United States District Court, D. Oregon
LEIGH COLBY, D.D.S., an individual; OCD INVESTMENTS, LLC, an Oregon limited liability company; and OREGON DENTAL, P.C., Plaintiffs,
INTERDENT SERVICE CORPORATION, Defendant.
OPINION AND ORDER
MICHAEL MCSHANE UNITED STATES DISTRICT JUDGE
the sale of their dental practice, Plaintiffs brought a
breach of contract claim against the purchaser, defendant
InterDent Service Corporation. The court previously dismissed
the complaint, finding that InterDent's unwise business
practices do not support a cause of action under the
contract. Because Plaintiffs fail to allege new facts in
their amended complaint, and because this Court previously
rejected Plaintiffs' legal theory, InterDent's motion
to dismiss, ECF NO. 17, is GRANTED.
December 22, 2015, Plaintiffs and InterDent executed an Asset
Purchase Agreement (APA) outlining Interdent's purchase
of Plaintiffs' dental practice. Am. Compl. ¶ 5; ECF
No. 14. InterDent purchased the practice for $2, 834, 484 in
cash. APA § 1.04-1. The APA also contained an
“Earnout Payment” provision that promised
plaintiffs a payment calculated on revenues earned by the
practice in the second year following the execution of the
APA. Am. 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. The APA also contained a provision
governing the post-closing operation of the dental practice.
Subject to the terms of this Agreement, after the Closing,
InterDent shall have sole discretion with regard to all
matters relating to the operation of the Dental Practice.
InterDent shall have no obligation to operate the Dental
Practice to achieve or maximize any Earnout Payments;
provided that InterDent shall operate the Dental Practice in
good faith and not in a manner intended to avoid making an
APA § 1.06-4.
alleged breach of the APA as related to the earnout payment
forms the basis of the dispute at issue here. Plaintiffs'
original complaint alleged:
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.
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 of revenue when 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.
Court dismissed the original complaint with leave to amend,
concluding that the APA provided that “InterDent could
operate the practice as it pleased, while [P]laintiffs were
protected against InterDent intentionally attempting to avoid
or lessen an earnout payment.” Op. and Order 4; ECF No.
13. This Court then determined that “Plaintiff failed
to include any specific allegation that InterDent undertook
the allegedly unreasonable acts with the intention of
depriving plaintiffs of an earnout payment.”
Id. at 5. Instead, Plaintiffs' complaint
appeared to challenge what Plaintiffs viewed as unwise
business decisions in operating the practice. Op. and Order
amended complaint essentially mirrors the original complaint,
with the exception of two new ...