Fallahzadeh v. Ghorbanian
| Decision Date | 05 January 2004 |
| Docket Number | No. 51363-0-I., No. 50766-4-I |
| Citation | 119 Wash.App. 596,82 P.3d 684 |
| Parties | Akbar FALLAHZADEH, Respondent, v. Abraham GHORBANIAN and Jane Doe Ghorbanian, husband and wife, and their marital community composed thereof; and Abraham Ghorbanian, D.D.S., P.S., Appellants. Abraham Ghorbanian and Zahra Soltan, husband and wife; and Abraham Ghorbanian, D.D.S., P.S., a Washington Personal Service Corporation, Appellants, v. Akbar Fallahzadeh and Jaleh Montazeripoor, husband and wife, Respondents. |
| Court | Washington Court of Appeals |
Kenneth Wendell Masters, Charles Kenneth Wiggins, Bainbridge Island, Charles Edward Watts, Bellevue, for Appellants/Cross-Respondents.
Roger James Kindley, Robert Richard King, Ryan Swanson & Cleveland PLLC, Seattle, for Respondent/Cross-appellants.
John C. Bjorkman and Alan Wicks, Preston Gates & Ellis LLP, Seattle, on behalf of Washington Dental Association, amicus curiae.
Akbar Fallahzadeh prevailed in an unlawful detainer action he commenced to collect unpaid rent from a dental practice, Abraham Ghorbanian, DDS, PS. Ghorbanian's practice and Fallahzadeh owned as tenants-in-common the building where the practice was located, but they entered into a lease agreement for the practice to rent the building and pay Fallahzadeh rent in the amount of 50 percent of the practice's net profits. Ghorbanian contends on appeal that the trial court erred in enforcing the lease because it constituted the illegal practice of dentistry by his landlord, a non-dentist. We agree with Ghorbanian that the lease constituted an illegal partnership between a professional and a nonprofessional. We reverse and dismiss.
Abraham Ghorbanian is a licensed dentist who was employed by Sunrise Dental Family Center, Inc. Sunrise's owners offered him the opportunity to purchase the dental practice and the building where it was located. Due to his inexperience in business matters, Ghorbanian asked a senior member of the Persian American community, Akbar Fallahzadeh, to act as a partner in purchasing the practice. Together they consulted an attorney, Greg Lucas.
Lucas informed Ghorbanian and Fallahzadeh that it was illegal to form a partnership between a dentist and a non-dentist, but that they could be partners in the purchase of the building, which could be leased to the practice. Lucas agreed to represent the two after explaining the potential conflict of interest and obtaining signed waivers. Lucas advised Ghorbanian and Fallahzadeh to independently discuss and agree upon the terms of their transaction. After Ghorbanian and Fallahzadeh discussed the matter privately, they returned to Lucas and instructed him to draft a lease agreement providing for Fallahzadeh to lease the building to the practice in exchange for rent in the amount of 50 percent of the practice's net profits. Net profits was defined as all profits after deducting ordinary operating expenses but before deducting the mortgage payment or Ghorbanian's salary. Lucas presented a draft commercial lease to Ghorbanian and Fallahzadeh for their review in December 2000. They executed the lease in March 2001 when they purchased the building.
In December 2000, Ghorbanian bought the dental practice, making a down payment and executing a promissory note for the balance. Fallahzadeh signed a $200,000 personal guaranty for the promissory note. Lucas testified that the sellers demanded this guaranty as a condition of the sale. Ghorbanian immediately began operating his practice and employed Fallahzadeh as his office manager. As office manager, Fallahzadeh had check-writing authority and handled the practice's accounts. Fallahzadeh periodically deposited personal funds into the accounts as loans to the practice. He routinely transferred funds, which included loan repayments, rent, and his $5,000 monthly salary, from the practice's accounts to his personal accounts.
