GRANGE CONSULTING GROUP et al v. BERGSTEIN et al
Filing
66
MEMORANDUM & ORDER granting in part and denying in part 45 Motion to Dismiss; Ordering that the Motion to Compel arbitration is Granted and counts six through nine are administratively terminated during the pendency of arbitration; further Ordering that the Motion to Dismiss counts one, two, four, five and ten against Bernstein and Silverman are denied. Signed by Judge Peter G. Sheridan on 11/3/2014. (eaj)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
GRANGE CONSULTING GROUP and
PAUL PARMAR,
Civil Action Entry I 3-cv-06768 (PGS)
Plaintiff
MEMORANDUM AND ORDER
V.
DAVID BERGSTEIN, PINEBOARD
HOLDINGS, INC., ROBERT B.
SILVERMAN, ALBERT HALLAC,
JEFFREY HALLAC, LAWRENCE
TWERSKY, WESTON CAPITAL
MANAGEMENT LLC, SOVRIN HEALTH
SYSTEMS, INC., ALEX M.
WEINGARTEN and WEINGARTEN
BROWN LLP
Defendants.
This matter is before the Court on a motion to dismiss the Complaint against Defendants
David Bergstein (“Bergstein”) and Robert B. Silverman (“Silverman”) (collectively “Defendants”)
for failure to state a claim based on various arguments. Those grounds are: (a) to compel arbitration
and stay the matter on all ten counts; (b) dismiss counts one and two due to a release provision in an
agreement, (c) dismiss counts four and five because the tort of economic duress is not recognized as
an independent cause of action in New Jersey; and (c) dismiss count ten for failure to plead
allegations sufficient to state a cause of action for tortious interference with contract. (Dkt. Entry
45).
I.
On a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6),
the Court is required to accept as true all allegations in the Complaint and all reasonable
inferences that can be drawn therefrom, and to view them in the light most favorable to the
non-moving party. See Oshiver
V.
Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d
Cir. 1994). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Ati. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955,
167 L. Ed. 2d 929 (2007)). While a court will accept well-pleaded allegations as true for the
purposes of the motion, it will not accept bald assertions, unsupported conclusions, unwarranted
inferences, or sweeping legal conclusions cast in the form of factual allegations. Iqbal, 556 U.S.
at 678-79; see also Morse v. Lower Merion School District, 132 F.3d 902, 906 (3d Cir. 1997). A
complaint should be dismissed only if the well-pleaded alleged facts, taken as true, fail to state a
claim. See In re Warfarin Sodium, 214 F.3d 395, 397-98 (3d Cir. 2000). The question is whether
the claimant can prove any set of facts consistent with his or her allegations that will entitle him
or her to relief, not whether that person will ultimately prevail. Semerenko v. Cendant Corp., 223
F.3d 165, 173 (3d Cir.), cert. denied, Forbes v. Semerenko, 531 U.S. 1149, 121 S. Ct. 1091
(2001). The pleader is required to ‘set forth sufficient information to outline the elements of his
claim or to permit inferences to be drawn that these elements exist.” Kost v. Kozakewicz, 1 F.3d
176, 183 (3d Cir. 1993) (quoting 5A Wright & Miller, Fed. Practice & Procedure: Civil 2d
§
1357 at 340). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment]
to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of
Factual allegations must be enough to raise a right to relief
a cause of action will not do
above the speculative level,
.
.
.
on the assumption that all the allegations in the complaint are
true (even if doubtful in fact)
“
Twombly, 550 U.S. at 555, 127 5. Ct. at 1964-65 (internal
citations and quotations omitted).
II.
In this motion, the chief argument centers on the arbitration clause contained in a document
entitled “Purchase Agreement and Amendment” (“Amended Purchase Agreement”) between
Pineboard Holdings, Inc. (“Pineboard”) and an affiliated health care technology company associated
with Paul Parmar (“Parmar”) in which Pineboard purchased the assets of MD Tablet.
