Integramed America Inc v. Patton et al

Filing 32

ORDER granting 16 Motion to Compel. However, the parties must submit their claims to arbitration through the AAA. Signed by Honorable Patrick Michael Duffy on April 24, 2013.(prei, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION

INTEGRAMED AMERICA, INC., a
Delaware corporation,

)
)
)
Plaintiff,
)
)
v.
)
)
GRANT W. PATTON, JR.;
)
SOUTHEASTERN FERTILITY CENTER,
)
P.A., a South Carolina Professional
)
Association; and SOUTHEASTERN
)
FERTILITY CENTER, P.A. A/K/A OR
)
F/K/A SOUTHEASTERN FERTILITY
)
CENTER II, P.A., a South Carolina
)
Professional Association,
)
)
Defendants.
)
__________________________________________)
GRANT W. PATTON, JR.;
)
SOUTHEASTERN FERTILITY
)
CENTER P.A., a South Carolina
)
Professional Association; and
)
SOUTHEASTERN FERTILITY
)
CENTER, P.A. A/K/A OR F/K/A
)
SOUTHEASTERN FERTILITY CENTER
)
II, P.A., a South Carolina Professional
)
Association,
)
)
Third Party Plaintiffs,
)
)
v.
)
)
JOHN A. SCHNORR, M.D.,
)
)
Third Party Defendant.
)
__________________________________________)

CIVIL ACTION NO.: 2:12-cv-03566-PMD

ORDER

This matter is before the Court upon Defendants’ Grant W. Patton Jr. (“Dr. Patton”),
Southeastern Fertility Center P.A. (“SEFC”), and Southeastern Fertility Center, P.A. a/k/a or
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f/k/a Southeastern Fertility Center II, P.A. (“SEFC II”) (collectively, “Defendants”) Motion to
Compel Arbitration. For the reasons that follow, Defendants’ Motion is granted; however,
contrary to Defendants’ position as stated in their Reply, the Court finds that based upon the
contractual arbitration provisions at issue, the parties must submit their claims to arbitration
through the American Arbitration Association (“AAA”).
BACKGROUND
Plaintiff IntegraMed America, Inc. (“IntegraMed”) is a Delaware corporation in the
business of making available to medical providers certain assets (principally facilities and
equipment) and support services, primarily consisting of financial management, administrative
systems, clinical and laboratory organization and functions, marketing, and operations
management. SEFC is a South Carolina entity that specializes in reproductive endocrinology.
On April 24, 2008, IntegraMed signed a Business Services Agreement (“BSA”) with SEFC,
under which IntegraMed provided business services—labs, facilities, equipment, staff, supplies,
and monies—to SEFC. In 2010, a conflict developed between Dr. Patton, who was the President
of SEFC, and another doctor at the practice, Dr. John Schnorr (“Dr. Schnorr”), who was the Vice
President of SEFC. Mediation between the two doctors was unsuccessful, and ultimately, on
May 9, 2012, a Decree of Dissolution was filed in the South Carolina Circuit Court for the Ninth
Judicial Circuit. The Decree dissolved SEFC as a corporate entity effective as of May 7, 2012.
Prior to the official dissolution, IntegraMed sent Defendants a notice of default and breach of
contract letter dated April 13, 2012. The letter also advised Defendants that IntegraMed was
considering petitioning the then Patton-Schnorr three-member arbitration panel to address the
issues and appoint a receiver. Dr. Patton’s counsel informed IntegraMed that neither Dr. Patton
nor the panel was receptive to IntegraMed being involved in that arbitration.

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According to IntegraMed, the dissolution of SEFC constitutes an act of default and a
material breach by Defendants of the BSA, which obligates SEFC to remain legally organized,
solvent, and operating to provide infertility services. On October 11, 2012, IntegraMed’s counsel
sent a demand letter to Defendants’ counsel demanding payment of sums owed to it. The last
page of this letter included an inquiry regarding submitting the matter to binding arbitration.
Defendants did not respond to that letter.
PROCEDURAL HISTORY
On December 18, 2012, IntegraMed filed this lawsuit against Defendants alleging the
following causes of action: (1) breach of contract; (2) quantum meruit/unjust enrichment; (3)
violation of the South Carolina Unfair Trade Practices Act; and (4) piercing the corporate
veil/alter ego/successor liability as to SEFC II. IntegraMed resolved its claims against Dr.
Schnorr regarding his association with SEFC; therefore, he is not named in the Complaint. See
ECF Doc No. 1, ¶ 29.
IntegraMed.

