Bernetich, Hatzell & Pascu, LLC, Etc. v. Medical

NOT FOR PUBLICATION WITHOUT THE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

thus 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 Hospitals on his behalf. BH&P sent

the hospital 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 hospital 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

1

We will hereinafter refer to this paragraph as the arbitration

provision.

3 A-0657-15T3

paid the 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 contended 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 asserted 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