SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION DOCKET NO. A-0360- 22 ANTHONY FESTA, M.D., ANTHONY SCILLIA, M.D., CRAIG WRIGHT, M.D., JOHN CALLAGHAN, M.D., and CASEY PIERCE, M.D., Plaintiffs-Appellants,

v. VINCENT MCINERNEY, M.D., NEW JERSEY ORTHOPAEDIC INSTITUTE LLC, and NORTHLANDS ORTHOPAEDIC INSTITUTE LLC, Defendants-Respondents.

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Submitted January 22, 2024

– Decided April 1, 202 4 Before Judges Gilson and Berdote Byrne. On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C

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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court. " Although it is posted on the internet, this opinion is binding only on the parti es in the case and its use in other cases is limite d. R. 1:36- 3.2 A- 0360

- 22 Brach Eichler LLC, attorneys for appellants (Keith J. Roberts, Thomas Kamvosoulis, and Paul J. DeMartino Jr., on the briefs). Frier & Levitt LLC, attorneys for respondents (Jonathan E. Levitt, Jason N. Silberberg, and Micha el Nathan Sheflin, on the brief).
PER CURIAM This appeal arises out of disputes among six docto rs related to the breakup of a medical practice. The issue before us is limi ted and involves the imposition of a sanction. Plaintiffs appeal from an order san ctioning them and requiring them to pay $67,317.52 in attorneys' fees and costs to defendants. Discerning no abuse of discretion, we affirm.
I. Plaintiffs are five orthopedic physicians who were previously members of medical practices known as Northlands Orthopaedic I nstitute LLC (NOI) and New Jersey Orthopaedic Institute, LLC (NJOI). The only other member of NOI and NJOI was defendant Dr. Vincent McInerney. McInerney had previously founded NJOI. Four of th e plaintiffs later became members of NJOI. In October 2019, the membe rs of NJOI contributed the majority of their ownership in that company to NOI and entered into an3 A- 0360

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operating agreement for NOI (the Agreement). Thereafter, the fifth plaintiff, Dr. Casey Pierce, became a member of NOI. 1 NOI is a company organized under New Jersey's Revi sed Uniform Limited Liability Company Act , N.J.S.A. 42:2C-1 to - 94 . The Agreement covers NOI's operation as a medical practice and de tails the business relationships among the members. It describes how NOI is managed, how members are paid, and how members c an voluntarily withdraw from NOI. The Agreement states that it is governed by New Jersey law. It also includes an arbitration clause, which states:

Except as may be necessary to enforce the provision s of Section 15.15 by temporary injunction, permanent injunction or other equitable relief, any controver sy or claim arising out of, or relat ing to, this Agreement or the breach thereof, shall be settled by arbitration in Passaic County, New Jersey, in accordance with the rules then obtaining of the American Health Lawyers Association Alternative Dispute Resolution Service, and judgment upon any award rendered by the arbitrator or arbitrators may be entered in any cou rt having jurisdiction thereof. The results of the arbitration shall be final and binding on both part ies. The fees of the arbitrator shall be borne equally b y the parties.

1 Although NOI and NJOI are separate entities and NJOI continue s to exist as a subsidiary of NOI , we use NOI to refer to both medical practices col lectively except when there is a need to make a distinction.4 A- 0360

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Section 15.15 of the Agreement is a confidentiality provision stat ing that "all data and information obtained with respect to" NOI shall remain confidential , except in narrow circumstances, and that a non-brea ching member may seek an injunction to prevent a breaching member from discl osing confidential information. On August 17, 2021, plaintiffs gave McInerney and NOI written notice that they would be leaving NOI. Thereafter, plaint iffs began to plan for and establish a new medical practice named Academy Orth opaedic Group, LLC (Academy). Plaintiffs ended their work for and mem bership in NOI effective December 31, 2021. Three days later, on January 3, 2022, plaintiffs began to practice at Academy. Academy's office is in the sa me building , across the hall from NOI 's office. On January 7, 2022, plaintiffs filed a complaint a nd order to show cause against McInerney, NOI, and NJOI. Plaintiffs alleg ed that McInerney had put his own interests ahead of plaintiffs' interests in operating NOI and that he had caused them damages. They also alleged that McIner ney had not properly compensated them after they announced that they w ere leaving NOI. In their complaint, plaintiffs alleged six causes of action: (1) tortious interference with plaintiffs' relationships with their patients; (2) breach of fiduciary duty; (3)5 A- 0360

