Court Opinion

ID: 3196820
Source: CourtListenerOpinion
Date Created: 2016-04-22 14:05:07.644686+00
Date Added: 2024-06-11T14:37:03.287598
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                 APPROVAL OF THE APPELLATE DIVISION

                                    SUPERIOR COURT OF NEW JERSEY
                                    APPELLATE DIVISION
                                    DOCKET NO. A-0657-15T3

BERNETICH, HATZELL & PASCU, LLC,
on behalf of itself and all
others similarly situated,
                                       APPROVED FOR PUBLICATION
     Plaintiff-Respondent,                  April 22, 2016

v.                                        APPELLATE DIVISION

MEDICAL RECORDS ONLINE, INC.
(d/b/a "MRO"),

     Defendant-Appellant.
___________________________________

         Argued April 6, 2016 – Decided April 22, 2016

         Before Judges Ostrer, Haas and Manahan.

         On appeal from the Superior Court of New
         Jersey, Law Division, Camden County, Docket
         No. L-1271-15.

         Lisa J. Rodriguez argued the cause for
         appellant (Schnader Harrison Segal & Lewis
         LLP, attorneys; Ms. Rodriguez, of counsel;
         David Smith, Carl A. Solano and Bradly A.
         Nankerville, on the briefs).

         Joseph A. Osefchen argued the cause for
         respondent    (DeNittis  Osefchen, P.C.,
         attorneys; Stephen P. DeNittis and Mr.
         Osefchen, on the brief).

     The opinion of the court was delivered by

OSTRER, J.A.D.
       In    this       appeal,    we   conclude    that     a    hospital's      medical

records processor may not enforce a mandatory arbitration clause

that    it    included      in    its   invoice    to   a    patient's      attorney      in

response      to    a    request    for     records.        The   hospital,       and   the

processor acting as its agent, had a pre-existing legal duty

under State law to provide the patient's records.                          Consequently,

the records requester's alleged bargain to arbitrate any dispute

related to the invoice was unsupported by consideration, and

therefore unenforceable.                We therefore affirm the trial court's

order       denying       the     records     processor's         motion     to    compel

arbitration of a dispute over its invoice.

                                             I.

       Defendant Medical Records Online, Inc. (MRO) is a third-

party processor of requests for medical records submitted to

hospitals and physicians, including Kennedy Memorial Hospitals

(Kennedy       Hospitals)          in     Washington        Township.         Plaintiff

Bernetich, Hatzell & Pascu, LLC (BH&P) is a personal injury law

firm.       A prospective client, J.H., authorized BH&P to obtain his

medical records from Kennedy on his behalf.                        BH&P sent Kennedy

Hospitals a medical records request on February 23, 2015.

       In response to the request, MRO sent BH&P an invoice for

$204.19.       MRO stated prepayment was required before it would

release the records; payment would constitute approval of the

                                              2                                   A-0657-15T3
charges and the invoice; and if BH&P disputed the invoice, it

had to arbitrate first.         The invoice provided:

            By paying this invoice, you are representing
            that you have reviewed and approved the
            charges and have agreed to pay them.      Any
            dispute relating to this invoice must be
            presented before paying this invoice.     Any
            dispute not so presented is waived.       All
            disputes must be resolved by arbitration
            under the Federal Arbitration Act through
            one or more neutral arbitrators before the
            American Arbitration Association.       Class
            arbitrations are not permitted.     Disputes
            must be brought only in the claimant's
            individual    capacity   and   not    as    a
            representative of a member or class.       An
            arbitrator may not consolidate more than one
            person's claims nor preside over any form of
            class proceeding.[1]

The bottom of the invoice stated, "Please contact MRO . . . for

any questions regarding this invoice."

      MRO   retrieved    271    pages,   for      which   it   charged    $204.19.

