Bernetich, Hatzell & Pascu, LLC, Etc. v. Medical , 445 N.J. Super. 173 ( 2016 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0657-15T3
BERNETICH, HATZELL & PASCU, LLC,
on behalf of itself and all
others similarly situated,
APPROVED FOR PUBLICATION
Plaintiff-Respondent, April 22, 2016
v. APPELLATE DIVISION
MEDICAL RECORDS ONLINE, INC.
(d/b/a "MRO"),
Defendant-Appellant.
___________________________________
Argued April 6, 2016 – Decided April 22, 2016
Before Judges Ostrer, Haas and Manahan.
On appeal from the Superior Court of New
Jersey, Law Division, Camden County, Docket
No. L-1271-15.
Lisa J. Rodriguez argued the cause for
appellant (Schnader Harrison Segal & Lewis
LLP, attorneys; Ms. Rodriguez, of counsel;
David Smith, Carl A. Solano and Bradly A.
Nankerville, on the briefs).
Joseph A. Osefchen argued the cause for
respondent (DeNittis Osefchen, P.C.,
attorneys; Stephen P. DeNittis and Mr.
Osefchen, on the brief).
The opinion of the court was delivered by
OSTRER, J.A.D.
In this appeal, we conclude that a hospital's medical
records processor may not enforce a mandatory arbitration clause
that it included in its invoice to a patient's attorney in
response to a request for records. The hospital, and the
processor acting as its agent, had a pre-existing legal duty
under State law to provide the patient's records. Consequently,
the records requester's alleged bargain to arbitrate any dispute
related to the invoice was unsupported by consideration, and
therefore unenforceable. We therefore affirm the trial court's
order denying the records processor's motion to compel
arbitration of a dispute over its invoice.
I.
Defendant Medical Records Online, Inc. (MRO) is a third-
party processor of requests for medical records submitted to
hospitals and physicians, including Kennedy Memorial Hospitals
(Kennedy Hospitals) in Washington Township. Plaintiff
Bernetich, Hatzell & Pascu, LLC (BH&P) is a personal injury law
firm. A prospective client, J.H., authorized BH&P to obtain his
medical records from Kennedy on his behalf. BH&P sent Kennedy
Hospitals a medical records request on February 23, 2015.
In response to the request, MRO sent BH&P an invoice for
$204.19. MRO stated prepayment was required before it would
release the records; payment would constitute approval of the
2 A-0657-15T3
charges and the invoice; and if BH&P disputed the invoice, it
had to arbitrate first. The invoice provided:
By paying this invoice, you are representing
that you have reviewed and approved the
charges and have agreed to pay them. Any
dispute relating to this invoice must be
presented before paying this invoice. Any
dispute not so presented is waived. All
disputes must be resolved by arbitration
under the Federal Arbitration Act through
one or more neutral arbitrators before the
American Arbitration Association. Class
arbitrations are not permitted. Disputes
must be brought only in the claimant's
individual capacity and not as a
representative of a member or class. An
arbitrator may not consolidate more than one
person's claims nor preside over any form of
class proceeding.[1]
The bottom of the invoice stated, "Please contact MRO . . . for
any questions regarding this invoice."
MRO retrieved 271 pages, for which it charged $204.19.
This charge consisted of a $10 search and retrieval fee, $1.19
for postage, and $193 in per-page fees. The fees were
calculated at the rate of $1.00 a page for pages one through 100
for each visit, and twenty-five cents a page for additional
pages for each visit. The invoice stated that records over
seventy-five pages "may be sent on CD-ROM." BH&P paid the
1
We will hereinafter refer to this paragraph as the arbitration
provision.
3 A-0657-15T3
invoice and received a CD-ROM containing the 271 pages of
medical records.
Thereafter, BH&P filed a complaint on behalf of itself and
a putative class, alleging that MRO overcharged BH&P and other
records requesters. BH&P alleged that patients and their
authorized agents are legally entitled to obtain their medical
records, and that health care providers may only charge a cost-
based fee. BH&P alleged that MRO's per page fee was unrelated
to, and far exceeded, its actual costs in retrieving
electronically stored medical records and transferring them onto
digital media. BH&P alleged that MRO's billing practices
violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to
-20 (CFA), among other claims. MRO responded by filing a motion
to compel arbitration, or, alternatively, to dismiss for failure
to state a claim. R. 4:6-2(e).
