United States District Court, E.D. New York
MEMORANDUM & ORDER
NICHOLAS G. GARAUFIS, District Judge.
Before the court are Plaintiff AllCity Family Health Care Center, Inc.'s ("Plaintiff" or "AllCity") objections to Magistrate Judge Joan M. Azrack's Report and Recommendation ("R&R") that recommended the court (1) deny Plaintiffs Motion to Remand this action to state court; (2) grant Defendant's Motion to Compel Arbitration, and (3) dismiss this action. For the reasons set forth below, the R&R is ADOPTED as modified herein.
Plaintiff AllCity is an S corporation accredited and licensed as a surgery center under Article 28 of the New York Public Health Law. (Am. Compl., Ex. 3 (Decl. of Nasser F. Hassan) ("Hassan Deel.") (Dkt. 13-3) ¶ 3.) Plaintiffs facility is located in Brooklyn, New York. (Id.) Defendant Boss Surgical Group, LLC ("BSG") is a limited liability company established under the laws of California and whose members are all residents of California. (Not. of Removal (Dkt. 1) ¶ 2.)
A. The Administrative Services Agreement
In 2012 Plaintiff and Defendant executed two contracts under which Defendant agreed to assist in the management or administration of Plaintiffs facility. The first agreement, the Management and Consulting Services Agreement ("MCSA") was entered into on June 18, 2012. (Compl., Ex. A (MCSA) (Dkt. 8-2).) Following the execution of the MCSA, Plaintiff contacted Defendant to request that the agreement be revised. (Hassan Deel. ¶ 8.) To avoid violating a New York State Department of Health regulation that prohibits management of an Article 28 facility by a company that is not approved by the state, in September 2012, the parties agreed to a revised contract entitled the Administrative Services Agreement ("ASA"). (Id. ¶ 11.) The ASA was virtually identical to the MCSA except that it characterized Defendant's services as administration rather than management of Plaintiffs facility. (Id.; Deel. of Nasser F. Hassan in Opp'n to Mot. to Compel ("Hassan Opp'n Deel.") (Dkt. 16) ¶ 38.) Unchanged from the MCSA is the ASA's fee arrangement, under which Defendant would receive a fee equal to 25% of the net revenue of Plaintiff's facility. (MCSA ¶ 3.1; Not. of Removal, Ex. A, (Summons attaching ASA) ¶ 3.1.) The ASA was signed by Nasser Hassan, CEO, on behalf of AllCity and by three officers on behalf of"Boss Surgical Management, LLC." (Id. at signature page.) Elsewhere in the ASA, however, the contracting party consistently is referred to "Boss Surgical Group, LLC" or "BSG." (See generally ASA.) The ASA was backdated to June 19, 2012. (Id. at opening paragraph.)
During negotiations of the ASA, Hassan had become suspicious that other companies were involved with the arrangement between AllCity and BSG due to his receipt of a memorandum from "Boss Surgical Management Team" shortly before he signed the ASA. (Hassan Deel. ¶ 12.) Unable to get clarification on this issue from Defendant, on November 16, 2012, Hassan exercised Plaintiffs right to terminate the agreement pursuant to section 4.4 of the ASA. (Id. ¶¶ 12-13.)
B. Dispute Resolution Provisions
The ASA includes provisions governing the resolution of disputes related to the agreement. (See ASA ¶ 9.2.) These provisions include an arbitration clause:
Meet and Confer. If any dispute, controversy or claim arises out of or relates to this Agreement, or the breach thereof, the parties shall first use their good faith efforts to resolve the dispute. The BSG Representative and the Company Representative shall meet to attempt to resolve the dispute in good faith. If the parties are unable to reach a mutually acceptable resolution to the dispute through such efforts, at the written election of either party the matter shall be submitted to binding arbitration as provided below.
(Id. ¶ 9.2(a).) The subsections following this provision address selection of the arbitrator and the process of arbitration itself, including that "[t]he arbitration hearing shall take place in Santa Clara County, California... and shall be governed by the rules of Section 1280 et seq. of the California Code of Civil Procedure." (Id. ¶ 9.2(c).) Alternatively, the ASA provides for relief from the courts:
Injunctive Relief Notwithstanding the contrary provisions of this Section 9.2, each of the parties hereto shall have the right to apply for and obtain a temporary restraining order or other temporary, interim or permanent injunctive or equitable relief from a court of competent jurisdiction in order to enforce the provisions of the Agreement as may be necessary to protect its rights.
(Id. ¶ 9.2(f).) A forum selection clause requires that any claim not subject to arbitration must be brought in California courts, specifically the "state and Federal courts located in (or with jurisdiction over) the County of Santa Clara." (Id. ¶ 9.2(i).) All of the aforementioned provisions fall within section 9.2, which under the agreement "survive[s] expiration or termination of this Agreement." (Id. ¶ 9.2(d).) The contract is governed by California law (Id. ¶ 9.6.).
II. PROCEDURAL HISTORY
Plaintiff brought an action for declaratory judgment in New York Supreme Court, Kings County, on November 23, 2012, by filing a summons with notice seeking an order declaring the ASA null and void ab initio because "the purpose and intent of said agreement are violative of the laws of the State of New York and the applicable rules and regulations, as well as public policy." (Not. of Removal, Ex. A (Summons) at 1.) Defendant received notice on December 4, 2012, and timely removed the action to this court on December 28, 2013, on the basis of diversity jurisdiction. (Not. of Removal ¶ 4.) By letter dated January 3, 2013, Defendant elected to submit the dispute to arbitration and requested that Plaintiff discontinue the action. (Declaration of Brian W. Blatz ("Blatz Deel.") Ex. B, (Def. Arbitration Demand) (Dkt. 28-2) at 1.) Plaintiff did not respond to the letter. (Id. ¶¶ 17-18.)
During a pre-motion conference, the court directed Plaintiff to file a complaint, granted Plaintiff leave to bring a motion to remand, and granted Defendant leave to bring a motion to compel arbitration and/or a motion to dismiss. (Jan. 24, 2013, Min. Entry.) Plaintiff filed the Complaint and amended it shortly after. (Compl.; Am. Compl. (Dkt 13).) Plaintiff filed a Motion to Remand the action to state court (Mot. to Remand (Dkt. 9)), Defendant filed a Motion to Compel Arbitration and Dismiss or Stay Action (Mot. to Compel (Dkt. 26)), and Plaintiff filed a Cross-Motion for an Injunction Precluding Arbitration (Pl. Opp'n & Cross-Mot. (Dkt. 19)). The court referred these motions to Magistrate Judge Joan M. Azrack for an R&R pursuant to 28 U.S.C. § 636(b)(1)(B) and Federal Rule of Civil Procedure 72(b)(1). (Jan. 24, 2014, Order.)
On April 23, 2014, Judge Azrack issued her R&R, recommending that the court (1) deny Plaintiff's Motion to Remand this action to state court; (2) grant Defendant's Motion to Compel Arbitration, and (3) dismiss this action. (R&R at 21.) Plaintiff timely filed objections (Obj. (Dkt. 46)), to which Defendant filed a response (Resp. to Pl. Obj. (Dkt. 47)).
III. STANDARD OF REVIEW
When a magistrate judge issues an R&R and it has been served on the parties, a party has fourteen days to object to the R&R. Fed.R.Civ.P. 72(b)(2). If the district court receives timely objections to the R&R, the court makes "a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. [The district court] may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1). However, to obtain de novo review of an R&R, an objecting party "must point out the specific portions of the report and recommendation to which [it] object[s]." U.S. Flour Corp. v. Certified ...