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Colby v. InterDent Service Corp.

United States District Court, D. Oregon

October 24, 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

         Following 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.

         BACKGROUND[1]

         On 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 Earnout Payment.

APA § 1.06-4.

         InterDent's 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.

         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 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.

         This 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 6.

         Plaintiffs' amended complaint essentially mirrors the original complaint, with the exception of two new ...


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