The trial court denied MRO's motion to compel arbitration.2
Citing Atalese v. U.S. Legal Services Group, 219 N.J. 430
(2014), cert. denied, ___ U.S. ___, 135 S. Ct. 2804, 192 L. Ed.
2d 847 (2015), the court held that the invoice was a consumer
contract that did not put BH&P on notice, with sufficient
clarity and prominence, that by paying the invoice it was
2
The court decided the arbitration motion first, and thereafter
stayed action on the dismissal motion pending this appeal.
4 A-0657-15T3
waiving its right to litigate. Further, the invitation at the
bottom of the invoice to call MRO with questions was not a clear
mechanism for opting out of arbitration. The judge concluded
that the invoice held a consumer's records "hostage" until a
consumer paid the invoice and, thereby, purportedly agreed to
the terms of the arbitration provision. The court denied MRO's
motion to compel arbitration. This appeal as of right followed.
See R. 2:2-3(a)(3).
On appeal, MRO argues that the arbitration provision is
enforceable. MRO contends that BH&P accepted the arbitration
provision, and waived any objection to its terms, by paying the
invoice without first raising its dispute. MRO also contends
that the invoice is neither a consumer contract nor subject to
the stringent standards established in Atalese; and it clearly
informed BH&P that disputes over the invoice must be arbitrated.
MRO asks us to enforce federal and state laws that favor
arbitration, and to reverse the trial court's order.
BH&P responds that the arbitration provision is a consumer
contract; Atalese applies; and the arbitration provision did not
provide clear and unambiguous notice to consumers that, by
paying the invoice, they were waiving their right to sue. BH&P
argues its payment did not constitute assent to the arbitration
provision. BH&P also argues that the arbitration provision is
5 A-0657-15T3
unenforceable because MRO imposed it unilaterally. As MRO had a
legal duty to provide the requested records, BH&P argues it was
unlawful and unconscionable to condition performance of that
duty upon consent to the arbitration provision.
II.
A.
We exercise plenary review regarding whether an arbitration
agreement is valid and enforceable. Hirsch v. Amper Fin.
Servs., LLC, 215 N.J. 174, 186 (2013).
Though both the Federal Arbitration Act, 9 U.S.C.A. §§ 1 to
16, and New Jersey's version of the Uniform Arbitration Act,
N.J.S.A. 2A:23B-1 to -32, reflect a preference for arbitration,
arbitration remains "a matter of contract." AT&T Mobility LLC
v. Conception, 363 U.S. 333, 339, 131 S. Ct. 1740, 1745, 179 L.
Ed. 2d 742, 751 (2011) (citation omitted); Fawzy v. Fawzy, 199
N.J. 456, 469 (2009) (stating arbitration is "a creature of
contract.") (citation omitted). "Arbitration is a matter of
contract and a party cannot be required to submit to arbitration
any dispute which he has not agreed so to submit." AT&T Techs.,
Inc. v. Commc'n Workers of Am., 475 U.S. 643, 648, 106 S. Ct.
1415, 1418, 89 L. Ed. 2d 648, 655 (1986); Atalese, supra, 219
N.J. at 430 ("Parties are not required to arbitrate when they
have not agreed to do so.") (quoting Volt Info. Scis. v. Bd. of
6 A-0657-15T3
Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478, 109 S. Ct.
1248, 1255, 103 L. Ed. 2d 488, 499 (1989)).
We apply state contract law to determine whether a valid
agreement to arbitration exists. Id. at 441. "When deciding
whether the parties agreed to arbitrate a certain matter . . .
courts generally . . . should apply ordinary state-law
principles that govern the formation of contracts." First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.
Ct. 1920, 1924, 131 L. Ed. 2d 985, 993 (1995). However, we may
not "subject an arbitration agreement to more burdensome
requirements than those governing the formation of other
contracts." Leodori v. CIGNA Corp., 175 N.J. 293, 302, cert.
denied, 540 U.S. 938, 124 S. Ct. 74, 157 L. Ed. 2d 250 (2003).
We view the principal issue in this case to be whether
MRO's fulfillment of a pre-existing legal duty — to provide
medical records for a cost-based fee — furnishes consideration
to create an enforceable contract to arbitrate. We will first
outline the nature of the duty, and then review the applicable
contract principles.
Under state and federal law, a patient has a qualified
right to inspect or obtain copies of his or her medical records.
