Court Opinion

ID: 4467629
Source: CourtListenerOpinion
Date Created: 2019-12-26 15:06:24.343859+00
Date Added: 2024-06-11T14:35:13.114319
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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 parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        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

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                                        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:

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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
                                        5
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.

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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

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                                       7
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
                                          8
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
                        9
                  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
                                      10
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
                                        12
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
                                          13
            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
                                       14
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
                                      15
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.

                                                                         A-4092-18T1
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