Court Opinion

ID: 4531365
Source: CourtListenerOpinion
Date Created: 2020-05-04 14:07:50.348591+00
Date Added: 2024-06-11T12:27:25.072373
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NOT FOR PUBLICATION WITHOUT THE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-0230-19T1

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, @MEDICAL
LLC, and CHRISTOPHER RYAN
HERTING,

          Third-Party Defendants,

and

GARY BUCK,

     Third-Party Defendant-
     Appellant.
__________________________________
            Argued telephonically March 25, 2020 –
            Decided May 4, 2020

            Before Judges Sabatino, Sumners and Geiger.

            On appeal from the Superior Court of New Jersey, Law
            Division, Camden County, Docket No. L-1485-18.

            John A. O'Connell argued the cause for appellant
            (Bochetto & Lentz, PC, attorneys; John A. O'Connell
            and George Bochetto (Bochetto & Lentz, PC) of the
            Pennsylvania Bar, admitted pro hac vice, of counsel and
            on the briefs).

            Samantha L. Haggerty argued the cause for respondent
            (Duane Morris, LLP, attorneys; Christopher L. Soriano
            and Samantha L. Haggerty, of counsel and on the brief).

PER CURIAM

      Third-party defendant Gary Buck appeals a Law Division order denying

his motion to compel arbitration of the claims asserted against him by third-

party plaintiff RA Pain Services, PA (RA Pain). For the following reasons, we

affirm in part and reverse and remand in part.

                                       I.

      We incorporate by reference the underlying facts and procedural history

set forth in our earlier opinion in a related appeal involving somewhat different

parties, Tox Design Group, LLC v. RA Pain Services, PA, No. A-4092-18 (App.

Div. Dec. 26, 2019). Because the limited issues raised in this appeal do not

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                                       2
involve the merits of RA Pain's allegations against Buck, we briefly recount the

pertinent facts, allegations, and procedural history.

      RA Pain is a New Jersey professional association organized for the

purpose of providing pain management medical services to patients in New

Jersey and Pennsylvania. It collects and tests urine specimens.

      During all relevant times, Buck was an employee and managing

shareholder of RA Pain. In February 2010, RA Pain and Buck entered into an

Employment Agreement. In September 2014, RA Pain and its shareholders

entered into a separate Shareholders Agreement with Buck. The non-identical

arbitration clauses in both contracts form the central dispute in this appeal.

      The Employment Agreement contains the following arbitration clause:

            Any controversies or disagreements arising out of, or
            relating to this Agreement or the breach thereof,
            including without limitation any assertions of
            discrimination or harassment, shall be settled by
            arbitration in accordance with the rules then existing of
            the American Arbitration Association [(AAA)] in
            Camden County, New Jersey, and judgment upon the
            award rendered may be entered in any New Jersey court
            having jurisdiction thereof. Except upon the mutual
            agreement of Employer and Employee, this Paragraph
            shall NOT apply to Paragraphs 18, the Restrictions, and
            22. Any costs and fees of arbitration shall be equally
            shared by the arbitrating parties. However, each party
            shall be responsible for his or her own attorney's cost
            and fees.

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                                        3
             [(Emphasis added).]

       The Shareholder Agreement, meanwhile, provides:

             Except as otherwise provided herein this Agreement,
             any controversy, claim or dispute arising out of or
             relating to this Agreement between RA [Pain] or its
             successors and assigns, and the Shareholder or his or
             her administrators, beneficiaries, heirs, executors, and
             representatives, including without limitation racial
             discrimination, sexual harassment, and any other
             employment-related         or       shareholder-related
             discrimination or harassment, shall be determined by
             arbitration under the administration of and in
             accordance with the applicable rules of the [AAA], and
             a judgment upon the award may be entered in any court
             having jurisdiction thereof. This Section 20 shall not
             be applicable to Section 14, Prohibited Competition
             and Solicitation. Covenant Not to Compete.

             [(Emphasis added).]

       Buck, with RA Pain's authority and on its behalf, entered into contracts

with several companies to provide laboratory management services for RA

Pain's in-house drug screening laboratory, including AtMedicalCo, LLC

(AtMedical).1 RA Pain alleges that Buck, in concert with these third-party

management companies and without its knowledge, perpetrated a fraudulent

scheme to receive payments for medically unnecessary testing from patients,

insurers, employers, and government healthcare programs.

