AFFORDABLE DENTURES AUDUBON, MICHELLE AITKEN, DDS, P.A. et al v. AFFORDABLE CARE, LLC et al
Filing
22
OPINION. Signed by Judge Renee Marie Bumb on 5/9/18. (dd, )
[Docket No. 9]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
AFFORDABLE DENTURES -- AUDUBON,
MICHELLE AITKEN, DDS, P.A., et
al.,
Plaintiffs,
Civil No. 17-12136 (RMB/JS)
v.
OPINION
AFFORDABLE CARE, LLC; and
AFFORDABLE DENTURES DENTAL
LABORATORIES, INC.,
Defendants.
APPEARANCES:
SCARINCI HOLLENBECK, LLC
By: Joel N. Kreizman, Esq.
331 Newman Springs Road, Suite 310
Red Bank, New Jersey 07701
Counsel for Plaintiffs
ANDERSON KILL P.C.
By: Frank G. Murphy, Esq.
Bruce Strong, Esq.
One Gateway Center, Suite 1510
Newark, New Jersey 07102
Counsel for Defendants
BUMB, UNITED STATES DISTRICT JUDGE:
This suit arises out of disputes primarily between Plaintiff
Michelle Aitken, D.D.S., and Defendant Affordable Care, LLC, which
provides management services for Dr. Aitken’s dental offices
located in Audubon and Vineland, New Jersey.
1
Defendant Affordable
Dentures Dental Laboratories, Inc., is a subsidiary of Defendant
Affordable Care, and provides on-site dental laboratory services
at both of Dr. Aitken’s office locations.
Before the Court is Defendants’ Motion to Compel Arbitration.
For the reasons stated herein, the Motion will be granted in part,
denied in part, and denied without prejudice in part. 1
I.
FACTS
The following facts are alleged in the Verified Complaint
(“V.C.”), or found in the documents attached as exhibits to the
Verified Complaint.
Michelle Aitken is a dentist with two
offices: one in Audubon, New Jersey, and one in Vineland, New
Jersey. (V.C. ¶¶ 5)
Dr. Aitken “wholly owns” the professional
associations-- Plaintiff “Affordable Dentures-Audubon, Michelle
Aitken, DDS, P.A.” (hereafter “the Audubon P.A.”); and Plaintiff
“Affordable Dentures-Vineland, Michelle Aitken, DDS, P.A.”
(hereafter “the Vineland P.A.”)-- which operate out of the
offices.
(V.C. ¶¶ 6-7)
A. The Audubon Office
In 2004, Dr. Aitken formed the Audubon P.A. to acquire a
dental practice from another dentist.
(V.C. ¶ 14)
In connection
with the acquisition of the practice, “[o]n February 1, 2004, Dr.
1
The Court exercises diversity of citizenship subject matter
jurisdiction pursuant to 28 U.S.C. § 1332.
2
Aitken signed” three “interlocking agreements” with Defendants 2
each of which, the Verified Complaint alleges, “is coterminous
with the others.”
(V.C. ¶ 16)
The three agreements are: (1)
“Agreement to Provide Management Services to a Dental Practice” 3;
(2) “Agreement to Provide Dental Laboratory Services” 4; and (3) a
“Facility and Equipment Lease.” 5
Many years later, on September 1,
2014, Plaintiffs and Defendants signed (4) the “Equipment Purchase
and Sale Agreement,” 6 and (5) “Agreement Regarding Venue.” 7
Each
agreement is summarized in turn.
(1)
Management Services Agreement
The Management Services Agreement is between the Audubon P.A.
(designated “PC” in the agreement) and Affordable Care (designated
“Manager” in the agreement).
The introductory recitals to the
agreement state that the Audubon P.A. “has requested Manager
2
A fourth agreement, the “Managing Dentist Employment
Agreement” was also signed on February 1, 2004. (V.C. ¶ 16) That
agreement, however, is between Dr. Aitken and the Audubon P.A.;
neither Defendant is a signatory to that agreement. The Verified
Complaint also explains that “Dr. Aitken’s Employment Agreement
with the Audubon Dental Practice is effectively an Employment
Agreement with herself.” (V.C. ¶ 19) The Employment Agreement is
not implicated by any of the claims in the Verified Complaint, nor
is it the basis for Defendants’ instant Motion to Compel
Arbitration.
3
Dkt No. 1-2, p. 60 of 107, through 81 of 107.
4
Dkt No. 1-2, p. 103 of 107, through 107 of 107.
5
Dkt No. 1-2, p. 90 of 107, through 102 of 107.
6
Dkt No. 1-3, p. 63 of 101, through 85 of 101.
7
Dkt No. 1-3, p. 87 of 101, through 88 of 101.
3
[Affordable Care] to act as its agent in the management of certain
business aspects of the [dental] Practice.” 8
The agreement further
provides that “Manager shall manage the business aspects of the
Practice on [the Audubon P.A.’s] behalf and in the [the Audubon
P.A.’s] name . . . Manager is obligated to manage the Practice
with [the Audubon P.A.’s] best interest in mind[.]” 9
The “business
aspects” Affordable Care agreed to manage include “office space,
furnishing and equipment,” “in-center laboratory,” “staffing,”
“inventory and supplies,” “legal services,” “marketing,”
“financial services” (including budgeting and payroll); and
“insurance” (other than professional liability insurance). 10
In
exchange, the Audubon P.A. agreed to pay Affordable Care monthly
management fees as set forth in Exhibit C to the agreement. 11
Most relevant to the instant suit and motion, the agreement
contains this arbitration provision: 12
8
Dkt No. 1-2, p. 60 of 107.