Federal regulations adopted pursuant to 42 U.S.C.A. §§ 1320d to
1320d-9, provisions of the Health Insurance Portability and
7 A-0657-15T3
Accountability Act of 1996 (HIPAA), grant "an individual . . . a
right of access to inspect and obtain a copy of protected health
information about the individual in a designated record," 45
C.F.R. § 164.524(a), upon payment of a "reasonable, cost-based
fee. . . ." 45 C.F.R. § 164.524(c)(4). However, certain kinds
of records are excluded, and various circumstances may justify
denial of access to otherwise disclosable records. 45 C.F.R. §
164.524(a)(2), (a)(3). The federal right to access medical
records for a cost-based fee extends to an individual's personal
legal representative, which has been construed to include a
guardian, but not such other agents as attorneys. Webb v. Smart
Document Solutions, LLC, 499 F.3d 1078, 1085-86 (9th Cir. 2007).
The New Jersey patient's right to access records is not so
limited, and extends to the patient's attorneys. The Hospital
Patients Bill of Rights includes the right "to access" "all
records pertaining to the patient's treatment . . . including
receipt of a copy thereof at reasonable cost, upon request,
unless the patient's physician states in writing that access by
the patient is not medically advisable . . . ." N.J.S.A. 26:2H-
12.8(g). This right is implemented by State regulation,
N.J.A.C. 8:43G-4.1(a)(25), which enumerates a hospital patient's
rights, and establishes the right "[t]o obtain a copy of the
patient's medical record, at a reasonable fee, within 30 days of
8 A-0657-15T3
a written request to the hospital" unless access is "medically
contraindicated . . . ." The thirty-day deadline is also found
in N.J.A.C. 8:43G-15.3(d).3
The "reasonable fee" must be a "fee based on actual costs,"
yet it may not exceed established ceilings, which vary depending
on who requests the documents. N.J.A.C. 8:43G-15.3(d), (e).
One standard applies to the "patient or the patient's legally
authorized representative," N.J.A.C. 8:43G-15.3(d), which
includes, among others, an attorney, as well as a spouse,
guardian, or insurer. N.J.A.C. 8:43G-15.3(d)(5). Another
standard applies to requests made by anyone else whom the
patient has authorized, as well as health care providers
themselves and their attorneys. N.J.A.C. 8:43G-15.3(e).
The regulation states:
(d) If a patient or the patient's legally
authorized representative requests, in
writing, a copy of his or her medical
record, a legible, written copy of the
record shall be furnished at a fee based on
actual costs. One copy of the medical
record from an individual admission shall be
provided to the patient or the patient's
legally authorized representative within 30
3
The Board of Medical Examiners has promulgated separate
regulations governing the right to, and charges for, patient
records held by its licensees. See N.J.A.C. 13:35-6.5(c)(4);
Boldt v. Correspondence Mgmt., 320 N.J. Super. 74, 78-81 (App.
Div. 1999) (distinguishing between N.J.A.C. 8:43G-15.3 and
N.J.A.C. 13:35-6.5).
9 A-0657-15T3
days of the request, in accordance with the
following:
1. The fee for copying records shall not
exceed $ 1.00 per page or $ 100.00 per
record for the first 100 pages. For records
which contain more than 100 pages, a copying
fee of no more than $ 0.25 per page may be
charged for pages in excess of the first 100
pages, up to a maximum of $ 200.00 for the
entire record;
2. In addition to per page costs, the
following charges are permitted:
i. A search fee of no more than $ 10.00 per
patient per request. (Although the patient
may have had more than one admission, and
thus more than one record is provided, only
one search fee shall be permitted for that
request. The search fee is permitted even
though no medical record is found as a
result of the search.); and
ii. A postage charge of actual costs for
mailing. No charges shall be assessed other
than those permitted in (d)1 and 2 above;
. . . .
(e) The fee for copying medical records
shall be based on actual costs, which in no
case shall exceed $ 1.00 per page and $
10.00 per search, in the case of the
following:
1. Where the patient has authorized
release of his or her medical record to a
person or entity other than those identified
in (d) above, including but not limited to
physicians or other practitioners who
provided care to the patient, or attorneys
representing such providers; or
2. The patient subsequently requests
additional copies of a medical record which
10 A-0657-15T3
has been furnished in accordance with (d)
above.