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breach of contract; (4) breach of the implied coven ant of good faith and fair dealing; (5) an "action to compel buyout of plainti ffs' interests" in NOI and NJOI; and (6) a "demand for accounting." In their order to show cause, plaintiffs claim ed that defendants were withholding information about patients that plaintiffs had trea ted while at NOI and, as a result, plaintiffs were not able to assis t those patients in obtaining future medical care. Plaintiffs sought injunctive relief through a temporary restraining order (TRO), including:

(a) compelling [d]efendants to turn over all patien t information for patients treated by any of the [p]laintiffs so they [could] be contacted immediate ly, (b) compel ling [d]efendants to transfer any of [p]laintiffs' patient records to [p]laintiffs['] ne w practice upon request, and (c) compel ling NJOI/NOI staff to advise any patients inquiring about any of the [p]laintiff [d]octors of [p]laintiffs['] new practi ce, Academy Orthopaedic Group LLC or transferring all telephone calls to [p]laintiffs' new practice, Acad emy Orthopaedic Group LLC. The court held a hearing on plaintiffs' request fo r temporary injunctive relief on January 12, 2022. At that hearing, plain tiffs' counsel argued that plaintiffs were unable to obtain access to informat ion "to let the patients know where [plaintiffs were] going to be." Plaintiffs r equested immediate relief requiring defendants to provide patient information so th at plaintiffs could send6 A- 0360

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notification letters. Counsel for plaintiffs also stressed that plaintiffs needed the information "in a timely fashion" to "allow for the physicians to continue the care of their patients." After hearing arguments from counsel, the court gra nted plaintiffs some of the injunctive relief sought. Balancing the fac tors under Crowe v. De Gioia , 90 N.J. 1 26 , 132-34 (1982), the court found that plaintiffs we re entitled to send patient notification letters to patients they had t reated in the past year. The court directed that the letter was to use "neutral langua ge" and that patient contact information was not to be used for advertisements. On January 14, 2022, the court entered an order me morializing its decision. The order required defendants to show ca use why plaintiffs should not receive the temporary injunctive relief they requ ested, including compelling defendants to turn over patient information for pat ients treated by any of the plaintiffs, enjoining defendants from withholding patient information, compelling NOI to in form patients inquiring about plaintiffs of plainti ffs' new practice, and compelling production of financial do cuments and a full accounting of NOI's and NJOI's financial and busine ss transactions. Three days later, defendants provided plaintiffs wi th the patient contact information required by the court's order. The par ties, however, were not able7 A- 0360

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to come to an agreement on the wording of the pa tient notification letter. So, the court issued a n approved letter on January 19, 2022. By early February 2022, defendants had learned tha t plaintiffs had obtained patient data from NOI in December 2021. I n that regard, it came to light that on December 8, 2021, while plaintiffs were st ill working at NOI, 45,000 items of patient information were exported f rom NOI's electronic medical records system using plaintiff Dr. Anthony Festa's credentials. That data contained patient contact information for patie nts who had not been treated at NOI or NJOI for several years, as well as patien ts who had been treated exclusively by McInerney. It also came to light that in mid-December 2021, the prac tice manager for plaintiffs' new practice contacted a print shop about send ing out letters to notify patients that plaintiffs would be leaving NOI and s tart ing a new practice on January 1, 2022. Plaintiffs then drafted a patient notification letter and, on January 12, 2022, the same day that plaintiffs were in court seeking injunctive relief, plaintiffs caused notification letters to b e mailed to 25,000 patients. On February 3, 2022, defendants filed a cross-moti on for a TRO seeking to enjoin plaintiffs from "sending any further comm unications that [were] non conforming with the [c]ourt[-]approved letter." De fendants also asked the court8 A- 0360

