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8/12/2019 James Mann and Small Smiles Reno v CSHM-CSHM Memo for TRO- Filed July 22, 2014
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Case 3:14-cv-01557 Document 5-2 Filed 07/30/14 Page 1 of 25 PageID #: 41
Opy
IN THE CHANCERY COURT FOR THE STATE
OF
TENNESSEE
DAVIDSON COUNTY
CSHMLLC,
Plaintiff,
v
SMALL SMILES OF RENO, LLC and
JAMES
L.
MANN,
Defendants.
)
)
)
)
)
)
)
)
)
)
No.
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: .; i :;
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MEMOR NDUM IN SUPPORT OF PL INTIFF S MOTION FOR TEMPOR RY
RESTR INING ORDER ND PRELIMIN RY INJUNCTION
Plaintiff CSHM LLC ( CSHM ) respectfully submits this Motion for Temporary
Restraining Order and Preliminary Injunction to require Defendants James Mann ( Dr. Mann )
and Small Smiles
of
Reno, LLC ( Small Smiles ) to comply with their contractual obligations by:
l) cooperating in CSHM s contractually-authorized efforts to market and sell its interest in a
Second Amended and Restated Management Services Agreement (the MSA or Agreement );
(2) consenting to the contractually-authorized disclosure
of
financial information concerning the
Small Smiles dental clinic for purposes
of
that sales effort; and (3) ceasing to prosecute an action
initiated by Dr. Mann and Small Smiles in the Nevada state courts in violation
of
the
MSA s
valid forum-selection clause.
INTRODUCTION
Defendants Dr. Mann and Small Smiles are aware that the Office of Inspector General of
the U.S. Department
of
Health and Human Services ( OIG ) has given CSHM until September
30,2014
to sell its interest in the MSA between the parties, pursuant to which CSHM provides
certain management services to Small Smiles in exchange for a monthly fee. On June 13,2014,
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Dr. Mann made a 150,000.00 offer to purchase CSHM's contractual interest in that MSA, but
CSHM rejected that offer as egregiously low (about 250,000 less than Small Smiles presently
owes for past due management fees). Thereafter, Dr. Mann and Small Smiles have pursued a
course
conduct designed
to
frustrate, impede and delay CSHM's efforts to sell its interests to
another party, in an effort to force CSHM to accept Dr. Mann's low-ball offer. n breach their
contractual obligations, Defendants have, among other things:
• Refused to consent to release financial information concerning the Small
Smiles Center, even though the MSA and a Policy issued pursuant to the MSA
authorize CSHM to release such information;
• Contended that the MSA is invalid and cannot be transferred or sold;
• Filed a Complaint in Nevada state court seeking to enjoin CSHM's sales efforts
and cancel the MSA in violation
the MSA's forum-selection provisions
requiring all suits
to
have beenjiled ennessee
• Failed to serve that Complaint for nearly four weeks after it was filed;
• Filed a Motion for Preliminary Injunction seeking broad and unspecified relief,
including a complete termination the contractually-authorized sales process;
and
• Refused CSHM's reasonable request to transfer the litigation to Tennessee court
pursuant
to
the forum selection provisions.
Defendants' improper actions are calculated to prevent CSHM from selling its interest in
the MSA (to anyone other than the Defendants) before the OIG's deadline. Because the
September 30, 2014 sales deadline is fast approaching, an injunction is necessary to compel
Defendants' cooperation with CSHM's efforts to provide suitors with relevant financial
information pertaining to the dental center;
n
turn, this will enable CSHM
to
continue its efforts
and solicit competing bids.
The purported basis for Defendants' actions is a concern that CSHM's provision
services pursuant to the MSA violates Nevada law. But the Nevada State Board Dental
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Examiners conducted a thorough investigation o the MSA and opted not to take any action
against it. During that investigation Small Smiles own attorneys repeatedly asserted that the
S was enforceable and consistent with Nevada law
in
every way. But Dr Mann and Small
Smiles are now changing their tune in the hopes
o
forcing CSHM to accept their lowball offer.
Their newfound arguments run contrary
to
the no-action decision
o
the Nevada Dental Board,
as well as the finding o a federal court in Tennessee, which held that nearly-identical MSAs
were valid contracts under Tennessee law, and that, even
some provisions violated public
policy, those provisions should merely be severed from the contract. Moreover, the U.S.
Bankruptcy Court for the Middle District o Tennessee has previously held that the Defendants
MSA (as well as several others) are valid and binding, in full force and effect, and
e n f o ~ c e l e
in accordance with their terms. Defendants concerns therefore are at best misplaced, and at
worst, an artifice voiced solely to delay CSHM s sales efforts. Regardless, the MSA requires
Defendants to seek redress in Tennessee, not in Nevada.
The relationship between CSHM and Small Smiles is entirely contractual in nature.
CSHM has until September 30, 2014 to divest itself o its interests in that contract. The Court
should not permit Defendants to frustrate that process by deliberately breaching their contractual
obligations
in
the hopes that they can discourage competing bids and force CSHM to accept their
offer. An injunction should issue
in
order to preserve the integrity o the sales process.
FACTUAL
BACKGROUND
The Parties
CSHM is headquartered in Nashville, Tennessee and provides business, administrative,
and support services to dental centers located throughout the United States. Affidavit
o
Michael
F
Gries ( Gries Aff. ) at 2 Small Smiles is a dental clinic located in Reno, Nevada. Dr.
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Mann is the current owner
of
the Small Smiles clinic, having purchased the clinic in August
2009 for 100.00. Gries Aff. at
3.
Applicable Provisions
the MSA
On February 10,2009, Small Smiles entered into the MSA with FORBA Holdings, LLC
( FORBA ), an unrelated predecessor to CSHM. Gries Aff. at 4. FORBA later changed its
name to Church Street Health Management, LLC ( Church Street ). Gries Aff. at 7. Church
Street filed for federal bankruptcy protection in February 2012. d In May 2012, CSHM
purchased substantially all of Church Street's assets, including its interest the MSAwith Small
Smiles, pursuant to a valid and binding bankruptcy sale.
