doc 24 cshm v kuhn response

IN THE UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

CSHM LLC, ) ) ) Plaintiff, ) ) v. ) Case No. 3:14-cv-01025 ) DR. JODI KUHN, DDS, ) CHILDREN’S DENTAL CLINIC OF THORNTON, P.C. ) (n/k/a THORNTON YOUTH DENTISTRY, PC), ) Judge Aleta A. Trauger SMILE HIGH DENTISTRY FOR CHILDREN, P.C. ) (n/k/a DENVER YOUTH DENTISTRY, PC), ) 6TH STREET OF DENVER DENTAL CLINIC, P.C. ) (n/k/a AURORA YOUTH DENTISTRY, PC), and ) SMALL SMILES DENTISTRY FOR CHILDREN, P.C. ) (n/k/a SPRINGS SMILES YOUTH DENTISTRY, PC), ) ) Defendants. )

DEFENDANTS’ RESPONSE IN OPPOSITION TO PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION

Defendants Dr. Jodi Kuhn, DDS (“Dr. Kuhn”), Thornton Youth Dentistry, PC (“Thornton

Clinic”), Denver Youth Dentistry, PC (“Denver Clinic”), Aurora Youth Dentistry, PC (“Aurora

Clinic”), and Springs Smiles Youth Dentistry, PC (“Springs Clinic”) (collectively “Defendants”)

hereby request that the Court enter an Order denying Plaintiff CSHM’s unwarranted request for a

preliminary injunction. In support of their request, Defendants state as follows:

INTRODUCTION

By its request for preliminary injunction, CSHM improperly seeks to prevent Dr. Kuhn

from operating, without interference from CSHM, the four Colorado dental clinics CSHM admits

Dr. Kuhn owns. CSHM, which is being shut out of participation in all federal health care

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Case 3:14-cv-01025 Document 24 Filed 05/06/14 of 25 PageID #: 255

programs and being forced by the federal government to shut down or divest its assets because of

its long-term misconduct and its repeated violations of its agreements with the government,

suggests the Court should grant an injunction to protect CSHM’s reputation. Quite to the

contrary, granting an injunction and forcing the Defendant dental clinics to continue working

with CSHM would damage Defendants and their reputations. CSHM’s request for an injunction:

is a misguided and improper attempt to intimidate and control Dr. Kuhn; is premised on serious

misstatements of fact; fails to inform the Court of important facts; and is not justified under the

law because CSHM cannot establish that any of the preliminary injunction factors favor issuing

an injunction. Moreover, CSHM comes to the Court with unclean hands, including because, in

obtaining a Temporary Restraining Order from the Court, CSHM suggested that it had provided

fair notice to Defendants when, in reality, CSHM only left a single voicemail less than an hour

before requesting relief from the Court. As set forth below, CSHM’s Motion should be denied

for each and all of these reasons.

FACTUAL BACKGROUND

A. CSHM

CSHM’s Motion is largely devoid of any information regarding CSHM. That omission is

telling.

As described in the June 2013 “Joint Staff Report on the Practice of Corporate Dentistry

In The Medicaid Program” issued by the United States Senate’s Finance and Judiciary

Committees (hereafter “Senate Report”), which focuses directly on CSHM, CSHM is a “dental

management company” that works with dental offices across the country and ostensibly provides

general administrative management services. (See Senate Report (text attached as Ex. 1,

complete copy, with exhibits, available at http://www.finance.senate.gov/library/prints/).) In

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truth, CSHM’s work with dental clinics extends far beyond providing typical management

services.

CSHM attempts to assume effective control over the clinics with which it has

agreements, and those agreements provide CSHM with all or substantially all of each clinic’s

profits. (Id., pp. 2, 6, 8.) Thus, notwithstanding that the laws of 22 states (including Colorado)

and the District of Columbia prohibit the corporate practice of dentistry (id., p. 33; see also p.2

(defining “corporate practice of dentistry” as a corporation, rather than a licensed dentist, owning

and operating a dental practice)), CSHM attempts to assume effective ownership and

management over the clinics with which it works (id., p. 10 (quoting investment bank offering

memorandum utilized in 2007 transaction in which predecessor to CSHM was sold in private

equity transaction for hundreds of millions of dollars)).