Defendants filed an Answer and brought counterclaims against

Additionally, Defendants filed a Third Party Complaint against Dr. Schnorr.

Dr. Schnorr moved to compel arbitration of Defendants’ third-party claims on February 1, 2013.
Subsequently, Defendants and Dr. Schnorr agreed to a consent order referring Defendants’ thirdparty claims against Dr. Schnorr to arbitration pursuant to arbitration agreements already in place
between them from previous arbitration proceedings, dating back to 2010. On February 19,
2012, Defendants filed a Motion to Compel Arbitration of IntegraMed’s claims. Therein,
Defendants recited the arbitration provisions in the BSA and requested arbitration based on those
terms. IntegraMed filed a Response1 on March 22, 2013, wherein it agreed to arbitrate and asked

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Prior to filing its Response, in an effort to resolve Defendants’ Motion to Compel Arbitration,
IntegraMed’s counsel sent an email to Defendants’ counsel stating, in short: “IntegraMed is
agreeable to arbitration and is willing to enter into a consent order requiring that the claims and
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the Court to order the parties to submit all claims to AAA arbitration based on the terms of BSA.
Defendants filed a Reply on April 1, 2013, requesting, for the first time, that the claims between
the parties be submitted to binding arbitration under Wade Logan, as the single arbitrator.
Because Defendants did not request this specific arbitration forum and arbitrator in their Motion
to Compel, the Court ordered IntegraMed to address Defendants’ request in a Sur-Reply, which
was filed with the Court on April 10, 2013. This matter is now ripe for adjudication.
DISCUSSION
There is no dispute that an arbitration agreement exists between the parties. As evidenced
by the BSA and conceded in the motions filed with the Court, the parties in this case have
contractually agreed to arbitrate. See Towles v. United HealthCare Corp., 338 S.C. 29, 37 (S.C.
Ct. App. 1999) (“Arbitration is available only when the parties involved contractually agreed to
arbitrate.”). The issue before the Court is before whom is arbitration required.
The front page of the BSA states: THIS AGREEMENT IS SUBJECT TO
ARBITRATION PURSUANT TO S.C. CODE ANN. § 15-48-10 ET SEQ. AS MODIFIED
HEREIN. Section 15–48–10(a) of the Uniform Arbitration Act provides:
A written agreement to submit any existing controversy to arbitration or a
provision in a written contract to submit to arbitration any controversy
thereafter arising between the parties is valid, enforceable and irrevocable,
save upon such grounds as exist at law or in equity for the revocation of any
contract. Notice that a contract is subject to arbitration pursuant to this chapter
shall be typed in underlined capital letters, or rubber-stamped prominently, on the
first page of the contract and unless such notice is displayed thereon the contract
shall not be subject to arbitration.

all counterclaims be promptly submitted to binding arbitration through AAA in accordance with
the arbitration provisions at issue.” See ECF Doc No. 22, Exh. #2 (email dated March 21, 2013)
(emphasis in original). Defendants’ counsel responded via email stating, in relevant part: “We
are not amenable to the AAA . . . .” Id. at Exh. #3 (email dated March 22, 2013).
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S.C.Code Ann. § 15–48–10(a) (2005)(emphasis added). The South Carolina Supreme Court has
held that the terms of this section are “clear” and “the court must apply those terms according to
their literal meaning.” Soil Remediation Co. v. Nu-Way Envtl., Inc., 323 S.C. 454, 457 (S.C.
1996). See also Zabinski v. Bright Acres Assocs., 346 S.C. 580, 589 (S.C. 2001) (“The notice
provision must be typed . . . on the first page of the contract. No other variation is acceptable.”).
The BSA also contains the following arbitration provision:
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina irrespective of the
principal place of business of the parties hereto. Any and all claims, disputes, or
controversies arising under, out of, or in connection with this Agreement or any
breach thereof, except for equitable relief sought pursuant to Section 11.3 hereof,
shall be determined by binding arbitration in the State of South Carolina, City of
Charleston (hereinafter “Arbitration”). The party seeking determination shall
subject any such dispute, claim or controversy to the American Arbitration
Association, and the rules of commercial arbitration thereof shall govern.
The Arbitration shall be conducted and decided by a single arbitrator, unless
the parties mutually agree, in writing at the time of the Arbitration, to three
arbitrators. In reaching a decision, the arbitrator(s) shall have no authority to
change or modify any provision of this Agreement, including any liquidated
damages provision. Each party shall bear its own expenses and one-half the
expenses and costs of the arbitrator(s). Any application to compel Arbitration,
confirm or vacate an arbitral award or otherwise enforce this Section 11.7 shall be
brought in the Courts of the State of South Carolina or the United States District
Court for the Division of Charleston, to whose jurisdiction for such purposes
SEFC and IntegraMed hereby irrevocably consent and submit.
(emphasis added).
Defendants ask the Court to compel arbitration before Wade Logan, as the single
arbitrator, because Mr. Logan is currently arbitrating matters between Defendants and Dr.
Schnorr. Defendants argue that this litigation would be most efficiently resolved by arbitration
under Mr. Logan because he has knowledge about the complexity of the case, the history of the
disputes between the parties, and the former business relationships of the parties. In the
alternative, Defendants ask the Court to stay this action pending resolution of the claims between