This charge consisted of a $10 search and retrieval fee, $1.19

for   postage,    and    $193    in   per-page      fees.       The     fees    were

calculated at the rate of $1.00 a page for pages one through 100

for each visit, and twenty-five cents a page for additional

pages for each visit.           The invoice stated that records over

seventy-five     pages   "may    be   sent   on    CD-ROM."      BH&P    paid   the

1
  We will hereinafter refer to this paragraph as the arbitration
provision.

                                         3                                A-0657-15T3
invoice     and   received        a    CD-ROM        containing      the   271    pages      of

medical records.

      Thereafter, BH&P filed a complaint on behalf of itself and

a putative class, alleging that MRO overcharged BH&P and other

records     requesters.           BH&P      alleged        that    patients      and    their

authorized agents are legally entitled to obtain their medical

records, and that health care providers may only charge a cost-

based fee.        BH&P alleged that MRO's per page fee was unrelated

to,   and     far     exceeded,          its        actual     costs       in    retrieving

electronically stored medical records and transferring them onto

digital     media.         BH&P       alleged       that   MRO's     billing     practices

violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to

-20 (CFA), among other claims.                  MRO responded by filing a motion

to compel arbitration, or, alternatively, to dismiss for failure

to state a claim.          R. 4:6-2(e).

      The trial court denied MRO's motion to compel arbitration.2

Citing    Atalese     v.    U.S.       Legal        Services      Group,   219 N.J. 430

(2014), cert. denied, ___ U.S. ___, 135 S. Ct. 2804, 192 L. Ed.
2d 847 (2015), the court held that the invoice was a consumer

contract    that     did    not       put   BH&P      on     notice,    with     sufficient

clarity     and   prominence,          that     by    paying      the   invoice        it   was

2
  The court decided the arbitration motion first, and thereafter
stayed action on the dismissal motion pending this appeal.

                                                4                                  A-0657-15T3
waiving its right to litigate.             Further, the invitation at the

bottom of the invoice to call MRO with questions was not a clear

mechanism for opting out of arbitration.                 The judge concluded

that the invoice held a consumer's records "hostage" until a

consumer paid the invoice and, thereby, purportedly agreed to

the terms of the arbitration provision.              The court denied MRO's

motion to compel arbitration.       This appeal as of right followed.

See R. 2:2-3(a)(3).

      On appeal, MRO argues that the arbitration provision is

enforceable.      MRO contends that BH&P accepted the arbitration

provision, and waived any objection to its terms, by paying the

invoice without first raising its dispute.                  MRO also contends

that the invoice is neither a consumer contract nor subject to

the stringent standards established in Atalese; and it clearly

informed BH&P that disputes over the invoice must be arbitrated.

MRO   asks   us   to   enforce   federal     and    state    laws   that   favor

arbitration, and to reverse the trial court's order.

      BH&P responds that the arbitration provision is a consumer

contract; Atalese applies; and the arbitration provision did not

provide   clear    and   unambiguous       notice   to   consumers    that,   by

paying the invoice, they were waiving their right to sue.                   BH&P

argues its payment did not constitute assent to the arbitration

provision.     BH&P also argues that the arbitration provision is

                                       5                               A-0657-15T3
unenforceable because MRO imposed it unilaterally.             As MRO had a

legal duty to provide the requested records, BH&P argues it was

unlawful    and   unconscionable   to    condition   performance   of   that

duty upon consent to the arbitration provision.

                                    II.

                                    A.

    We exercise plenary review regarding whether an arbitration

agreement    is   valid   and   enforceable.     Hirsch   v.    Amper   Fin.

Servs., LLC, 215 N.J. 174, 186 (2013).

    Though both the Federal Arbitration Act, 9 U.S.C.A. §§ 1 to

16, and New Jersey's version of the Uniform Arbitration Act,

N.J.S.A. 2A:23B-1 to -32, reflect a preference for arbitration,

arbitration remains "a matter of contract."            AT&T Mobility LLC

v. Conception, 363 U.S. 333, 339, 131 S. Ct. 1740, 1745, 179 L.

