Gardner, W. v. Vascular Access Centers, LLC

• Court: Superior Court of Pennsylvania
• Decided: April 22, 2019
• Docket: 2113 EDA 2018
• Status: Unpublished

Opinion

J-A04020-19

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

WILLIAM WHITFIELD GARDNER, : IN THE SUPERIOR COURT OF ANISH SHAH, RASESH SHAH, : PENNSYLVANIA PRAVIN SHAH, VEENA SHAH, AND : WARREN YU ON BEHALF OF : VASCULAR ACCESS CENTERS, L.P. : AND WILLIAM WHITFIELD GARDNER : : : v. : No. 2113 EDA 2018 : : VASCULAR ACCESS CENTERS, LLC : AND JAMES MCGUCKIN, M.D., : : Appellants. :

Appeal from the Order Entered, July 13, 2018, in the Court of Common Pleas of Delaware County, Civil Division at No(s): CV-2016-000367.

BEFORE: LAZARUS, J., KUNSELMAN, J., and COLINS, J.

MEMORANDUM BY KUNSELMAN, J.: FILED APRIL 22, 2019

This interlocutory appeal involves the trial court’s refusal to compel

arbitration in a derivative action. Because the arbitration provision at bar does

not encompass the plaintiffs’ claims in this lawsuit, we affirm.

On January 13, 2016, the Limited Partners1 of Vascular Access Centers,

L.P. filed suit on behalf of Vascular Access Centers, L.P. They sued the general

partners – Vascular Access Centers, LLC and its owner/manager, Dr. James

McGuckin, M.D. (“the General Partners”). The Limited Partners alleged Dr.

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1The Limited Partners are William Whitefield Gardner, Anish Shah, Rasesh Shah, Pravin Shah, Veena Shah, and Warren Yu. J-A04020-19

McGuckin breached the limited partnership agreement by secretly hiring

himself as the CEO of Vascular Access Centers, L.P. and siphoning off “millions

of dollars of VAC’s profits without the limited partners’ knowledge or

approval.” Limited Partners’ Brief at 2.

After two years of discovery, resolution of summary judgment motions,

and submission of pre-trial statements, the General Partners decided – on the

day set for arguments on the motions in limine – to petition for arbitration.

Two days later, the trial court heard testimony and arguments on that petition.

The General Partners argued the Limited Partners had injected an

employment agreement between Vascular Access Centers, L.P. and Dr.

McGuckin into this case by referencing it in a memorandum of law. The

General Partners quoted the Limited Partners, as follows:

Defendants’ mismanagement (perhaps more appropriately described as abandonment) violates §§ 6.7 and 6.11 of the Limited Partnership Agreement, [Dr.] McGuckin’s CEO Employment Agreement, and basic and fundamental fiduciary duties established by Pennsylvania law.

General Partners’ Petition to Compel Arbitration at 2 (quoting Limited Partners’

memorandum of law opposing General Partners’ motion in limine) (emphasis

added by General Partners). Dr. McGuckin’s signature is on both sides of the

employment agreement, as employee (i.e., CEO) and employer. Thus, the

parties agree that he hired himself as CEO via that employment agreement.

The trial court, concluding that lack of notice and consent on the part of

the Limited Partners dictated that the arbitration terms could not bind them,

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denied the petition to compel arbitration. Three days later, General Partners

filed this interlocutory appeal.2

General Partners raise three appellate issues:

1. Even if the Limited Partners did not know about or consent to the arbitration provision in Dr. McGuckin’s employment agreement when he signed it as Vascular Access Centers, L.P.’s general partner, is Vascular Access Centers, L.P. still bound by the arbitration provision?

2. Has Dr. McGuckin waived his right to arbitration by a delay in asserting it in the trial court?

3. Does this action fall within the scope of the arbitration provision, because the Limited Partners seek to submit the employment agreement at trial and argue that Dr. McGuckin breached that agreement?

See General Partners’ Brief at 4-5.

In order to win this appeal, the General Partners must succeed on all

three of their issues. We limit our analysis to the third issue, because it is

dispositive in favor of the Limited Partners.3

2 See Pennsylvania Rule of Appellate Procedure 311(a)(8) (allowing for an interlocutory appeal of any order that the legislature deems appropriate) and 42 Pa.C.S.A. § 7302(a)(1) (making any order denying a party’s request to compel arbitration immediately appealable).

3 We note that the trial court did not address General Partners’ third issue, because it found the Limited Partners had no notice of the arbitration provision at issue. A trial court’s reasoning does not bind this Court, because “an appellate court may uphold an order of a lower court for any valid reason appearing from the record. This jurisprudential doctrine stems from the focus of review as on the judgment or order before the appellate court, rather than any particular reasoning or rationale employed by the lower tribunal.” Ario v. Ingram Micro, Inc., 965 A.2d 1194, 1200 (Pa. 2009).

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The Appellant’s third appellate issue contends the language of the

arbitration provision is broad enough to compel Vascular Access Centers, L.P.

and the Limited Partners to arbitrate their claims for breach of the limited-

partnership agreement and Dr. McGuckin’s alleged breach of his duties to

Vascular Access Centers, L.P. General Partners argue the Limited Partners

“brought the claims and controversies of this case squarely within the ambit

of the arbitration clause when [they] asserted a breach of the employment

agreement and tied that assertion to the breach of fiduciary duty count.”

Appellant’s Brief at 33.

“It is well-settled that the issue of whether a particular dispute falls

within a contractual arbitration provision is a matter of law for the court to

decide.” Shadduck v. Christopher J. Kaclik, Inc., 713 A.2d 635, 637 (Pa.