[N.J.A.C. 8:43G-15.3(d)-(e).]
As the fee must be based on "actual cost," the per-page
amounts serve only to establish the maximum a patient may be
charged. See Smith v. Hudson Register, 411 N.J. Super. 538, 571
(App. Div. 2010);4 see also Boldt, supra, 320 N.J. Super. at 82.5
The regulation provides that "[a]ccess to the medical
record shall be limited only to the extent necessary to protect
the patient." N.J.A.C. 8:43G-15.3(f). Hospitals shall review
their medical record department's policies and procedures,
including its fees, at least every three years. N.J.A.C. 8:43G-
15.2(a).
Nothing in N.J.A.C. 8:43G-15.3 expressly permits a hospital
to exact any consideration other than a cost-based fee in return
for supplying records. Doing so would burden the patient's
4
Smith was superseded on other grounds by N.J.S.A. 47:1A-5(b),
as recognized in Smith v. Hudson County Register, 422 N.J.
Super. 387, 391 (App. Div. 2011).
5
In a petition for rulemaking, the Association of Health
Information Outsourcing Services argued that its members should
not be required to justify the charge of each medical record
request based on its cost because it would be impractical to do
so. It proposed that the Department of Health and Senior
Services amend its regulation to permit the association's
members to charge the amounts specified in the regulation. 29
N.J.R. 5335(a) (Dec. 15, 1997). The Department referred the
matter for study. 30 N.J.R. 3338(a) (Sept. 8, 1998). The
proposal was never adopted.
11 A-0657-15T3
right, guaranteed by statute, to his or her records. Indeed, in
some respects, a hospital may be constrained to accept less than
a cost-based fee, as the regulation sets a $200 maximum for an
entire record requested by a patient or the patient's legally
authorized representative. N.J.A.C. 8:43G-15.3(d). Hospitals
must also "establish a policy assuring access to copies of
medical records for patients who do not have the ability to
pay. . . ." N.J.A.C. 8:43G-15.3(d)(3). On the other hand, a
hospital's fee policy shall include incentives to encourage
patients to accept summaries or abstracts of their medical
records. N.J.A.C. 8:43G-15.3(d)(4).
Returning to the question of whether the arbitration
provision is enforceable, we apply the fundamental principle
that "[n]o contract is enforceable . . . without the flow of
consideration — both sides must 'get something' out of the
exchange." Continental Bank of Pa. v. Barclay Riding Acad.,
Inc., 93 N.J. 153, 170 (citation omitted), cert. denied, 464
U.S. 994, 104 S. Ct. 488, 78 L. Ed. 2d 684 (1983). "Basic
contract principles render a promise enforceable against the
promisor if the promisee gave some consideration for the
promise." Martindale v. Sandvik, 173 N.J. 76, 87 (2002).
Consideration "is a bargained-for exchange of promises or
performance that may consist of an act, a forebearance, or the
12 A-0657-15T3
creation, modification, or destruction of a legal relation."
Ibid. (citation omitted); see also Sipko v. Koger, Inc., 214
N.J. 364, 381 (2013) (invalidating stock transfers based on lack
of required consideration). Therefore, consideration is
essential to form an agreement to arbitrate. Martindale, supra,
173 N.J. at 88-89 (finding consideration for arbitration
agreement).
However, consideration generally may not be furnished by
fulfilling a pre-existing legal duty. "Performance of a legal
duty owed to a promisee which is neither doubtful nor the
subject of honest dispute is not consideration. . . ."
Restatement (Second) of Contracts, § 73 (1981);6 Segal v. Lynch,
211 N.J. 230, 253 (2012) (stating that "consideration cannot be
a promise to perform a pre-existing legal duty") (citing
Williston on Contracts § 7:37 (4th ed. 2008)).
Consistent with this principle, a party may not impose an
arbitration clause after the parties have already exchanged
consideration and created an enforceable contract. We held that
a party was not obliged to arbitrate a warranty claim where the
arbitration clause was sent to the party after they entered the
original contract. Paul v. Timco, Inc., 356 N.J. Super. 180,
6
We recognize that the "pre-existing duty rule" is not without
exceptions. See Restatement (Second) of Contracts, § 89 (1981).
However, none apply here.
13 A-0657-15T3
185-86 (App. Div. 2002). "One party to a contract may not
unilaterally impose an obligation to arbitrate upon another
party to the contract." Id. at 185.
