TOX DESIGN GROUP, LLC VS. RA PAIN SERVICES, PA VS. CENTRAL TOX, LLC (L-1485-18, CAMDEN COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE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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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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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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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
A-0230-19T1
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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
A-0230-19T1
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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
A-0230-19T1
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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).
A-0230-19T1
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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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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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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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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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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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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
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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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