Columbus Ltach Management, Llc v. Quantum Ltach Holdings, Llc et al

BRIEF in Opposition

D.N.J.November 21, 2016

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY COLUMBUS LTACH MANAGEMENT, LLC and COLUMBUS LTACH, LLC, Plaintiffs, v. QUANTUM LTACH HOLDINGS, LLC and QUANTUM INTERNATIONAL INCOME CORP., Defendants. Case No. 2:16-cv-06510-JMV-JBC Motion Returnable: December 5, 2016 Document Electronically Filed _____________________________________________________ PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT QUANTUM INTERNATIONAL INCOME CORP.’S MOTION TO DISMISS PLAINTIFFS’ VERIFIED COMPLAINT FOR FAILURE TO STATE A CLAIM _______________________________________________________________________ THE AGRESTA FIRM, P.C. The Benzel Busch Building 24 Grand Avenue Englewood, New Jersey 07631 (201) 399-6888 robert@agrestalaw.com Attorneys for Plaintiffs Robert A. Agresta, Esq. on the brief Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 1 of 19 PageID: 94 i TABLE OF CONTENTS TABLE OF CONTENTS .......................................................................................................... i TABLE OF AUTHORITIES ................................................................................................... ii Cases ....................................................................................................................................... ii Statutes .................................................................................................................................. iii Other Authorities .................................................................................................................. iii Rules ...................................................................................................................................... iii Treatises ................................................................................................................................ iii PRELIMINARY STATEMENT ............................................................................................. 1 PROCEDURAL HISTORY ..................................................................................................... 1 ARGUMENT ............................................................................................................................. 2 I. THE STANDARD APPLICABLE ON A MOTION TO DISMISS PURSUANT TO RULE 12(b)(6) ........................................................................................................................ 3 II. THE COMPLAINT MAKES OUT A CLAIM AGAINST QUANTUM AND QUANTUM LTACH OBLIGATING THE PARTIES TO RESOLVE THEIR DISPUTES IN ARBITRATION. ....................................................................................................................... 4 1. Quantum is Equitably Estopped from Avoiding Arbitration ...................................... 7 2. Alternatively the Court Has Equitable Power to Grant a Discretionary Stay Against Quantum in Lieu of Dismissal .......................................................................................... 11 3. Quantum is Not Entitled to Dismissal With Prejudice ............................................. 13 CONCLUSION ....................................................................................................................... 15 Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 2 of 19 PageID: 95 ii TABLE OF AUTHORITIES Cases AgGrow Oils, L.L. C. v. National Union Fire Ins. Co. of Pittsburgh, PA, 242 F.3d 777 (8th Cir.2001) ............................................................................................................................... 17 Alfano v. BDO Seidman, LLP, 393 N.J. Super. 560 (App. Div. 2007). ..................................... 7 Alston v. Parker, 363 F. 3d 229 (3d Cir. 2004) .......................................................................... 4 Am. Heart Disease Prev. Found. v. Hughey, 106 F.3d 389 (4th Cir. 1997). ............................. 17 Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009). .................................................... 10, 11 AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (U.S. 2011). ......................................... 10 Banco Popular N. Am. v. Gandi, 184 N.J. 161 (2005). .............................................................. 6 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007).................................................................. 4 Board of Trustees of City of Delray Beach Police and Firefighters Retirement System v. Citigroup Global Markets, Inc., 622 F.3d 1335 (11th Cir. 2010) ......................................... 