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Defendants and Dr. Schnorr so that Defendants are not “whipsawed before two forums and
exposed to different results.” Defs.’ Reply 7. Thus, Defendants conclude that the Court can
simply appoint an alternate forum.
The Court is not aware of any case law or statute that would allow it to disregard the
arbitration provisions in a contract between two parties. Agreements such as the one at issue are
construed pursuant to the rules of contract interpretation. See generally McPherson v. J.E.
Sirrine & Co., 206 S.C. 183 (S.C. 1945). The cardinal rule of contract interpretation is to
ascertain and give legal effect to the parties’ intentions as determined by the contract language.
United Dominion Realty Trust, Inc. v. Wal–Mart Stores, Inc., 307 S.C. 102, 105 (S.C. Ct. App.
1992). If the contract’s language is clear and unambiguous, the language alone determines the
contract’s force and effect. See id. When a contract is unambiguous, a court must construe its
provisions according to the terms the parties used as understood in their plain, ordinary, and
popular sense. C.A.N. Enter., Inc. v. S.C. Health Human Servs. Fin. Comm’n, 296 S.C. 373, 377
(S.C. 1988).
The parties do not dispute that the BSA contains the aforementioned arbitration
provisions. Section 11.7 of the BSA unambiguously provides that the party seeking
determination shall subject any such dispute, claims or controversy arising under, out of, or in
connection with this Agreement or any breach thereof, to the American Arbitration Association,
and the rules of commercial arbitration thereof shall govern. It further states that the Arbitration
shall be conducted and decided by a single arbitrator, unless the parties mutually agree, in
writing at the time of the Arbitration, to three arbitrators. Not surprisingly, it is based on this
language that Plaintiff argues the Court should order Defendants to submit all claims to AAA
arbitration. Notably, but for the arbitration provisions in the BSA, Defendants would have no

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grounds upon which to compel arbitration. However, despite this fact, Defendants ask the Court
to ignore the plain language of the BSA and compel arbitration under Wade Logan.2 The Court
finds that under ordinary contract principles and pursuant to Section 15-48-30 of the South
Carolina Code, it must enforce the method of arbitration as agreed upon by the parties upon
signing the BSA. See S.C. Code Ann. § 15-48-30 (“If the arbitration agreement provides a
method of appointment of arbitrators, this method shall be followed.”) (emphasis added).
Therefore, as required by the language of the BSA, the parties must submit their claims to
arbitration through the AAA.
1.

Cost

Defendants argue that this matter should not be arbitrated before the AAA because it
would be prohibitively expensive for Defendants. However, Defendants fail to articulate what
the costs would be or provide any evidence that such costs would be unconscionable. According
to Section 11 of the BSA, “Each party shall bear its own expenses and one-half the expenses and
costs of the arbitrator(s).” Such language is not so oppressive that no reasonable person would
make them and no fair and honest person would accept them. See Fanning Pontiac-CadillacBuick, Inc., 322 S.C. 3999 (S.C. 1996) (unconscionability is absence of meaningful choice on
part of one party due to one-sided contract provisions together with terms that are so oppressive
that no reasonable person would make them and no fair and honest person would accept them).

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Defendants state that IntegraMed’s claims should be arbitrated under Wade Logan because this
method was provided for in the “Settlement Agreement.” Defs.’ Reply 4. The Settlement
Agreement Defendants are referring to, however, was executed between only Dr. Schnorr and
Defendants to resolve ongoing disputes between them. It is not disputed that IntegraMed is not
party to or part of this agreement, or that IntegraMed did not sign the agreement or have any
involvement, input, or control over the terms. In fact, this Agreement, and any arbitration
provision therein, has no binding effect on IntegraMed, and it certainly does not diminish
IntegraMed’s rights or allow Defendants to ignore their obligations under the BSA. Therefore,
the Court finds Defendants’ argument unpersuasive.
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Therefore, the Court finds that Defendants have not met their burden of showing the likelihood
that arbitration before the AAA would be prohibitively expensive for them.
2.