9
Id. at p. 60–61.
10
Id. at p. 74–77.
11
Id. at p. 78–81.
12
Id. at p. 68-69
4
The Management Services Agreement and Exhibit C to the
agreement were amended on September 1, 2014, principally to extend
the term of the agreement to April 1, 2034 and to alter the
management fee schedule. 13
(2)
Laboratory Services Agreement
The Laboratory Services Agreement is between the Audubon P.A.
(designated “PC” in the agreement) and Affordable Dentures
(designated “ADDL” in the agreement).
The agreement provides that
the Audubon P.A. will exclusively use Affordable Dentures to
perform the lab services enumerated in Exhibit A of the agreement,
which mainly include various types of dentures and repairs /
“remakes” of such dentures. 14
Most relevant to the instant suit and motion are the
following three provisions of the agreement.
First and second,
the agreement provides 15 in relevant part:
13
Dkt. No. 1-3, p. 57 of 101, through 61 of 101.
14
Dkt. No. 1-2, p. 103-107.
15
Id. at p. 103, 104.
5
and,
Third, the agreement contains this arbitration provision 16:
(3)
Facility and Equipment Lease
The lease appears to be a rather straightforward commercial
lease between Affordable Care as the “Landlord,” and the Audubon
P.A. as the “Tenant.”
It provides that the “Tenant may use the
Premises for the purpose of operating a dental practice, and for
no other purpose.” 17
Most relevant to the instant suit and motion,
the lease also provides that “neither Landlord nor Tenant may
terminate this Lease except in connection with the termination of
that certain Agreement to Provide Management Services to a Dental
Practice between Landlord and Tenant of even date herewith,
16
Id. at p. 105.
17
Dkt No. 1-2, p. 95 of 107.
6
Termination of said Agreement will result in automatic termination
of this Lease.” 18
The lease does not contain an arbitration clause.
(4)
Equipment Purchase and Sale Agreement
The Audubon P.A. and Affordable Care executed the Equipment
Purchase and Sale Agreement on September 1, 2014.
The Audubon
P.A. agreed to purchase from Affordable Care various dental
equipment and furniture already in the Audubon office.
Most relevant to the instant suit and motion are the
following two provisions of the agreement.
First, the agreement
contains a “Repurchase Option” that provides that upon “expiration
or other termination for any reason of the Agreement to Provide
Management Services to a Dental Practice . . . dated as of
February 1, 2004,” Affordable Care “may at any time thereafter
elect (but is not required) to purchase all or any portion of the
Equipment” for “book value” plus $1.00. 19
Second, the agreement contains an arbitration clause, 20 which
states in relevant part:
18
Id. at p. 90.
19
Dkt No. 1-3, p. 65 of 101.
20
Id. at p. 67.
7
(5)
Agreement Regarding Venue
The Audubon P.A., Affordable Care and Affordable Dentures
executed the Agreement Regarding Venue on September 1, 2014.
The
introductory recitals list all of the agreements discussed above,
and then the agreement states, in relevant part, “it is hereby
agreed by the parties that the location or venue of any
8
arbitration or litigation between the parties shall be in the
State of New Jersey.” 21
B. The Vineland Office
More than seven years after forming the Audubon P.A., in 2011
or 2012, Dr. Aitken formed the Vineland P.A. to purchase another
dental practice.
(V.C. ¶ 26-28)
In connection with the
acquisition of the practice, “[o]n September 27, 2012 Dr. Aitken
signed three interlocking agreements” with Defendants, each of
which, the Verified Complaint alleges, “is coterminous with the
others.”
(V.C. ¶ 28)
The agreements are: (1) “Services
Contract” 22; (2) “Facility Lease” 23; and (3) “Business Associate
Agreement.” 24
A few years later, on September 1, 2014, Plaintiffs
and Defendants signed (4) the “Equipment Purchase and Sale
Agreement,” 25 and (5) “Agreement Regarding Venue.” 26
Each agreement
is summarized in turn.
(1)
Services Contract
The Services Contract is between the Vineland P.A.
(designated “PC” in the agreement), Affordable Care (designated
21
Dkt No. 1-3, p. 87-88 of 101.
22
Dkt No. 1-3, p. 3 of 101, through 26 of 101.
23
Dkt No. 1-3, p. 28 of 101, through 44 of 101.
24
Dkt No. 1-3, p. 45 of 101, through 55 of 101.
25
Dkt No. 1-3, p. 95 of 101, through 101 of 101, and Dkt No.
1-4, p. 2 of 62 through 16 of 62.
26
Dkt No. 1-4, p. 17 of 62, through 18 of 62.
9
“ACI” in the agreement), and Michelle Aitken, DDS (designated the
“Practice Owner” in the agreement).
The agreement is
substantially similar to the Audubon Management Services
Agreement.
