National Dentex, LLC v. Gold

Filing 24

District Judge Leo T. Sorokin: ORDER entered. 15 Defendant's Renewed Motion to Compel Arbitration and to Dismiss or Stay Pending Arbitration is DENIED.Gold shall answer the 12 First Amended Complaint within fourteen days of this Order. The Court will hold an initial Scheduling Conference in this matter on January 30, 2019 at 3:00 PM in Courtroom 13. A separate notice of that conference will issue forthwith. (Answer due by 12/26/2018) (Montes, Mariliz)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

NATIONAL DENTEX, LLC,
Plaintiff,
v.
PHILLIP N. GOLD,
Defendant.

)
)
)
)
)
)
)
)
)
)
)

Civil No. 18-10484-LTS

ORDER ON RENEWED MOTION TO COMPEL ARBITRATION (DOC. NO. 15)
December 12, 2018
SOROKIN, J.
National Dentex, LLC, has sued Phillip N. Gold for allegedly breaching two contracts the
parties entered in 2000, when National Dentex acquired Gold’s business. Gold asserts that the
claims against him are within the scope of an arbitration provision contained in a third contract,
also executed in 2000 as part of the same business transaction. He seeks an order dismissing this
action or staying it pending arbitration. National Dentex opposes. Because the claims National
Dentex has elected to pursue arise under related, but separate, agreements, neither of which
contain or incorporate an arbitration clause, Gold’s motion to compel arbitration is DENIED.
I.

BACKGROUND 1
National Dentex “offers a number of products and services designed to assist dentists” in

caring for their patients. Doc. No. 12 ¶ 1. Until October of 2000, Gold was the Chief Executive
Officer of Oral Arts, a competitor of National Dentex based in Georgia. Id. ¶ 2. Gold sold Oral

1

The Court takes these facts from the First Amended Complaint and the documents appended
thereto or referenced therein.

Arts to National Dentex in a transaction which included a stock purchase agreement (“SPA”), an
employment agreement (“EA”), and a non-competition agreement (“NCA”), all of which were
signed by the parties on October 23, 2000. Id. ¶¶ 3-5; Doc. Nos. 12-1, 12-2, 16-1. Blank copies
of the EA, the NCA, and the lease were attached as exhibits to the SPA, as executing those
agreements were conditions precedent to consummating the SPA. Doc. No. 16-1 at 17-20. 2
The SPA stated that it was to be construed pursuant to Massachusetts law and reflected
the parties’ consent to the jurisdiction of Massachusetts state and federal courts. Id. at 26. It
contained the following merger clause:
Entire Agreement. This Agreement, together with the Schedules and Exhibits, sets
forth the entire agreement and understanding among the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings with respect hereto. This Agreement and said Schedules and
Exhibits may not be amended, changed or modified except by a written instrument
duly executed by the parties hereto.
Id. The SPA also contained an arbitration clause that provided, in relevant part:
Arbitration. Except as otherwise provided in Section 2(e) hereof, 3 or as otherwise
agreed by the parties, any controversy, dispute or claim between the parties arising
out of, related to or in connection with this Agreement or the performance or breach
hereof shall be submitted to and settled by arbitration conducted by the American
Arbitration Association in Boston, Massachusetts, in accordance with its
commercial arbitration rules as then in effect . . . .
Id. at 27.
The EA and the NCA each: state that they are to be “governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts,” Doc. No. 12-1 ¶ 12;
Doc. No. 12-2 ¶ 5; and reflect the parties’ consent to the jurisdiction of Massachusetts state and
federal courts, Doc. No. 12-1 ¶ 13; Doc. No. 12-2 ¶ 6. In addition, the EA and the NCA each