I
Gries Aff. at 8. The U.S.
Bankruptcy Court for the Middle District'of Tennessee issued an Order authorizing the sale, and
held that the MSAs are valid and binding, in full force and effect, and enforceable in accordance
with their terms. Gries Aff. at 8; Exh. B at pp. 9 W & 20
~ 2 8 .
Pursuant to the MSA (as amended subsequent to the bankruptcy sale), CSHM agreed to
provide management, administrative, and business services
connection with the operations of
Small Smiles
exchange for a 40,000.00 monthly fee. Gries Aff. at
8.
The services that
CSHM provides include payroll processing, accounting and other administrative services. d
The 40,000 management fee is substantially less than the management fee that CSHM bills to
similar centers other states and represents a significant reduction from the monthly fee charged
prior to 2009. Gries Aff. at
6 8
On August 1,2009, Dr. Mann purchased Small Smiles for a mere 100.00. Gries Afl. at
3. As
part
of
that purchase,
he
executed a Counterpart Signature Page
to
the MSA, which
confirmed that he had reviewed the [MSA], dated
as of
February
10
2009 (as such has been or
I Notwithstanding the acronym, CSHM and Church Street are not legally related or affiliated, nor have they
ever been legally related or affiliated. Gries Aff. at
9.
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may be amended from time to time) and hereby adopts, accepts and joins in the Agreement
and agrees to be bound by the terms and provisions thereof. Gries Aff. at 5 Exh.
A
At the
time the purchase, Small Smiles owed FORBA several million dollars in unpaid management
fees and net cash advances made to Small Smiles
by
FORBA. Gries Aff. at
The MSA requires Small Smiles to fully comply with certain federal programs
pertaining to the quality care provided at dental clinics under contract with CSHM, including a
January 2010 Corporate Integrity Agreement ( CIA ) between FORBA and OIG. Specifically,
§ 2.09(c) the MSA provides:
Notwithstanding anything in the Agreement to the contrary, [Small
Smiles] agrees that, at all times during the term
the Agreement,
it shall fully comply, and shall require its owners, officers, dentists
and other employees ( Covered Persons ) to fully comply, with the
applicable requirements any compliance programs
( Compliance Programs ) and Corporate Integrity Agreements
( CIA ) established by and/or entered into by [CSHM] with the
Office ofInspector General (OlG)
the United States Department
Health and Human Services and/or any State regulatory agency
relating to Health Care Program Requirements (as defined
hereinafter), and all applicablepolicies n procedures adopted
{CSHM] in order
implement the requirements
of
all such
Compliance Programs n CIAs ( Policies n Procedures ?
For purposes hereof Health Care Program Requirements means
the statutes, regulations, and written directives Medicaid,
Medicare, and all other State and Federal health care programs
applicable to [CSHM] and [Small Smiles].
Gries Aff. at 16 and Exh. A at § 2.09(c) (emphasis added). The parties further agreed that any
breach
this provision shall be considered a material breach the Agreement by Practice.
Gries Aff., Exh. A at § 2.09(d). The parties also emphasized the importance
compliance with
agreements with federal authorities in
§
2.09(e), which provides: Practice agrees that, in the
event any conflicts between the terms the Agreement and the applicable terms any
Compliance Programs, CIAs and/or Policies and Procedures,
the applicable terms
of
the
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Compliance Programs CIAs and/or Policies and Procedures shall control. d at § 2.09(e)
(emphasis added).
Section 8.12 of the MSA explains that the Agreement shall be governed by the laws
of
the State
of
Tennessee, without giving effect to the principles
of
choice
of
law thereof. Gries
Aff, Exh. A at § 8.12. The Agreement further requires that all actions suits or other
proceedings with respect to this Agreement shall be brought only in a court competent
jurisdiction sitting in Davidson County Tennessee or in the U S District Courtfor the Middle
District
Tennessee.
d
(emphasis added). The parties agreed that in any such action, suit
or proceeding, such court shall have personal jurisdiction of all of the parties hereto.
ld
3.
The
Nevada State
Board of
Dental Examiners Investigates the MSA and Declines to
Take Any Enforcement Action and Small Smiles Attorney Asserts
That
The MSA
Is Firmly
Within The
Boundaries of Nevada Law.
In November 2007, the Nevada State Board of Dental Examiners (the Nevada Board )
initiated an investigation concerning the arrangement between Small Smiles and CSHM s
predecessor, and whether Small Smiles former owners had violated certain statutes under
Nevada law in connection with the illegal practice of dentistry. Gries Aff. at 10, Exh. C
During the course of that investigation, Small Smiles attorney argued strenuously that the
parties arrangement, as embodied
in
the MSA, complied with Nevada law in all respects. Those
arguments, discussed in more detail below, belie Defendants new-found claims that the MSA
somehow violates Nevada law.
On January 7, 2008, Neil B Krugman, an attorney representing Small Smiles, responded
to the Nevada Board s letter and defended the Small Smiles/FORBA relationship:
Small Smiles is the owner, operator, conductor and proprietor of
the Reno clinic (see paragraph
of the Recitals section
of
the
MSA), has ultimate control, authority and direction over the clinic
(see Sec.
1 1
ofthe MSA), and is
fUlly
liable and legally
accountable at all times to all patients, governmental agencies and
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others for patient care, and for all other aspects
of
the operations
and maintenance
of
the clinic (see Sec. 1.04
of
the MSA). Small
Smiles is solely responsible for and has complete authority over
the practice of dentistry at the clinic, the employment and
supervision
of
the
dinical
staff,
the
delivery
of
professional
services
to
patients
of
the clinic, all decisions concerning the
course
of
care and types
of
dental services
to
be provided to
patients of the clinic, all decisions concerning the drugs, equipment
and supplies
to
be used at the clinic, all decisions concerning the
scheduling
of
patients and staff
at
the clinic, and all decisions
concerning repairs and capital improvements (see Sec 3.01 of the
MSA) at the clinic.