12 Burnham Enterprises v. Dacc Co. LTD, 2013 WL 68923 (M.D. AL. 2013) ........................... 12 Curtis v. Cellco P 'ship, 413 N.J. Super. 26 (App. Div. 2010) ................................................... 7 Escobal v. Celebration Cruise Operator, Inc., 2012 WL 2947591, 1 (11th Cir. 2012). ............ 10 Field System Machining, Inc. v. Vestas-American Wind Technology, Inc., 2013 WL 1943307 (N.D. Ill. 2013) ...................................................................................................................... 10 Fin Associates, LP v. Hudson Specialty Ins. Co., 215CV02245SDWSCM, 2016 WL 4414782 (D.N.J. Aug. 18, 2016) .................................................................................................... 18, 19 Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124 (2001) .................... 8 Grayson v. Mayview State Hosp., 293 F 3d 103 (3d Cir. 2002) .............................................. 19 Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515 (App. Div. 2010) ........................ 8 Healey Alternative Inv. P'ship v. Royal Bank of Canada, CIV. 10-1567 RMB KMW, 2011 WL 4455447 (D.N.J. Sept. 23, 2011). .................................................................................. 13 Hirsch v. Arnper Fin. Servs., LLC, 215 N.J. 174 (2013). ........................................................... 8 Hishon v. King & Spalding, 467 U.S. 69 (1984). ....................................................................... 4 Hojnowski v. Vans Skate Park, 187 N.J. 323 (2006). ................................................................ 8 In re Encap Golf Holdings, Civil Action No. 08-5178 (DMC), 2009 WL 2488266 (D.N.J. Aug. 10, 2009). ....................................................................................................................... 9 Irving Inv. Corp. v. Gordon, 3 N.J. 217 (1949). ....................................................................... 14 Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156 (3d Cir. 2009) ............................. 9 Klay v. All Defendants, 389 F.3d 1191 (11th Cir. 2004) .......................................................... 16 Landis v. North American Co., 299 U.S. 248 (1936). ........................................................ 15, 16 Martindale v. Sandvik, Inc., 173 N.J. 76, 84 (2002) ............................................................... 6, 7 Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1 (1983). ................. 11, 13 Mueller v. Seaboard Commercial Corp., 5 N.J. 28 (1950) ....................................................... 14 Petrik v. Reliant Pharmaceuticals, 2007 WL 3283170 (M.D. Fla. 2007) ................................. 16 Physician Consortium Services, LLC, 2011 WL 480013 (11th Cir. 2011) ......................... 11, 12 Sam Reisfeld v. S. A. Eteco, 530 F. 2d 679 (5th Cir. 1976) ..................................................... 16 Shane v. Fauver, 213 F 3d 113 (3d Cir 2000) ........................................................................... 19 South Jersey Sanitation Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 840 F.3d 138 (3d Cir. 2016).......................................................................................... 3, 5, 15 Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 3 of 19 PageID: 96 iii Southland Corp. v. Keating, 465 U.S. 1 (1984). ......................................................................... 6 State, Dept. of Environment. Protect. v. Ventron Corp., 94 N.J. 473 (1983). .......................... 14 Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F. 3d 478 (3d Cir. 1998). ... 3 United States ex rel. MPA Constr. v. XL Specialty Ins. Co., 349 F.Supp.2d 934 (D. Md. 2004) ............................................................................................................................................... 17 Volt Info. Scis., Inc. v. Bd. Of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 (1989) ...... 8 Warth v. Seldin, 422 U.S. 490 (1975) ......................................................................................... 3 Statutes 9 U.S.C. §1 .............................................................................................................................. 2, 6 Other Authorities Wright & Miller, Federal Practice and Procedures § 1356. ........................................................ 5 Rules Fed. R. Civ. Proc. 12(b)(6) ..................................................................................................... 