1
    Improperly pleaded as @Medical, LLC.
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                                        4
      In November 2016, RA Pain entered into a Lab Management Services

Agreement (LMSA) with AtMedical to provide management and operational

services for its laboratory. Tox Design Group, slip op. at 2. The LMSA contains

the following Arbitration Clause:

            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”).

            [Id. at 3 (emphasis added).]

We concluded that "[t]his broad, easily understood language" gave "reasonable

notice of the waiver of the right to judicial adjudication of contractual disputes,"

and "clearly and unambiguously" provided that disputes between RA Pain and

AtMedical arising from the LMSA were to be submitted to final and binding

arbitration rather than litigated in the courts. Id. at 13 (internal quotation marks

and citations omitted). We held that "the enforceability of the Arbitration

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                                         5
Clause, including any alleged lack of shareholder assent, is to be determined by

the arbitrator." Id. at 15.

      RA Pain filed a third-party complaint against Buck and the various

companies involved in the alleged fraudulent scheme.          It averred Buck

committed: civil conspiracy (count one); breach of the duty of loyalty (count

two); breach of the duty of care (count three); breach of the Shareholder

Agreement (count seventeen); breach of the covenant of good faith and fair

dealing as to the Shareholder Agreement (count eighteen); breach of the

Employment Agreement (count nineteen); and breach of the covenant of good

faith and fair dealing as to the Employment Agreement (count twenty).

      Buck moved to stay the case based on an ongoing federal criminal

investigation into his alleged fraudulent conduct. The trial court denied Buck's

motion in January 2019; we denied his motion for leave to appeal in March 2019.

      On June 3, 2019, Buck moved to dismiss the third-party complaint or

compel arbitration. RA Pain argued that Buck waived his right to arbitration by

waiting some nine months after the litigation commenced to assert his right to

compel arbitration. RA Pain contended Buck had "plentiful" opportunities to

raise arbitration as a defense, noting the parties had participated in numerous

case management conferences and engaged in motion practice going back to the

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                                       6
previous July. This included Buck's motion to stay the case to protect his Fifth

Amendment rights. RA Pain also contended that Buck should have joined in

AtMedical's motion to compel arbitration.

      The motion judge concluded that Buck had not waived his right to

arbitration. Instead, the judge found that the multiple contractual agreements

between RA Pain, Buck, and the other third-party defendants who performed

laboratory management services—which provided for conflict resolution in

different venues through arbitration, jury trials, and bench trials—rendered the

arbitration provisions in the Shareholder and Employment Agreements unclear

and ambiguous. The judge explained there were six separate provisions with

three different governing law sections and four different methods of resolving

disputes.    He concluded:      "There's no way anybody can make a fair

determination based on that, that there's been an understanding, let alone a

waiver of rights to compel arbitration." The judge noted he had "already ruled

this way" when he denied AtMedical's prior motion to compel arbitration and

wanted to be consistent with that prior ruling. This appeal followed.

      Buck argues the plain language of the Shareholder and Employment

Agreements dictate that all the disputes between the parties be decided in

arbitration. He contends the motion judge erred in finding the terms of the

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                                       7
agreements are ambiguous given the language of other contracts.             Buck

emphasizes that he and RA Pain agreed to arbitrate in one place—Camden

County—and no forum selection clause ambiguity exists, unlike in AtMedical's

arbitration dispute. Buck further argues that our decision in Tox Design Group

essentially overrules the denial of his motion to compel arbitration since the

judge based his ruling on his prior decision denying AtMedical's motion to

compel arbitration.

      Buck points out that: the parties stipulated that responses to pleadings

could be filed until June 3, 2019; he moved to compel arbitration when his first

responsive pleading was filed; his assent to pre-trial orders was limited to

scheduling issues; and no discovery had been conducted by either party.

      In this appeal, the central issues are whether: (1) the trial court erred by

failing to order arbitration; (2) whether Buck waived his right to arbitrate by

delaying his assertion of that right; and (3) whether Buck waived his right to

arbitrate by moving to stay the proceedings in order to invoke his Fifth

Amendment right against self-incrimination in connection with the ongoing

federal criminal investigation. In the alternative, RA Pain argues that if we

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                                        8
determine that Buck did not waive his right to arbitration, we should remand for

limited discovery as to whether there was mutual assent to arbitrate disputes.2

                                       II.

                                       A.

      We first address whether the motion judge erred by ruling the arbitration

clauses between RA Pain and Buck are unenforceable.           The motion judge

determined the clauses were unenforceable because they were unclear and

ambiguous, and because they differed from RA Pain's agreements with other

third-party defendants such as AtMedical as to the forum and venue designated

for dispute resolution. We disagree.