. . . all
of[FORBA s
actions are subject
to
Small Smiles' ultimate
authority and control (see Sec. 1.03
of
the MSA), [FORBA] does
not have the authority to manage, direct, perform, supervise or
oversee any matters constituting the practice
of
dentistry in Nevada,
and [FORBA] may not
do
anything that would interfere with the
independent clinical judgment
of
Small Smiles' dentists in the
performance
of
their professional duties (see Sec. 1.04 fo the
MSA).
. . . All parties to the Management Services Agreement entered into
it with the belief that agreements of this type are lawful in Nevada,
and with the intention
of
maintaining compliance with Nevada's
dental laws.
Gries Aff., 11, Exh. D at pp. 2-3.
On February 4, 2009, Mr. Krugman provided the Nevada Board with a copy
of
the
amended MSA, which reduced the monthly management fee to a flat amount
of
40,000 per
month. Gries Aff. at
12
Exh.
E
Small Smiles, through its attorney, again emphasized that
the MSA complied with Nevada law: Section
1 01
and 1.04
of
the Agreement state the core
principals [sic] that the services to be provided by FORBA under the Agreement are subject at all
times
to
Small Smiles' authority, direction and control, and the parties' intent is for FORBA to
provide only those services that a dentist may contract with a management services company to
provide in Nevada.
d
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Thereafter, the Nevada Legislature amended the Nevada dental regulations to permit
dentists or dental centers to enter into a management agreement with non-dentists (such as
CSHM) subject to certain conditions, and the Nevada Board advised Small Smiles
of
this change.
See
Gries Aff. at 13, Exh.
F.
On February
1
2010, Small Smiles attorney responded to that
letter, again provided the Board with a copy
of
the amended MSA, and flatly asserted: we
believe the MSA to by fully compliant with the new Nevada regulation. Gries Aff. at 14, Exh.
r
p. 1 (emphasis added). Small Smiles, through its attorney, again argued
in contravention to
Defendants position in their Nevada filings that the MSA and the relationship between Small
Smiles and FORBA provided for therein are thereforejirmly within the boundaries established
by the applicable Nevada regulations. ld at p. 3 (emphasis added). Small Smiles
characterization
of
the MSA in its attorney s February
1 2010
communication stands in stark
opposition to its position in the Nevada litigation. Small Smiles argued:
The services provided by FORBA to Small Smiles are intended to
consist only
of
services that dentists may contract with non
dentists to provide in Nevada (MSA, § 1.04), and are subject to
Small Smiles determination
of
its needs and its authority, control
and direction
. . . Under the express terms of the MSA, FORBA has no authority
to manage, direct perform, supervise or oversee any matter
constituting the practice ofdentistry in Nevada, and is prohibited
from involvement in any activity which could interfere with or
limit the exercise by any Small Smiles dentist of his or her
independent professional judgment. (MSA,
§§
1.04 and 3.01).
Small Smiles has full responsibility and control over its
professional and business operations, and is fully liable and legally
accountable at all times to all patients, governmental agencies and
others for patient care and all other aspects
of
the operation and
maintenance
of
its business
. . . The Management Fee is a fixed monthly amount, and
represents the parties negotiated agreement as to the reasonable
fair market value of the services and other items to be provided by
FORBA under the MSA
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·
ultimate control over Small Smiles business operations -- as
well as complete control over clinical practice
is retained by
Small Smiles
Gries Aff. at 14, Exh. G.
The Nevada
Board completed its investigation in July 2011, and informed Small Smiles
that i t declined to take any enforcement action unless the Board received further complaints?
Gries Aff. at 15, Exh. H. CSHM is not aware of any complaints filed with the Board raising
issues similar to those identified in the Board s letter ofDecember
18,2007,
nor has
CSHM
been
notified that the Board has opened a new investigation of Dr. Mann along similar lines. Gries
Aff. at 15.
The Exclusion Agreement Imposes a September
3 2 14
Divestiture Deadline
Pursuant to the acquisition of Church Street s assets, CSHM agreed to be bound by the
telms of the CIA. Gries Aff. at 16. OIG thereafter alleged that, af ter its acquisi tion of the
Church Street assets, CSHM subsequently failed to comply with certain CIA reporting
obligations
and
sought to exclude CSHM from future participation in Federal health care
programs. Gries Aff. at 16, Exh. I at 3 CSHM disputed
OIG s
findings, but ultimately
entered into an Exclusion Agreement with OIG in April 2014. d.
Pursuant to that Exclusion Agreement, CSHM agrees to be excluded from all Federal
health care programs for a period of five years effective on September 30, 2014. Gries
Aff. at 16, Exh. I at 6. CSHM agreed to either shut down its operations in an orderly manner
prior to September 30, 2014, or it is afforded the option to divest all or substantially all of the
assets and operations
ofCSHM
through bona-fide, arms-length transaction s) to an entity or
Consistent with that finding, on April
21,2014,
the U.S. District Court for the Middle District
of
Tennessee
issued a Temporary Restraining Order requiring a dental center to comply with a near-identical MSA
in
the face of
complaints that the MSA violated Colorado public policy. Temporary Restraining Order, Docket Entry No.9,
S MLL
Kuhn No.3: 14-cv-01025 M.D. Tenn. Apr. 21,2014).
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entities) that, prior to the divestiture, is (are) not related to or affiliated with CSHM. Gries Aff.
Exh. I at 10(b). Thus, CSHM has until September
30
to sell its interest in the MSA.
5. CSHM Begins
Th e
Divestiture Process And Promulgates A Policy
Requiring
Cooperation With
Th e
Divestiture Process.