Ed. 2d 742, 751 (2011) (citation omitted); Fawzy v. Fawzy, 199
N.J. 456, 469 (2009) (stating arbitration is "a creature of

contract.") (citation omitted).           "Arbitration is a matter of

contract and a party cannot be required to submit to arbitration

any dispute which he has not agreed so to submit."             AT&T Techs.,

Inc. v. Commc'n Workers of Am., 475 U.S. 643, 648, 106 S. Ct.
1415, 1418, 89 L. Ed. 2d 648, 655 (1986); Atalese, supra, 219

N.J. at 430 ("Parties are not required to arbitrate when they

have not agreed to do so.") (quoting Volt Info. Scis. v. Bd. of

                                     6                             A-0657-15T3
Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478, 109 S. Ct.
1248, 1255, 103 L. Ed. 2d 488, 499 (1989)).

      We apply state contract law to determine whether a valid

agreement to arbitration exists.                Id. at 441.     "When deciding

whether the parties agreed to arbitrate a certain matter . . .

courts     generally    .    .   .     should     apply    ordinary   state-law

principles    that     govern    the   formation     of   contracts."      First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.

Ct. 1920, 1924, 131 L. Ed. 2d 985, 993 (1995).                  However, we may

not   "subject    an     arbitration         agreement    to   more   burdensome

requirements     than    those       governing    the     formation   of   other

contracts."      Leodori v. CIGNA Corp., 175 N.J. 293, 302, cert.

denied, 540 U.S. 938, 124 S. Ct. 74, 157 L. Ed. 2d 250 (2003).

      We view the principal issue in this case to be whether

MRO's fulfillment of a pre-existing legal duty — to provide

medical records for a cost-based fee — furnishes consideration

to create an enforceable contract to arbitrate.                  We will first

outline the nature of the duty, and then review the applicable

contract principles.

      Under state and federal law, a patient has a qualified

right to inspect or obtain copies of his or her medical records.

Federal regulations adopted pursuant to 42 U.S.C.A. §§ 1320d to

1320d-9,    provisions      of   the   Health     Insurance    Portability    and

                                         7                              A-0657-15T3
Accountability Act of 1996 (HIPAA), grant "an individual . . . a

right of access to inspect and obtain a copy of protected health

information about the individual in a designated record," 45

C.F.R. § 164.524(a), upon payment of a "reasonable, cost-based

fee. . . ."    45 C.F.R. § 164.524(c)(4).           However, certain kinds

of records are excluded, and various circumstances may justify

denial of access to otherwise disclosable records.                   45 C.F.R. §

164.524(a)(2),   (a)(3).       The    federal     right   to   access    medical

records for a cost-based fee extends to an individual's personal

legal   representative,      which   has   been    construed    to    include    a

guardian, but not such other agents as attorneys.               Webb v. Smart

Document Solutions, LLC, 499 F.3d 1078, 1085-86 (9th Cir. 2007).

    The New Jersey patient's right to access records is not so

limited, and extends to the patient's attorneys.                  The Hospital

Patients Bill of Rights includes the right "to access" "all

records pertaining to the patient's treatment . . . including

receipt of a copy thereof at reasonable cost, upon request,

unless the patient's physician states in writing that access by

the patient is not medically advisable . . . ."                N.J.S.A. 26:2H-

12.8(g).      This   right    is     implemented    by    State      regulation,

N.J.A.C. 8:43G-4.1(a)(25), which enumerates a hospital patient's

rights, and establishes the right "[t]o obtain a copy of the

patient's medical record, at a reasonable fee, within 30 days of

                                       8                                A-0657-15T3
a written request to the hospital" unless access is "medically

contraindicated . . . ."         The thirty-day deadline is also found

in N.J.A.C. 8:43G-15.3(d).3

     The "reasonable fee" must be a "fee based on actual costs,"

yet it may not exceed established ceilings, which vary depending

on who requests the documents.                N.J.A.C. 8:43G-15.3(d), (e).