      The arbitration clauses in the Employment Agreement and the

Shareholder Agreement are clear and unambiguous.          Both dictate that any

controversies or disagreements arising from the agreements shall be resolved by

arbitration. This broad, easily understood language gives "reasonable notice" to

the waiver of the "right to judicial adjudication" of contractual disputes, Curtis

2
  Tox Design Group did not cross-appeal or submit a brief. Accordingly, we do
not acknowledge or consider any arguments it attempted to raise and deem them
waived. See Sklodowsky v. Lushis, 417 N.J. Super. 648, 657 (App. Div. 2011)
("An issue not briefed on appeal is deemed waived." (Citations omitted));
Pressler & Verniero, Current N.J. Court Rules, cmt. 5 on R. 2:6-2 (2020) (same).

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                                        9
v. Cellco Partnership, 413 N.J. Super. 26, 38 (App. Div. 2010) (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 Buck procured the arbitration clauses in the Shareholder

and Employment Agreements by fraud because if it had known of Buck's

fraudulent intentions, its shareholders would have never agreed to arbitrate its

claims against him. RA Pain asserts that Buck's fraudulent conduct and breach

of fiduciary duties do not arise out of and or relate to the agreements.

      In our prior opinion, we rejected RA Pain's similar argument that its

claims against AtMedical for civil conspiracy, aiding and abetting breach of

fiduciary duty, negligence, and fraud, were outside the scope of the arbitration

clause agreed to between RA Pain and AtMedical. Tox Design Group, slip op.

at 12-13 (citing Curtis, 413 N.J. Super. at 37-39). We reach the same conclusion

here. As in Tox Design Group, "there would be no relationship between RA

Pain and [Buck] absent the [two] Agreement[s]." Id. at 14.

      A claim of fraudulent inducement generally must be presented in the first

instance to the arbitrator and not to the court. See Van Syoc v. Walter, 259 N.J.

Super. 337, 338-39 (App. Div. 1992) (citing Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395 (1967)). "Unless an arbitration provision itself

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                                       10
is a product of fraud, an election to arbitrate should be enforced." Lederman v.

Prudential Life Ins. Co. of Am., 385 N.J. Super. 324, 338 (App. Div. 2006)

(citing Van Syoc, 259 N.J. Super. at 339) (other citations omitted). Here, the

alleged fraudulent activity occurred after the parties agreed to arbitrate their

future disputes. The parties operated under the terms of Employment Agreement

for more than five years and the Shareholders Agreement for more than one year

before any alleged fraudulent conduct occurred. There is no evidence in the

record that the agreements to arbitrate were a product of fraud.

      RA Pain requests that we remand to the trial court to allow the parties to

conduct limited discovery pertaining to Buck's invocation of his Fifth

Amendment rights and the validity of the arbitration clauses. We discern no

need for such discovery because RA Pain has not provided any evidential basis

to support this contention. As we have indicated, even if, hypothetically, Buck

perpetrated a fraud and thereby profited from Central Tox and AtMedical's

management of RA Pain's laboratory, that conduct does not undermine the

validity of the arbitration agreements.

                                          B.

      We next address RA Pain's argument that Buck waived his right to

arbitration.   "[P]arties may waive their right to arbitrate in certain

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                                          11
circumstances," although such waiver is "never presumed." Cole v. Jersey City

Med. Ctr., 215 N.J. 265, 276 (2013). "An agreement to arbitrate a dispute 'can

only be overcome by clear and convincing evidence that the party asserting

[arbitration] chose to [litigate] in a different forum.'" Ibid. (quoting Spaeth v.

Srinivasan, 403 N.J. Super. 508, 514 (App. Div. 2008)).

      When analyzing whether a party has waived its right to arbitration, a court

"must focus on the totality of the circumstances." Id. at 280. Courts should

consider, among other factors, the following:

            (1) the delay in making the arbitration request; (2) the
            filing of any motions, particularly dispositive motions,
            and their outcomes; (3) whether the delay in seeking
            arbitration was part of the party's litigation strategy; (4)
            the extent of discovery conducted; (5) whether the party
            raised the arbitration issue in its pleadings, particularly
            as an affirmative defense, or provided other notification
            of its intent to seek arbitration; (6) the proximity of the
            date on which the party sought arbitration to the date of
            trial; and (7) the resulting prejudice suffered by the
            other party, if any.

            [Id. at 280-81.]