Following execution
of
the Exclusion Agreement, CSHM began the process
of
divesting
itself of its interests in the MSAs for its associated dental centers. Greiss Aff. at
17
To ensure
the process went smoothly, and in light
of
the September 30, 2014 deadline
to
complete the
process, CSHM promulgated a corporate Policy effective May
19
2014 (the May 19 Policy ),
pursuant to
the applicable provision
of
the MSAs, requiring that all centers cooperate in the
effort. Gries Aff. at 17. The May 19 Policy explains that the Exclusion Agreement
recognize[s] that CSHM s orderly sale
of
its interests in the MSAs was in the best interests
of
the Medicaid programs and the patients served by the Associated Dental Centers. Gries Aff. at
17
Exh. Therefore, consistent with all centers (including Small Smiles) obligation to fully
comply with all policies and procedures adopted
to
by CSHM in order
to
implement the
Corporate Integrity Agreement, CSHM requires that all Associated Dental Centers cooperate
fully in the efforts to operate its business and divest its interests. d The May 19 Policy
explains that any failure to fully cooperate would endanger SHM sability to divest its
interests in conflict with the Exclusion Agreement.
d Th e
May
19
Policy also advises that
CSHM may have to release Center-specific financial information in order to effectuate the
transactions, but that it will only do so subject to the recipient s agreement to maintain
confidentiality
of
all such information and to abide by applicable HIPAA provisions.
d
The
May 19 Policy thus comprises part
of
CSHM s Compliance Program.
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6 Defendants Refuse To Abide
By Th e
Policy ndFile Suit Nevada Violation Of
The Contractual Provisions.
Shortly after entering into the Exclusion Agreement CSHM through its management and
agents began marketing its interests in the MSAs as permitted by the Exclusion Agreement
including by disseminating consolidated regional financial information that was not specific to
any associated center. Gries Aff. at 18. CSHM also received inquiries concerning the Small
Smiles center from certain parties and consistent with the May
9
Policy distributed additional
information concerning that center to them. l All
of
those Parties executed a confidentiality
agreement requiring them to preserve the confidentiality of that information. d
Shor tly thereafter Dr. Mann and Small Smiles communicated their objection to the
dissemination of information concerning the Small Smiles clinic demanded the retraction of all
such information and expressed their refusal to abide by the Ma y 9 Policy requiring
cooperation in the sales process. Gries Aff. at 19. Immediately thereafter all of the parties
who received center specific information were asked to return or destroy that information.
d
Defendants also have maintained that the MS is invalid and cannot be sold despite the fact that
neither Small Smiles LLC nor Dr. Mann objected to the assumption assignment and sale in
Church Street s bankruptcy proceedings and was deemed to have consented to it
by
the
Bankruptcy Court. Gries Aff. at 20.
On
Ma y
23 2014 unbeknownst to CSHM Dr. Mann and Small Smiles filed a Complaint
for Declaratory and Equitable Relief against CSHM in the Second Judicial District Court of the
State of Nevada in and for the County of Washoe. Gries Aff. at 26 Exh. N. That filing was
made notwithstanding the contractual provisions requiring that all suits concerning the MS be
brought in Tennessee. Gries Aff. Exh. A at § 8.12. Defendants did not serve CSHM with a
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copy of their Complaint or otherwise inform CSHM that the suit had been filed for several weeks.
Gries Aff. at 27.
In
an
effort to resolve the issues, counsel for the parties engaged in negotiations
concerning Defendants' objections to the
MS A
and the sales process. Since those negotiations
commenced, CSHM has refrained from further marketing. Gries Aff. at 21.
7. S M
Rejects Dr Mann s Offer To Purchase CSHM s Contractual Interest
O n June
13 2014
Dr. Mann sent CSHM a formal letter of intent to acquire all rights to
the MS A for 150,000 plus collectable Accounts Receivable and applicable prepaid expenses,
which is a fraction of what Small Smiles LLC incurred in· fees and net cash advances from
CSHM s
predecessors and is still less than
half
of the amount owed to CSHM assuming the debt
had been retroactively restated to account for the lower management fee in the amended MSA.
Gries Aff. at
6 22
& Exh. On June 18 2014 CSHM rejected Dr. Mann s offer because his
purchase price was not acceptable. Gries Aff. at 23, Exh. 1. That same day, CSHM reminded
Dr. Mann that Small Smiles had owed CSHM 403,459.00 for several years for unpaid
management fees, and formally demanded that Small Smiles bring its indebtedness current
within seven days. Gries Aff. at 24, Exh. M. Small Smiles has not made any further payments
on its indebtedness since that demand was made and, instead, refused to bring its past-due debt
current. Gries Aff. at 25.
8
The
Nevada Litigation
On June 18, 2014, Defendants' counsel forwarded a courtesy copy of a Motion for
Preliminary Injunction that Defendants had filed in the Nevada State Court. Gries Aff. at 27,
Exh. O CSHM was, as
of
that time, unaware that any action had been filed because it had not
been served with a copy of the Complaint (even though Defendants filed the Complaint four
-
weeks earlier).
d
Defendants' Motion for Preliminary Injunction seeks exceedingly broad
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r l t ~
including an injunction preventing CSHM from marketing its interests in the Small Smiles
MSA and from sharing Small Smiles information which any buyer would consider essential to
its decision to purchase CSHM s contractual interest). Gries Aff. at 27, Exh. O
On June
19
2014, CSHM removed the case
to
the
U S
District Court for the District
of
Nevada and filed a Motion to Transfer the Action to Tennessee on June 20. Defendants then
filed a Motion to Remand. CSHM has consented to that Remand because its corporate structure
renders it cost-prohibitive and time consuming to prove diversity jurisdiction.
The Nevada federal court issued an Order remanding the litigation on July 11 2014
Consistent with the parties agreement, CSHM filed a Motion
to
Dismiss on July 14, 2014 the
next business day), asserting that the action was brought in the wrong forum, and sought to
expedite the proceedings. Consistent with their past practices, Defendants counsel has resisted
the transfer, has resisted litigating in the proper forum in Tennessee, and has instead expressed
his client s desire
to
pursue expensive and time-consuming discovery in the wrong forum
concerning Defendants claims. Defendants clear goal is
to
prevent the case from getting
moved to the proper forum in a timely manner and thereby run out the clock on the September 30,
2014 deadline. Gries Aff. at 29.
