
CLAUSE AND FORUM SELECTION PROVISION –
AND ANY OTHER CHALLENGES TO THE
AGREEMENT – BECAUSE THE ARBITRATION
CLAUSE'S INCORPORATION OF THE AAA RULES
ESTABLISHED A CLEAR AND UNMISTAKABLE
DELEGATION OF ARBITRABILITY TO THE
ARBITRATOR.
A. Parties to an Arbitration Agreement May
Delegate Arbitrability Issues to the Arbitrator.
A-4092-18T1
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B. The Incorporation of the AAA Rules
Constitutes a Clear and Unmistakable Delegation
of Arbitrability.
II.
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16 (2018), governs
arbitration agreements involving interstate commerce. Because RA Pain
operates in both New Jersey and Pennsylvania, the LMSA affects interstate
commerce. See 9 U.S.C. § 1 (defining interstate commerce as "commerce
among the several States or with foreign nations"). Therefore, the LMSA is
governed by the FAA.
Section 2 of the FAA, 9 U.S.C. § 2, the FAA's enforcement provision,
"reflects . . . 'a liberal federal policy favoring arbitration.'" NAACP of Camden
Cty. E. v. Foulke Mgmt. Corp., 421 N.J. Super. 404, 424 (App. Div. 2011)
(quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983)). That said, a party opposing arbitration may raise defenses that " exist
at law or in equity for the revocation of any contract." 9 U.S.C. § 2.
A trial court reviewing an arbitration agreement must determine "gateway
question[s]," such as (1) "whether the parties are bound by a given arbitration
clause," and (2) "whether an arbitration clause in a concededly binding contract
applies to a particular type of controversy." Howsam v. Dean Witter Reynolds,
A-4092-18T1
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Inc., 537 U.S. 79, 83-84 (2002). However, "[u]nder federal arbitration law, it is
ordinarily the role of an arbitrator and not the courts to interpret ambiguous
provisions of an arbitration agreement." Delta Funding Corp. v. Harris, 189 N.J.
28, 38 (2006) (citing Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 451-53
(2003) (plurality opinion)).
"In applying the [FAA], the United States Supreme Court has provided
substantial guidance on the question of whether arbitration should be compelled
in situations [like] this case." Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207
(2019). Moreover, "[o]ur courts look to federal arbitral decisions . . . 'for
guidance.'" Linden Bd. of Educ. v. Linden Educ. Ass'n ex rel. Mizichko, 202 N.J. 268, 280 (2010) (quoting N.J. Tpk. Auth. v. Local 196, I.F.P.T.E., 190 N.J.
283, 292 (2007)).
Our review of orders permitting or denying arbitration is de novo because
"[t]he enforceability of arbitration provisions is a question of law; therefore, it
is one to which [an appellate court] need not give deference to the analysis by
the trial court." Goffe, 238 N.J. at 207 (citing Morgan v. Sanford Brown Inst.,
225 N.J. 289, 303 (2016)).
A-4092-18T1
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III.
"When the parties' contract delegates the arbitrability question to an
arbitrator, a court may not override the contract. In those circumstances, a court
possesses no power to decide the arbitrability issue." Henry Schein, Inc. v.
Archer & White Sales, Inc., ___ U.S. ___, ___, 139 S. Ct. 524, 529 (2019). The
AtMedical Defendants contend that because the Arbitration Clause incorporates
the AAA rules, it provides "clear and unmistakable evidence that the parties
agreed to submit arbitrability issues – including issues concerning the validity
or enforceability of the Arbitration Clause – to the arbitrator." We agree.
"It appears that '[v]irtually every circuit to have considered the issue has
determined that incorporation of the [AAA] arbitration rules constitutes clear
and unmistakable evidence that the parties agreed to arbitrate arbitrability .'"
Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 763 (3d
Cir. 2016) (alteration in original) (citations omitted); see also Preston v. Ferrer,
552 U.S. 346, 362-63 (2008) (indicating incorporation of the AAA rules weighs
in favor of arbitration).
We find the reasoning in Chesapeake Applachia to be persuasive. We
conclude that the incorporation of AAA Rules 7(a) and 7(b) into the Arbitration
A-4092-18T1
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Clause clearly and unambiguously expressed the parties' intent to empower the
arbitrator to determine arbitrability.