According to Bergstein and Silverman, the Amended Purchase Agreement clarifies that
the assets purchased by Pineboard include:
“all assets and properties of MD Tablet, including.., all underlying
software licenses, intellectual property, trade secrets, confidential
information, accounts receivable, deposits, leases, hardware,
furniture, fixtures, equipment, customer lists, and the Patient Portal,
MD Tablet and all other proprietary software, templates, modules,
customization and components developed by any Seller or any
Affiliate at any time within the ten (10) years immediately prior to
the Effective Date which involves or relates to medical information
technology.
From a review of the Complaint, Plaintiffs sue Bergstein on ten counts, but counts six through
nine concern misappropriation of trade secrets, which include medical information and
teclmology. Within the Complaint, Plaintiffs categorize the information seized by Pineboard as
“business data compilations, programs, methods, techniques, plans and procedures for medical
data and information. (ECF 1 at ¶ 55). In comparing the language of the Complaint (counts 6
through 9) to the relevant provision within the Amended Purchase Agreement, those counts
involve the same assets as identified in the Amended Purchase Agreement. The Amended
Purchase Agreement provides that such disputes will be resolved by arbitration so long as one of
the parties requests same. Section 5.16 of the Purchase Agreement provides, in relevant part:
Mandatory Arbitration, Waiver of Jury Trial. At the request of either
party, any dispute, claim or controversy of any kind (whether in
contract or tort, statutory or common law, legal or equitable) now
existing or hereafter arising between the parties and in any way
arising out of, pertaining to or in connection with: (1) this
Agreement, and/or any renewals, extensions, or amendments
thereto; (2) any of the agreements entered into among the parties as
contemplated hereby, including the Parmar Agreement, (3) any
violation of this Agreement; (4) all past, present and future dealing
between the parties respecting the transactions contemplated by this
Agreement, (5) any incidents, omissions, acts, practices or
occurrences arising out of or related to this Agreement causing
injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or
(6) any aspect of the present or future relationships of the parties,
will be resolved through final and binding arbitration conducted at
a location determined by the arbitrator in the State of California, and
administered by the American Arbitration Association (“AAA”) in
accordance with the then existing Commercial Rules of the AAA.
Judgment upon any award rendered by the arbitrator(s) may be
entered in any state or federal courts having jurisdiction thereof.
Defendants argue that the entire matter should be resolved through arbitration. But the arbitration
clause hones in on the misappropriation of trade secrets, which concerns only counts six through
nine. As such, the arbitration clause may only be applied to those counts.
Plaintiffs disagree with the argument that the arbitration clause within the Amended
Purchase Agreement applies because they contend that the contract is unconscionable, and
“unconcionability” is a question of law for the Court to decide initially. That is, if Plaintiff is
suffering from duress, he cannot reasonably decide or have the capability to form ajudgment. This
is a gateway issue for the court to determine in the first place. See, Sutter v. Oxford Health, 675 F.
3d 215 (3d Cir. 2012) cert. granted 133 S. Ct. 786 (2012).
Despite
the
Plaintiffs
contention that the unconscionability of the contract is a gateway issue, the Court usually looks to
the more narrow issue of whether there is a challenge to the arbitration clause itself Gay v.
C’reditlnform. 511 F.3d 369, 386 (3d Cir. 2007).
“Accordingly, to defeat [a] motion to compel
arbitration, plaintiff must show that the arbitration agreement itself, and not the Amended Purchase
Agreement, is unconscionable and, therefore, unenforceable.” Tantillo v. CitiFinancial Retail
Services, Inc., 2013 WL 622147, at *6 (D.N.J. Feb. 19, 2013) (quotation and citation omitted); see
also, e.g.. Doug Brady, Inc. v. New Jersey Building Laborers Statewide Funds, 2009 WL 349147,
at *2 (D.N.J. Feb. 11, 2009) (“only narrow challenges to the arbitration provisions may be
considered by the courts in the first instance; all other challenges to contracts containing arbitration
agreements must first be considered by the arbitrator”) (citing Buckeye Check Cashing, 546 U.S.
at 444; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed.
