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Birnbaum v. Calabro

June 22, 2007

MARC E. BIRNBAUM, M.D., PLAINTIFF-APPELLANT,
v.
JOHN R. CALABRO, M.D., PETER BELCASTRO, M.D., LAWRENCE DEANGELIS, M.D., MADELLINE HSU, M.D., MICHAEL KRAL, M.D., YONG S. KWON, M.D., ROY E. NATURMAN, M.D., SCOTT PACIFIC, M.D., NEIL ROSS, M.D., JANAK SARKARIA, M.D., 311 REALTY, LLC; ANESTHESIA MANAGEMENT ASSOCIATES, LLC; SUMMIT ANESTHESIA ASSOCIATES, P.A., DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Chancery Division, Union County, C-189-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: May 30, 2007

Before Judges Axelrad and R.B. Coleman.

Plaintiff Marc Birnbaum, an anesthesiologist, appeals from an August 29, 2006 order of the Chancery Division, dismissing his complaint without prejudice against individual shareholders and corporate entities, and ordering the parties to submit all claims to arbitration, subject to a motion to reinstate those claims the arbitrator deems non-arbitrable. Plaintiff contends that disposition fails to recognize the differences between the Employment Agreement and the Shareholders' Agreement that he executed with Summit Anesthesia Associates, P.A. (SAA) and unilaterally alters the contractual relationship between the parties by forcing him to arbitrate claims he never agreed to so submit. Plaintiff further contends the trial court's order improperly allows the arbitrator to determine the scope of arbitration, thereby abdicating the judicial function to first determine which of the claims asserted by the parties are subject to arbitration. We reverse and remand.

Plaintiff commenced employment with SAA in July 1999, and became a shareholder in October 2003. Plaintiff resigned his employment with SAA in December 2004, effective June 2005. Plaintiff contended he was forced by the individual defendants to resign his position with SAA after he complained about being excluded from full participation in certain business ventures of SAA, as well as about potential conflicts of interest arising out of those business relationships.

In November 2005, plaintiff filed suit against the individual shareholders of SAA; Anesthesia Management Associates, LLC (AMA), an entity formed by several members of SAA in which plaintiff was not granted an interest; and 311 Realty, L.L.C., an entity formed by several members of SAA, in which plaintiff had an interest. Plaintiff alleged the following causes of action and sought the following forms of relief: (1) injunctive relief for turnover and payment of fair value of AMA and 311 Realty shares (counts one and two); (2) rescission of the Revised Shareholders' Employment Agreement (count three); (3) usurpation of corporate opportunity by the individual defendants wrongfully seizing business opportunities from SAA for the benefit of AMA (count four); (4) breach of fiduciary duty to plaintiff as a shareholder in SAA (count five); (5) intentional interference with contractual relations (count six); (6) minority shareholder freezeout (count seven); (7) forced termination (count eight); (8) breach of contract (count nine); and (9) breach of the implied covenant of good faith (count ten).

Defendants demanded arbitration pursuant to paragraph nineteen of the Shareholders' Employment Agreement ("Employment Agreement") entered into between plaintiff and SAA, which provides as follows:

18. Resolution of Disputes. Physician's rights under this Agreement and concerning the employment relationship, not including those matters specifically set forth in the Corporate Compliance Program of the Corporation or the Employee Handbook which shall be resolved in the manner set forth therein, shall be determined, in the event of a dispute, by an independent arbitrator selected in accordance with the commercial rules of the American Arbitration Association in the State of New Jersey ("AAA") . . . .

Plaintiff declined arbitration, maintaining that his claims asserted as a shareholder for conduct concerning the operation and control of SAA and the affiliated entity AMA, his entitlement to shares in AMA, and the redemption and valuation of his shares in SAA and 311 Realty were not arbitrable as those claims did not implicate his rights under the Employment Agreement or concern his employment relationship with SAA. According to plaintiff, he never agreed that all of his claims pertaining to SAA and affiliated business entities would be governed by arbitration, emphasizing that the plain language of the Employment Agreement contains no such language encompassing "any disputes" or "any and all claims" arising out of the parties' business relationship.

Plaintiff argued that the majority of his claims were instead governed by the Shareholders' Agreement, which only provides for AAA arbitration for disputes over the disposition of corporate assets in the event of dissolution (paragraph 8.4) and specifically permits legal and equitable relief in the event of a breach by another shareholder. The paragraph regarding breach provides as follows:

13.4. In the event of a breach or threatened breach by any party bound by this Agreement of any such party's obligations or covenants hereunder, the parties hereto acknowledge that any other parties bound by this Agreement will not have an adequate remedy at law and shall be entitled to such equitable and injunctive relief as may be available to restrain a violation or threatened violation of the provision of this Agreement or to enforce the provisions hereof, including, but not limited to, the equitable remedy of specific performance. Nothing herein shall be construed as prohibiting any party from pursuing any other remedies available to such party for such breach or threatened breach, including the recovery of damages.

Plaintiff further contended that absent an agreement to the contrary, he had a right to litigate in a judicial forum his common law and statutory claims arising out of his shareholder status.

Defendants filed a motion to dismiss or stay the judicial proceedings pending arbitration. Defendants contended both agreements were integrated documents that were essentially "two sides of one coin" and that the intent of the parties was to require that all disputes arising out of the agreements would be arbitrable. Defendant noted that an individual cannot be a shareholder in SAA without being an ...


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