On July
18
the Nevada court entered an Order denying CSHM s motion to expedite the
proceedings. Plaintiffs opposition brief is not due until July 28, Defendants reply brief is not
due until August 5 and it is unknown how long the Court will take
to
rule on the motion.
RGUM NT
Emergency injunctive relief is necessary
to
permit CSHM to market and sell its interest in
the MSA before the September 30, 2014 deadline imposed by OIG. Defendants actions,
including their refusal to cooperate
in
the sales process, their objection to release
of
financial
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information to prospective buyers subject to a confidentiality agreement, and their pursuit of
litigation in the wrong forum, are
in
breach
of
their contractual obligations and designed to bring
the sales process to a halt so that CSHM is forced to accept their lowball offer. The Court should
not countenance Defendants' interference with the sales process, and should require Defendants
to abide by their contractual obligations and pursue any legal claims in Tennessee, as provided in
the MSA.
LEGAL STANDARD
In deciding whether or not to grant preliminary injunctive relief, Tennessee courts
consider four factors: 1) the threat of irreparable harm to plaintiff if the injunction is not
granted; (2) the balance between this harm and the injury that granting the injunction would
inflict on the defendant; (3) the probability that plaintiff will succeed on the merits; and (4) the
public interest. S ent Tenn R R
Auth.
v
Harakas
44 S.W.3d 912, 919 n.6 (Tenn. C App.
2 ;
see also McPherson
v
Mich. High
Sch
Athletic Ass n
119 FJd 453, 459 (6th Cir. 1997);
Metro Med Supply Inc Shalala
959 F Supp 799, 803 (M.D. Tenn. 1996). These four
considerations are factors to
be
balanced not prerequisites that must
be
satisfied. In re
Eagle-
Picher Indus. Inc. 963 F.2d 855, 859 (6th Cir. 1992); McPherson 119 F.3d at 459. Likewise,
the factors simply guide the discretion of the court; they are not meant to be rigid and
unbending requirements.
Id.; see also Jeffreys
My Friend s Place Inc.
719 F Supp. 639,
646 (M.D. Tenn. 1989). In evaluating these factors, no single factor is deemed to be
determinative and all factors are to be weighed equitably. Advisory Info Mgmt. Systs. Inc
Prime Computer Inc. 598
F
Supp.
76 89
(M.D. Tenn. 1984). As the discussion below makes
clear, an evaluation
of
these four factors in the instant action demonstrates that CSHM is entitled
to emergency injunctive relief.
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II. DEFENDANTS ARE BREACHING TH E CONTRACT IN AN OBVIOUS
EFFORT
TO STALL
CSHM S
SALES EFFORTS, AND CSHM IS
LIKELY
TO
PREVAIL ON TH E M ER IT S O F ITS CLAIMS
A Defendants Refusal To Cooperate Th e Sales Process Breaches The MSA.
Defendants have failed to cooperate in the sales process undertaken by CSHM pursuant
to the Exclusion Agreement in an obvious effort to run out the clock on CSHM s sales efforts,
and force CSHM to accept their lowball offer. Defendants failures to cooperate include
refusing to allow the release
of
financial information concerning the Small Smiles franchise,
even though the recipients would be. bound by non-disclosure agreements, and contending that
the MS A is invalid and cannot be transferred. Gries Aff. at
9
Defendants actions are
calculated to frustrate and delay the sales process. Gries Aff. at 28-29.
Defendants actions are in direct breach ofCSHM s May 19 Corporate Policy, which was
validly issued pursuant to the MSA. Section 2.09(c) of the MSA authorizes CSHM to adopt
policies and procedures . . . in order to implement the requirements of . . . Compliance
Programs. Gries Aff. Exh. A at § 2.09(c). The Exclusion Agreement is a Compliance
Program because it establishes the parameters
of
CSHM s participation in the Federal health
care programs until September 30, 2014. In addition
to
the divestiture provisions discussed
above, the Exclusion Agreement requires that CSHM continue to abide by certain monitoring
and reporting requirements previously imposed by the CIA and that CSHM provide additional
monthly reports to the OIG. Gries Aff., Exh. I at 10,
II
The Ma y 19 Corporate Policy requires Small Smiles (and its owner Dr. Mann) to
provide full cooperation and assistance with
CSHM
in all efforts related to the divestment
of
its
assets, including Allowing Clinic visits by third parties in conformity with federal and state
privacy laws, Cooperation in third party visits to Clinics, and Cooperation with CSHM in the
event CSHM elects to release Clinic Records or related information. Gries AfC Exh.
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Section 2.09(e) of the
MSA
confirms that the provisions of the Corporate Policy shall control
over any conflicting provisions in the MSA. Greis Aff., Exh. A at § 2.09(e). Defendants have
intentionally refused to abide by these provisions, thereby breaching their obligation in § 2.09(c)
of
the
MSA
to abide by the Corporate Policy.
See
Gries Aff. at 19, 20, 28 29.
B. Defendants Filings Nevada State Court Violate § 8.12
of
the MSA.
The
MSA
contains a
m ~ t o r y
forum selection clause, providing that all actions, suits,
or other proceedings with respect to this Agreement shall be brought oniy in a court
of
competent jurisdiction sitting in Davidson County, Tennessee or in the U.S. District Court for the
Middle District of Tennessee. Gries Aff., Exh. A at § 8.12. Defendants' filings in Nevada
violate this provision.
Tennessee courts should enforce a forum selection clause unless the party opposing
enforcement demonstrates that it would be unfair and inequitable to do so.
Dyersburg Mach.
