Tox Design Grp., LLC v. Ra Pain Servs., P.A.
| Decision Date | 26 December 2019 |
| Docket Number | DOCKET NO. A-4092-18T1 |
| Parties | 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. |
| Court | New Jersey Superior Court — Appellate Division |
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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.
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).
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.
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:
Paragraph thirty-two of the LMSA (the Arbitration Clause) states:
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:
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 furthercontended 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.
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 "thatincorporation [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:
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