Not only does CSHM improperly attempt to engage in the corporate practice of dentistry,

for years CSHM and its predecessors also have faced governmental claims of misconduct. For

instance, in 2010, after a lengthy investigation by the United States Department of Justice (which

was involved because CSHM’s business relates predominantly to dental services provided to

Medicaid patients), CSHM’s predecessor attempted to resolve multiple issues it was facing

(including claims of improper Medicaid billing) by entering into: (1) a Corporate Integrity

Agreement (“CIA”) with the United States Department of Health and Human Services; and (2)

settlement agreements with the United States Department of Justice and 22 states. (Ex. 1, p. 12.)

The CIA required the company to “institute rigorous compliance procedures and programs, as

well as submit to regular audits and reviews by an Independent Monitor.” (Id.)

Two years later, in 2012, the predecessor company, which had changed its name to

Church Street Health Management, LLC, declared bankruptcy. CSHM allegedly purchased

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certain of the company’s assets in a bankruptcy sale, but the problems did not abate; instead, they

became worse. The year after CSHM took over, the Office of the Inspector General (“OIG”) of

the United States Department of Health and Human Services notified CSHM of its material

breach of the CIA, and of the government’s intent to exclude CSHM from participation in federal

health care programs. (Exclusion Agreement, attached as Ex. 2, p. 1, ¶ 3.) Then, on March 7,

2014, the OIG informed CSHM that it would be excluded from all federal health care programs.

(Id. at p. 1, ¶ 4.) Shortly thereafter, on April 1, 2014, CSHM entered into an Exclusion

Agreement with the OIG, which provides that: CSHM will be excluded from participation in all

federal health care programs, including Medicare and Medicaid, no later than September 30,

2014; and, CSHM must shut down its operations, or, alternatively, divest its assets and

operations to arms-length buyers, no later than September 30, 2014. (Id., generally.)

Faced with the Exclusion Agreement, CSHM now is scrambling to sell its assets, and is

improperly attempting to intimidate Dr. Kuhn in the hope that she will support that sale process.

B. CSHM’s Purported Management Services Agreements With The Defendant Colorado Clinics

CSHM suggests throughout its Motion that it is party to 2006 Management Services

Agreements with each of the four defendant dental practice entities. That suggestion is wrong.

As an initial matter, the Management Services Agreements submitted with CSHM’s

Motion are not CSHM agreements, but, rather, are agreements with SANUS Holdings, LLC.

(See Exhibits A-D to Plaintiff’s Memorandum Of Law In Support of Plaintiff’s Motion

(“Mem.”)) CSHM asserts that the agreements were transferred to CSHM in a bankruptcy sale,

but CSHM fails to support that assertion with anything other than the conclusory Declaration of

its General Counsel. (Mem., p. 2.) Further, CSHM fails to acknowledge that the bankruptcy by

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which CSHM claims to have acquired the agreements made the agreements freely terminable by

each respective practice. (Plaintiff’s Exs. A-D, § 8.02.(b) (specifying that agreement may be

terminated by the practice if the other party declares bankruptcy, is adjudicated bankrupt, or if a

bankruptcy trustee is appointed.) Still further, as addressed in Defendants’ argument below,

even if these issues did not exist, the purported agreements never could have come into existence

because, as three different United States District Court Judges in the District of Colorado have

determined, practice management agreements like the alleged agreements here violate

fundamental Colorado public policy and are void.