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to approve a draft corrective letter to be sent to patients to clarify the information
in plaintiffs' notification letter. On February 8, 2022, the court granted defendants t emporary relief, ordering plaintiffs to take certain corrective acti ons concerning the patient notifications and to provide certifications on how they had obtained the patient information in 2021. The court also instructed the parties to agree on a neutral "corrective letter" to be sent out to patients. Thereafter, defendants moved to sanction plaintiffs for fail ing to disclose that they had already obtained patient data at the time that they filed their complaint and order to show cause and that they sen t out patient notification letters on January 12, 2022, the same day that they were in court seeking injunctive relief. The court heard oral argument on that motion on Mar ch 17, 2022. That same day, the court made findings of fact on the re cord and determined that it would impose a sanction by awarding defendants atto rneys' fees. The court found that it had been "misl[ ed ]" by plaintiffs' omission of the information that they had patient data and that they were sending ou t patient notification letters while the y were requesting temporary relief, including compe lling patient data from defendants.9 A- 0360

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Addressing the appropriate remedy, the court reason ed that it had the inherent power to impose a sanction. The court dec lined to dismiss plaintiffs' complaint. Instead, the court determined that the ap propriate sanction would be awarding defendants attorneys' fees and costs. The court did not enter an order at that time. Instead, the court permitted defenda nts to submit a fee application and allowed plaintiffs to respond to that applicati on. Meanwhile, defendants had also moved to compel arbitrati on. On May 5, 2022, the court granted that motion, compelled arbi tration, and dismissed plaintiffs' complaint. Plaintiffs have not appeale d from the order compelling arbitration. Instead, the parties moved forward wi th the arbitration, but we have not been advised of whether the arbitration is stil l pending or whether it has concluded. 2
Thereafter , on September 14, 2022, the court issued an order on the sanction. After reviewing the papers submitted in support of and in opposition

2 The New Jersey Arbitration Act (NJAA), N.J.S.A. 2A: 23B-1 to -36, which governs the Agreement, directs that when a court co mpels arbitration, it should stay the legal action pending the arbitration. N.J .S.A. 2A:23B-7(g); see also GMAC v. Pittella, 205 N.J. 572, 583 n.7 (2011) (exp laining that, unless the claims are severable, N.J.S.A. 2A:23B-7(g) "only en able[s] [a] trial court to 'stay' the claims"). No party, however, has appeal ed from the order compelling arbitration and dismissing the action. Accordingly , that order is not before us, and we do not modify that order.10 A- 0360

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to the fees and costs application, the court direct ed plaintiffs to pay defendants' attorneys' fees in the amount of $60,017.50. The court also ordered plaintiffs to pay defendants' costs related to the corrective let ters that had to be sent to patients in the amount of $7,300.02. The court sup ported that order with a written statement of reasons. Plaintiffs now appeal from the September 14, 2022 order requiring them to pay $67,317.52 in attorneys' fees and costs as a sanction.
II. On appeal, plaintiffs make three main arguments. First , they contend that the trial court failed to consider the context of p laintiffs' actions, arguing that defendants' obstruction of their ability to contact their patients undercut defendants' request for sanctions. Second, plainti ffs assert that the trial court abused its discretion in awarding a sanction withou t analyzing whether the sanction w as appropriate under the Frivolous Litigation Statute (the FL Statute) , N.J.S.A. 2A:15-59.1, or Rule 1:4 -8. Finally, plaintiffs argue that even if a sanction was appropriate, the trial court abused it s discretion because the fees allowed were excessive. We review the trial court's imposition of sanction s under an abuse of discretion standard. See Kornbleuth v. Westover, 2 41 N.J. 289, 300- 01 (202 0)