Waiver

Defendants also argue that IntegraMed waived its right to demand arbitration before the
AAA by engaging in the litigation process. The Court disagrees.
South Carolina favors arbitration. Gen. Equip. & Supply Co. v. Keller Rigging & Constr.,
Inc., 344 S.C. 553, 556 (S.C. Ct. App. 2001). The right to enforce an arbitration clause, however,
may be waived. Liberty Builders, Inc. v. Horton, 336 S.C. 658, 665 (S.C. Ct. App. 1999). “There
is no set rule as to what constitutes a waiver of the right to arbitrate; the question depends on the
facts of each case.” Id. South Carolina has primarily, though not exclusively, followed the
approach adopted by the federal courts of the Fourth Circuit and other jurisdictions which require
a showing of actual prejudice before finding waiver. See Sentry Eng’g & Constr., Inc. v.
Mariner’s Cay Dev. Corp., 287 S.C. 346, 351 (S.C. 1985) (finding that “[f]ederal decisions
require a showing of prejudice when waiver is asserted . . . . [I]t is not inconsistency, but the
presence or absence of prejudice which is determinative”); Evans v. Accent Manufactured
Homes, Inc., 352 S.C. 544, 550 (S.C. Ct. App. 2003) (“A party seeking to establish waiver must
show prejudice through an undue burden caused by delay in demanding arbitration.”); Liberty
Builders, 336 S.C. at 666 (holding same). But see Hyload, Inc. v. Pre–Engineered Prods., Inc.,
308 S.C. 277, 280 (S.C. Ct. App. 1992) (holding that appellant “waived its right to compel
arbitration under the contract by refusing to execute the papers necessary to commence
arbitration and electing instead to sue on the contract,” thus finding that “[t]his is simply a
particular instance of the general rule that acts inconsistent with the continued assertion of a right
may constitute waiver”). Though not entirely consistent on this point of law, most recent

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precedent has required a showing of actual prejudice, and therefore, the Court adopts that
standard.   
In this case, the litigation process had lasted approximately two (2) months between the
time the initial Complaint was filed by IntegraMed and the time Defendants moved to compel
arbitration. This fact alone does not prejudice either party due to a delay in demanding
arbitration. See Gen. Equip. & Supply Co., 344 S.C. at 557 (no waiver where party seeking
arbitration had been involved in litigation for less than eight months). Cf. Liberty Builders, 336
S.C. at 667 (waiver occurred where party seeking arbitration had been involved in litigation for
two and one-half years). Also, as in General Equip., the discovery that has occurred is very
limited in nature—neither party has taken any depositions or engaged in extensive discovery
requests—and there has been no substantial use of judicial system resources. Defendants do not
discuss any of these facts, but instead, ask the Court to rely entirely on the Hyload case. The
Court acknowledges that Hyload stands for the proposition that suing on a contract instead of
relying on the arbitration provision ordinarily constitutes waiver of the right to arbitrate.
However, as noted above, there must be a showing of actual prejudice before finding waiver, and
the Court finds that no such showing has been made by Defendants. Moreover, this case can be
distinguished from the Hyload case.
Hyload demanded arbitration pursuant to the agreement between it and Pre-Engineered.
In response, Pre-Engineered agreed to arbitration, voluntarily dismissed the court action, and
sent the arbitration documents to Hyload to sign. Hyload, 308 S.C. at 279. Hyload, however,
never signed the documents, and instead, filed suit. Id. at 279-80. The Court held that Hyload
waived its right to arbitrate because it refused to sign the documents necessary to institute the
arbitration process, instead suing under the agreement. Id. at 280. In contrast, here, IntegraMed

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inquired into whether Defendants where agreeable to arbitration per the terms of the BSA in a
demand letter, and it was the Defendants who never responded to that letter. Furthermore, it was
the Defendants who kept InegraMed from intervening in the Dr. Patton - Dr. Schnorr arbitration.
These facts distinguish the case at hand from Hyload, as IntegraMed has not harmed or
prejudiced Defendants by its actions warranting a finding by this Court that it has waived its
rights to arbitration according to the terms of the contract between the parties.
CONCLUSION
For the foregoing reasons, it is hereby ORDERED that Defendants’ Motion to Compel
Arbitration is GRANTED and that the parties submit their claims to the AAA. Accordingly, the
case will be STAYED pending arbitration.
AND IT IS SO ORDERED.

April 24, 2013
Charleston, SC

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