Ghorbanian soon became concerned with Fallahzadeh's withdrawals from the practice's accounts. On September 8, 2001, he called the Renton Police to report possible embezzlement and instructed Fallahzadeh not to return to the office, effectively terminating his employment. Fallahzadeh did not return. On September 27, 2001, Fallahzadeh's attorney sent Ghorbanian a letter demanding that he pay rent allegedly overdue since July 2001. After receiving no response, Fallahzadeh filed an unlawful detainer action. Ghorbanian's answer raised several defenses, including the illegality of the agreement. He also filed a partition action and a declaratory judgment action to declare the lease invalid. The trial court consolidated the unlawful detainer and the declaratory judgment actions, but denied Ghorbanian's request to consolidate the partition action. After a three-day trial in February 2002, the court issued a letter ruling in which it determined that the lease was legal. The court also found that there was no unlawful detainer due to the practice's status as a tenant-in-common. The court subsequently entered findings of fact and conclusions of law in which it concluded that the practice owed Fallahzadeh $111,265.13 in rent based upon the practice's profits from March 2001 until April 2002, plus $40,000 in attorney fees. The court entered judgment in those amounts on July 2, 2002, and further ordered that Fallahzadeh be paid "minimum rent," defined in the lease as one-half of the market rate for the months in which there was no profit. After a special master determined the minimum rent due, the court entered a supplemental judgment for that amount, $28,875.43, plus attorney fees.
The legality of an agreement is a question of law that is reviewed de novo. Morelli v. Ehsan, 110 Wash.2d 555, 558, 756 P.2d 129 (1988). Under RCW 18.32.020(3), any person who "owns, maintains or operates an office for the practice of dentistry" is engaged in the practice of dentistry. Unlicensed persons and entities may not engage in the practice of dentistry. State v. Boren, 36 Wash.2d 522, 531, 219 P.2d 566 (1950). This prohibition extends to most other learned professions, such as law, medicine, and optometry, in which it is considered harmful to the welfare of the public to permit unlicensed persons and entities to share a beneficial interest in a professional service entity. Morelli, 110 Wash.2d at 559, 756 P.2d 129.
Ghorbanian urges this court to examine the "reality" of the parties' business relationship, and conclude that his relationship with Fallahzadeh resulted in an illegal partnership between a dentist and a non-dentist. Fallahzadeh responds that it is common commercial practice to include rent provisions based upon a percentage of the tenant's profits and that these arrangements are legal and enforceable, as long as the tenant retains complete professional control. Fallahzadeh's position relies upon several non-Washington cases upholding percentage agreements applicable to professional service providers, including Bd. of Optometry v. Sears, Roebuck & Co., 102 Ariz. 175, 427 P.2d 126 (Ariz.1967) (); Wyoming State Bd. of Examiners of Optometry v. Pearle Vision Ctr., Inc., 767 P.2d 969 (Wyo.1989) (); and Bronstein v. Bd. of Registration in Optometry, 403 Mass. 621, 531 N.E.2d 593 (Mass.1988) (). While we acknowledge that percentage rent provisions are not per se illegal in leases to professionals, none of these cases is particularly helpful because none involves a percentage as large as 50 percent, none involves tenants-in-common, and none addresses the issue here, which is whether this type of leasing arrangement violates Washington's statute prohibiting a non-dentist from owning, operating, or maintaining an office for the practice of dentistry.
Factually, this case is similar to Boren, which addressed whether two non-dentists were illegally owning and operating a dental practice. In Boren, two non-dentists entered into a conditional sales contract with a dentist who agreed to pay $55,000 for an on-going dental practice in $750 monthly installments. Boren, 36 Wash.2d at 523, 219 P.2d 566. The non-dentists had previously engaged in partnerships that owned and sold other practices in Western Washington. Under the contract, the dentist drew a $500 salary and one of the non-dentists worked for $500 each month as office manager — "`buying the supplies and watching the charts and making out the accounts and payments, and general manager, and looking after the advertising.'" Boren, 36 Wash.2d at 524, 219 P.2d 566. The office manager also withdrew monthly bonus payments "in...
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