Super. 1998). As with all questions of law, “our standard of review is de novo,

and our scope of review is plenary.” Skotnicki v. Insurance Department,

175 A.3d 239, 247 (Pa. 2017).

The arbitration clause at issue states as follows:

Any claim or controversy arising out of or relating to this Agreement or any breach thereof shall be settled by arbitration . . . in accordance with the then-current rules of the American Arbitration Association before a panel of one arbitrator.

Dr. McGuckin Employment Contract at ¶9.

The General Partners correctly observe that the arising-out-of-or-

relating-to language is “the broadest conceivable language from which it must

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be concluded that the parties intended the scope of the submission to be

unlimited.” General Partners’ Brief at 31 (quoting Borough of Ambridge

Water Auth. v. Columbia, 328 A.2d 498, 501 (Pa. 1974). However, the

unlimited scope of submission to arbitration is not truly limitless.

As the General Partners also acknowledge, the Ambridge Water Court

went on to state that such language only applied to “any dispute which may

arise between the parties concerning the principal contract . . . .” Id.

(emphasis added). In other words, arbitration does not supplant the courts

of common pleas as forums of unlimited jurisdiction over every conceivable

case or controversy that might arise between the parties. An arbitrator has

only limited, subject-matter jurisdiction over claims that truly arise out of or

relate to the contract that contains the arbitration clause.

In a case similar to the one at bar, this Court found a plaintiff’s claims

for breach of fiduciary duty and common-law indemnification were “not

inextricably entwined with the contract” containing the arbitration provision

and so declined to compel arbitration. Elwyn v. DeLuca, 48 A.3d 457, 463

(Pa. Super. 2012). Mr. DeLuca was a board member of Elwyn, a non-profit

corporation; he therefore owed Elwyn a fiduciary duty.

Mr. DeLuca was also the owner, president, and CEO of a construction

company, which Elwyn hired to build a residential building. Mr. DeLuca, as

owner of the construction company, entered into a standardized, construction

contract with Elwyn. When Elwyn sued him, he asserted that the arbitration

agreement in the standard contract compelled the trial court to transfer the

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case to arbitration. The trial court denied arbitration, and Mr. DeLuca took an

interlocutory appeal.

Even though Mr. DeLuca’s arbitration agreement used the same arising-

out-of-or-relating-to language found in the arbitration provision now before

us, this Court opined that:

the basis of [Elwyn’s] claim . . . related to [Mr. DeLuca’s] actions as a board member: while [Mr. DeLuca] “attended board meetings during and throughout the time in which [his construction company] was performing its work on the Project,” he allegedly “never informed” [Elwyn] that [his company] had solvency issues, that it was not paying its subcontractors or suppliers, and that it “intended to misappropriate sums received from” [Elywn]. [Elwyn] asserted that [Mr. DeLuca’s] intentional failure to inform was a breach of his duty to act without self-interest and to disclose material facts he knew were harmful to [Elwyn’s] interests. We agree with the trial court that the instant suit concerns [Mr. DeLuca’s] duties to [Elwyn] as a Board member, and not [Mr. DeLuca’s] involvement with [his construction company’s] obligations under the contract.

Elwyn, 48 A.3d at 457, 463 – 464. This Court concluded that the causes of

action in Elwyn’s complaint fell outside the scope of the construction contract

and declined to send the matter to arbitration. See id.

We disagree with General Partners’ revisionist interpretation of the

procedural history and the causes of actions in this case. Instead, we conclude

that Elwyn controls. Contrary to the General Partners’ contentions, the

Limited Partners did not allege in their amended complaint that Dr. McGuckin

breached his employment agreement as CEO. They alleged the General

Partners breached their fiduciary duties to Vascular Access Centers, L.P.,

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arising from their roles as the general partners. See Amended Complaint at

22. Those roles predate Dr. McGuckin’s employment agreement and the

arbitration terms therein.

The Limited Partners have further alleged the General Partners breached

the limited-partnership agreement – not the CEO employment agreement.

See id. at 26. The limited-partnership agreement also predates Dr.

McGuckin’s employment agreement and its arbitration provisions. We see no

reason to apply the terms of the parties’ newer contract to alleged breaches

of a preexisting one, especially when the arbitration provision does not

reference the older contract.

Whether Dr. McGuckin breached the CEO employment agreement is

irrelevant to whether the General Partners breached the preexisting, limited-

partnership agreement or their fiduciary duties. The employment agreement

is only evidence that General Partners breached the limited-partnership

agreement, because the Limited Partners claim that, by hiring himself as CEO,

Dr. McGuckin violated the preexisting contract. Whether he discharged his

duties under the employment agreement thereafter is irrelevant to whether

his self-hiring was unlawful from the start. Here, the General Partners claim

that the formation of the employment contract itself was a breach of the prior

contract. Thus, this dispute arises out of and relates to the parties’ prior

contract, not their new one.

Moreover, the Limited Partners may prove their claim by testifying that

Dr. McGuckin hired himself as CEO. They do not even need to admit the

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employment agreement into evidence. Thus, the arbitration provision in that

employment agreement is a red herring.

As in Elwyn, we conclude that the instant suit concerns the General

Partners’ duties to Vascular Access Centers, L.P. as general partners, not Dr.

McGuckin’s obligations under his CEO employment agreement. The trial

court’s denial of the petition to compel arbitration was correct.

Also, the General Partners’ application to reconsider and vacate this

Court’s order striking certain arguments and supporting documents is denied.

Order affirmed. Application to reconsider order denied.

Jurisdiction relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 4/22/19

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