2d 1270 (1967); Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984)).
Here, the narrower arbitration issue does not involve the issue of unconscionability so as to require
that the Court vacate the arbitration provision.
Moreover, when “the parties intend to arbitrate, their agreement should be applied to claims
against agents or entities related to the signatories.” Pritzker v. Merrill Lynch, 7 F. 3d 1110, 1122
(3d Cir. 1993). As such, the arbitration clause applies to Bergstein and Silverman, who were
affiliated with the Amended Purchase Agreement. Therefore counts six through nine of the
complaint against Bergstein and Silverman are referred to arbitration.
III.
Bergstein argues that Count 1, alleging fraud in the inducement, should be dismissed
because of a release provision set forth in the Amended Purchase Agreement, and that Count II,
which alleges fraud, but seeks punitive damages, should be dismissed as well. This argument lacks
merit. The Amended Purchase Agreement dealt with the sale of the assets of MD Tablet to
Pineboard. The fraudulent activities enumerated in the complaint go far beyond the MD Tablet
transaction. The Plaintiff summarized the activities subject to this law suit.
(a)
a $10 million bridge loan for the film “Before the Devil Knows Your Dead”;
(b)
a $9 million loan for the film “Black Water Transit”;
(c)
a $2.5 million loan for the film “Fade Out”;
(d)
a $3 million loan for the acquisition of the “De Lane Lea” post-production facility
in London;
(e)
a $7.5 million loan for working capital;
(f)
a $5 million loan for the acquisition of the “Sheridan Square” UK-based music
company;
(g)
a $4.5 million loan for acquisition of a collection of motion picture distribution
rights known as the “Intermedia Library”; and
(h)
a $2.75 million loan for the production of the film “Love Ranch.”
(Verified Complaint at ¶J 33-40).
When reading the Amended Purchase Agreement, one cannot conclude that Parmar or a related
entity released and relinquished all of their rights with regard to all of the claims listed above.
Although the release is broad, it does not specifically refer to the loans listed. The release reads:
Except for the obligations to be undertaken in this Agreement, each
hereby fully, irrevocably, without condition,
of the Parties
reservation or exception, abandons all claims, rights and privileges
and forever releases, acquits, covenants not to sue and discharges
owners,
each of the other Parties, and each of their respective
employees, representatives,
officers, directors,
shareholders,
of every character,
from any and all claims
servants
agents
arising out of, or relating
nature, kind or description whatsoever
to, any act or omission, fact or circumstance, whatsoever which they
ever had, now have or may hereafter acquire, by reason of any
matter, cause, event, action, inaction, or things whatsoever
occurring or arising at any time prior to the Effective Date.
...
...
...
...
...
...
...
Without a specific reference to the loans within the release, no one could reasonably construe the
release to bar all of these allegations, especially when the release is nestled into the Amended
Purchase Agreement which concerns the sale of the assets of MD Tablet to Pineboard. As such,
the motion to dismiss counts on and two is denied.
Defendants argue that the tenth count, alleging tortious interference with the contract,
should be dismissed because any employment contract should have been terminated on the day of
the closing of the Amended Purchase Agreement. Defendants contend that since the incident
occurred more than a month after closing of the Amended Purchase Agreement, there was no
existing contract between Parmar and Grange because the terms of the Amended Purchase
Agreement required termination of any contract.
Despite defendants’ contention, Ganger
remained employed during the time in which the computers were seized. On a motion to dismiss,
one takes Plaintiffs allegations as true; hence Defendants attempt to substitute their facts for those
set forth in the Complaint. As such, the motion is denied.