One standard applies to the "patient or the patient's legally

authorized        representative,"     N.J.A.C.       8:43G-15.3(d),           which

includes,    among    others,    an   attorney,      as   well    as    a   spouse,

guardian,    or    insurer.      N.J.A.C.      8:43G-15.3(d)(5).            Another

standard    applies    to   requests    made    by   anyone      else   whom      the

patient     has    authorized,   as    well    as    health      care   providers

themselves and their attorneys.            N.J.A.C. 8:43G-15.3(e).

     The regulation states:

            (d) If a patient or the patient's legally
            authorized   representative   requests,   in
            writing, a copy of his or her medical
            record, a legible, written copy of the
            record shall be furnished at a fee based on
            actual costs.     One copy of the medical
            record from an individual admission shall be
            provided to the patient or the patient's
            legally authorized representative within 30

3
   The Board of Medical Examiners has promulgated separate
regulations governing the right to, and charges for, patient
records held by its licensees.    See N.J.A.C. 13:35-6.5(c)(4);
Boldt v. Correspondence Mgmt., 320 N.J. Super. 74, 78-81 (App.
Div. 1999) (distinguishing between N.J.A.C. 8:43G-15.3 and
N.J.A.C. 13:35-6.5).

                                       9                                    A-0657-15T3
days of the request, in accordance with the
following:

1. The fee for copying records shall not
exceed $ 1.00 per page or $ 100.00 per
record for the first 100 pages. For records
which contain more than 100 pages, a copying
fee of no more than $ 0.25 per page may be
charged for pages in excess of the first 100
pages, up to a maximum of $ 200.00 for the
entire record;

2. In addition to per page         costs,   the
following charges are permitted:

i. A search fee of no more than $ 10.00 per
patient per request.   (Although the patient
may have had more than one admission, and
thus more than one record is provided, only
one search fee shall be permitted for that
request.   The search fee is permitted even
though no medical record is found as a
result of the search.); and

ii. A postage charge of actual costs for
mailing. No charges shall be assessed other
than those permitted in (d)1 and 2 above;

     . . . .

(e) The fee for copying medical records
shall be based on actual costs, which in no
case shall exceed $ 1.00 per page and $
10.00 per search, in the case of the
following:

1.   Where   the   patient   has   authorized
release of his or her medical record to a
person or entity other than those identified
in (d) above, including but not limited to
physicians   or   other   practitioners   who
provided care to the patient, or attorneys
representing such providers; or

2.   The   patient   subsequently  requests
additional copies of a medical record which

                     10                           A-0657-15T3
           has been furnished in accordance with (d)
           above.

           [N.J.A.C. 8:43G-15.3(d)-(e).]

     As the fee must be based on "actual cost," the per-page

amounts serve only to establish the maximum a patient may be

charged.   See Smith v. Hudson Register, 411 N.J. Super. 538, 571

(App. Div. 2010);4 see also Boldt, supra, 320 N.J. Super. at 82.5

     The   regulation   provides   that   "[a]ccess   to    the   medical

record shall be limited only to the extent necessary to protect

the patient."     N.J.A.C. 8:43G-15.3(f).     Hospitals shall review

their   medical   record   department's   policies    and   procedures,

including its fees, at least every three years.        N.J.A.C. 8:43G-

15.2(a).

     Nothing in N.J.A.C. 8:43G-15.3 expressly permits a hospital

to exact any consideration other than a cost-based fee in return

for supplying records.       Doing so would burden the patient's

4
  Smith was superseded on other grounds by N.J.S.A. 47:1A-5(b),
as recognized in Smith v. Hudson County Register, 422 N.J.
Super. 387, 391 (App. Div. 2011).
5
   In a petition for rulemaking, the Association of Health
Information Outsourcing Services argued that its members should
not be required to justify the charge of each medical record
request based on its cost because it would be impractical to do
so.    It proposed that the Department of Health and Senior
Services amend its regulation to permit the association's
members to charge the amounts specified in the regulation.   29
N.J.R. 5335(a) (Dec. 15, 1997).    The Department referred the
matter for study.    30 N.J.R. 3338(a) (Sept. 8, 1998).     The
proposal was never adopted.