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An abuse of discretion arises when a decision is "made without a rational explanation, inexplicitly depart[s] from establishe d policies, or rest[s] on an impermissible basis." Flagg v. Essex Cnty. Prosecu tor, 171 N.J. 561, 571 (2002 ) ( quoting Achacoso-Sanchez v. Immigr. & Naturalization Serv. , 779 F.2d 1260, 1265 (7th Cir. 1985)). We likewise review an award of attorneys' fees for an abuse of discretion. Empower Our Neighborhoods v. Guadag no , 453 N.J. Super. 565, 579 (App. Div. 2018); Shore Orthopaedic Grp., LLC v. Equitable Lif e Assurance Soc'y of the U.S., 397 N.J. Super. 614, 623 (App. Div. 2008). "[F]ee dete rminations by trial courts will be disturbed only on the rarest of occa sions, and then only because of a clear abuse of discretion." Empower Our Neigh borhoods, 453 N.J. Super. at 5 79 (alteration in original) (quoting Rendine v. Pantz er, 141 N.J. 292, 317 (1995) ).
A. The Imposition of the Sanction. Courts have the inherent power to sanction parties for behavior that is vexatious, burdensome, or harassing. See Brundage v. Est. of Carambio, 195 N.J. 575, 610 (2008) (recognizing the inherent powe r of courts to sanction parties as a means of enforcing proper practices) ; Triffin v. Automatic Data Processing, Inc., 394 N.J. Super. 237, 252 (App. Di v. 2007) (explaining that a12 A- 0360

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court has the inherent power to sanction a party th at has "acted in bad faith, vexatiously, wantonly or for oppressive reasons" (q uoting Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991))) ; Dziubek v. Schumann, 275 N.J. Super. 428, 439- 40 (App. Div. 1994) (reasoning a court's inherent p ower may include awarding attorneys' fees as a sanction). A court's inherent authority to impose sanctions is "[s]eparate and distinct from court rules and statutes." Triffin, 394 N.J. Super. at 251. Therefore, a court need not rely on the FL Statute or Rule 1 :4 -8. Nevertheless, in exercising that inherent power, courts should act with "restra int and discretion" because of the "potency" of sanctions. Dziubek, 275 N.J. Supe r. at 439. A sanction is generally not imposed without a finding that the "c onduct constituted or was tantamount to bad faith." Id. at 440. We discern no abuse of discretion in the trial cou rt's decision to sanction plaintiffs. The court carefully considered the ess entially undisputed facts

. Plaintiffs filed their complaint and moved for an o rder to show cause contending that they needed immediate and emergent relief so t hat they could obtain patient information and notify their patients that they wer e leaving one medical practice and starting another. What the trial court later f ound vexatious was that plaintiffs did not disclose that they already had a significant amount of patient13 A- 0360

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data and that they had prepared and were in the pro cess of mailing notification letters to 25,000 patients. In that regard, the re cord establishes that on December 8, 2021, plaintiffs exported 45,000 items of patien t information from NOI. Just over a week later, plaintiffs' new manager was nego tiating with a print shop to print and send patient notification letters on beha lf of plaintiffs. Then, on January 12, 2022, the same day that plaintiffs were in court seeking their order to show cause, they caused 25,000 patient notificat ion letters to be sent out. The trial court determined that plaintiffs had fai led to be candid and had effectively misled the court by failing to inform i t that they already had substantial patient data and were sending out notic es. The trial court also faulted plaintiffs for thereafter failing to notify the cou rt wh ile the court prepared a "neutral" notification letter. Moreover, the trial court was vexed by the fact that the notification letter sent out by plaintiffs was materially different from the notification letter prepared by the court. Those facts support the trial court's decision to sanction plaintiffs. Significantly, the court did not impose the sanctio n of dismissing plaintiffs' complaint as requested by defendants. Instead, the court used a more measured sanction and awarded attorneys' fees and costs rela ted to the time and costs defendants spent opposing plaintiffs' request for i njunctive relief.14 A- 0360