The Defendant contends that counts four and five should be dismissed because New Jersey
law does not recognize economic duress as an independent cause of action. New Jersey’s Supreme
Court has noted that there are circumstances “under which economic pressure may invalidate an
otherwise enforceable contract.” This appears to be an affirmative defense rather than a cause of
action. Kare Distribution, Inc. v, Jam Labels and Cards LLC, Civ. No. 09-00969, 2009 WL
3297555, at *6 (Oct. 9, 2009) (quoting Continental Bank ofPa. v. Barclay Riding Acad., Inc., 93
N.J. 153, 175 (N.J. 1983)). In Continental Bank, the court discussed the doctrine of economic duress
as it applies to arm’s length business transactions, and stated that a party must establish two elements
to prove economic duress: “(1) [t]he party alleging economic duress must show that he has been the
victim of a wrongful or unlawful act or threat, and (2) [s]uch act or threat must be one which
deprives the victim of his unfettered will.” Id. (quoting Continental Bank, 93 N.J. at 176) Again, it
is asserted as a defense and the “wrongfulness of the pressure exerted” is a “decisive factor” in the
economic duress analysis. Id. (quoting Continental Bank, 93 N.J. at 177).
The Court, in Continental Bank, explained that, in determining whether a party acted
wrongfully, there is not a simple formula to apply, but certain general principles provide guidance:
When there is adequacy of consideration, there is generally no duress.
Whenever
a party to a contract seeks the best possible terms, there can be no rescission merely
upon the grounds of “driving a hard bargain.” Merely taking advantage of another’s
financial difficulty is not duress. Rather, the person alleging financial difficulty
must allege that it was contributed to or caused by the one accused of coercion.
• Under this rule, the party exerting pressure is scored only for that for which he is
alone responsible.
.
.
.
.
Id. Thus, the fact that one party may have the “upper hand” in negotiations does not, without more,
mean that the other party’s agreement to a demand constitutes economic duress. Notably, the district
court in Kare Distribution denied the plaintiffs motion to dismiss the defendants’ counterclaim for
economic duress.
However, in a more recent decision, a New Jersey district court squarely addressed the issue
of the availability of economic duress as an independent cause of action. In Lindenberg v. Arrayit
Corp., Civ. No. 14-cv-833, 2014 WL 3854078, at
*
(D.N.J. Aug. 6, 2014), the district court observed
that, while New Jersey courts recognize the doctrine of economic duress as grounds for invalidating
an otherwise enforceable contract, it is not recognized as an affirmative tort action. (citing Cont ‘1
Bank ofPa. v. Barclay RidingAcademy, 93 N.J. 153, 175-76 (N.J. 1983) and Nat’lAmusements, Inc.
v. NJ Tpk. Auth., 261 N.J. Super. 468, 479 (Law Div. 1992), aff’d, 275 N.J. Super. 134 (App. Div.
1992)). (“Although New Jersey courts recognize economic duress as a defense or a basis for contract
rescission, the courts do not yet recognize economic duress as an affirmative tort action in New
Jersey.”). See also American Rubber & Metal Hose Co., Inc. v. Strahman Valves, Inc., Civ. No. 11cv-1279, 2011 WL 3022243, at *7 (D.N.J. July 22, 2011). As such, Counts four and five are
dismissed.
ORDER
This matter is before the Court on a motion to dismiss the Complaint as to
Defendants David Bergstein and Robert B. Silverman (Dkt. Entry 45) and the Court having
reviewed the submissions of the parties; and for good cause shown;
IT IS on this
3fl1
day of November, 2014;
ORDERED that the motion to dismiss the Complaint against Bernstein and Silverman is
granted in part and denied in part; and it is further
ORDERED that the motion to compel arbitration by Bernstein and Silverman is granted,
and counts six through nine are administratively terminated during the pendency of arbitration;
and it is further
ORDERED that the motion to dismiss counts one, two, four, five and ten against Bernstein
and Silverman are denied.
PETER G. SHERIDAN, U.S.D.J.
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