It states that “ACI shall provide business and
administrative services to the PC to support the management of the
business aspects of the Practice on the PC’s behalf and in the
PC’s name.” 27
The “business and administrative services”
Affordable Care agreed to provide include “office space,
furnishing and equipment,” “in-center laboratory services,”
“staffing and human resources assistance,” “inventory and
supplies,” “legal services,” “marketing,” “financial services”
(including budgeting and payroll); “insurance” (other than
professional liability insurance), and “information technology”
(including hardware and software). 28
In exchange, the Vineland
P.A. and Dr. Aitken agreed to pay Affordable Care monthly
management fees as set forth in Exhibit C to the agreement. 29
Like the Audubon Management Services Agreement, the Vineland
Services Contract contains an arbitration clause 30:
27
Dkt No. 1-3, p. 3 of 101.
28
Id. at p. 3-6.
29
Id. at p. 22-24.
30
Id. at p. 15.
10
The Services Contract and Exhibit C to the agreement were
amended on September 1, 2014, 31 principally to delete the
“Termination Without Cause” provision of the agreement, and to
alter the management fee schedule. 32
(2)
Facility Lease
The lease appears to be a rather straightforward commercial
lease between Affordable Care (designated “ACI” in the agreement)
and the Vineland P.A. (designated “PC” in the agreement).
It
provides that the Vineland P.A. “may use the Premises for the
purpose of operating a dental practice, and for no other
purpose.” 33
Most relevant to the instant suit and motion, the
lease also provides that “neither ACI nor PC may terminate this
31
Dkt No. 1-3, p. 90 of 101, through 93 of 101.
32
Much of the substance of the Audubon Laboratory Services
Agreement appears to be incorporated into Exhibit A to the
Vineland Services Contract, which is entitled “Onsite Dental
Laboratory Services.” Like the Audubon Laboratory Services
Agreement, Exhibit A provides that the Vineland P.A. will
exclusively use Affordable Dentures to perform the lab services
enumerated in the agreement, which mainly include various types of
dentures and repairs of such dentures. Exhibit A also provides
that “[a]ll laboratory work shall be performed in a timely manner
and meet all reasonable deadlines and quality standards imposed on
such work by the PC and the Practice Owner.”
33
Dkt No. 1-3, p. 32 of 101.
11
Lease except in connection with the termination of that certain
Services Contract of even date herewith; termination of the
Services Contract will result in automatic termination of this
Lease.” 34
The lease does not contain an arbitration clause.
(3)
Business Associate Agreement
Affordable Care and the Vineland P.A. are parties to the
Business Associate Agreement which is “intend[ed] to protect the
privacy of protected health information disclosed to [Affordable
Care] in compliance with [HIPPA].” 35
The Business Associate Agreement does not contain an
arbitration clause.
(4)
Equipment Purchase and Sale Agreement
The Vineland P.A. and Affordable Care executed the Equipment
Purchase and Sale Agreement on September 1, 2014-- the same day
the Audubon P.A. executed a document bearing the same title.
Except for the purchase prices, and the names of the P.A.s, the
two agreements appear to be identical with respect to the two
provisions-- the Repurchase Option and arbitration clause-- quoted
above. 36
(5)
Agreement Regarding Venue
34
Id. at p. 36.
35
Dkt No. 1-3, p. 45-55.
36
Dkt No. 1-3, p. 97-99.
12
The Vineland P.A. and Affordable Care executed the Agreement
Regarding Venue on September 1, 2014-- the same day the Audubon
P.A. executed a document bearing the same title.
The introductory
recitals list all of the agreements discussed above (except the
Business Associate Agreement), and then the agreement states, in
relevant part, “it is hereby agreed by the parties that the
location or venue of any arbitration or litigation between the
parties shall be in the State of New Jersey.” 37
C. Claims asserted in the Verified Complaint
The Verified Complaint contains five counts: (1) violation of
N.J.S.A. 45:6-12 and -19 against both Affordable Care and
Affordable Dentures; (2) violation of N.J.A.C. 13:30-8.13 and 8.19 against both Affordable Care and Affordable Dentures; (3)
“breaches of contracts” and breaches of the covenants of good
faith and fair dealing against both Affordable Care and Affordable
Dentures; (4) violation of the New Jersey Franchise Practices Act,
N.J.S.A. 56:10-1, et seq. against Affordable Care; and (5) breach
of fiduciary duty against Affordable Care.
Each Count, however, asserts more than one legal claim.
Count 1 alleges that various agreements between the parties
violate New Jersey statutory law, which forbids corporations from
“practicing dentistry” and forbids a person from practicing
dentistry “under any name other than [her] true name.”
37
Dkt No. 1-4, p. 17-18.
13
N.J.S.A.
45:6-12. 38
“Practicing dentistry,” in turn, is defined as someone
who “is a manager” “of a place where dental operations are
performed,” and “manager” is defined as anyone who “places in the
possession of any operator, assistant or other agent such dental
material or equipment as may be necessary for the management of a
dental office on the basis of a lease or any other agreement for
compensation. . .” or “retains the ownership or control of dental
material, equipment or office and makes the same available in any
manner for the use by operators, assistants or other agents. . .”
N.J.S.A. 45:6-19.
Specifically, Count 1 asserts the following
claims:
•
The Audubon Management Services Agreement and the
Vineland Services Contract render Affordable Care
a “manager” of a dental practice in violation of
N.J.S.A. 45:6-12 and -19 (V.C. ¶¶ 75, 78);
•
The Audubon Laboratory Services Agreement violates
N.J.S.A. 45:6-12 and -19 by vesting “total control”
of laboratory services in Affordable Dentures
(V.C. ¶ 78 c.- g.); and
•
The Purchase and Sale Agreements violate N.J.S.A.