C. Dr. Kuhn’s Purchase of Her Dental Clinics, and Her Relationship With CSHM

Dr. Kuhn purchased the four defendant dental practices from Dr. Randy Ellis on January

1, 2013. (See Purchase Agreements, attached as Exs. 3-6.) Dr. Kuhn purchased the companies

“free and clear of any and all liens, claims, pledges, charges, options, contractual restrictions and

encumbrances whatsoever.” (Exs. 3-6, § 1(a).) Dr. Kuhn did not, as CSHM contends, purchase

the companies “in exchange for agreeing to perpetual Management Services Agreements

(“MSAs”) for each center with CSHM.” (Mem., p. 1.)

The only documents Dr. Kuhn entered into with CSHM in connection with the January 1,

2013 purchase transactions were “Stock Pledge Agreements” relating to each clinic. (Exs. 7-10.)

Importantly, CSHM does not rely on or reference those Stock Pledge Agreements in its Motion.

Moreover, to the extent CSHM nonetheless attempts to rely on those Stock Pledge Agreements,

they reference Management Services Agreements different from the Agreements CSHM relies

upon, and, accordingly, are not relevant to CSHM’s arguments. (Compare Exs. 7-10 at p. 1

(referencing purported July 2007 Agreements) with Plaintiff’s Mem. Exs. A-D (all dated

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September 26, 2006).) Additionally, any guarantee of payment of Management Services

Agreement obligations set forth in any of the Stock Pledge Agreements is nonexistent because:

(a) the Stock Pledge Agreements are explicit that they exist only if the Management Services

Agreement each references is in effect (Exs. 7-10 at p. 4); (b) none of the purported Management

Services Agreements referenced in the Stock Pledge Agreements is in effect; and, (c) as set forth

in Defendants’ argument below, the purported Management Services Agreements CSHM relies

upon are void and unenforceable.

D. Dr. Kuhn’s Notice To CSHM That The Purported Management Services Agreements Are Void, And CSHM’s Improper Conduct In Response

When Dr. Kuhn was informed that CSHM had been excluded from all federal health care

programs and would cease operation within months, she, understandably, wanted to cut ties with

CSHM. In the process of reviewing her options, Dr. Kuhn learned of the Mason case (discussed

in Defendants’ argument below), which established that dental management arrangements like

those CSHM seeks to have with its affiliated dental clinics are impermissible and void under

Colorado law. Mason v. Orthodontic Centers of Colorado, Inc., 516 F.Supp.2d 1205 (D. Colo.

2007). In light of and based on her knowledge, Dr. Kuhn, through her counsel, notified CSHM

in writing on April 15, 2014, that the Management Services Agreements CSHM claims it has

with each of Dr. Kuhn’s clinics are void and of no effect. (See Notice Letters attached as Exs.

11-14.) Dr. Kuhn’s letters stated, in part, that each purported Management Services Agreement

was:

void and unenforceable under Colorado law as its terms and conditions are prohibited under the Dental Practice Law of Colorado, C.R.S. § 12-35-101 et.seq. The U.S. District Court for the District of Colorado, in Mason v. Orthodontic Centers of Colorado, Inc., 516 F.Supp.2d 1205 (D. Colo. 2007), has previously interpreted the enforceability of an agreement for the provision of business and

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administrative services to a dental practice in light of Colorado’s public policy against the unauthorized practice of dentistry, as codified in the Dental Practice Law of Colorado. The Court in Mason found that the provisions of a business and administrative services agreement were void because they (i) caused the corporate provider of management services to be engaged in the practice of dentistry as a “proprietor” of the dental practice, and (ii) constituted an impermissible sharing of professional fees. The services agreement in the Mason case was materially similar to the Management Services Agreement.

(Exs. 11-14, p.1.)

After receiving Dr. Kuhn’s April 15, 2014 notice letters, CSHM engaged in limited

communication with Dr. Kuhn’s counsel for five days (two of which were weekend days, and

one of which was Easter Sunday). Notwithstanding that CSHM had not mentioned at any point

during those communications any intent to seek a temporary restraining order, CSHM sought

such an Order from this Court on Monday, April 21, 2014. CSHM’s only advance notice to

Defendants was a voice mail message CSHM’s counsel left for Defendants’ counsel less than an

hour before making its request, and which Defendants’ counsel did not receive until after CSHM

obtained its temporary restraining order. CSHM, accordingly, was able to obtain its temporary

restraining order without the Court having the opportunity to hear from any Defendant.