RA Pain avers its claims of civil conspiracy, aiding and abetting breach
of fiduciary duty, negligence, and fraud are outside the scope of the arbitration
clause. Our opinion in Curtis v. Cellco P'ship, 413 N.J. Super. 26 (2010) is
instructive. There, we examined the language of an arbitration agreement to
determine whether a party waived his right to judicial adjudication of their
statutory rights under the Consumer Fraud Act and their common law claims for
breach of contract and fraud. Id. at 38-39. We engaged in the following
analysis:
Turning to the Agreement's language, we note it
mandates the waiver of a jury trial in favor of
submitting "any controversy or claim arising out of or
related to this [A]greement" or "any service provided
under or in connection with this [A]greement" to
arbitration. . . . These provisions are succinctly stated,
unambiguous, easily noticeable, and specific with
regard to the actual terms and manner of arbitration.
....
Regarding the scope of the arbitration clause,
"[c]ourts have generally read the terms 'arising out of'
or 'relating to' [in] a contract as indicative of an
'extremely broad' agreement to arbitrate any dispute
relating in any way to the contract." Griffin v.
Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518
(App. Div. 2010) (quoting Angrisani v. Fin. Tech.
A-4092-18T1
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Ventures, L.P., 402 N.J. Super. 138, 149 (App. Div.
2008)). Such broad clauses have been construed to
require arbitration of any dispute between the
contracting parties that is connected in any way with
their contract. Ibid.
[Id. at 37-38 (alterations in original) (last citation
omitted).]
We therefore held that "the Agreement's terms made clear that the subject matter
of plaintiff's dispute, which arises out of the terms of the Agreement, must be
vindicated in an arbitral forum." Id. at 39 (citing Leodori v. CIGNA Corp., 175 N.J. 293, 302-03 (2003)).
In this case, the Arbitration Clause clearly and unambiguously provides
that "a dispute . . . between two or more Parties under this Agreement or
regarding the subject matter of this Agreement . . . shall be settled by final and
binding arbitration." This broad, easily understood language gives "reasonable
notice" of the waiver of the "right to judicial adjudication" of contractual
disputes, Curtis, 413 N.J. Super. at 38 (citing Rockel v. Cherry Hill Dodge, 368 N.J. Super. 577, 586 (App. Div. 2004)), and manifests an intention "that
disposition of disputes will occur outside the courts," ibid.
RA Pain argues that many of its "claims do not directly relate to the
LMSA, but rather to other [alleged] fraudulent schemes perpetrated by
[AtMedical]." Even so, RA Pain's common law claims against the AtMedical
A-4092-18T1
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Defendants for civil conspiracy, aiding and abetting breach of fiduciary duty,
breach of the LMSA, breach of the covenant of good faith and fair dealing,
promissory estoppel, unjust enrichment, and negligence are inherently related to
the LMSA. Indeed, there would be no relationship between RA Pain and
AtMedical absent the Agreement.
RA Pain also argues that its shareholders lacked mutual assent to be bound
by the Arbitration Clause. It contends the trial court should have permitted
limited discovery on this issue. However, its argument that there was no mutual
shareholder assent was not supported by any affidavits or certifications of
individuals with personal knowledge or exhibits. See R. 1:6-6 (requiring that
motion papers be based "on affidavits made on personal knowledge, setting forth
only facts which are admissible in evidence to which the affiant is competent to
testify").
Buck executed the LMSA on behalf of RA Pain in his capacity as its
managing partner, president, and CEO. The record reflects that Buck entered
into several other agreements, prior to the LMSA, on behalf of RA Pain. More
fundamentally, the parties operated under the LMSA for more than a year before
RA Pain first claimed that the Arbitration Clause was included in the LMSA
A-4092-18T1
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without the assent of the other partners. Notably, the record on appeal does not
disclose who prepared the LMSA.
Under these circumstances, we hold that the enforceability of the
Arbitration Clause, including any alleged lack of shareholder assent, is t o be
determined by the arbitrator, subject to the applicable procedures under the AAA
rules, including any right to limited discovery.
Finally, RA Pain's reliance on Atalese v. U.S. Legal Services. Group, L.P.,
219 N.J. 430 (2014) is misplaced. The Atalese standard has not been extended
beyond consumer and employment contracts. It does not apply to commercial
arbitration agreements between commercial entities. GAR Disability
Advocates, LLC v. Taylor, 365 F. Supp. 3d 522, 531 (D.N.J. 2019).
We hold the trial court erred by denying the motion to compel binding
arbitration of RA Pain's claims against the AtMedical Defendants. Any disputes
concerning arbitrability of the LMSA shall likewise be submitted to binding
arbitration. The third-party complaint shall be stayed in its entirety pending
outcome of the arbitration.
Reversed and remanded for entry of an order consistent with this opinion.
We do not retain jurisdiction.
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