45:6-12 and -19 by: (a) “plac[ing] in possession of
Dr. Aitken and her associates equipment which is
necessary for the management of a dental office and
for compensation paid by the Dental Practices,”
(V.C. ¶ 76), and (b) including a “repurchase
option” whereby Affordable Care may buy back the
dental equipment. (V.C. ¶ 77)
Count 2 is similar to Count 1; it asserts violations of the
New Jersey regulations governing the “permissible business
38
The penalty for violating the law is “three hundred
dollars for the first offense and six hundred dollars for the
second and each subsequent offense.” N.J.S.A. 45:6-12.
14
structures” and “practice names” in dentistry.
8.13 and -8.19.
N.J.A.C. 13:30-
It alleges that Affordable Care and Affordable
Dentures have taken actions pursuant to the Audubon Management
Services Agreement, the Vineland Services Contract and the Audubon
Laboratory Services Agreement which violate N.J.A.C. 13:30-8.13
and -8.19. (V.C. ¶¶ 86-88)
Specifically, Plaintiffs assert that
Defendants have impermissibly exercised control over Dr. Aitken’s
decision making with regard to the dental services she provides,
and have placed advertisements for the Audubon and Vineland P.A.s
which allegedly violate the regulations.
(V.C. ¶ 86)
Count 3 specifically enumerates breaches of the following
Agreements:
•
Numerous breaches of the Audubon Management
Services Agreement as individually set forth in
V.C. ¶¶ 90 a.-c., e., l.-n., p., r., t., u., 91;
•
Numerous breaches of the Vineland Services Contract
as individually set forth in V.C. ¶¶ 90 d., h.-k.,
o., q., s., v.;
•
Breaches of the Audubon Laboratory Services
Agreement as individually set forth in V.C. ¶¶ 90
f., g., 92 a.; and
•
Breaches of the covenant of good faith and fair
dealing implied by law in the Audubon Management
Services Agreement and the Vineland Services
Contract as set forth in V.C. ¶¶ 92 b.i.-ii., 93,
94
Count 4 alleges that the Audubon Management Services
Agreement and the Vineland Services Contract create a franchiseefranchisor relationship between Dr. Aitken and Affordable Care,
which, Plaintiffs assert, is governed by the New Jersey Franchise
15
Practices Act, N.J.S.A. 56:10-1, et seq. 39
Count 4 asserts that
Affordable Care “has violated section 7 of the Franchise Practices
Act is [sic] at least two ways,” by “a. prohibit[ing] Dr. Aitken
from communicating with the owners of other Affordable Care
practices”; and “b. . . . inserting provisions in [the Audubon
Management Services Agreement and the Vineland Services Contract]”
whereby termination of the agreements results in automatic
termination of the Audubon and Vineland Leases respectively.
(V.C. ¶ 108)
Finally, Count 5 asserts that Affordable Care “as business
manager for Dr. Aitken,” “has fiduciary duties” that Affordable
Care has breached by, among other things, “comingl[ing] funds [of
Dr. Aitken’s practices] with those of other dental practices it
manages,” and by increasing the fees it charges the practices.
(V.C. ¶¶ 116-17)
II.
MOTION TO COMPEL ARBITRATION STANDARD
The parties disagree whether a summary judgment standard or a
motion to dismiss standard should apply to the instant Motion to
Compel Arbitration.
The Court holds that a motion to dismiss
standard applicable to motions pursuant to Fed. R. Civ. P.
39
The Court observes that there appears to be some
conceptual tension between the claims / legal theories asserted in
Count 1 and the claims / legal theories asserted in Count 4; under
Plaintiffs’ theory in Count 1, it would seem that by law,
dentistry practices cannot be franchises. At this early stage of
the case, however, the Court need not resolve this tension.
Federal Rule of Civil Procedure 8(d) generally allows for pleading
“alternative” and “inconsistent” legal theories.
16
12(b)(6) is appropriate under the circumstances of this motion.
The Third Circuit has clearly articulated when the use of each
standard is appropriate:
when it is apparent, based on the face of a complaint,
and documents relied upon in the complaint, that certain
of a party’s claims are subject to an enforceable
arbitration clause, a motion to compel arbitration
should be considered under a Rule 12(b)(6) standard
without discovery’s delay. But if the complaint and its
supporting documents are unclear regarding the agreement
to arbitrate, or if the plaintiff has responded to a
motion to compel arbitration with additional facts
sufficient to place the agreement to arbitrate in issue,
then the parties should be entitled to discovery on the
question of arbitrability before a court entertains
further briefing on the question. After limited
discovery, the court may entertain a renewed motion to
compel arbitration, this time judging the motion under
a summary judgment standard.
Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764,
776 (3d Cir. 2013) (internal citations and quotations omitted).
The Court’s decision on the instant motion is based soley on the
documents attached to the Verified Complaint and the Verified
Complaint itself, and neither party has asserted that it requires
discovery to garner additional facts to place the agreement to
arbitrate in issue.