Works Inc.
v
Rentenbach Eng g
Co o c 650 S.W.2d 378, 380 (Tenn. 1983);
see also MIS
Bremen
v
Zapata Off-Shore Co.
407 U.S. 1 10 (1972) (forum selection clauses are prima facie
valid and should be enforced unless enforcement is shown by the resisting party to be
unreasonable under the circumstances. ). Generally, the burden of proof to avoid a forum
selection clause is lipon the party seeking to avoid it. Moreover, it is considered to be a heavy
burden to meet.
Union Planters Bank
N A
v EMC Mortg. Corp.
67 F. Supp.
2d
915, 919
(W.D. Tenn. 1999) (internal citation omitted).
A
party resisting a forum selection clause must
show
more than inconvenience
or
annoyance such as increased litigation expenses.
Safeco
Ins
Co
Am.
v
Shaver
No.
01AOI-9301-CH-00005, 1994
WL
481402, at *4 (Tenn. Ct. App. Sept.
7, 1994). Further, [p Jarties challenging a forum selection clause cannot rely on facts and
circumstances that were ~ r e s e n t or reasonably foreseen when they signed the contract. ld.
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Tennessee courts consider four factors when determining whether to enforce a forum
selection clause, and none of them counsel against enforcement of the parties agreed contractual
forum here. Forum selection clauses will be enforced unless:
I
the plaintiffcannot secure effective reliefin the other state, reasons other
than delay in bringing the action; (2) or the other state would be a substantially
less convenient place for the trial of the action than this state; (3) or the agreement
as to the place
of
the action was obtained by misrepresentation, duress, abuse of
economic power, or other unconscionable means; (4) or it would for some other
reason
be
unfair or unreasonable to enforce the agreement.
Dyersburg Mach Works 650 S.W.2d at 380.
When applied to the forum selection clause here, these factors weigh in favor of
enforcement.
First
there can be no claim that Defendants could not secure effective
relief
in
this state. Id The Nevada Complaint essentially alleges: (1) that certain of CSHM s actions
(performed pursuant to the MSA) violate Nevada dental regulations and (2) that CSHM s sales
efforts are unauthorized. The MSA
is
governed by Tennessee law, but this Court is capable
of
applying Nevada dental regulations if necessary. Further, questions regarding the sales efforts
taken pursuant to the MSA are governed by Tennessee law.
Second
Defendants may not rely on the physical distance between Nevada and
Tennessee to defeat the forum selection clause on account of any inconvenience they may
claim. As noted above, those facts and circumstances were present or reasonably foreseen
when [Defendants] signed
t ie
contract and therefore do not suffice to defeat a valid forum
selection clause. Sa/eco Ins Co 1994 W 481402, at *4. The issue of convenience is
evaluated from the perspective of all parties. ignal Capital
orp
Signal One LLC No.
E2000-00140-COA-R3-CV, 2000 WL 1281322, at *4 (Tenn. Ct. App. Sept. 7,2000 . It is just
as inconvenient for CSHM to litigate in Nevada as it is for Defendants to litigate in Tennessee.
Indeed, to the extent Defendants allegations rely on communications made from CSHM s
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Nashville-based employees or decisions made
CSHM s Nashville headquarters, the
documents and witnesses are located in Tennessee. Gries Aff at 2
Third there can be no claim that the forum selection clause was obtained by
misrepresentation, duress, abuse
economic power, or other unconscionable means
3
as
Defendants have performed under this contracts for more than four years, and the Nevada State
Board Dental Examiners investigated the agreement and declined to take any enforcement
action. Gries Aff. at 0-15.
Fourth there is no other reason that enforcement the forum selection clause would be
unjust in the circumstances.
Nor should this Court permit the Defendants to avoid the forum selection by their tactical
decision to plead tort claims instead contract claims. When an action arises from a contract
or contractual relationship between two parties, the choice
forum clause in that contract
governs. Allied Sound Inc. v Dukane Corp. 934 F Supp.
272,
276 (M.D. Tenn. 1996); see
also Tritt Category 5 Records LLC 570 F Supp. 2d 977, 981 (M.D. Tenn. 2008) ( As a
general rule, contract-related tort claims involving the same operative facts should be heard
in the forum selected by the contracting parties. (quoting Gen. Envtl. Sci. Corp.
Horsfall
1994 WL 228256, at 8 (6th Cir. May 25,1994)).
The forum-selection clause encompasses all actions, suits, or other proceedings
w t
respect to the MSA. Gries Aff. Exh. A at § 8.12 (emphasis added). There is no relationship
between the parties in the absence the MSA. While the Defendants creatively attempt to plead
around the MSA, the claims
in
the Nevada Complaint stem from alleged actions or inactions
CSHM pursuant to its obligations under the MSA. ee Gries Aff., Exh. N For example,
Defendants claim for breach fiduciary duty is premised upon its allegation that [b]y offering
Dyersburg Machine Works 650 S.W.2d at 380.
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management services to Small Smiles, and by collecting and using all of Small Smiles' revenue,
CSHM has assumed fiduciary duties to Dr. Mann and Small Smiles. Gries Aff., Exh. N at
35. The provision
of
management services and collection
of
revenue all occur
pursuant
to
express terms
of
the MSA.
See
Gries Aff., Exh. A at Art.
II
(describing Management
Services ) and
§§
3.07-3.09 (describing operation
of
the Sweep Account and the terms for
payment of the management fee and reimbursement of expenses). In addition, Defendants'
conversion claim contains the allegation that CSHM
is
already receiving a very large
'management fee' from Small Smiles in the amount
of
Forty Thousand Dollars ( 40,000.00) per
month. (emphasis in original). Gries Aff., Exh. N at 99. The fee arrangement is expressly
outlined in § 3.09 of the MSA. Understanding this claim requires interpretation of the
MSA. The forum-selection clause applies to all suits with respect to the MSA, a category that
includes these tort claims.
See Hasler Aviation Aircenter Inc.