3, 4 Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 4 of 19 PageID: 97 1 PRELIMINARY STATEMENT Plaintiffs, Columbus LTACH, LLC and Columbus LTACH Management, LLC (“Plaintiffs”) respectfully submit this memorandum of law in opposition to defendant, Quantum International Income Corp.’s (“Quantum”) motion seeking to dismiss the allegations contained in plaintiffs’ verified complaint upon order to show cause. The relief requested in the verified complaint is simple, to compel Quantum and its wholly- owned special purpose subsidiary Quantum LTACH Holdings, LLC (“Quantum LTACH”) to arbitrate their breach of a certain Membership Interest Purchase Agreement (“MIPA”)(ECF #1-2 & 1-3).1 Quantum LTACH has not sought dismissal nor has it answered or otherwise moved in response to the verified complaint. PROCEDURAL HISTORY On August 31, 2016, Plaintiffs filed a Verified Complaint in the Superior Court of New Jersey, seeking summary relief to compel defendants to arbitrate their dispute after following the American Health Lawyers’ Association dispute resolution service case initiation procedure. This was pursuant to the procedures agreed-to in the negotiated MIPA drafted and negotiated on Quantum’s behalf by defendants’ counsel in the transaction. See Complaint, ECF #1-1. On September 15, 2016, the Honorable Joseph Turula, J.S.C. entered an Order to Show Cause in a Summary Action ordering the defendants to appear on the 14th of October, 2016 to show cause as to why an order should not be entered compelling arbitration of the disputed matters. See Order to Show 1 See Plaintiff’s Verified Complaint upon Order to Show Cause in the Superior Court of New Jersey, filed August 31, 2016 at ¶ 8-12, ECF #1-1. (Hereinafter referred to as Complaint at “_____.”) The MIPA is attached to the Complaint as Exhibit “A”. (Hereinfter referred to as MIPA at “____.”) Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 5 of 19 PageID: 98 2 Cause in a Summary Action entered by the Honorable Joseph Turula, J.S.C. on August 31, 2016, ECF#1-4. On October 5, 2016, Quantum International Income Corp. removed the matter to the District of New Jersey by Notice of Removal dated October 5, 2016 (ECF #1). Defendants sought a fourteen-day (14) extension of time pursuant to Local Civil Rule 6.1(b), which was granted on October 6, 2016 (ECF #2). On November 3, 2016 defendant Quantum filed the instant Motion to Dismiss the Verified Complaint (ECF #3) arguing that it did not participate in the transaction that it negotiated, and transacted through its special purpose entity, defendant Quantum LTACH. ARGUMENT The defense motion is badly flawed. The Federal Arbitration Act, 9 U.S.C. §1, et seq. (the “Act”) clearly requires that the disputed issues be arbitrated. Conveniently, Quantum, which is a publicly traded Canadian company with significant assets in New Jersey including another New Jersey Ambulatory Surgery Center that it purchased from one of the plaintiffs’ principals, is trying to shield itself from paying a break-up fee by shifting all liability for its corporate acts on its wholly-owned subsidiary Quantum LTACH. Quantum LTACH never took a single corporate act, observed no corporate formalities and had no corporate purpose other than to be funded, owned and operated by Quantum. Throughout the underlying Complaint, the allegations and acts are directed at Quantum and Quantum LTACH jointly and severally. Even if the court is willing to indulge Quantum’s argument on the basis that Quantum has separate legal personhood from its wholly-owned subsidiary Quantum LTACH, then Plaintiffs argue in the alternative that Quantum’s application should have been in the form of a motion to stay the proceedings as to Quantum alone, not a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Recently the Third Circuit ruled that arbitrability Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 6 of 19 PageID: 99 3 must be the first inquiry. Not substantive law.2 It would be futile for Quantum to even so- move because Quantum is equitably estopped from avoiding the arbitration agreement since the substantive claims against Quantum are inextricably linked to the claims against Quantum LTACH and arise from the same transaction as alleged in the Complaint at ¶¶ 3-6; facts which this court must take as true for the purposes of this motion. I. THE STANDARD APPLICABLE ON A MOTION TO DISMISS PURSUANT TO RULE 12(b)(6) The Court is very familiar with the practice in deciding a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), all allegations in the complaint must be taken as true and viewed in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F. 3d 478, 483 (3d Cir. 1998). If after viewing the allegations in the complaint in the light most favorable to the plaintiff it appears beyond a doubt that no relief could be granted “under any set of facts which could prove consistent with the allegations,” a court shall dismiss a complaint for failure to state a claim. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). In Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007), the Supreme Court of the United States clarified the standard for dismissing a case under Fed. R. Civ. P. 12(b)(6), and “retired” the language that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support 2 Third Circuit Judge Joseph Greenaway Jr., joined by Judges Kent Jordan and Thomas Hardiman, said the court could hear South Jersey's challenge to the validity of the arbitration clause but must focus exclusively on the arbitration provision, rather than on the contract as a whole. If the challenge encompasses the contract as a whole, the validity of that contract, like all other disputes arising under the contract, is a matter for the arbitrator to decide, Greenaway said. South Jersey Sanitation Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 840 F.3d 138 (3d Cir. 2016). Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 7 of 19 PageID: 100 4 of his claim, which would entitle him to relief.” Bell Atl. Corp., 127 S. Ct. at 1968 (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In Alston v. Parker, 363 F. 3d 229 (3d Cir. 2004) the Third Circuit noted that to comply with the liberal notice pleading standards of the Federal Rules of Civil Procedure, a complaint need only be a “short and plain statement of the claim showing that the pleader is entitled to relief.” Id. at 233 (quoting Fed. R. Civ. P. 8(a)). To withstand a Rule 12(b)(6) motion, “a plaintiff need not plead facts.” Id at 233. A “plaintiff need only make out a claim upon which relief can be granted.” Id. See also Wright & Miller, Federal Practice and Procedures § 1356. Quantum is limited to the facts alleged in the Complaint at this stage of the litigation. The Complaint alleges that Quantum and Quantum LTACH’s acts were taken jointly. Complaint at ¶¶ 3-6. Because the court is constrained to take the allegations in the complaint as true at this juncture, the court should deny Quantum’s motion to dismiss since the court must focus exclusively on the arbitration provision, rather than on the contract as a whole as the Third Cirucit recently explained. South Jersey Sanitation Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 840 F.3d 138 (3d Cir. 2016). Like the court in South Jersey the defendants here challenge the contract as a whole. However, the validity of that contract, like all other disputes arising under the contract, is a matter for the arbitrator to decide, according to Judge Greenaway. Id. II. THE COMPLAINT MAKES OUT A CLAIM AGAINST QUANTUM AND QUANTUM LTACH OBLIGATING THE PARTIES TO RESOLVE THEIR DISPUTES IN ARBITRATION. Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 8 of 19 PageID: 101 5 The parties agreed, in writing, to resolve all disputes between them in binding arbitration pursuant to the terms of the MIPA at Section 11.9. 11.9 Dispute Resolution. Any controversy, dispute, or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by binding arbitration with one (1) arbitrator (which arbitrator shall be a retired Essex or Hudson County New Jersey judge), which arbitration shall be conducted in Newark, New Jersey in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration (except that the arbitrator shall be permitted to participate in settlement discussions, if any), and judgment on the arbitration award may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, nothing herein shall preclude a Party from seeking injunctive relief from a court of competent jurisdiction. See MIPA, ECF #1-1. See also Complaint at ¶ 5. The Federal Arbitration Act Governs the Parties' Arbitration Agreement. Section 2 of the Act provides: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Banco Popular N. Am. v. Gandi, 184 N.J. 161, 183 (2005). See also the Act at 9 U.S.C. § 1. In enacting this section of the Act, "Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agree to resolve by arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). The Act's substantive protection applies irrespective of whether arbitrability is raised in federal or state court. Martindale Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 9 of 19 PageID: 102 6 v. Sandvik, Inc., 173 N.J. 76, 84 (2002) (citing Southland Corp., 465 U.S. at 16); Alfano v. BDO Seidman, LLP, 393 N.J. Super. 