E. CSHM’s Vague, Inadmissible, And Incorrect Assertions Regarding Dr. Kuhn’s Purported Conduct

CSHM attempts to color the so-called “Statement of Facts” in its Motion with various

claims that disparage Dr. Kuhn. For instance, CSHM claims that Dr. Kuhn “decided to launch” a

“hostile takeover,” and that Dr. Kuhn referred to her actions as such. (Mem., p. 6.) Similarly,

CSHM claims that Dr. Kuhn was diverting funds to “secretly created accounts.” (Id.) Still

further, CSHM claims that Dr. Kuhn engaged in “unethical and improper conduct” that “shocked

many of her staff members.” (Id. at p. 2.) Even more egregiously, CSHM attempts to smear Dr.

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Kuhn by suggesting that Dr. Kuhn has “been the subject of a number of quality of care

complaints over the past few years,” and that refraining from enjoining her “could pose threats to

patients being treated in her centers.” (Id.)

CSHM’s claims are not true. For instance, contrary to CSHM’s assertions that Dr. Kuhn

engaged in any unethical conduct constituting a “hostile takeover,” Dr. Kuhn engaged only in

limited actions, consistent with a letter she sent CSHM on April 18, 2014, in which she informed

CSHM that she would be transitioning her clinic operations away from any involvement with

CSHM no later than April 30, 2014. (April 18, 2014 letter from Fellows to Wilson, attached as

Ex. 15.) There was nothing secret or unethical about her actions, and Dr. Kuhn did not refer to

her actions as part of a “hostile takeover” (including because any such reference would be

nonsensical in light of Dr. Kuhn’s existing sole ownership of the Defendant clinics). (Affidavit

of Dr. Jodi Kuhn (“Kuhn Aff.”), attached as Ex. 16.) Similarly, Dr. Kuhn has not been the target

of quality of care complaints over the last few years, and provides outstanding care to her

patients. (Id.)

Critically, CSHM’s only support for its assertions is the Declaration of its General

Counsel, Reginald Gibson, Jr., which is unhelpful, suspect, and inadmissible for a number of

reasons. For example, with regard to the “quality of care” attack, Mr. Gibson’s Declaration does

not even support CSHM’s assertions. Mr. Gibson states only that “the Center in Denver has

been the subject of a number of quality of care complaints in recent years.” (Declaration of

Reginald S. Gibson, Kr. (“Gibson Decl.”), ¶ 10.) Mr. Gibson does not specifically identify any

such complaints, does not tie the allegation to the time period Dr. Kuhn has owned the Defendant

clinics, and CSHM has refused to identify the basis for its assertion despite repeated written

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requests from counsel for Defendants. (See April 29, 2014 e-mail from Baker to Barnowski,

attached as Ex. 17.)

Similarly, with regard to the other allegations identified above, Mr. Gibson’s Declaration

is predicated on, at best, inadmissible hearsay. Mr. Gibson asserts that CSHM (apparently rather

than Mr. Gibson himself) was contacted by some undisclosed “employee of Kuhn’s” (as opposed

to an employee of any of the Defendant clinics) who allegedly reported that Dr. Kuhn made

certain requests of unnamed employees to obtain and provide information. (Gibson Decl., p. 4, ¶

13.) Yet, the requests Dr. Kuhn allegedly made are not nefarious. Rather, they are consistent

with the transition she disclosed to CSHM in writing; and, in any event, Mr. Gibson’s purported

testimony appears to lack foundation and is inadmissible hearsay. See Fed. R. Evid. 801(c) and

802.

