Orthodontic Affiliates, P.C. v. Orthalliance, Inc.

• Decision Date: 22 April 2002
• Docket Number: No. 2:01 CV 516.,2:01 CV 516.
• Parties: ORTHODONTIC AFFILIATES, P.C., Plaintiff, v. ORTHALLIANCE, INC., f/k/a U.S. Orthodontic Care, Inc., Defendant.
• Court: U.S. District Court — Northern District of Indiana

210 F.Supp.2d 1054

ORTHODONTIC AFFILIATES, P.C., Plaintiff, v. ORTHALLIANCE, INC., f/k/a U.S. Orthodontic Care, Inc., Defendant.

No. 2:01 CV 516.

United States District Court, N.D. Indiana, Hammond Division.

April 22, 2002.

John Kappos, Merrillville, IN, for plaintiff.

David C. Jensen, John P. Twohy, Michael P. Mulchay, Eichhorn & Eichhorn Stewart E. Niles, Jr., Joseph J. Lowenthal, Jr., Jones, Walker, Waechter Poitevent, Carrere and Denegre LLP, New Orleans, LA, for defendant.

ORDER

MOODY, District Judge.

This matter comes before the court on cross-motions for summary judgment, and Plaintiff's motion to dismiss Defendant's counterclaim for fraud. Before addressing the legal questions, the court will set forth the context that lead to this dispute.

I. BACKGROUND

Plaintiff is an Indiana professional corporation, whose members are orthodontists. Defendant is the nation's second-largest orthodontics practice-management company. See Michael Perrault, Orthodontists File Suit Against Consulting Firm, ROCKY MOUNTAIN NEWS (Denver), Mar. 8, 2002, at 3B. Orthodontic practice-management companies do what the name suggests: orthodontists sign long-term agreements to use a "company's business operating systems for everything from buying equipment to billing clients."¹ Ronnette King, Money Where Your Mouth Is, THE TIMES-PICAYUNE (New Orleans), Feb. 17, 2002, at 1. This type of relationship is truly symbiotic. An orthodontist benefits from Defendant's expertise (and resulting efficiency) in business management, which allows the practitioner more time to ply his/her trade and to see more patients. Moreover, the deep discounts that companies like Defendant's can command for medical supplies translates into lower operating costs. In return, management companies like Defendant's assess a (not-so-meager) monthly fee. The key is the long-term nature of these relationships. These deals are structured in such a manner that the orthodontist's greatest benefit comes in the early years of the arrangement.² As the relationship proceeds, the management company recoups its investment, and ultimately profits from the deal. In other words, the management company's profit increases as time goes by; the orthodontist's profit is inversely related. Because of this mismatch in timing, one could easily envision the symbiosis turning to enmity.

On November 9, 2001, Defendant and Orthodontic Centers of America, Inc., ("OCA") merged. Defendant is now a wholly-owned subsidiary of OCA. See Orthodontic Centers of America and OrthAlliance Announce Completion of Merger, PR NEWSWIRE, Nov. 9, 2001 (available in LEXIS, News Group File). "Before the deal, some of the OrthAlliance doctors were unhappy with their arrangement." King, supra at 1. Many were dismayed because their profits failed to meet projections; the loss of autonomy over certain business decisions bothered others. See id. In either case, since the merger, orthodontists have sought ways to end their practice-management relationships before the contracts expire (which for most, is more than a decade into the future). Toward that end, many of these practitioners (like Plaintiff) have filed suits against Defendant. See id.

II. LEGAL STANDARD

The court will first address the cross-motions for summary judgment. "A grant of summary judgment is proper only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Gordon v. United Airlines, 246 F.3d 878, 885 (7th Cir.2001); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548 (citing FED.R.CIV.P. 56(c)). In this district, concomitant with every summary judgment motion, "there shall be a `Statement of Material Facts,' supported by appropriate citations to discovery responses, depositions, affidavits, and other admissible evidence, as to which the moving party contends there is no genuine issue." N.D.Ind.L.R 56.1(a). Strict adherence to the local rules is necessary, particularly on summary judgment, to ensure the trial court can organize undisputed facts and efficiently determine whether the action requires a trial. See Hedrich v. Bd. of Regents of University of Wisconsin System, 274 F.3d 1174, 1178 (7th Cir.2001) (supporting punishment for ignoring local rules of court); Markham v. White, 172 F.3d 486, 490 (7th Cir.1999) (lauding district court for enforcing local rules); Waldridge v. American Hoechst Corp., 24 F.3d 918, 922-23 (7th Cir.1994) (approving "no quarter" approach to local rule compliance). The law of summary judgment in the federal courts further imposes upon the moving party to demonstrate that those undisputed facts form a basis to secure judgment as a matter of law. This requires the party to link sufficient facts to every essential element of the case for which that party bears the burden of proof. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548. Failure to do so necessitates a denial of the motion. See id. The governing legal rules guide this consideration. See Outlaw v. Newkirk, 259 F.3d 833, 837 (7th Cir.2001); McGinn v. Burlington Northern R.R. Co., 102 F.3d 295, 298 (7th Cir.1996).