This analysis is fact-sensitive and is reviewed de novo on appeal. Id. at 275,

280. The judge did not analyze the Cole factors. Because our review is de novo,

the pertinent facts are undisputed, and the issue has been fully briefed and orally

argued, we perceive no need to remand this issue to the trial court. See, e.g.,

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                                       12
Marion v. Borough of Manasquan, 231 N.J. Super. 320, 330 (App. Div. 1989)

(exercising original jurisdiction where resolution of the issue "is necessary for

a complete determination . . . and the facts necessary to resolve it are present in

the record") (citing R. 2:10-5)). Further, the "trial court's interpretation of the

law and the legal consequences that flow from established facts are not entitled

to any special deference."       Manalapan Realty, L.P. v. Twp. Comm. of

Manalapan, 140 N.J. 366, 378 (1995) (citations omitted).

      In Cole, the Court held that an employer waived its right to arbitrate a

former employee's wrongful termination claims by engaging in various litigation

procedures for twenty-one months and then invoking its right to arbitrate on the

eve of trial. Id. at 268-69. This included filing an answer with thirty-five

affirmative defenses, engaging in extensive discovery, and filing a motion for

summary judgment. Id. at 280-83.

      In response, Buck cites Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131
N.J. Super. 159 (App. Div. 1974), where we declined to find the defendant

waived his right to arbitrate by first demanding arbitration as an affirmative

defense in its answer filed four months after the plaintiff filed its complaint. Id.

at 167. Similarly, in Spaeth, we declined to find a waiver of arbitration rights

where the defendant asserted her right to arbitrate six months after the plaintiff

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                                        13
filed his complaint, but "well before any meaningful exchange of discovery—

much less the discovery end date—and well in advance of fixing a trial date."
403 N.J. Super. at 516.

      Here, RA Pain filed its initial third-party complaint on August 31, 2018,

and its amended third-party complaint on February 25, 2019. Buck moved to

dismiss or compel arbitration in his first responsive pleading on June 3, 2019,

some three months and six days later.

      Buck filed an unsuccessful, non-dispositive motion to stay the

proceedings to protect his Fifth Amendment rights due to the federal criminal

investigation. Cf. Cole, 215 N.J. at 282 ("The filing of a dispositive motion is a

significant factor demonstrating a submission to the authority of a court to

resolve the dispute."). We denied leave to appeal on March 8, 2019.

      Moreover, the parties had not yet commenced discovery, much less

engaged in extensive discovery. The discovery end date was February 14, 2020;

no trial date had been set.

      RA Pain also argues it has been prejudiced by Buck's delay, because it is

unable to undertake discovery to ascertain what matters as to which he will

invoke his Fifth Amendment protections in lieu of testifying about those matters.

It asserts that because Buck is essential to both its claims and defenses, its

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                                        14
inability to conduct discovery has led to an early summary judgment motion by

the Tox parties, as well as an impending discovery deadline.

      Contrary to RA Pain's position, Buck moved to compel arbitration long

before the discovery end date. Unlike in Cole, 215 N.J. at 282, Buck did not

seek to change forums on the eve of trial. Buck's contractual right to arbitration

is not defeated by the status of the litigation as to other parties while this

appellate process unfolded. Moreover, RA Pain has not demonstrated that it

would be significantly prejudiced by permitting Buck to pursue resolution

through arbitration.

      Considering the totality of the circumstances, we conclude that Buck did

not waive his right to arbitration.

                                       C.

      Buck appeals from the denial of his motion to stay the proceedings in

order to protect his privilege against self-incrimination in the ongoing federal

criminal investigation. The parties advise us that the United States Attorney has

issued a letter identifying a target of the investigation. Counsel for RA Pain and

Buck further advised during oral argument before this court that they have no

objection to staying the proceedings given the present updated status of the

                                                                          A-0230-19T1
                                       15
federal investigation. We do not know the positions of other parties to this

lawsuit, however.

      We remand this issue for the trial court to reevaluate whether the

arbitration should be stayed because of the ongoing federal criminal

investigation. We modify the stay of litigation imposed in Tox Design Group,

slip op. at 15, to permit arbitration to proceed, unless stayed by the trial court

because of the pendency of the federal investigation.

      We affirm in part and reverse and remand in part for further proceedings

consistent with this opinion. To implement our decision, we suggest the trial

court conduct a case management conference within thirty days.            At that

conference, the trial court can determine in the first instance if the various

arbitration provisions can be reasonably harmonized or agreed-upon and

whether a unified arbitration in one forum (whether it be in New Jersey or

Pennsylvania) is feasible. We do not retain jurisdiction.

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