                                   11                             A-0657-15T3
right, guaranteed by statute, to his or her records.                                  Indeed, in

some respects, a hospital may be constrained to accept less than

a cost-based fee, as the regulation sets a $200 maximum for an

entire record requested by a patient or the patient's legally

authorized representative.                    N.J.A.C. 8:43G-15.3(d).                  Hospitals

must   also    "establish           a    policy        assuring      access     to    copies     of

medical records for patients who do not have the ability to

pay. . . ."         N.J.A.C. 8:43G-15.3(d)(3).                      On the other hand, a

hospital's     fee       policy         shall     include      incentives        to    encourage

patients      to   accept         summaries        or    abstracts       of     their      medical

records.      N.J.A.C. 8:43G-15.3(d)(4).

       Returning         to   the       question        of     whether     the       arbitration

provision     is    enforceable,             we   apply      the    fundamental        principle

that "[n]o contract is enforceable . . . without the flow of

consideration        —    both      sides       must    'get       something'     out      of   the

exchange."         Continental Bank of Pa. v. Barclay Riding Acad.,

Inc., 93 N.J. 153, 170 (citation omitted), cert. denied, 464
U.S. 994, 104 S. Ct. 488, 78 L. Ed. 2d 684 (1983).                                          "Basic

contract    principles            render     a    promise      enforceable        against       the

promisor      if    the       promisee        gave      some       consideration          for   the

promise."          Martindale           v.   Sandvik,        173 N.J. 76,       87    (2002).

Consideration        "is      a     bargained-for            exchange      of    promises         or

performance that may consist of an act, a forebearance, or the

                                                  12                                      A-0657-15T3
creation,       modification,    or     destruction        of    a    legal    relation."

Ibid. (citation omitted); see also Sipko v. Koger, Inc., 214
N.J. 364, 381 (2013) (invalidating stock transfers based on lack

of     required       consideration).             Therefore,         consideration          is

essential to form an agreement to arbitrate.                         Martindale, supra,

173     N.J.     at   88-89    (finding          consideration        for     arbitration

agreement).

       However, consideration generally may not be furnished by

fulfilling a pre-existing legal duty.                     "Performance of a legal

duty    owed     to   a   promisee    which       is    neither      doubtful    nor       the

subject     of    honest      dispute       is    not    consideration.         .      .    ."

Restatement (Second) of Contracts, § 73 (1981);6 Segal v. Lynch,

211 N.J. 230, 253 (2012) (stating that "consideration cannot be

a     promise    to    perform   a    pre-existing          legal      duty")       (citing

Williston on Contracts § 7:37 (4th ed. 2008)).

       Consistent with this principle, a party may not impose an

arbitration       clause    after     the    parties      have       already    exchanged

consideration and created an enforceable contract.                          We held that

a party was not obliged to arbitrate a warranty claim where the

arbitration clause was sent to the party after they entered the

original contract.            Paul v. Timco, Inc., 356 N.J. Super. 180,

6
  We recognize that the "pre-existing duty rule" is not without
exceptions. See Restatement (Second) of Contracts, § 89 (1981).
However, none apply here.

                                            13                                      A-0657-15T3
185-86 (App. Div. 2002).               "One party to a contract may not

unilaterally      impose      an    obligation    to    arbitrate       upon    another

party to the contract."            Id. at 185.

      In this case, MRO's pre-existing duty arises from statute

and   regulation,        as    opposed    to    contract.          As   the     records

processor   for    Kennedy         Hospitals,    MRO    was   obliged      to   provide

medical records upon the request of "a patient or the patient's

legally   authorized          representative"      or    anyone     else      whom    the

patient   has   authorized.7           N.J.A.C.    8:43G-15.3(d),          (e).       MRO

contended in oral argument that the medical records constituted

consideration      for    BH&P's      alleged    promise      to   arbitrate.          We

disagree.   As BH&P had a pre-existing right to the records for a

cost-based fee, it does not "get something" out of the alleged

agreement to arbitrate that it did not already have.                            Further,

in exchange for assent to the arbitration provision, MRO did not

promise BH&P anything it was not already obliged to provide.