No. 1:06-CV-180, 2007
WL 2463283, at
5
(E.D. Tenn. Aug. 27, 2007) (forum selection clause that applied to
any
matter relating to this contract encompassed contract-based tort claims). Defendants' filings
therefore breached this contractual provision.
C The Court May Issue n ntisuit Injunction Preventing Defendants From
Pursuing The Nevada ction
Where, as here, a party files an action in violation of a valid forum-selection clause, the
prior filing is entitled to no deference under the first to file rule and the Court may enjoin the
incorrectly-filed action form going forward. t is improper for a party to invoke the first filed
doctrine in the face of a clearly articulated forum selection clause in a contract. Megadance
US Corp. Knipp 623 F Supp. 2d 146, 149 (D. Mass. 2009); see also Delta Casket Enters.
Inc v York Group Inc.
No. Civ.A. OS-3l3-C, 2005 WL 2897514, at
4 W.o.
Ky. Oct. 31,
2005) ( A court may dispense with the first-to-file rule when equity requires it to do so. );
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Valpak ofCincinnati Inc Valpak Direct Marketing Systs Inc No :05CV0051OSSB-TSH,
2005 WL 3244321, at 3 (S.D. Ohio Nov. 30 2005) ( One
of
the special circumstances
justifying departure from the first-to-file rule
is
the presence
of
a forum selection clause. ).
Indeed, enabling the first-to-file rule to defeat a valid and enforceable mandatory forum
selection clause would encourage parties
to
rush
to
the courthouse
to
file lawsuits for the purpose
of
circumventing their agreed-upon promises. Universal Operations Risk Mgmt Global
Rescue LLC No. C 11-5969 SBA, 2012 WL 2792444, at 6 N D Cal. July 9 2012); see also
e r t ~ f i e Restoration Dry Cleaning Network LLC
Tenke Corp 511
F.3d 535, 552 (6th Cir.
2007) ( By filing in Ohio courts, Defendants were attempting to forum shop as well as preempt
resolution
of
the parties dispute by
the
proper forum. Thus, the Ohio action was not entitled to
any deference under the first-to-file rule. ).
[I]n a proper case, and for sufficient reasons and grounds, a suit in another state may be
enjoined. Smalling Cox
13
Tenn. App. 425, 429 JTenn.
Ct.
App. 1931). In American
Express o Fox
187 S.W. 1117 (Tenn. 1916), the court confirmed that Tennessee courts may
enjoin Tennessee residents from pursuing actions in other states.
Id
at 1117. This jurisdiction
rests on the theory that the injunction operates in personam and is not an interference with the
proceedings of the courts of a sister state.
Id
Defendants have consented to personal
jurisdiction in this Court. See Gries Aff., Exh. t
§ 8.12.
Therefore, the Court may enjoin the
prosecution of the Nevada action.
Although Tennessee courts have not recently considered this question, modern decisions
from other states have confirmed that [i]t is axiomatic that state courts have the power
to
enjoin
litigation in sister state courts under the doctrine
of
comity.
CloverleafEnters Inc Centaur
Rosecrojt LLC 815
N.E.2d 513, 519
(Ind.
Ct. App. 2004);
Cole
Cunningham
133
U.S.
107
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(1890). Moreover, that power is not limited only to in-state residents. Cases such as American
Express predate the modern concept o personal jurisdiction that was articulated by the
Supreme Court in International Shoe o State
of
Washington, 326 U.S. 310 (1945),
ut
post
International Shoe
decisions do not support [the] argument for a residency-based requirement
for an antisuit injunction. Staton Russell, 565 S.E2d 103, 108-09 (N.C. Ct. App. 2002); see
also Cloverleaf, 815 :E.2d at 520 ( Indiana courts have the power to restrain person within the
control o their process from the prosecution
o
suits in other states or foreign countries, when
the prosecution
of
such suits in such jurisdictions is contrary to equity and good conscience.
(emphasis in original);
PfafJv. Chrysler Corp.,
610 N.E.2d 51, 54 (Ill. 1992) It has long been
established in Illinois that a court o equity has the power to restrain a person over
whom
it has
jurisdiction from instituting a suit. ). Personal jurisdiction cases in Tennessee have generally
hewn closely to the United States Supreme Court s precedents with respect to personal
jurisdiction issues, and therefore would follow a similar rule as the more recent decisions to have
addressed this issue. State
V Sumatra Tobacco Trading Co., 403 S.W.3d 726, 751 (Tenn.
2013).
Golden Rule Insurance
o
Harper,
925 S.W.2d 649 (Tex.· 1996), the Texas
Supreme Court concluded that an anti-suit injunction
is
appropriate in four instances:
1
to
address a threat to the court s jurisdiction; 2) to prevent the evasion o important public policy; 3)
to prevent a multiplicity o suits; or 4) to protect a party from vexatious or harassing litigation.
Id at 651. These considerations are present here. When parties have contracted in advance to
litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties settled
expectations.
Atl. Marine Constr.
o Us
Dist. Court for the W Dist.
of
Tex.,
--- U.S. ---,
134 S Ct. 568, 583 (2013). Accordingly, a court should not unnecessarily disrupt the parties
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settled expectations as expressed in their contract.
d
at 582-83. Enforcement of forum
selection clauses therefore constitutes an important public policy, and Defendants filing in
Nevada in violation of that provision has unnecessarily disrupted CSHM s settled
expectations regarding the forum for such disputes.
d
An injunction therefore is warranted
here.
DEFFENDANTS BREACHES ARE CAUSING IMMEDIATE AND
IRREPARABLE HARM TO
CSHM
CSHM has suffered and continues to suffer irreparable harm as the result of Defendants
refusal to cooperate in the sales process and Nevada court filings.
To
demonstrate irreparable
harm, a claimant must show a likelihood of substantial and immediate irreparable injury.
