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Trava v. Innovative Endodontics


September 9, 2010


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5413-06.

Per curiam.


Telephonically argued: December 3, 2009

Before Judges Cuff, Payne and Waugh.

Third-party defendant Brian P. Trava and defendant Lawrence Law are endodontists, who had practiced together under the name Brian Trava, D.M.D., and Lawrence Law, D.M.D., P.A. (Trava/Law P.A.). The dissolution of their professional practice was accompanied by litigation, which concluded with a settlement. Trava continued his practice in Hawthorne under the corporate name Brian Trava, D.M.D., P.A. (Trava P.A.); Law continued his practice in Wayne under the name Innovative Endodontics, P.C. (Innovative). Five months after both parties executed the settlement agreement, plaintiff Trava P.A. commenced this action in which it alleged violations of the settlement agreement. Plaintiff and third-party defendant appeal from a May 29, 2008 order granting summary judgment to Law and Innovative, and a July 28, 2008 order awarding attorneys' fees in favor of defendants Law and Innovative.

Trava and Law provided endodontic services at three locations. Law filed a complaint on February 7, 2005, in which he sought relief against Trava and Trava/Law P.A. pursuant to N.J.S.A. 14A:12-7, the minority shareholder statute. A fiscal agent was appointed. During the course of the litigation, one of the three offices operated by the parties closed. Trava continued to operate the office in Hawthorne; Law operated the office in Wayne.

On March 2, 2006, the parties executed a settlement agreement effective February 21, 2006. Four provisions of the settlement agreement are relevant to this appeal. First, Law sold his stock in Trava/Law P.A. to Trava for approximately $700,000. Second, Trava/Law P.A. retained the rights to all accounts receivable, including those generated by Law, who waived and relinquished any rights to those accounts. Third, Trava and Trava/Law P.A. released Law from all liability on account of actions taken by him through the date of the settlement agreement. Fourth, the losing party in any litigation between the parties to the settlement agreement would bear the legal fees and costs of the winning party.

According to Trava P.A., it learned, following execution of the settlement agreement, that Law had received payments from patients and insurance companies for work performed during the litigation, and Law deposited these payments into the Innovative account. Plaintiff's July 21, 2006 complaint alleged conversion, tortious interference, and breach of contract.

Plaintiff complained that Law diverted payments received by him both pre-closing and post-closing of the settlement agreement for work performed during the litigation. All payments were deposited in the Innovative account post-closing. According to a spreadsheet supplied to the court by Trava and Trava P.A., all of the disputed payments total $189,000. Plaintiff asserts the disputed funds are accounts receivable that belong to it; Law insists the payments are "on-hold billings" or "work in progress" that belong to him.

Innovative and Law filed an answer, counterclaim, and third-party complaint in which they denied plaintiff's allegations and claimed that Trava interfered with their ongoing patient relationships by ignoring the distinction between accounts receivable and on-hold billing and by harassing their patients for payment. They also asserted that Trava and agents of plaintiff made defamatory and disparaging remarks about them. As a result of these actions, defendants asserted that Trava and his current professional association breached the settlement agreement, converted payments due to them, defamed them, tortiously interfered with their practice, violated Law's common law right to privacy, and breached the covenant of good faith and fair dealing.

Defendants filed a motion for summary judgment arguing that the litigation was barred by the express terms of the March 2, 2006 settlement agreement. The motion judge granted partial summary in favor of defendants Law and Innovative and dismissed all claims set forth in plaintiff's complaint. He found that "[t]he payments allegedly received or collected by defendants pre-closing and pre-settlement agreement cannot, under any circumstances, be an 'account receivable.'" Furthermore, the release provision of the settlement agreement was clear on its face and barred each claim asserted by plaintiff in its complaint. Plaintiff's motion for reconsideration was denied and plaintiff was assessed $93,744.46 in counsel fees and $5665 in costs.

Although the order subject to this appeal granted only partial summary judgment, we address the merits. Pursuant to a March 10, 2008 consent order, all remaining claims, including those claims asserted in defendant's counterclaim and third-party complaint, have been submitted to binding arbitration. All claims as to all parties that have not been referred to arbitration have, therefore, been resolved, and due to the binding nature of the arbitration, no further claims remain to be resolved by the court. We, therefore, proceed to address the orders subject to plaintiff's notice of appeal.

On appeal, plaintiff argues that the entire controversy doctrine does not apply to its complaint. It also contends the award of legal fees was in error and premature. It urges that the allocation of fees and costs should be referred to the arbitrator. It also argues that the motion judge should not have denied its cross-motion for discovery or quashed a February 2007 subpoena.

Our review of the opinion rendered by the motion judge does not support plaintiff's contention that the motion judge relied on the entire controversy doctrine to dismiss the case. Rather, the judge stated that paragraph 10 of the settlement agreement barred plaintiff's complaint because its claims for monetary payments arose prior to the effective date of the settlement agreement. The judge also found that Law was entitled to the funds deposited by him for work performed prior to that effective date because the funds were not accounts receivable but work in progress.

Plaintiff's complaint essentially alleges that defendants knowingly diverted and deposited accounts receivable of Trava/Law P.A. in the accounts of newly-formed Innovative in contravention of the settlement agreement. It contends it is doing no more than seeking to enforce the obligations assumed by Law in the settlement agreement. Law responds that the funds deposited were attributable to work in progress not accounts receivable, and Trava and Trava/Law P.A. released all claims, known and unknown, against him.