7
  MRO questioned whether BH&P was the patient's attorney, because
BH&P referred to the patient as a "potential client," and
asserted that it sought the records for itself, noting that
doing so established its standing to dispute MRO's invoice.
Whether BH&P is a "legally authorized representative" as the
patient's attorney under N.J.A.C. 8:43G-15.3(d), or another
entity authorized by the patient under N.J.A.C. 8:43G-15.3(e),
is of no moment in our contract analysis. Kennedy Hospitals and
MRO owe a legal duty to produce the records to either one.

                                          14                                    A-0657-15T3
      In    sum,       the         alleged        agreement         to      arbitrate         lacks

consideration.              BH&P    may     not    be       held    to    the     terms    of    the

arbitration provision in the invoice.

                                                  B.

      MRO argues that even if it had no contractual right to

compel arbitration, BH&P surrendered any right to object simply

by   paying      the    invoiced          amount,          rather    than        presenting      its

dispute    prior       to    payment.         We       disagree.           In    characterizing

payment as a waiver, MRO relies on the terms of the invoice,

which provide that payment constitutes a complete waiver of any

objection or dispute.                But this begs the question.                          The term

providing for waiver of disputes upon payment suffers from the

same shortcoming as the term requiring arbitration.                                       It lacks

consideration.

      Furthermore,           a     waiver    is        a    "voluntary       and    intentional

relinquishment of a known right."                          Knorr v. Smeal, 178 N.J. 169,

177 (2003) (emphasis added).                  Even assuming that BH&P, unlike an

unsophisticated patient, fully understood that MRO intended to

secure     its     non-objection             by        payment,          there     was     nothing

"voluntary"       about       the    choice        MRO       presented.            MRO    demanded

prepayment before releasing the records.                             MRO thus presented a

patient with a dilemma: pay the invoice and surrender the right

to raise any dispute relating to it; or raise a dispute, and

                                                  15                                       A-0657-15T3
incur an inevitable delay in receiving the records as the matter

proceeds to arbitration, in derogation of the right to receive

records in no more than thirty days.8                 N.J.A.C. 8:43G-4.1(a)(25);

N.J.A.C. 8:43G-15.3(d).

      We reject the notion that MRO's invitation to call "for any

questions regarding this invoice," included at the bottom of the

invoice, offered BH&P a meaningful opportunity to contest the

terms of the invoice.           MRO did not invite calls to register an

objection.        Nor   would    it   be    reasonable       for      the    reader    to

conclude    that    the    invitation       to    pose    questions        indicated    a

willingness to deviate from the emphatic statement, "prepayment

required," placed at the very top of the invoice, or any other

of its terms.

      The   purported      waiver     was       the   product    of    a     threat    to

withhold    the    requested     medical        records    for   an    indeterminate

period of time while the dispute was referred to arbitration.

See Restatement (Second) of Contracts, cmt. b to § 73 (noting

the   "danger      of     express     or    implied       threats       to    withhold

performance" of a legal duty, and that "[a] bargain induced by

an improper threat may be voidable for duress"); Id. § 175 ("If

8
  In oral argument, MRO contended that "a dispute relating to
this invoice" included a dispute regarding the accuracy or
completeness of the records provided, notwithstanding the
impossibility of discovering the basis for such a dispute prior
to payment and receipt of the records.

                                           16                                  A-0657-15T3
a party's manifestation of assent is induced by an            improper

threat by the other party that leaves the victim no reasonable

alternative, the contract is voidable by the victim.").           Thus,

BH&P's payment of the fee does not constitute an enforceable

waiver of the right to object to the arbitration provision that

MRO unilaterally imposed.

    Given   our   conclusion   that   the   arbitration   provision   is

unenforceable for a lack of consideration, we need not address

whether the invoice is a consumer contract under Atalese, or,

had there been an exchange of consideration, whether the terms

of the provision were sufficiently clear and unambiguous to be

enforceable.

    Affirmed.

                                 17                            A-0657-15T3