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Karzhevsky v. Loving Care Agency

January 14, 2010

KASIL KARZHEVSKY AND GREGORY KARZHEVSKY, PLAINTIFFS-APPELLANTS,
v.
LOVING CARE AGENCY, INC., LCA HOLDING, INC., A DELAWARE COMPANY, MTS LCA LLC, MTS HEALTH PARTNERS, L.P., MTS INVESTORS LLC, MTS INVESTORS, LP, MTS INVESTORS C, LP, MTS INVESTORS D, LP, STEVE VELLA, ROBERT CREAMER, ROBERT FUSCO, CURTIS B. LANE, KENTON ROSENBERRY, ADAM PIERCE, AND MICHAEL P. HARMON, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-4428-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 7, 2009

Before Judges Reisner, Yannotti and Chambers.

Plaintiffs appeal from an order entered by the trial court on September 12, 2008, dismissing their complaint without prejudice, and an order entered on October 24, 2008, denying their motion for reconsideration. We affirm.

I.

Plaintiff Kasil Karzhevsky (Kasil) and his wife Emily emigrated to the United States from the Soviet Union in 1976. In 1992, Kasil and Emily formed Loving Care Agency, Inc. (Loving Care), an entity that provides pediatric nursing and home health aid services. Plaintiff Gregory Karzhevsky (Gregory), who is Kasil's and Emily's son, began working for Loving Care in 1995. Eventually, Gregory became Loving Care's Director of Operations.

In January 2006, LCA Holding, Inc. (LCA) entered into a Stock Purchase Agreement (SPA) which provided for the purchase by LCA of the Karzhevskys' stock in Loving Care for about $33 million. In the SPA, the Karzhevskys represented that, at the time of the sale, Loving Care was "in compliance with, and [had] conducted the Business in accordance with . . . all applicable Laws, including those Laws governing participation in all federal and state health care programs[.]"

The SPA additionally stated that, for a period of five years, the Karzhevskys would not "directly or indirectly" compete with Loving Care, or engage in a substantially similar business throughout the United States, Canada and Mexico. In addition, the SPA provided that the Karzhevskys would not "solicit, aid, induce, encourage, hire, retain or employ" any of Loving Care's employees or clients for five years.

The SPA also includes a provision whereby the parties "irrevocably and unconditionally" consent to the submission of any actions "arising out of or relating to" the SPA for resolution in the federal or state courts located in New York. In addition, the parties agreed in the SPA that the agreement and their legal relations would be governed by and construed in accordance with New York law "applicable to contracts made and performed in such State and without regard to conflicts of law doctrines."

At the time the parties entered into the SPA, LCA entered into employment agreements with Kasil and Gregory. The employment agreements contained a provision stating that Kasil and Gregory would not work in the home health aide and home nursing service industry anywhere in the United States for a period of one year after termination of employment. In addition, Gregory's employment agreement prohibited him from the solicitation for employment or hiring of any LCA or Loving Care employee for a period of one year following the termination of his employment.

According to LCA, prior to its purchase of the Loving Care stock, Loving Care failed to accurately report the number of its employees to its workers' compensation insurance carriers. LCA claims that, as a result of this improper and unlawful practice, Loving Care's premiums for workers' compensation insurance were "significantly lower" than they would have been if Loving Care had accurately reported the number of persons on its payroll.

LCA asserted that this practice continued for about eight years, during which time four carriers provided Loving Care with workers' compensation coverage: New Jersey Casualty Insurance Company (NJCIC), Liberty Mutual Insurance Company (Liberty Mutual), American Zurich Insurance Company (Zurich), and Reliance Insurance Company (Reliance). LCA also asserted that in this time, Loving Care obstructed attempts by the insurers to audit the company's payroll records.

In March 2004, NJCIC commenced an action against Loving Care, seeking payment of the premiums that Loving Care would have paid for workers' compensation coverage if it had accurately reported the number of persons on its payroll. This action resulted in a settlement, under which Loving Care agreed to pay NJCIC $1.85 million, plus interest. In addition, Loving Care entered into an agreement with Liberty Mutual, whereby Loving Care paid Liberty Mutual $1.6 million to settle potential claims arising from the inaccurate reporting of the number of its employees.

In June 2006, after the parties entered into the SPA, Zurich filed a complaint in the New Jersey Superior Court against Loving Care, Emily, Kasil and certain related entities. In August 2006, Reliance's statutory liquidator filed a complaint in the United States District Court for the District of New Jersey against Loving Care, LCA, the Karzhevskys and certain related entities. In these actions, the plaintiffs sought, among other damages, the premiums that Loving Care should have paid to provide workers' compensation coverage for its ...


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