X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
An arbitrator — and not the courts — must decide whether to enforce an arbitration agreement where one side claims the other violated a promise to meet and confer before seeking arbitration of disputes, a federal judge has ruled. “Courts traditionally hold that the question of whether the prerequisites to arbitration have been fulfilled are questions for the arbitrator and not for the court. Once the court has determined that the parties consented to arbitrate a particular dispute, any further matters surrounding the dispute must be resolved by the arbitrator,” U.S. District Judge John R. Padova wrote in his 11-page opinion in NeuroSource Inc. v. Jefferson University Physicians. Padova also rejected NeuroSource’s argument that its claims should go forward because the arbitration clause exempts claims for equitable or injunctive relief, finding that only one of NeuroSource’s claims sought an injunction while the other four are arbitrable. “NeuroSource cannot evade arbitration of its claims by inclusion of [one claim] seeking an injunction against arbitration of Jefferson’s claims. Although the arbitration clause exempts from arbitration ‘claims by NeuroSource for injunctive or equitable relief,’ [this claim] is the functional equivalent of a motion to stay arbitration,” Padova wrote. “NeuroSource cannot use this count to circumvent arbitration of its otherwise-arbitrable claims.” NeuroSource is a neuromedical management and practice development company that contracts to manage the business aspects of neurosurgery practices and assist in the development of neuromedical services and centers. In March 1999, Jefferson University Physicians hired NeuroSource to provide management, administrative and consulting services to improve the operational and financial performance of Jefferson’s neurosurgery practice. Jefferson promised to pay NeuroSource a fixed monthly management fee and a variable management fee based on the financial performance of the neurosurgery department. The agreement originally ran until June 30, 2001. But NeuroSource claims that over time its relationship with Jefferson deteriorated as Jefferson rejected many of NeuroSource’s recommendations and proposals. Jefferson allegedly ceased making the monthly payments of the base fee in March 2000, or reimbursing expenses incurred after July 2000. Jefferson has also allegedly failed to pay the variable fee for the first fiscal year of the agreement. In October 2000, Jefferson evicted NeuroSource’s employees from its premises and sent NeuroSource a demand for arbitration and notice of termination of the agreement. The arbitration demand said Jefferson was seeking $1.2 million in monetary damages, dissolution and rescission of the contract, and stated claims for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, tortious interference with contract and economic relationship, deceit and misrepresentation. Jefferson said its actions were justified because NeuroSource was trying to induce Jefferson’s staff neurosurgeons to resign from Jefferson and establish their own practice or join that of other employers. NeuroSource’s lawyers, Gerald E. Burns and R. Nicholas Gimbel of Klett Rooney Lieber & Schorling, filed suit in U.S. District Court sounding in five counts against Jefferson — breach of contract; quantum meruit; unjust enrichment; defamation; and a request for an injunction barring arbitration of Jefferson’s claims. Jefferson’s lawyers, Robert Scandone and Carl N. Martin, moved to stay the federal suit pending arbitration and argued that NeuroSource’s claims are also subject to arbitration. NeuroSource in turn said it opposed arbitration of any of its claims and moved to stay Jefferson’s arbitration. Judge Padova sided entirely with Jefferson. The test for winning a stay of arbitration is a demanding one, Padova found. “When determining whether a dispute falls within the scope of the agreement, the court may not stay arbitration unless the court can state ‘with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute,’ ” he wrote. NeuroSource insisted that Jefferson’s claims fall under exclusions to the arbitration agreement that explicitly do not cover “claims related to unauthorized disclosure of confidential information, trade secrets, intellectual property, unfair competition.” In its brief, NeuroSource argued that Jefferson’s claim that NeuroSource fraudulently induced the contract by hiding its true intent to take control of its neurosurgery practice falls within the exclusion from arbitration. The exclusion clause, it said, broadly covers any misappropriation of Jefferson’s business opportunities, such as the stealing of Jefferson’s physicians. But Padova disagreed saying, “The agreement does not define confidential information to include tangible human capital such as the staff physicians. Rather, the agreement defines confidential information as data and information.” NeuroSource also argued that the arbitration clause was expected to be triggered only if the two parties were still in an ongoing relationship, but not if they had terminated. Padova disagreed, saying NeuroSource was reading too much into the clause of the agreement that governed termination of the contract. “The plain language of the contract provides no basis for construing the … [exclusion] to encompass a claim only because it was filed after termination of the contract so as to restrict the arbitration clause to situations where the parties maintain an ongoing relationship,” Padova wrote. Turning to Jefferson’s motion for a stay of the federal suit, Padova agreed that all of NeuroSource’s claims should be referred to arbitration. “The only time a court can refuse to stay the proceedings is if the court finds either that the issue is not subject to arbitration, or the party has not agreed to arbitrate its claims,” Padova wrote. Prior to ordering arbitration, Padova said, a court must determine two things — whether the parties entered into a valid arbitration agreement; and whether the specific dispute falls within the scope of that agreement. “Once the court answers these two questions in the affirmative, the court must stay or dismiss the proceeding in favor of arbitration,” he wrote. Padova found that all of NeuroSource’s claims fell within the arbitration clause and that its inclusion of a single claim for injunctive relief was no bar to arbitration. The request for an injunction, he said, was simply the “functional equivalent” of a motion to stay the arbitration.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.