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We discern no reversible error in the trial court' s reliance on its inherent authority. Therefore, we reject plaintiffs' argume nt that the trial court needed to analyze the FL Statute or Rule 1:4 -8. While both that statute and rule allow for an award of attorneys' fees, neither the statute no r the rule states that attorneys' fees cannot be awarded in other ways. We also reject plaintiffs' argument that the trial court erred in not considering the overall context. Plaintiffs assert that McInerney was acting in bad faith and with unclean hands. While the trial court certainly could have considered defendants' actions, it was not an abuse of discretion not to evaluate all the equities of the parties' disputes because t here were sufficient facts supporting the court's determination to sanction pl aintiffs and the remainder of the matter had been sent to arbitration.
B. The Award of Attorneys' Fees and Costs as a Sancti on. As already noted, in imposing a sanction, a trial court may award attorneys' fees. See Segal v. Lynch, 211 N.J. 230, 255 (2012) (noting that attorneys' fees may be awarded based on the inheren t power to sanction) ; Dziubek, 275 N.J. Super. at 439 (discussing a court 's "inherent power to assess counsel fees as a sanction"). Plaintiffs make three arguments concerning the award. They contend that (1) the hourly rates of d efendants' lawyers were15 A- 0360

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unreasonably high; (2) the trial court failed to ex clude "ineffective, redundant or duplicative use of time;" and (3) the trial cour t "failed to consider the proportionality between . . . defendants' fees and alleged damages." Those arguments are not supported by the record. "The starting point in awarding attorneys' fees is the determination of the 'lodestar,' which equals the 'number of hours reaso nably expended multiplied by a reasonable hourly rate.'" Furst v. Einstein Moom jy, Inc., 182 N.J. 1, 21 (2004) (quoting Rendine, 141 N.J. at 335). A court must f irst determine whether the hourly rates are reasonable, which involves "assess [ing] the experience and skill of the prevailing party's attorneys and compar[ing] their rates to the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation." Ren dine, 141 N.J. at 337 (quoting Rode v. Dellarciprete, 892 F.2d 1177, 1183 (3d Cir. 1990)). "[T]he trial court should satisfy itself that the assigned hourly rate s are fair, realistic, and accurate, or should make appropriate adjustments." Ibid. In making this inquiry, the court should consider the factors laid out in RPC 1.5(a):

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclu de other employment by the lawyer;16 A- 0360

- 22 (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or b y the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; (8) whether the fee is fixed or contingent. In calculating the number of hours to be used in d etermining the lodestar, a court "must not include excessive and unnecessary hours spent on the case." Furst, 182 N.J. at 22. A court has discretion to e xclude certain hours from the calculation "if the specific circumstances incidenta l to a counsel-fee application demonstrate that the hours expended, taking into ac count the damages prospectively recoverable, the interests to be vind icated, and the underlying statutory objectives, exceed those that competent c ounsel reasonably would have expended to achieve a comparable result." Ren dine, 141 N.J. at 336. Here, the trial court did not abuse its discretion in calculating attorneys' fees. It based its determination on the lodestar and consid ered in detail both the hourly rates of defendants' attorneys and the numbe r of hours expended on the case. In that regard, the court considered each at torney's hourly rate, experience, and expertise in determining whether that attorney' s rate was reasonable, as well17 A- 0360

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as the complex nature of the case and the significa nt time pressure involved in opposing plaintiffs' application for a TRO. The court made significant reductions to the hours requested by defendants, excluding time involved in addressing matters other than the TRO and patient notification letters. The court ultima tely adjusted the amount down from defendants' requested $95,142.50 to $60,017.50 . In making that award , the court examined each item on defendants' summary of hours spent on the case and made downward adjustments or eliminated certain time. In short, the trial court engaged in the appropriate analysis, and the fees and costs award was reasonable. Affirmed.