If the moving party successfully clears these hurdles, the court's focus shifts to the non-movant. At that point, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided ... must set forth specific facts showing there is a genuine issue for trial." FED.R.CIV.P. 56(e); see Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (imposing upon non-movant to produce sufficient evidence); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (requiring more than a "metaphysical doubt" to survive summary judgment). In this district, responding to a summary judgment motion includes tendering a "Statement of Genuine Issues," designed to isolate "all material facts as to which it is contended there exists a genuine issue necessary to be litigated." N.D.Ind.L.R 56.1(a). "If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." FED.R.CIV.P. 56(e). In the course of considering the motion(s), the court views all factual inferences in a light most favorable to the non-moving party. See Hilt-Dyson v. City of Chicago, 282 F.3d 456, 463 (7th Cir.2002); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Basith v. Cook County, 241 F.3d 919, 926 (7th Cir. 2001).

Lastly, Indiana courts, both state and federal, acknowledge that "contract interpretation is often a question of law well suited for disposition on summary judgment." Zemco Mfg., Inc. v. Navistar Intern. Transp. Corp., 270 F.3d 1117, 1127 (7th Cir.2001) (invoking Indiana law); accord Ferrell v. Dunescape Beach Club Condominiums, 751 N.E.2d 702, 709 (Ind. Ct.App.2001).

III. DISCUSSION

Three contracts comprise the crux of the dispute in this litigation. In Count I of its complaint, Plaintiff alleges the management service agreement ("Service Agreement"), executed November 1, 1996, is a contract calling for Defendant to unlawfully engage in the practice of dentistry within the State of Indiana. According to Plaintiff, this makes the Service Agreement invalid and unenforceable; Plaintiff seeks a declaratory judgment stating same. In Count II of its complaint, Plaintiff seeks a declaratory judgment stating that it has the right to amend the two employment agreements it has entered into with Thomas W. Surber, D.D.S., and Randall A. Schmidt, D.D.S., without Defendant's consent. Defendant moved for summary judgment on both claims.

A. Count I

Section 23(a) of the Indiana Dental Practices Act ("IDPA") provides in pertinent part: "A person is practicing dentistry within the meaning of this chapter if the person ... (13)[e]xercises direction or control over a dentist through a written contract concerning ... (F) [f]inal decisions relating to the employment of dental office personnel." IND.CODE ANN. § 25-14-1-23 (West 2001). Plaintiff points to seven provisions within the Service Agreement that it believes falls within the purview of the previously-quoted statute. In this State, a contractual duty requiring a party to engage in a course of conduct fundamentally in contravention of Indiana law is invalid and unenforceable. See Schornick v. Butler, 205 Ind. 304, 185 N.E. 111, 112-13 (1933); see also Freeman v. Mayer, 95 F.3d 569, 575 (7th Cir.1996); Kaszuba v. Zientara, 506 N.E.2d 1, 2 (Ind.1987). The issue in this case, therefore, is whether the Service Agreement allowed Defendant to exercise control over "[f]inal decisions relating to the employment of dental office personnel." If so, Defendant is engaging in practice of dentistry without a license (thereby making it unlawful), and those portions of the Service Agreement are invalid and unenforceable. In determining the enforceability of various contractual provisions, this court must "consider the relative benefit which the party seeking to avoid the bargain has enjoyed." Norlund v. Faust, 675 N.E.2d 1142, 1151 (Ind.Ct. App.1997).³ In addition, Indiana courts only declare contractual provisions invalid as violative of public policy "in cases which are substantially free from doubt." Lexington Ins. Co. v. American Healthcare Providers, 621 N.E.2d 332, 338 (Ind.Ct. App.1993). Such a determination is especially well-suited for adjudication upon summary judgment. See Ferrell, 751 N.E.2d at 709....