2

Citations to documents appearing on the Court’s electronic docket in this matter reference the
docket number, with pincites using to the page numbers assigned in the ECF header.
3
Section 2(e) of the SPA stipulated that certain disputes regarding a closing balance sheet would
be submitted to an accounting firm for resolution. Doc. No. 16-1 at 8.
2

contain a merger clause. See Doc. No. 12-1 ¶ 11 (“This [Employment] Agreement, which
contains the entire contractual understanding between the parties, may not be changed orally but
only by a written instrument signed by the parties hereto.”); Doc. No. 12-1 ¶ 5 (“This [NonCompetition] Agreement may be amended only by an instrument in writing executed by the
parties hereto and this Agreement constitutes the entire agreement among the parties hereto as to
the subject matter hereof.”).
Neither the EA nor the NCA contains an arbitration clause, nor any language explicitly
incorporating the SPA and/or its arbitration clause.
Upon completion of the October 2000 sale, Gold became the President of Oral Arts (then
owned by National Dentex), a position he held until he resigned at the end of February 2017.
Doc. No. 12 ¶¶ 2, 12. According to National Dentex, by September 2017 Gold was acting as a
consultant to a competing business, lending that business his name, soliciting former Oral Arts
customers on behalf of the new business, and persuading Oral Arts employees to take positions
with the new business. Id. ¶¶ 12-13. As a result, “National Dentex was forced to close Oral Arts
on September 29, 2017.” Id. ¶ 14.
National Dentex alleges that Gold’s post-resignation conduct violated his obligations
under the EA and the NCA. Id. In the this action, National Dentex seeks a declaratory judgment
and monetary damages for the alleged breaches of the EA, the NCA, and the covenant of good
faith and fair dealing implicit in both, 4 as well as an equitable extension of the “restrictive
covenant obligations” contained in the EA and the NCA “for the duration that [Gold] was in
breach of such obligations.” Id. at 19-24.

4

The original complaint also alleged breach of this implied covenant as to the SPA, Doc. No. 1
¶ 95, but National Dentex eliminated that portion of the claim in its First Amended Complaint,
the pleading under consideration now.
3

Gold responded to the First Amended Complaint by moving to compel arbitration, citing
the arbitration clause in the SPA which, Gold argues, reaches all disputes among the parties
arising from any of the agreements executed on October 23, 2000. Doc. Nos. 16, 17. National
Dentex opposed the motion, urging that its claims are limited to breaches of the EA and the
NCA, which it characterizes as independent contracts beyond the reach of the SPA’s arbitration
clause. Doc. No. 18.
II.

LEGAL STANDARD
Questions of arbitrability generally are subject to judicial determination. Dialysis Access

Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 375 (1st Cir. 2011); see Combined Energies v.
CCI, Inc., 514 F.3d 168, 171 (1st Cir. 2008) (explaining that whether parties have agreed to
arbitrate a particular dispute is a legal question turning on contract interpretation). Although
“[f]ederal policy favors arbitration,” Combined Energies, 514 F.3d at 171, “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’ns Workers, 475 U.S. 643, 648 (1986) (quotation marks omitted).
A motion to compel arbitration may be granted only if: 1) there exists a valid agreement
to arbitrate; 2) the moving party is entitled to invoke the arbitration agreement; 3) the arbitration
agreement binds the other party; and 4) the claims asserted fall within the scope of the arbitration
agreement. InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003). Here, the first three
prongs are not at issue. It is undisputed that the SPA contains a valid agreement to arbitrate
which National Dentex may invoke and which binds Gold. Resolution of the pending motion,
then, turns entirely on the final prong—whether the claims National Dentex has articulated in its
First Amended Complaint fall within the scope of the SPA’s arbitration clause. That

4

determination “is a matter of both state contract law and federal arbitration law.” Bowlby v.
Carter Mfg. Corp., 138 F. Supp. 2d 182, 187 (D. Mass. 2001).
A fundamental principle of contract interpretation—the parol evidence rule—generally
“bars consideration of prior or contemporaneous oral or written agreements which contradict or
supplement a completely integrated writing,” absent ambiguity in the writing or certain other
specific exceptions. Id. at 188.
III.

DISCUSSION
Having carefully considered the relevant contracts, the allegations in the First Amended

Complaint, and the legal principles summarized above, this Court concludes that disputes arising
under the EA and the NCA are not subject to the arbitration clause in the SPA. This is so despite
the fact that all three contracts were executed on the same date as part of the same business
transaction among the same parties, 5 and notwithstanding the federal presumption of
arbitrability, for reasons thoughtfully expressed by another session of this Court confronted with
nearly identical circumstances.
In Bowlby, Judge Gorton considered whether the arbitration clause in a purchase
agreement encompassed claims arising under a related employment agreement. 138 F. Supp. 2d
at 187-88. Though the employment agreement in Bowlby was executed a few days after the
asset purchase agreement, it “was a condition precedent” to the parties’ obligations under the
explicit terms of the purchase agreement, and a blank copy of the employment agreement was
attached as an exhibit to the purchase agreement. Id. at 184, 188. Citing the employment
agreement’s merger clause, Judge Gorton concluded that each agreement stood “on its own” as