CSHM’s allegations of misconduct on Defendants’ part, thus, are false. Moreover, it

appears CSHM is making its allegations to divert the Court’s attention from the indisputable fact,

not addressed in CSHM’s Motion, that CSHM has been found to have repeatedly violated federal

health care program requirements, and, accordingly, will be excluded from participation in any

federal health care program no later than September 30, 2014.

ARGUMENT

I. CSHM IS NOT ENTITLED TO PRELIMINARY INJUNCTIVE RELIEF, AND THE INJUNCTION IT SEEKS WOULD IMPROPERLY INTERFERE WITH DR. KUHN’S RIGHT TO PRACTICE DENTISTRY FREE FROM INTERFERENCE FROM CSHM

“An injunction is a drastic and extraordinary remedy, which should not be granted as a

matter of course.” Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 130 S.Ct. 2743, 2761

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(2010) (citation omitted); Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000). In deciding

whether to grant a preliminary injunction, a court must consider four factors:

“1) Whether the plaintiffs have shown a strong or substantial likelihood or probability of success on the merits;

2) Whether the plaintiffs have shown irreparable injury;

3) Whether the issuance of a preliminary injunction would cause substantial harm to others; [and]

4) Whether the public interest would be served by issuing a preliminary injunction.”

Mason Cnty. Med. Ass'n v. Knebel, 563 F.2d 256, 261 (6th Cir. 1977). A plaintiff cannot obtain

a preliminary injunction based on allegations. To the contrary, the evidence and proof required

for a plaintiff to establish a right to “a preliminary injunction is much more stringent than the

proof required to survive a summary judgment motion.” Leary, 228 F.3d at 739. Moreover,

“‘[t]he concept of unclean hands may be employed by a court to deny injunctive relief where the

party applying for such relief is guilty of conduct involving fraud, deceit, unconscionability, or

bad faith related to the matter at issue to the detriment of the other party.’” Performance

Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995) (quoting Novus

Franchising, Inc. v. Taylor, 795 F.Supp. 122, 126 (M.D. Pa.1992).)

Here, CSHM is not entitled to injunctive relief because it has not established, and cannot

establish, that consideration of the four factors favor issuing a preliminary junction, and, in any

event, CSHM is not entitled to an injunction because of its unclean hands.

A. CSHM Has Not Established A Strong Or Substantial Likelihood Or Probability Of Success On The Merits

CSHM argues that it will succeed on the merits because, it claims, “the parties entered

into valid agreements, which are not contrary to public policy, and Kuhn and the Centers are

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clearly violating them in an egregious manner.” (Mem., pp. 8-9.) None of these claims is true,

and CSHM is unlikely to succeed on its purported breach of contract claim.

1. The Contracts CSHM Claims Exist Are Void Because They Violate Fundamental Public Policy

To begin with, the purported contracts CSHM seeks to enforce—the Management

Services Agreements—are not enforceable against Defendants because they are void as a matter

of law.

As noted above, the Senate Report confirms that: CSHM attempts to assume effective

control over the clinics with which it has agreements; CSHM’s agreements purport to entitle

CSHM to all or substantially all of each clinic’s profits; and, CSHM attempts to assume effective

ownership and management over the clinics with which it works. (Ex. 1, pp. 2, 6, 8, 10.1) With

regard to payment terms, the purported Management Services Agreements CSHM relies on in

this matter are clear that CSHM seeks to take all income above expenses generated by each

Defendant clinic (i.e. all profit). (See Plaintiff’s Mem. Exs. A-D, § 3.09.) As confirmed by three

different United States District Court Judges in the District of Colorado who analyzed similar

contracts in 2007, this fact, along with other provisions of the Management Services

Agreements, renders the purported agreements void because they violate fundamental Colorado

public policy as reflected in the Dental Practice Law of Colorado, C.R.S. § 12-35-101 et.seq.