Two provisions of the March 2, 2006 settlement agreement are central to consideration of this appeal. Paragraph 34 governs the distribution of profits and accounts receivable; it provides:

The Parties agree to a 50-50 split of all of the profits of the Corporation received through February 21, 2006. Each Doctor shall, however, retain all work in process and his own "on hold billings." Notwithstanding, the parties agree that Corporations accounts receivables shall remain with the Corporation. The Corporation and Trava acknowledge and agree that Law shall have no liability with respect to any uncollected and/or uncollectible receivables.

Paragraph 10 provides that the February 2005 litigation would be dismissed with prejudice after compliance with all of the provisions of the settlement agreement. It further provided for the exchange of mutual releases among the parties of all claims with two exceptions. Paragraph 10 provides in pertinent part:

In consideration of the exchanges made under this Agreement, and dismissal of all claims in the Action, and in connection with this Settlement Agreement the Parties, their heirs, representatives, successors or assigns, covenant and promise to refrain forever from instituting, maintaining, filing, pressing, collecting, or in any way aiding or proceeding upon, and release and forever discharge the other from any and all actions, causes of action, suits, debts, sums of money, attorneys' fees, costs, accounts, covenants, controversies, agreements, promises, damages, claims, grievances, arbitrations, or demands whatsoever, known or unknown, in law or equity, by contract, tort or pursuant to statute, which the Parties now have, or have had from the beginning of the world until the date the Parties execute this Settlement Agreement, expressly including, any or all claims based upon any contract, express or implied, tortuous conduct, claims of fraud or discrimination or breach of any federal, state, or local statute, law, or regulation.... The Parties intend that this Agreement shall discharge each of them to the maximum extent permitted by law except as provided herein, which exceptions include (1) the obligations of the parties under the Settlement Agreement, the agreements, instruments and other documents executed in connection therewith; (2) the right of a party to seek contribution and indemnification for all costs (including reasonable attorneys fees) and damages incurred as a result of claims made against the other by any third party (e.g. Delta Dental, the IRS, the New Jersey Board of Dentistry, or others).... [Emphasis supplied.]

These provisions, read singly, in combination, and in the context of the complete settlement agreement, clearly evince a scheme to allow the participants in Trava/Law P.A. to wrap up the affairs of the former practice and to allow both to proceed independently in the future. To further these ends, each assumed certain obligations, and adjustments were to be made between the parties. The parties clearly intended that no further claims would be asserted against each other arising from their former joint professional endeavor, if both parties discharged their obligations, and the adjustments and distributions contemplated by the agreement occurred. On the other hand, the settlement agreement did not bar any and all future litigation between the parties. In fact, paragraph 10 expressly excepted from the provision releasing all claims, known and unknown, any civil action required to enforce the terms of the settlement agreement.

Our review of the complaint reveals that plaintiff clearly and unequivocally seeks to enforce the terms of the March 2, 2006 settlement agreement. To hold that paragraph 10 barred any action to enforce its terms ignores the express terms of that agreement.

The critical issue seems to be whether the funds deposited by Law are attributable to accounts receivable or work in progress. According to the settlement agreement, payment received on an account receivable belongs to plaintiff, but payments for work in progress belong to the endodontist who treated the patient. As such, when the payment was received and when it was deposited are not material. If Law deposited payments for accounts receivable of Trava/Law P.A. in his professional account, there has been a breach of the settlement agreement, and plaintiff may enforce the terms of that settlement. If the funds received by Law and deposited in his professional accounts are attributable to work in progress for one of his patients, he has not breached the settlement agreement. Here, the motion judge resolved this critical issue in favor of defendants.

Summary judgment should be granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). The court must determine "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). The trial court must not decide issues of fact; it must only decide whether there are any such issues. Ibid. As such, "when the evidence is so one-sided that one party must prevail as a matter of law,... the trial court should not hesitate to grant summary judgment." Ibid. (internal citation and quotation omitted).

Appellate courts use the same standards when reviewing summary judgment orders. This court must determine whether there exists a genuine issue as to a material fact, and not simply a fact of "'an insubstantial nature.'" Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.) (quoting Brill, supra, 142 N.J. at 529), certif. denied, 154 N.J. 608 (1998).

In his counterclaim, Law sought to explain the difference between an account receivable and work in progress. In his certification in support of his motion for summary judgment, Law acknowledged that accounts receivable belong to plaintiff, but stated, "I did not retain accounts receivables of the Corporation." Plaintiff did not dispute that the parties distinguished between work in progress and completed treatment but disputed and explained in its statement of material facts when treatment is considered complete to allow a bill to be rendered and paid. Plaintiff also disputed whether certain identified payments were attributable to work in progress. In a certification in response to plaintiff's certification, Law contested its discussion of work in process and accounts receivable and explained how he intended the terms to be construed.

This record simply does not allow summary judgment to either party on Count One. While the parties do not dispute the terms of the settlement agreement, a real dispute exists as to the meaning of the terms and how each payment should be categorized. Furthermore, until these issues are resolved, it is entirely premature to hold that any and all claims are encompassed by the release or that defendants have not breached the settlement agreement. We, therefore, reverse the May 29, 2008 order granting defendants' motion for partial summary judgment and the July 28, 2008 order denying plaintiff's motion for reconsideration and remand for further proceedings. In doing so, we also vacate the July 28, 2008 order awarding attorneys' fees and costs to defendants.

On remand, if Count One is not referred to binding arbitration, the motion judge shall reconsider the discovery motion filed by plaintiff. We affirm the April 23, 2007 order quashing the February 15, 2007 subpoena.

Affirmed in part; reversed in part; and remanded for further proceedings. We do not retain jurisdiction.

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