5

Though this fact might justify looking to all three contracts in order to discern the parties’
intent and interpret an ambiguous provision in one of them, it does not help Gold’s cause here,
where the relevant provisions are not infected with ambiguity.
5

“a fully integrated writing,” with the employment agreement representing the entire agreement of
the parties “with respect to the employment relationship” between the individual selling his
business and the entity acquiring it. Id. at 188. That relationship, Judge Gorton explained, was
“independent of the buyer/seller relationship between the parties” arising from the purchase
agreement, rendering the employment agreement “more than a mere supplement to, or
continuation of,” the purchase agreement. Id. Because the “main issue” presented in Bowlby’s
complaint involved “alleged obligations” under the employment agreement, it “simply [was] not
something which the parties agreed to arbitrate” in the purchase agreement. Id.
The same reasoning applies squarely to the facts presented here. None of the relevant
contracts—the SPA, the EA, or the NCA—contains a clause explicitly incorporating all or part
of any other contract. Though the SPA includes as exhibits unexecuted copies of the EA and the
NCA, and identifies their signing as conditions precedent to the parties’ obligations under the
SPA, this detail does not erase the merger clauses present in each document, nor does it change
the fact that the relationship created by the SPA (that of buyer/seller) is distinct from and
“independent of” the employer/employee relationship that arises from the EA and is at the core
of the NCA. 6 The EA’s sole reference to the SPA is a provision specifying that a particular
paragraph of the EA does not change the SPA (or any other agreement between the parties).
Doc. No. 12-1 ¶ 6. The NCA identifies the EA and the SPA as contemporaneous agreements
between the parties and acknowledges that execution of the NCA was a “material inducement” to

6

Structural and linguistic distinctions among the three contracts further demonstrate that each
was crafted as a separate agreement to govern a particular aspect of the parties’ complex
business relationship at the time of the sale or moving forward. Indeed, key provisions—the
merger clause, the choice-of-law clause, and the consent-to-jurisdiction clause—are worded and
positioned slightly differently in each contract, presumably reflecting conscious choices made by
the parties drafting and negotiating the documents. And, the SPA’s arbitration clause shows that
the parties knew how to draft and include such a provision when and where they wished to do so.
6

National Dentex in entering the larger transaction, but nowhere does it incorporate any part of
the SPA by reference. Doc. No. 12-2. In these circumstances, neither the law nor the facts
justify extending the SPA’s arbitration provision to disputes arising under the EA and the NCA. 7
Moreover, unlike in Bowlby, the facts and claims set forth in the First Amended
Complaint are carefully focused on the employment relationship between the parties—
specifically, on Gold’s obligations under the EA and the NCA, and on the ways in which
National Dentex believes he breached those obligations. Compare id. at 188 (identifying
counterclaims against Bowlby for fraud and misrepresentation which allegedly infected the
negotiation and execution of the purchase agreement itself), with Doc. No. 12 ¶¶ 1-75
(describing the terms of the EA and the NCA and Gold’s conduct which allegedly violated those
terms after his resignation). As such, none of the presently pending claims raise arbitrable issues
which would justify staying this action. Cf. Bowlby, 138 F. Supp. 2d at 188 (finding a
discretionary stay appropriate where both arbitrable and nonarbitrable issues were presented).
IV.

CONCLUSION
For the foregoing reasons, Gold’s renewed motion to compel arbitration and to dismiss or

stay this case (Doc. No. 15) is DENIED.
Gold shall answer the First Amended Complaint within fourteen days of this Order.
The Court will hold an initial scheduling conference in this matter on January 30, 2019 at
3:00 PM in Courtroom 13. A separate notice of that conference will issue forthwith.
SO ORDERED.
/s/ Leo T. Sorokin
United States District Judge
7

Nearly all of the cases cited by Gold involve materially different facts, decisions by courts in
other jurisdictions, or both. See Doc. No. 18 at 16-17 (distinguishing the case law cited in
Gold’s opening brief).
7