(which precludes Corporate Dentistry in Colorado). See Mason v. Orthodontic Centers of

1 CSHM has asserted that the Senate Report is inadmissible, but that assertion is wrong. See Fed. R. Evid. 803(8)(C) (providing for admission of public reports “made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.”); Ponce v. Constr. Laborers Pension Trust for S. California, 774 F.2d 1401, 1403 (9th Cir. 1985) (affirming admission of Senate report); Barry v. Trustees of Int'l Ass'n Full-Time Salaried Officers & Employees of Outside Local Unions & Dist. Counsel's (Iron Workers) Pension Plan, 467 F. Supp. 2d 91, 101 (D.D.C. 2006) (concluding Senate report admissible).

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Colorado, Inc., 516 F.Supp.2d 1205 (D. Colo. 2007) (attached as Ex. 18), Gentile v Orthodontic

Centers of North Dakota, Inc., Civil Action No. 05–cv–02062–EWN–CBS, 2007 WL 2890199

(D. Colo. Sept. 27, 2007) (attached as Ex. 19), and Weinbach v. Orthodontic Centers of

Colorado, Inc., Civil Action No. 06-CV-00256 REB-MEH, 2007 WL 2786426 (D. Colo. Sept.

24, 2007) (attached as Ex. 20).

Mason is instructive. The agreement at issue in that case was an agreement for dental

office management services, which included provisions permitting the management company to

collect essentially 40% of the dental office’s profits. 516 F.Supp.2d at 1208-1209. In light of

that provision, which caused the management company to impermissibly share in fees, and the

management company’s impermissible action as a “proprietor” within the meaning of the Dental

Practice Law, the court found the contract void. Id. at 1210-1217. The basis for the court’s

conclusion was clear:

the public interest prohibiting fee splitting, as expressed in C.R.S. § 12-35-129(1)(v), outweighs any private interests the Defendants might have in enforcing the payment term of the Agreement. The public interest is a strong one, and the conduct contemplated by the Agreement directly contravenes the purposes that the public policy advances. Although voiding the contract works some degree of inequity upon the Defendants, they are not unreasonably prejudiced . . . .

Id. at 1216-1217. In addition, the court emphasized that “[w]hether the parties entered into the

contract in good faith, and whether they performed the contract according to its terms are

irrelevant to the [voidness] inquiry” because the voidness doctrine “exists not to protect the party

seeking to avoid its obligations under the agreement, but rather, for the protection of the public at

large.” Id. at 1212 (citation omitted); see also id. at 1214 (“in its analysis, the Court pays little

concern to the contracting parties at all; the Court is exclusively concerned with whether

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nullification of the contract is necessary to protect the public”). Mason establishes that the

Management Services Agreements CSHM seeks to enforce are void.

CSHM attempts to distinguish Mason by asserting that CSHM has never attempted to

collect from any of the Defendant clinics more than the $175,000 per month component of the

fee prescribed in Section 3.09 of the Management Services Agreements. (Mem., p. 10.) That

argument, however, completely misses the point that CSHM seeks to enforce purported contracts

which are constructed to insure CSHM takes not just 40% of profits as in Mason, but all of each

Defendant clinic’s profits. (See Plaintiff’s Mem. Exs. A-D, § 3.09; see also § 3.07 (providing for

all funds received by each practice to be deposited in accounts controlled by CSHM).) Thus, as

in Mason, CSHM seeks impermissibly to “share” (actually to take all) dental practice fees. 516

F.Supp.2d at 1210-1211 (citing C.R.S. § 12-35-129(1)(v)).

CSHM also attempts to distinguish Mason by asserting that CSHM’s purported contracts

do not, as in Mason, specify that the management company owns dental equipment and leases in

its own name the dental office space. (Mem., pp. 10-11.) Again, however, CSHM’s arguments

miss the mark. As noted above, CSHM attempts to assume effective ownership and management

over the clinics with which it works (see Ex.1, p. 10), and, accordingly, is a “proprietor” within

the meaning of the Dental Practice Law, whose purported contract is void for this reason as well.