In this case, MRO's pre-existing duty arises from statute
and regulation, as opposed to contract. As the records
processor for Kennedy Hospitals, MRO was obliged to provide
medical records upon the request of "a patient or the patient's
legally authorized representative" or anyone else whom the
patient has authorized.7 N.J.A.C. 8:43G-15.3(d), (e). MRO
contended in oral argument that the medical records constituted
consideration for BH&P's alleged promise to arbitrate. We
disagree. As BH&P had a pre-existing right to the records for a
cost-based fee, it does not "get something" out of the alleged
agreement to arbitrate that it did not already have. Further,
in exchange for assent to the arbitration provision, MRO did not
promise BH&P anything it was not already obliged to provide.
7
MRO questioned whether BH&P was the patient's attorney, because
BH&P referred to the patient as a "potential client," and
asserted that it sought the records for itself, noting that
doing so established its standing to dispute MRO's invoice.
Whether BH&P is a "legally authorized representative" as the
patient's attorney under N.J.A.C. 8:43G-15.3(d), or another
entity authorized by the patient under N.J.A.C. 8:43G-15.3(e),
is of no moment in our contract analysis. Kennedy Hospitals and
MRO owe a legal duty to produce the records to either one.
14 A-0657-15T3
In sum, the alleged agreement to arbitrate lacks
consideration. BH&P may not be held to the terms of the
arbitration provision in the invoice.
B.
MRO argues that even if it had no contractual right to
compel arbitration, BH&P surrendered any right to object simply
by paying the invoiced amount, rather than presenting its
dispute prior to payment. We disagree. In characterizing
payment as a waiver, MRO relies on the terms of the invoice,
which provide that payment constitutes a complete waiver of any
objection or dispute. But this begs the question. The term
providing for waiver of disputes upon payment suffers from the
same shortcoming as the term requiring arbitration. It lacks
consideration.
Furthermore, a waiver is a "voluntary and intentional
relinquishment of a known right." Knorr v. Smeal, 178 N.J. 169,
177 (2003) (emphasis added). Even assuming that BH&P, unlike an
unsophisticated patient, fully understood that MRO intended to
secure its non-objection by payment, there was nothing
"voluntary" about the choice MRO presented. MRO demanded
prepayment before releasing the records. MRO thus presented a
patient with a dilemma: pay the invoice and surrender the right
to raise any dispute relating to it; or raise a dispute, and
15 A-0657-15T3
incur an inevitable delay in receiving the records as the matter
proceeds to arbitration, in derogation of the right to receive
records in no more than thirty days.8 N.J.A.C. 8:43G-4.1(a)(25);
N.J.A.C. 8:43G-15.3(d).
We reject the notion that MRO's invitation to call "for any
questions regarding this invoice," included at the bottom of the
invoice, offered BH&P a meaningful opportunity to contest the
terms of the invoice. MRO did not invite calls to register an
objection. Nor would it be reasonable for the reader to
conclude that the invitation to pose questions indicated a
willingness to deviate from the emphatic statement, "prepayment
required," placed at the very top of the invoice, or any other
of its terms.
The purported waiver was the product of a threat to
withhold the requested medical records for an indeterminate
period of time while the dispute was referred to arbitration.
See Restatement (Second) of Contracts, cmt. b to § 73 (noting
the "danger of express or implied threats to withhold
performance" of a legal duty, and that "[a] bargain induced by
an improper threat may be voidable for duress"); Id. § 175 ("If
8
In oral argument, MRO contended that "a dispute relating to
this invoice" included a dispute regarding the accuracy or
completeness of the records provided, notwithstanding the
impossibility of discovering the basis for such a dispute prior
to payment and receipt of the records.
16 A-0657-15T3
a party's manifestation of assent is induced by an improper
threat by the other party that leaves the victim no reasonable
alternative, the contract is voidable by the victim."). Thus,
BH&P's payment of the fee does not constitute an enforceable
waiver of the right to object to the arbitration provision that
MRO unilaterally imposed.
Given our conclusion that the arbitration provision is
unenforceable for a lack of consideration, we need not address
whether the invoice is a consumer contract under Atalese, or,
had there been an exchange of consideration, whether the terms
of the provision were sufficiently clear and unambiguous to be
enforceable.
Affirmed.
17 A-0657-15T3