The parties do not dispute whether they
reached agreements to arbitrate; rather, they dispute whether the
claims asserted in the Verified Complaint fall within the scope of
the various agreements to arbitrate.
standard is appropriate.
17
Thus, a Rule 12(b)(6)
III. ANALYSIS
Defendants move to compel arbitration asserting that all of
the claims in the Verified Complaint are subject to arbitration.
The Court first considers the threshold issue of whether
arbitrability of particular claims or issues is for the Court or
an arbitrator.
Second, because the Court concludes that the
Court, rather than an arbitrator, must decide arbitrability of all
claims and issues-- with one exception explained below-- the Court
will proceed to examine whether each claim is subject to
arbitration, beginning with the claims asserted in Count 3, the
“breaches of contracts” count. 40
A.
Absent a delegation clause providing that an arbitrator will
decide issues of arbitrability, the Court will decide whether
40
The parties’ briefs often blur the lines as to the issue-or, more appropriately, issues-- before the Court. At the outset
of the Court’s legal analysis, the Court observes that it is not
particularly helpful, nor does it advance the legal analysis, to
broadly assert that this entire lawsuit-- or even entire Counts of
the Verified Complaint-- should be submitted to arbitration, or,
alternatively, that this entire lawsuit (or Counts of the Verified
Complaint) should be decided by this Court. This lawsuit was
initiated by a five-count Verified Complaint, with all counts
asserting more than one individual claim. Moreover, the
individual arbitration clauses-- which speak of “disputes,”
“claims” and “controversies,” as opposed to lawsuits or counts-are embodied in multiple agreements. Thus, a proper analysis of
the instant motion to compel arbitration requires a careful
matching of legal issues to both: (a) claims of the Verified
Complaint, and (b) the applicable, or potentially applicable,
arbitration clause. Unfortunately, the parties did not conduct
such an analysis. The Court has labored to engage in this careful
matching.
18
particular claims are subject to arbitration in accordance with
the applicable agreement.
Morgan v. Sanford Brown Inst., 225 N.J.
289 (2016) (applying New Jersey law);
Virginia Carolina Tools,
Inc. v. Int’l Tool Supply, Inc., 984 F.2d 113, 117 (4th Cir. 1993)
(applying North Carolina law);
Granite Rock Co. v. Int’l Bhd. of
Teamsters, 561 U.S. 287, 296 (2010) (applying federal law). 41
The only contracts between the parties containing a
delegation clause are the Audubon Equipment Purchase and Sale
Agreement and the Vineland Equipment Purchase and Sale Agreement.
The clause, which is the same in both documents, states in
relevant part:
any dispute, claim or controversy between or among the
parties with respect to, that arises out of or that
relates to this Agreement or the Note or any of the
arrangements or agreements contemplated or provided for
herein or therein, or the breach hereof, whether arising
in contract, tort or by statute and including any
dispute, claim or controversy concerning the existence,
validity, interpretation, enforceability, performance,
breach or termination of this Agreement, the validity or
enforceability of this subsection and all claims of
arbitrability (each, a “Dispute”) shall be resolved in
accordance with this subsection. . . . Any Dispute
concerning whether a Dispute is arbitrable shall be
determined by the arbitrator.
(Docket No. 1-3, p. 67 of 101; and Docket No. 1-3, p. 99 of 101)
The issue is whether this delegation clause encompasses not
only disputes with “respect to, . . aris[ing] out of or relat[ing]
to” the agreements in which it appears (i.e., the Equipment
41
As to this issue, there is no conflict between New Jersey,
North Carolina, and federal law, therefore the Court need not
conduct a choice-of-law analysis.
19
Purchase and Sale Agreements) but also the other agreements at
issue in this suit-- namely, the Audubon Management Services
Agreement, the Vineland Services Contract, the Audubon Laboratory
Services Agreement, and the two leases 42-- such that the delegation
clause is applicable to all questions of arbitrability of all
claims asserted in the Verified Complaint.
If it does, then the
Court’s analysis would end, and all questions of arbitrability
would be sent to arbitration.
Defendants argue that the clause does apply to disputes
implicating the other Agreements, pointing to “the aspect of the
clauses requiring arbitration ‘with respect to, that arises out of
or that relates to this Agreement or the Note or any of the
arrangements or agreements contemplated or provided for herein or
therein.’”
(Opposition Brief, p. 16-17; Reply Brief, p. 10;
italics in the briefs)
According to Defendants, this language
“necessarily includes disputes under the other interlocking
agreements at issue here.”
The Court disagrees.
(Reply Brief, p. 10)
The italicized words “herein” and
“therein” plainly refer to, respectively, “this Agreement” (i.e.,
the Equipment Purchase and Sale Agreement) and “the Note.”
Thus,
the only “arrangements or agreements” addressed by the clause are
those “contemplated or provided for” by the Equipment Purchase and
42
The Verified Complaint does not assert that Defendants’
alleged wrongful actions or omissions breached the Business
Associate Agreement; nor does the Verified Complaint allege that
Business Associate Agreement violates New Jersey statutory law.
20
Sale Agreement and the Note, not any other interlocking
agreements.
Thus, this Court, rather than an arbitrator, must
decide arbitrability of all claims asserted in the Verified
Complaint except those with respect to, that arise out of, or that
relate to the Purchase and Sale Agreements and their respective
Notes.