560, 574 (App. Div. 2007). For the Act to apply here, the contract containing the arbitration provision must evidence a transaction involving commerce. Id. According to the United States Supreme Court, the Act's definition of contracts "involving commerce" should be construed broadly rather than narrowly and "extends the Act's reach to the limits of the Congress' Commerce Clause Power." Id. (internal quotations and brackets omitted). Courts have found a nexus to interstate commerce when citizens of different states engage in the performance of contractual obligations in one of those states when such a contract necessitates interstate travel of payments. Id. There is little doubt that the MIPA involves or affects interstate commerce. Quantum is a citizen of Canada. Plaintiffs are citizens of New Jersey. Complaint at ¶¶ 1- 2. The citizens are engaged in the performance of contractual obligations in New Jersey where payment of the purchase price would be delivered from Canada. Complaint at ¶¶ 7-8. Commerce is expressly defined in the Act to include commerce with foreign nations. The Act "requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Curtis v. Cellco P 'ship, 413 N.J. Super. 26, 33 (App. Div. 2010) (quoting Volt Info. Scis., Inc. v. Bd. Of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,478 (1989)). "Because of the favored status afforded to arbitration, an agreement to arbitrate should be read liberally in favor of arbitration." Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515,518 (App. Div. 2010) (quoting Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 132 Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 10 of 19 PageID: 103 7 (2001)) (internal quotations and brackets omitted). "An agreement to arbitrate generally will be valid under state law unless it violates public policy." Hojnowski v. Vans Skate Park, 187 N.J. 323, 343 (2006). Pursuant to Section 11.8 of the MIPA, the MIPA is to be governed by the laws of the State of New Jersey. MIPA at 11.8, (ECF # 1-2). After finding the existence of a valid arbitration clause, a court must look to the language of the clause to determine whether the particular claims at issue fall within the clause's scope, and are thus subject to arbitration. Hirsch v. Arnper Fin. Servs., LLC, 215 N.J. 174, 188 (2013). See also Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009) (a court faced with a motion to compel arbitration need only satisfy itself that"(1) an enforceable agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that agreement"; In re Encap Golf Holdings, Civil Action No. 08-5178 (DMC), 2009 WL 2488266, at* 1 (D.N.J. Aug. 10, 2009). The allegations contained in the complaint, which must be taken as true for the purposes of this motion establish that the parties have agreed to resolve their disputes via arbitration. Such allegation includes Quantum’s alter-ego, its special-purpose subsidiary, Quantum LTACH. The dispute over the payment of a break-up fee is expressly provided for in the very same agreement, which provides that the parties are compelled to arbitrate their disputes. See Complaint at ¶ 6. 1. Quantum is Equitably Estopped from Avoiding Arbitration Courts have historically “estopped” parties from avoiding arbitration against non signatories in claims that “make reference to,” “presume the existence of,” or “arise out of and relate directly to” the written agreement requiring arbitration, or that are Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 11 of 19 PageID: 104 8 “inextricably intertwined with” claims against a signatory. See, e.g., Field System Machining, Inc. v. Vestas-American Wind Technology, Inc., 2013 WL 1943307, 4 (N.D. Ill. 2013); Escobal v. Celebration Cruise Operator, Inc., 482 Fed.Appx. 475, 476, 2012 WL 2947591, 1 (11th Cir. 2012). The Act, embodies a “liberal federal policy favoring arbitration agreements….” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1749 (U.S. 2011). Section 3 of the Act states in pertinent part: §3. Stay of proceedings where issue therein referable to arbitration "If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court…shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement…." Although the term “parties” in Section 3 is somewhat ambiguous, the Supreme Court has interpreted Section 3 as referring to parties to the litigation rather than parties to the contract. