AFFORDABLE DENTURES AUDUBON, MICHELLE AITKEN, DDS, P.A. v. AFFORDABLE CARE, LLC
1:17-cv-12136
D.N.J.May 9, 2018Background
- Dr. Michelle Aitken wholly owns two professional associations (Audubon P.A. and Vineland P.A.) that operate dental practices managed by Affordable Care, LLC; Affordable Dentures Dental Laboratories, Inc. is a subsidiary providing on-site lab services.
- Multiple interlocking written agreements govern the relationships: management/services agreements (Audubon and Vineland), laboratory services agreement (Audubon), facility leases, equipment purchase-and-sale agreements (both P.A.s), and venue agreements. Several agreements contain arbitration clauses; the equipment purchase agreements contain an explicit delegation clause.
- Plaintiffs sued in federal court (diversity jurisdiction) asserting statutory/regulatory claims under N.J. law (N.J.S.A. 45:6-12, -19; N.J.A.C. rules), breaches of contract and implied covenant, NJ Franchise Practices Act violations, and breach of fiduciary duty.
- Defendants moved to compel arbitration of all claims, arguing the contracts’ arbitration provisions (and the equipment agreements’ delegation clause) require arbitration.
- The Court applied the Guidotti Rule 12(b)(6) standard (no discovery) because the parties did not dispute existence of arbitration agreements and the record was clear enough to decide scope.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of equipment agreements' delegation clause — whether it delegates arbitrability of disputes arising under other interlocking agreements | Delegation clause limited to disputes "concerning" the equipment agreements; does not sweep in unrelated agreements | Clause’s language "arises out of or relates to" the agreements includes disputes under other interlocking agreements | Court: delegation clause applies only to disputes as to the Equipment Purchase & Sale Agreements (and their Notes); it does not delegate arbitrability of disputes arising under other agreements |
| Are breach-of-contract claims (Count 3) arbitrable under services agreements' arbitration clauses? | Arbitration clauses are invalid or ambiguous and thus should not be enforced | Services agreements contain valid arbitration clauses covering disputes about application/interpretation of agreement terms | Court: Breach-of-contract claims under the Audubon and Vineland services agreements are subject to arbitration; claims under the Audubon Laboratory Services Agreement — court reserved ruling (denied without prejudice) pending choice-of-law briefing |
| Are fiduciary-duty claims (Count 5) subject to arbitration? | Fiduciary claims fall outside arbitration clauses | Fiduciary duties arise from and are defined by the services agreements, so they fall within arbitration clauses | Court: Fiduciary-duty claims are arbitrable (they require interpretation/application of the services agreements) |
| Are statutory/regulatory and Franchise Practices Act claims (Counts 1, 2, 4) arbitrable? | Statutory/regulatory claims attack legal validity of agreements under New Jersey law and thus fall outside arbitration clauses that cover interpretation/application | Defendants claim arbitration clauses (or equipment agreements’ clause) cover these disputes | Court: Claims that the agreements on their face violate New Jersey statutes/regulations (and the Franchise Practices Act) are non-arbitrable and remain for the court to decide (except the portion of Count 1 asserting the Equipment Purchase & Sale Agreements violate N.J.S.A. 45:6-12 and -19, which the delegation clause sends to arbitrator) |
Key Cases Cited
- Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir.) (when arbitration clause existence/scope is clear on complaint and attachments, Rule 12(b)(6) is appropriate)
- Morgan v. Sanford Brown Inst., 225 N.J. 289 (N.J. 2016) (principle that absent delegation clause, courts decide arbitrability; applied New Jersey law)
- Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (U.S. 2010) (arbitrability questions reserved for courts unless parties clearly delegate them to arbitrators)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts in diversity apply forum state choice-of-law rules)
- Gay v. Creditinform, 511 F.3d 369 (3d Cir.) (choice-of-law principles applied in contract/arbitration context)