The question then becomes, are any of the claims of the
Verified Complaint a “Dispute” as that term is defined in the
Purchase and Sale Agreements?
The answer is yes-- a portion of
Count 1 is a “claim . . . concerning
Purchase and Sale Agreement.
the . . . validity” of the
As set forth above, Count One
asserts, among other things, that the Purchase and Sale Agreements
violate N.J.S.A. 45:6-12 and -19 by: (a) “plac[ing] in possession
of Dr. Aitken and her associates equipment which is necessary for
the management of a dental office and for compensation paid by the
Dental Practices,” (V.C. ¶ 76), and (b) including a “repurchase
option” whereby Affordable Care may buy back the dental equipment.
(V.C. ¶ 77)
Whether this particular “Dispute” / legal claim is
arbitrable must be decided by the arbitrator, in accordance with
the provisions of the delegation clause contained in the Purchase
and Sale Agreements.
The arbitrability of all other legal claims-
- including the remainder of Count One which asserts that the
Audubon Management Services Agreement, the Vineland Services
Contract, and the Audubon Laboratory Services Agreement violate
21
the identified statutes (see V.C. ¶¶ 78-79)-- shall be decided by
the Court as set forth next.
B.
(1)
Breach of Contracts / Good Faith Claims (Count 3)
As set forth above, Count 3 asserts breaches of only the
Audubon Management Services Agreement, the Vineland Services
Contract, and the Audubon Laboratory Services Agreement.
Plaintiffs concede, as they must, that all three agreements
contain their own arbitration clauses.
Plaintiffs assert,
however, that the arbitration clauses “should not be followed”
because the clauses do not comply with New Jersey law insofar as
they do not state that the P.A.s waive their right to litigate in
court, and the clause is ambiguous.
(Opposition Brief, p. 27)
(a)
Claims under the Audubon Management Services Agreement
and the Vineland Services Contract
Both services agreements provide that “[t]he validity,
interpretation and performance of this Agreement shall be governed
by and construed in accordance with the laws of the State of North
Carolina except that issues concerning the practice of dentistry
shall be governed by the laws of New Jersey.”
The issue of
whether a contractual arbitration clause is valid and enforceable
does not concern the practice of dentistry; therefore, in
accordance with the plain language of the parties’ agreements,
North Carolina law, not New Jersey law, applies.
Moreover,
Plaintiffs do not argue that under North Carolina law a waiver-of-
22
rights provision is required to make the arbitration clause valid
and enforceable. 43
Thus, Plaintiffs’ first argument fails.
Second, Plaintiffs argue that the arbitration clauses are
ambiguous, and inapplicable to the breach of contract claims
because the clauses “do not use the word ‘breach.’”
Brief, p. 27 n.10)
The Court rejects this argument.
(Opposition
The breach
of contract claims are disputes “with respect to the application
or interpretation of the terms” of the agreements.
The only way
to determine whether a breach has occurred is by reference to the
terms of the agreements.
Thus, Plaintiffs’ second argument fails.
The Court holds that the breach of contract claims based on
the Audubon Management Services Agreement and the Vineland
Services Contract are subject to arbitration. 44
43
Indeed, while the Court does not decide the issue, caselaw
suggests that even under New Jersey law, a waiver-of-rights
requirement may only exist for consumer contracts and employment
contracts, not commercial contracts such as those at issue here.
See Gold Mine Jewelry Shoppes, Inc. v. Lise Aagaard Copenhagen,
A/S, 240 F. Supp. 3d 391, 395 (E.D.N.C. 2017) (“New Jersey state
courts have limited the [waiver-of-rights requirement] to
employment and consumer contexts.”)(collecting cases); see also
Moon v. Breathless, Inc., 868 F.3d 209, 214 (3d Cir. 2017) (in an
employment case, stating that New Jersey law requires the
arbitration clause to contain clear and unambiguous waiver-ofrights language).
44
Some of Plaintiffs’ breach of contract claims may require a
decision concerning the requirements of New Jersey law as set
forth in N.J.S.A. 45:6-12 and -19 and N.J.A.C. 13:30-8.13 and 8.19. Most notably, the Audubon Management Services Agreement and
the Vineland Services Contract both contain a clause entitled
“Contract Modifications for Prospective Events” which, Plaintiffs
contend, requires Affordable Care to “amend” the agreements “as
necessary” so as to avoid violating New Jersey laws and
regulations. At least one of Plaintiffs’ breach of contract
23
(b)
The Audubon Laboratory Services Agreement
Unlike the two services agreements between the P.A.s and
Affordable Care, the Audubon P.A.’s Laboratory Services Agreement
with Affordable Dentures has no choice-of-law provision. 45
Because
this is a diversity case, the Court applies New Jersey choice-oflaw rules to determine whether, as Plaintiffs assert, New Jersey
law applies or, as Defendants assert, North Carolina law applies.
See Gay v. Creditinform, 511 F.3d 369, 389 (3d Cir. 2007) (stating
that a federal district court sitting in diversity applies the
forum state’s choice-of-law rules pursuant to Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487 (1941)).
New Jersey follows the Restatement (Second) of Conflict of
Laws, section 188, generally known as the most significant
relationship test.