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630 n.4 (2009). Thus “a litigant who is not a party to the relevant arbitration agreement may invoke Section 3 if the relevant state contract law allows him to enforce the agreement.” Id. at 633. Prior to Carlisle, the decision whether to stay claims among non-arbitrating parties generally was considered discretionary. See Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 21, n. 23, 103 S.Ct. 927 (1983) (indicating by footnote that staying litigation among the non-arbitrating parties “may be advisable” but the “decision is one left to the district court…as a matter of discretion to control its dockets.”). Indeed, the verified complaint, which must be taken as true for the purposes of this litigation refers to the parties in the litigation in an allegation, which provides that “On June 9, 2015 the parties entered into a certain Membership Interest Purchase Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 12 of 19 PageID: 105 9 Agreement.” See Compl. at ¶ 8-12, ECF #1-1. Paragraphs referring to the “parties” including Quantum and Quantum LTACH were accurately alleged under theories of estoppel, waiver, piercing the corporate veil and alter ego, which will be fleshed out in arbitration. “‘Traditional principles’ of state law allow a contract to be enforced by or against nonparties to the contract through ‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel....’” Carlisle, 556 U.S. at 631. claims by or against a parent company for damages arising out of its subsidiary’s contract containing an arbitration provision, based upon equitable estoppel, agency or alter ego theories (see Physician Consortium Services, LLC, 2011 WL 480013 (11th Cir. 2011), Board of Trustees of City of Delray Beach Police and Firefighters Retirement System v. Citigroup Global Markets, Inc., 622 F.3d 1335, 1342- 1343 (11th Cir. 2010), and Burnham Enterprises v. Dacc Co. LTD, 2013 WL 68923 (M.D. AL. 2013)). As in Physician Consortium, Quantum LTACH was and is a wholly-owned subsidiary of Quantum and was contracting on Quantum LTACH’s behalf. All funding for the transaction was to be obtained and provided by Quantum, Quantum LTACH was formed per the direction of the managers of Quantum, the managers of the entities are the same, both entities were under common-control, Quantum LTACH had no other business separate and apart from Quantum, Quantum and Quantum LTACH shared the same counsel in the transaction and were referred to interchangeably as Quantum in negotiations. Physician Consortium Services, LLC, 2011 WL 480013 (11th Cir. 2011), Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 13 of 19 PageID: 106 10 Plaintiffs proffer that they are entitled-to and will bring claims in arbitration for equitable estoppel, waiver and alter ego against Quantum. The record is not furnished at this early stage filed allegations fleshing out the details of the estoppel, agency or alter ego theories. It is exactly for this reason that the United States Supreme Court in Moses left the decision to establish the validity of the dispute resolution clause and to stay the proceeding or refer all parties to arbitration to the discretion of the trial court judge. See Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1 (1983). Quantum also misplaces their reliance on Healey Alternative Inv. P'ship v. Royal Bank of Canada, CIV. 10-1567 RMB KMW, 2011 WL 4455447, at *5 (D.N.J. Sept. 23, 2011). Although Quantum argues that in the Healy matter the court “dismiss[ed] breach of contradict (sic) claim as implausible because it is ‘contradicted both by Plantiff’s own allegations and the documentary evidence attached to the Amended Complaint,” instead the Court did the exact opposite and denied the motion to dismiss the Breach of contract claim, which was contained in Count I of the complaint, finding “For the aforementioned reasons, Defendants' Motion to Dismiss will be DENIED, in part, with respect to Count One” Healey Alternative Inv. P'ship v. Royal Bank of Canada, CIV. 10-1567 RMB KMW, 2011 WL 4455447, at *7 (D.N.J. Sept. 23, 2011). Quantum fails to cite a single case where a wholly-owned subsidiary, that is a special purpose entity, serving no purpose separate and apart from its parent company, with common-control was not likewise bound to arbitration. In fact, even with the limited record, it is easy to see how Plaintiffs would be able to establish a claim of alter-ego in arbitration. Plaintiffs will easily prove that the entity Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 14 of 19 PageID: 107 11 was a mere instrumentality or alter ego of its owner by showing the aforementioned. State, Dept. of Environment. Protect. v. Ventron Corp., 94 N.J. 473 (1983). That is, that the parent or owner so dominated the subsidiary that it had no separate existence but “was merely a conduit for the parent.” Ventron Corp., 94 N.J. at 501 (citing Mueller v. Seaboard Commercial Corp., 5 N.J. 28, 34, 73 A.2d 905 (1950) (demonstrating dominance and control of a subsidiary evidences mere instrumentality)). Second, the plaintiffs