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Colby v. Interdent Service Corp.

United States District Court, D. Oregon

August 1, 2018

LEIGH COLBY, D.D.S., an individual; OCD INVESTMENTS, LLC, an Oregon limited liability company; and OREGON DENTAL, P.C., Plaintiffs,
v.
INTERDENT SERVICE CORPORATION, Defendant.

          OPINION AND ORDER

          Michael McShane United States District Judge.

         Plaintiffs bring a breach of contract claim against defendant Interdent Service Corporation. Interdent moves to dismiss. As discussed below, Interdent's motion to dismiss, ECF NO. 6, is GRANTED.

         BACKGROUND[1]

         On December 22, 2015, plaintiffs and Interdent executed an Asset Purchase Agreement (APA) outlining Interdent's purchase of plaintiffs' dental practice. Compl. ¶ 5. Interdent purchased the practice for $2, 834, 484 in cash. APA § 1.04-1. The APA also contained an “Earnout Payment” setting out Interdent's promise to pay plaintiffs a payment calculated on revenues earned by the practice in second year following the execution of the APA. Compl. ¶ 7. Specifically, Interdent would pay plaintiffs an earnout based on a sliding scale ranging from $0 if net revenues were lower than $4, 800, 000 up to a maximum of $500, 000 if revenues hit $5, 300, 000 or more. APA ¶ 1.06-1. Interdent's alleged breach of the APA as related to the earnout payment forms the basis of the dispute at issue here:

As of the effective date of the APA, Plaintiffs were operating the Practice in a manner that, if continued, would have resulted in a maximum Earnout Payment of $500, 000. For approximately five months, the Practice continued in a similar fashion. However, Defendant made several changes to the Practice that had a substantial impact on the bottom line and reduced the Practice's revenue to a point where Plaintiffs would not be entitled to any Earnout Payment under the formula contained in the APA.

         Compl. ¶ 9.

         Specifically, Interdent: (1) cancelled a dental services financing plan used by over half of the practice's patients, resulting in a substantial drop in appointments and revenue; (2) cancelled an agreement with a “major healthcare insurance plan” resulting in a substantial drop in patients and revenue; and (3) failed to pay dentists employed by the practice as agreed in employment agreements, resulting in a loss in revenues as at least two “high producing dentists” left the practice. Compl. ¶¶ 9-10.

As alleged herein, since the effective date of the APA, Defendant has taken several steps that were intended to and have caused the Plaintiffs Earnout Payment potential to drop to $0 when it had been on track to be paid out at the maximum amount of $500, 000. Defendant is in breach of the APA and Plaintiffs are entitled a judgment against Defendant in the amount of $500, 000.

         Compl. ¶ 11.

         STANDARDS

         To survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must contain sufficient factual matter that “state[s] a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual allegations allow the court to infer the defendant's liability based on the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than “the mere possibility of misconduct.” Id. at 678.

         While considering a motion to dismiss, the court must accept all allegations of material fact as true and construe those facts in the light most favorable to the non-movant. Burget v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000). But the court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. If the complaint is dismissed, leave to amend should be granted unless “the pleading could not possibly be cured by the allegation of other facts.” Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995).

         DISCUSSION

         Interdent moves to dismiss the lone claim for breach of contract, arguing plaintiffs fail to allege Interdent acted in bad faith with the requisite intent to avoid the earnout payment. I agree. The APA outlines the agreement of the parties as to Interdent's ...


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