State Farm Mut. Auto. Ins. Co. v. Estate of
claims asserts that Affordable Care has breached this clause by
failing to agree to amend the agreements. (V.C. ¶ 90 a.-c.) In
adjudicating this claim, the arbitrator may need to decide the
issue of whether the agreements violate the relevant laws and
regulations, which is a necessary predicate to triggering the
parties’ obligation to amend. Stated another way, it is possible
that the issue of whether New Jersey law has been violated may be
adjudicated by the arbitrator as Affordable Care’s defense to
Plaintiffs’ breach of contract claims, as distinguished from the
arbitrator deciding whether Plaintiffs may bring a claim directly
under the same laws and regulations as asserted in Counts 1 and 2
of the Verified Complaint.
45
Nor can the Laboratory Services Agreement be interpreted
as incorporating the Audubon Management Services Agreement’s
choice-of-law provision. The Laboratory Services Agreement makes
no reference to the Management Services Agreement and contains an
integration clause which states, “[t]his Agreement contains the
entire agreement between the parties in regard to the subject
matter hereof.”
24
Simmons, 84 N.J. 28, 34 (1980); see also Pfizer, Inc. v. Employers
Ins. of Wausau, 154 N.J. 187, 194 (1998) (“Restatement section 188
sets forth the general rule governing choice of law in contract
actions[.]”).
Section 188 lists several contacts to be considered
in the most significant relationship analysis, such as the
domicile, residence, nationality, place of incorporation and place
of business of the parties, and the places of contracting and
performance.
Unfortunately, the parties have not briefed this issue, and
the Court declines to rule on the choice-of-law in the absence of
such briefing.
Accordingly, the Court cannot decide the validity
of the arbitration clause contained in the Audubon Laboratory
Services Agreement; therefore the Motion to Compel Arbitration as
to all claims asserting breach of the Audubon Laboratory Services
Agreement will be denied without prejudice.
If, after considering
the Court’s disposition with regard to Plaintiffs’ other claims,
the parties wish to submit supplemental briefing on this issue,
the Court will grant leave to do so.
(2)
Breach of Fiduciary Duty (Count 5)
Plaintiffs assert that the breach of fiduciary duty count is
“not encompass[ed]” by the arbitration clauses in either the
Audubon Management Services Agreement or the Vineland Services
Contract (Opposition Brief, p. 18-19), and therefore, is not
subject to arbitration.
This argument is directly undermined by
the record.
25
The Verified Complaint pleads that the parties’ relationship
is the product of, and defined by, the Audubon Management Services
Agreement and the Vineland Services Contract.
Specifically, the
breach of fiduciary duty count repeatedly alleges that Affordable
Care, “as the business manager,” “has fiduciary duties” to
Plaintiffs (V.C. ¶¶ 113, 114, 117), and both services agreements
provide that Affordable Care will manage the business aspects of
the P.A.s on their behalf and in their names. 46
Thus, the claims
asserted in the fiduciary duty count are “controvers[ies] or
dispute[s] between [Affordable Care] and the [P.A.s] . . . with
respect to the application or interpretation of the terms of” the
services agreements because the services agreements create and
define the fiduciary relationship between the parties.
In this
way, the breach of fiduciary duty count is, in essence, asserting
additional breach of contract claims, which claims the Court has
held are subject to arbitration.
An adjudication of the breach of
fiduciary duty claim will necessarily require an examination of
what Defendants were obligated to do and/or what they were
permitted to do under the agreements, 47 which, of course, will
46
In contrast, the Verified Complaint does not allege that
Affordable Care has fiduciary duties to Plaintiffs by virtue of
being the P.A.’s landlord under the leases, nor does it allege
that Affordable Care has fiduciary duties to Plaintiffs by virtue
of being the seller under the Equipment Purchase and Sale
Agreements.
47
For example, Plaintiffs assert that Defendants have
violated their fiduciary duties by comingling funds, yet the
Verified Complaint also acknowledges that the Audubon Management
26
require either an “application or interpretation” of the terms of
the services agreements. 48
Accordingly, the Court holds that the breach of fiduciary
duty claims asserted in Count 5 are subject to arbitration.
(3)
Violation of N.J.S.A. 45:6-12 and -19 (Count 1)
As discussed above, a portion of Count One asserts that the
Audubon Management Services Agreement, the Vineland Services
Contract, and the Audubon Laboratory Services Agreement violate
the identified New Jersey statutes (see V.C. ¶¶ 78-79).
Relying
on the language of the services agreements’ arbitration clauses,
which only apply to controversies or disputes “with respect to the
application or interpretation of the terms of this Agreement,” not
the legal validity of the terms under New Jersey statutory law,
Plaintiffs contend that their claims fall outside of the
arbitration clause.
Defendants argue that the broader, “more
detailed” arbitration clause contained in the Equipment Purchase
and Sale Agreements (Reply Brief, p. 10) encompasses these claims.
However, as discussed above, the arbitration clause in the
Equipment Purchase and Sale Agreements, by its terms, is not
Services Agreement and the Vineland Services Contract “gave
[Affordable Care] a contractual right to comingle.” (V.C. ¶ 115)
48
The Court does not rule-out the possibility that reference
to the common law governing agents’ fiduciary duties to their
principals may provide useful background, and may inform the
arbitrator’s application and interpretation of the services
agreements. This possibility, however, does not remove the
fiduciary duty count from the reach of the arbitration clauses.
27
incorporated into the other agreements between the parties.