will prove that the parent or owner has abused the business form to perpetrate an injustice or to circumvent the law. See Irving Inv. Corp. v. Gordon, 3 N.J. 217, 223 (1949). (declaring that “[i]t is where the corporate form is used as a shield behind which injustice is sought to be done by those who have control of it that equity penetrates the veil”). The validity of the dispute resolution clause is a threshold issue reserved to the trial court. Arbitrability of the dispute is thus established upon a finding that the dispute resolution clause is clear and unambiguous. South Jersey Sanitation Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 840 F.3d 138 (3d Cir. 2016). Although Quantum would have this court indulge its argument that it should be excepted from being compelled to arbitrate its disputes, the Federal Arbitration Act and the United States Supreme Court beg to differ. At a minimum, Quantum should be compelled to make its argument on this issue before a qualified arbitrator. In this case, it is easy to see how Quantum should likewise be subject to arbitration and the court should act within its discretion, pursuant to Supreme Court precedent and in accordance with the terms and spirit of the Act by denying Quantum’s motion to dismiss. 2. Alternatively the Court Has Equitable Power to Grant a Discretionary Stay Against Quantum in Lieu of Dismissal Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 15 of 19 PageID: 108 12 Absent a state law basis for bringing non-signatories within the Act’s mandatory stay provision, the decision whether to grant a stay remains within the district courts’ inherent discretion to “control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.” Landis v. North American Co., 299 U.S. 248 (1936). Parties to the two cases need not be the same and issues need not be identical to empower a court to stay proceedings in one suit to abide proceedings in the other. Id. “The applicant for a stay must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to someone else.… Considerations such as these, however, are counsels of moderation rather than limitations upon power.” Landis, 299 U.S. at 254. When the “connected or related case” is in arbitration, courts are more likely to grant a discretionary stay pending completion of the arbitration, than when the tribunal of the other case is another court, due to the “federal policy in favor of arbitration...” See, e.g., Sam Reisfeld v. S. A. Eteco, 530 F. 2d 679, 681 (5th Cir. 1976) (claims involving non-signatories to arbitration agreement signed by their affiliate were properly stayed because they were “inherently inseparable from” the claims at issue in their affiliate’s arbitration, and arbitration would otherwise “be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.”). A key factor courts consider is whether the non-signatory’s potential liability derives from the conduct or potential liability of a party or signatory, such that staying claims against the non-signatory likely would conserve judicial resources and minimize the possibility of inconsistent results. Id.; see also Petrik v. Reliant Pharmaceuticals, 2007 WL 3283170 (M.D. Fla. 2007), Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 16 of 19 PageID: 109 13 citing Klay v. All Defendants, 389 F.3d 1191, 1204 (11th Cir. 2004); Am. Heart Disease Prev. Found. v. Hughey, 106 F.3d 389, 1997 WL 42714 (4th Cir. 1997). Claimants opposing a request for discretionary stay pending arbitration often argue a stay will delay recovery of damages owed for an “immoderate” or “indefinite” duration, thereby causing financial hardship. See AgGrow Oils, L.L. C. v. National Union Fire Ins. Co. of Pittsburgh, PA, 242 F.3d 777, 783 (8th Cir.2001) (“In a complex, multi-party dispute…issues such as the risk of inconsistent rulings, the extent to which parties will be bound by the arbitrators' decision, and the prejudice that may result from delays must be weighed in determining whether to grant a discretionary stay, and in fashioning the precise contours of any stay.”) Such arguments often are dismissed by courts as speculative absent a specific and compelling showing of hardship, particularly when arbitration has commenced or, better yet, a final arbitration hearing date has already been set. See, e.g., United States ex rel. MPA Constr. v. XL Specialty Ins. Co., 349 F.Supp.2d 934, 939 (D. Md. 2004) (“It is a somewhat peculiar stance to assert that delay will cause financial hardship while simultaneously requesting that the court allow full- blown litigation to proceed. One of the primary reasons why federal law favors arbitration is to resolve cases more quickly and efficiently.”) 