Malibu Boats LLC
Nautique Boat Co
No. 3:13-CV-656-TAV-HBG, --- F Supp. 2d ----,
2014 WL 417886, at
6 (E.D. Tenn. Feb. 4, 2014) (internal quotation marks and citation
omitted). Generally, irreparable harm is harm that cannot be sufficiently compensated through
money damages. d That such damages can be calculated, however, does not preclude a finding
of
irreparable harm.
Id
Finally, loss
of
goodwill, damage
to
goodwill, damage
to
reputation,
and loss
of
business opportunities are all valid grounds for finding irreparable harm.
d
CSHM has agreed
in
the Exclusion Agreement to sell its interests in the MSAs by
September 30, 2014. Gries Aff. at 6 As noted in the Corporate Policy, CSHM and OIG
agreed to that divestment schedule to recognize that CSHM s orderly sale
of
its interests in the
MSAs was in the best interests of the Medicaid programs and the patients served by the
Associated Dental Centers, including Small Smiles. Gries Aff., Exh.
Defendants outright refusal
to
cooperate in the sales process, including its refusal to
consent to disclosure
of
financial information
to
potential bidders, and its filing
of
an action in an
inappropriate forum are interfering with and frustrating CSHM s ability
to
sell its interests in the
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MSA
by the OIG s September 30, 2014 deadline. Gries Aff. at 28. Potential purchasers
cannot
assess the value
of
CSHM s contractual interests absent that financial information.
d
CSHM has thus been impeded in its efforts to pursue its divestment obligation options in the
Exclusion
Agreement.
d
IV DEFEND NTS WILL NOT SUFFER IRREP R BLE H RM IF THE
INJUNCTION ENTERED
Defendants will not
be
harmed by entry
of
the injunction. Rather, the
Court
will merely
be holding
them to their contractual bargain. Defendants agreed
in
the contracts
(1)
to
comply
with CSHM Policies and Procedures concerning Compliance Programs, such as the
Exclusion
Agreement
and (2) to bring any suits concerning the MSA in Tennessee courts. Gries Aff ., Exh.
A
at
§§ 2.09 8.12. They have not lived up to their bargain
on
either count.
Defendants have argued in
Nevada
that they are suffering harm by being forced to
continue operating pursuant to the
MSA,
which, they contend, imposes obligations contrary to
Nevada
dental regulat ions. However, Defendants' argument is belied by (1) its
own attorneys
sta tements to the contrary in the course of the Nevada Board investigation and (2) the fact that
the
Nevada
Board considered the very contract they
now
complain
of
and
opted
not
to
take
any
enforcement
action. Gries Aff. at 10-15. As Small Smiles argued through its attorney, the
applicable
Nevada
regulations specifically permit
CSHM
to provide
management
services and
the
relat ionship between Small Smiles and [CSHM] embodied in the
MSA
is
firmly
within
the
boundaries
of-Nevada law. Gries Aff., Exh. G, 3.
The
services provided
by
[CSHM] to
Small Smiles are intended to consist only
of
services that dentists
may
contract
with
non-dentists
to provide in
Nevada
, and are subject to Small
Smiles
determination of its needs and its
authority, control and direction. d at 2 (under lining in original). Thus,
ultimate
control
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over Small Smiles' business operations
as
well as complete control over clinical practice
is
retained by Small Smiles.
ld
Moreover, the U.S. Bankruptcy Court for the Middle District
of
Tennessee decreed the
MSA to be valid and binding, in full force and effect, and enforceable in accordance with [its]
terms. Gries Aff., Exh. B at pp. 9 ~ W &
20 ~ 2 8 . In
addition, the 40,000 management fee
that Small Smiles pays is substantially less than the management fee paid by similar centers in
other states. Gries Aff. at
8
Indeed, within the last several months, the U.S. District Court for
the Middle District of Tennessee issued a restraining order requiring compliance with an MSA
that imposed the higher monthly management fee.
4
There can be no claim, therefore, that
Defendants are laboring under
an
unfair agreement or somehow violating Nevada law.
Further, CSHM has committed to only release financial information concerning the Small
Smiles center
to
individuals who have signed valid non-disclosure agreements agreeing to
preserve the confidentiality
of
such information. Gries Aff.
at
16-17 and Exh.
1
The
confidentiality agreements will protect Defendants from any· harm arising from disclosure
of
such information
to
prospective bidders.
THE PUBLIC INTEREST F VORS ENTRY OF N INJUNCTION
Under Tennessee contract law, there
is
a public interest in allowing competent parties to
create their own agreements and
to be
held
to
those agreements.
See Hughes New Life
Develop Corp
387 S.W.3d 453, 475-76 (Tenn. 2012) ( Contract law in Tennessee plainly
reflects the public policy allowing competent parties
to
strike their own bargains
Courts do
not concern themselves with the wisdom or folly
of
a contract, and they cannot countenance
disregarding contractual provisions simply because a party later finds the contract
to
be unwise
4 See Temporary Restraining Order, Docket EntryNo 9 CSHM LLC Kuhn No 3: J cv Ol 025 (M.D.
Tenn. Apr. 21,2014).
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8/12/2019 James Mann and Small Smiles Reno v CSHM-CSHM Memo for TRO- Filed July 22, 2014
http://slidepdf.com/reader/full/james-mann-and-small-smiles-reno-v-cshm-cshm-memo-for-tro-filed-july-22-2014 25/25
or unsatisfactory. ) (citations omitted). An injunction here would not result in public ruin or
disaster. In fact, issuing an injunction would advance the public interest in parties coming to
their own agreements and complying with those agreements by forcing Defendants to comply
with the
S
into which they freely and competently entered.
ON LUS ON
For the aforementioned reasons, Plaintiff CSHM LLC respectfully requests that this
Court issue a preliminary injunction and temporary restraining order.
Respectfully submitted,
Peter Sales
Bradley Arent Boult t1:wmings LLP
1600 Division Street, Suite 700
Nashville, TN 37203
(615) 252-6365
ttorneysfor Plaintiff SHMLL
Dated: July 22, 2014
-25-