Nor
do the relevant provisions of the Equipment Purchase and Sale
Agreements evidence any intent to amend or replace the arbitration
provisions in the other agreements between the parties.
Accepting
Defendants’ argument would effectively result in supplanting the
arbitration clauses contained in the Audubon Management Services
Agreement, the Vineland Services Contract, and the Audubon
Laboratory Services Agreement with the clause contained in the
Purchase and Sale Agreements with no record support for doing so.
Thus, the Court rejects Defendants’ argument, and looks to the
arbitration clauses contained in the Audubon Management Services
Agreement, the Audubon Laboratory Services Agreement, 49 and the
Vineland Services Contract.
It does not appear that determining whether the Audubon
Management Services Agreement, the Audubon Laboratory Services
Agreement, and the Vineland Services Contract violate New Jersey
law will require an “application or interpretation” of the
agreements’ terms.
Rather, it appears that the resolution of the
claims asserted in Count 1 may require a comparison of the
agreements’ terms on their face with the requirements of New
49
As stated above, the Court does not rule on the validity
of the Audubon Laboratory Services Agreement’s arbitration clause.
The issue is only potentially dispositive as to the arbitrability
of the breach of the Laboratory Services Agreement claims asserted
in Count 3. As explained herein, the other claims premised on the
Audubon Laboratory Services Agreement are not subject to
arbitration for independent reasons.
28
Jersey law, as determined by the Court. 50
Thus, the Court holds
that the claims of Count One attacking the legal validity of the
Audubon Management Services Agreement, the Vineland Services
Contract, and the Audubon Laboratory Services Agreement under New
Jersey statutory law are not subject to arbitration.
(4)
Violation of N.J.A.C. 13:30-8.13 and -8.19 (Count 2)
The parties make the same arguments as to the asserted
regulatory violations as they do for the asserted statutory
violations just discussed.
The same analysis applies, and the
Court’s conclusion is the same.
It does not appear that
determining whether Defendants’ actions taken pursuant to the
Audubon Management Services Agreement, the Vineland Services
Contract, and the Audubon Laboratory Services Agreement violated
New Jersey regulations will require an “application or
50
The Court also notes that Defendants contend that the New
Jersey statutes and regulations cited in the Verified Complaint
either do not create a private right of action in favor of
Plaintiffs, or do not allow for the relief Plaintiffs seek.
(Moving Brief, p. 14) Given the current procedural posture, the
Court cannot reach the merits of these arguments. See Edmondson
v. Lilliston Ford, Inc., 593 F. App’x 108, 111 (3d Cir. 2014)
(holding that the “District Court erred in dismissing Edmondson’s
motion to compel arbitration and stay proceedings as premature
pending a determination of Lilliston’s motion to dismiss” when
“[t]here is at least a reasonable possibility that some of the
issues presented are arbitrable.”). The Court cannot ignore,
however, the likelihood that an adjudication of the claims
asserted in Counts 1 and 2 will exclusively turn on whether a
private right of action exists under New Jersey law, or the
availability of the remedies Plaintiffs seek under New Jersey law,
independent from what the agreements’ terms provide.
29
interpretation” of the agreements’ terms.
Thus, the Court holds
that the claims in Count 2 are not subject to arbitration.
(5)
Violation of New Jersey Franchise Practices Act (Count 4)
Lastly, the analysis for the New Jersey Franchise Practices
Act claims is the same as the analysis of the claims asserted in
Counts 1 and 2.
Once again, Plaintiffs’ claims are based on
actions taken pursuant to the Audubon Management Services
Agreement and the Vineland Services Contract (see V.C. ¶ 108 a.)
and an assertion that the terms of the agreements, on their face,
violate New Jersey statutory law (see V.C. ¶ 108 b.).
Adjudicating such claims will not require an “application or
interpretation” of the agreements’ terms, therefore the claims are
not subject to arbitration.
IV.
CONCLUSION
For the foregoing reasons, the Motion to Compel Arbitration
will be granted in part, denied in part, and denied without
prejudice in part.
The Motion will be granted as follows.
The
issues and claims subject to arbitration are: (a) whether
Plaintiffs’ claim that the Equipment Purchase and Sale Agreements
violate N.J.S.A. 45:6-12 and -19 is arbitrable; (b) all breach of
contract claims asserted in Count 3, except claims for breaches of
the Audubon Laboratory Services Agreement; and (c) all breach of
fiduciary duty claims asserted in Count 5.
The Motion will be denied as follows.
All other issues and
claims are subject to adjudication by this Court, except claims
30
for breaches of the Audubon Laboratory Services Agreement.
As
discussed above, the Motion to Compel Arbitration will be denied
without prejudice as to the arbitrability of claims for breaches
of the Audubon Laboratory Services Agreement. 51
An appropriate
Order accompanies this Opinion.
s/ Renée Marie Bumb
__________________________
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE
Dated: May 9, 2018
51
In light of the Court’s ruling, and in the interests of
efficiency, preservation of resources, and consolidation of
issues, the parties may wish to submit this entire suit to
arbitration, as opposed to simultaneously pursuing parallel
proceedings in two different fora. If the parties do not elect to
submit this entire suit to arbitration, the Court may decide to
send the non-arbitrable claims to Court-annexed mediation pursuant
to L. Civ. R. 301.1.
31
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