3. Quantum is Not Entitled to Dismissal With Prejudice It was Quantum’s burden of going forward to bring a motion to stay the proceedings, they are not entitled to dismissal and certainly not with prejudice. Although plaintiffs allege primarily that Quantum should be compelled to arbitrate its disputes in a single adversarial proceeding, in accordance with the law and with the spirit of the Act, if Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 17 of 19 PageID: 110 14 this Court determines that a stay is not appropriate, Quantum is absolutely not entitled to a dismissal with prejudice on the merits. In large part the verified complaint was drafted in such a manner it would accomplish one of the main goals of the Act, which is judicial economy. Burdening the court with substantive issues when there is a clear and unambiguous agreement to arbitrate would counteract the very purpose of the Act as drafted. Quantum also fails to cite any viable precedent for the argument they make in favor of draconian relief of a dismissal with prejudice. Quantum relies primarily on Fin Associates, LP v. Hudson Specialty Ins. Co., 215CV02245SDWSCM, 2016 WL 4414782, at *3 (D.N.J. Aug. 18, 2016). Unfortunately for Quantum, in Fin, the court found that because all of the claims arose out of the same breach the claims all fell within the scope of the arbitration clause and the court GRANTED the Motion to Compel Arbitration. See Fin Associates, LP v. Hudson Specialty Ins. Co., 215CV02245SDWSCM, 2016 WL 4414782, at *3 (D.N.J. Aug. 18, 2016). There is precedent in our Circuit for the proposition that where a complaint is vulnerable to 12(b)(6) dismissal, a district court must permit a curative amendment, unless an amendment would be inequitable or futile. Grayson v. Mayview State Hosp., 293 F 3d 103, 108 (3d Cir. 2002) (citing Shane v. Fauver, 213 F 3d 113, 116 (3d Cir 2000)). In addition to the above-cited blackbook law, another consideration accounted-for by the Act is judicial economy. Severing the claim to compel arbitration, which is the only relief demanded in the Verified Complaint from either plaintiff would force plaintiffs to move for a curative amendment to the Verified Complaint and allege all the Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 18 of 19 PageID: 111 15 substantive issues of estoppel and tortious interference in the District Court that plaintiffs would then have to simultaneously argue in arbitration. This is exactly the scenario that the Act sought to prevent because Quantum and Quantum LTACH are inextricably linked. In short the court should compel Quantum to arbitrate as is standard practice in claims of this variety or in the alternative, stay the litigation as it pertains to Quantum and compel Quantum LTACH to arbitration. CONCLUSION For the foregoing reasons, the Plaintiffs respectfully request that the Court deny the Defendants’ motion to dismiss in all respects. Respectfully Submitted, THE AGRESTA FIRM, PC By: /s/ Robert A. Agresta, Esq. Robert A. Agresta THE AGRESTA FIRM PC 24 Grand Avenue Englewood, New Jersey 07631 (201) 399-6888 Attorneys for Plaintiffs Dated: November 21, 2016 Case 2:16-cv-06510-JMV-JBC Document 4 Filed 11/21/16 Page 19 of 19 PageID: 112 THE AGRESTA FIRM, P.C. The Benzel-Busch Building 24 Grand Avenue Englewood, NJ 07631 Attorneys for Plaintiffs UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY COLUMBUS LTACH MANAGEMENT, LLC and COLUMBUS LTACH, LLC, Plaintiffs, v. QUANTUM LTACH HOLDINGS, LLC and QUANTUM INTERNATIONAL INCOME CORP., Defendants. CERTIFICATION OF ELECTRONIC SERVICE ROBERT A. AGRESTA, ESQ. of full age, hereby certifies as follows: 1. I am an attorney at law of the State of New Jersey, a member of this Court, and counsel to the plaintiffs Columbus LTACH Management, LLC and Columbus LTACH, LLC. 2. On May 31, 2016, I sent a copy of the following documents to the parties listed below by Notice of Electronic Filing (NEF): a. Memorandum of Law in Opposition to Defendant Quantum International Income Corp.’s Motion to Dismiss Plaintiffs’ Verified Complaint for Failure to State a Claim. b. Certification of Service. 3. The above-listed documents were sent to: ANDREW O. BUNN DLA PIPER, LLP (US) Case 2:16-cv-06510-JMV-JBC Document 4-1 Filed 11/21/16 Page 1 of 2 PageID: 113 2 51 John F. Kennedy Parkway Suite 120 Short Hills, NJ 07078-2704 973-520-2562 973.520.2582 (fax) andrew.bunn@dlapiper.com 4. I hereby certify under penalty of perjury that the above documents were sent using the mode of service indicated. /s/ Robert A. Agresta Dated: November 21, 2016 Case 2:16-cv-06510-JMV-JBC Document 4-1 Filed 11/21/16 Page 2 of 2 PageID: 114