Gardner, W. v. Vascular Access Centers, LLC ( 2019 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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