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Birnbaum v. Calabro


June 22, 2007


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

Per curiam.


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 employee, as termination of the employment agreement is a triggering event for termination as a shareholder.

The trial court focused on the type of relief that plaintiff was seeking, which was more in the nature of monetary damages rather than specific performance, and concluded plaintiff's claims to be generally for compensation from employment, cognizable under the Employment Agreement and subject to arbitration. The court thus dismissed plaintiff's complaint without prejudice and ordered the parties to submit all claims to arbitration. The court directed the arbitrator, in the first instance, to determine the arbitrability of the claim, reasoning that the parties agreed to arbitration under the AAA rules in their Employment Agreement, which vests the arbitrator as the authority to outline the scope and jurisdiction of the arbitration, and permitted the parties to move to reinstate those claims the arbitrator deemed nonarbitrable. The court's ruling was memorialized in an August 29, 2006 order, which is the subject of this appeal. At oral argument we were informed by the parties that the trial court stayed arbitration pending appeal.

As a general rule, courts should enforce contracts as the parties intended. Henchy v. City of Absecon, 148 F. Supp. 2d 435, 439 (D.N.J. 2001); Kampf v. Franklin Life Ins., 33 N.J. 36, 43 (1960). It is a basic rule of contractual interpretation that a court must discern and implement the common intention of the parties. Tessmar v. Grosner, 23 N.J. 193, 201 (1957). "The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 492 (App. Div.), certif. denied, 127 N.J. 548 (1991). The starting point for contract construction is always the language of the contract. Commc'ns Workers of Am., Local 1087 v. Monmouth County Bd. of Soc. Servs., 96 N.J. 442, 452 (1984). The court has no right to "remake a better contract for the parties than they themselves have seen fit to enter into, or to alter it for the benefit of one party and to the detriment of the other." Karl's, supra, 249 N.J. Super. at 493.

Generally, contract terms are to be given their "plain and ordinary meaning." M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002). Moreover, in all cases, "[t]he construction of a written instrument 'to be adopted is the one which appears in accord with justice and common sense and the probable intention of the parties.'" Krosnowski v. Krosnowski, 22 N.J. 376, 387 (1956) (quoting Clark v. State St. Trust. Co., 169 N.E. 897 (Mass. 1930)). Accord Karl's, supra, 249 N.J. Super. at 492-93.

It is clear the parties intended there to be certain interrelationships between employment and shareholder status as expressly provided for in the two agreements. Defendants' proposed interpretation, adopted by the court, that the Employment Agreement encompasses any and all claims and disputes arising out of the parties' business relationship, is a strained one, however, as it is not consistent with the plain language of the agreements. Strained interpretations of contracts are disfavored in the law. Stiefel v. Bayly, Martin & Fay of Conn., Inc., 242 N.J. Super. 643, 651 (App. Div. 1990). Plaintiff has certain rights as a shareholder that differ from his rights as an employee. Merely because plaintiff sought monetary damages did not mean his causes of action were based on compensation claims arising out of his employment relationship with SAA.

The Employment Agreement arbitration clause limits arbitrable issues to disputes as to plaintiff's "rights under [the] Agreement and concerning the employment relationship." The provision does not, by its terms, cover disputes arising out of plaintiff's contractual, statutory or common law rights as a shareholder in SAA or 3ll Realty or claims against AMA by virtue of this status. Conversely, the Shareholders' Agreement provides for arbitration only in connection with a dispute over the disposition of SAA's assets in connection with the dissolution of the corporation. That Agreement further provides for legal and equitable relief in the event of a breach or threatened breach by any party of its obligations or covenants, which appears to demonstrate the parties' intent that claims arising out of plaintiff's ownership interest in, or the operation and control of, SAA would not be subject to arbitration. Defendants, who drafted the contracts, could have provided an integration clause in both contracts or all-inclusive language such as "any or all claims or disputes" in the arbitration clause of the Employment Agreement if they intended to require that disputes between the parties arising out of the shareholder relationship be submitted to arbitration. They did not. See In re Miller, 90 N.J. 210, 221 (1982) (noting that where an ambiguity appears in a written agreement, the writing is to be construed against the draftsmen); see also Pacifico v. Pacifico, 190 N.J. 258, 267 (2007).

"Although the public policy of this State is to favor arbitration as a means of settling disputes which otherwise would go to court, it is equally true that the duty to arbitrate, and the scope of the arbitration, are dependent solely upon the parties' agreement." Cohen v. Allstate Ins. Co., 231 N.J. Super. 97, 100-101 (App. Div.), certif. denied, ll7 N.J. 87 (1989) (internal citations omitted). A party cannot be required to submit to arbitration a dispute that he has not agreed to so submit. Lederman v. Prudential Life Ins. Co., 385 N.J. Super. 324, 344 (App. Div. 2006). By referring all claims to arbitration and vesting in the arbitrator the sole discretion to determine arbitrability of each claim, the court erroneously rewrote the parties' agreements to broaden the scope of arbitration. This ruling forced plaintiff to arbitrate claims he never agreed to arbitrate and denied him access to the courts and the discovery commonly available in judicial proceedings. We reverse and remand to the trial court to determine which of the claims asserted by the parties are subject to arbitration.

Reversed and remanded.


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