Mason, 516 F.Supp.2d at 1217-1219 (citing C.R.S. § 12-35-103(14) (defining “proprietor” to

include one who controls a dental office)).

Finally, CSHM attempts to distinguish Mason by emphasizing that, after finding the

provisions of the agreement at issue void, the District Court did not enter a judgment invalidating

the agreement. (Mem., p. 11.) Yet, as is self-evident from the Mason opinion, that argument is

misplaced. The Mason court limited its resolution because the issues were presented based on a

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narrow “relief from automatic stay” order the plaintiffs had obtained from the Bankruptcy Court

handling the defendant’s bankruptcy, which permitted the Court to address only the narrow

question presented. Mason, 516 F.Supp.2d at 1208, 1219. In short, the court was “not being

asked to fashion a remedy.” Id. at 1219. Moreover, Gentile forecloses CSHM’s argument

because there, based on similar facts, the court determined that the agreement at issue was, in

total, “illegal and void as against public policy.” 2007 WL 2890199, *13. Even further, and

directly contrary to CSHM’s argument that the void provisions of the purported agreement are

severable, the Gentile court determined the case was “most unlike cases where an unenforceable

clause is read out of an otherwise valid contract” and determined that “severance of the fee-

sharing provisions from the [agreement] would, in effect, eviscerate the core bargain between

Plaintiffs and Defendants.” Id.

In short, despite CSHM’s protest, the purported Management Services Agreements that

form the basis for CSHM’s purported breach of contract claim are void and cannot be saved by

severing limited portions of the payment provisions.

a. CSHM’s Argument That Tennessee Law Governs The Voidness Inquiry Is Misdirected And Wrong

Relying on a choice of law provision in the purported Management Services Agreements,

CSHM argues repeatedly that Tennessee law governs the analysis of whether those agreements

are void. (Mem., pp. 9, 12, 13.) CSHM’s argument and conclusion are wrong.

First, because the purported Management Services Agreements are void ab initio and

never come into effect, there is no basis for grounding choice of law on a provision in those

purported agreements. Second, as explained by the Mason court:

the choice of law provision of the contract is immaterial. . . . The question presented here is whether one or more of those unambiguous terms are contrary to

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the public policies of the State of Colorado . . . . There can be no colorable argument that the determination of Colorado’s public policies must be made in light of [another state’s] law, and thus, the Court rejects any argument by the Defendants that the choice of law provision in the Agreement is relevant here.

516 F.Supp.2d at 1210. This conclusion was confirmed in Gentile, where the court stated:

It is also beyond dispute that Colorado’s[Dental Practice Law] governs the conduct of both: (1) Plaintiffs, in the practice of dentistry in the state; and (2) Defendants, by setting limits as to what they can and cannot do in relation to Plaintiffs’ Colorado practice.

2007 WL 2890199, *12.

Second, this conclusion is confirmed by the purported Management Services Agreements

themselves, which state that all management services will be provided “[s]ubject to applicable

law”, and that CSHM will “comply with all applicable rules [and] regulations . . . of any

governmental body or authority in the performance or carrying out of its obligations . . . .”

(Plaintiff’s Mem. Exs. A-D, p. 2 and p. 15 (§ 9.11).)

Third, even if the Court were to analyze the purported choice of law provision, Colorado

law would nonetheless apply. A federal court exercising diversity jurisdiction applies the choice-

of-law rules of the state in which it is located. See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S.

487, 496 (1941). Tennessee follows the Restatement approach with regard to analysis of

contractual choice of law provisions, and will not enforce a contractual choice of law where the

chosen law is contrary to a fundamental policy of a state having a materially greater interest and

whose law would otherwise govern. Vantage Tech., LLC v. Cross, 17 S.W.3d 637, 650 (Tenn.

Ct. App. 1999) (citing Goodwin Bros. Leasing, Inc. v. H & B Inc., 597 S.W.2d 303, 306

(Tenn.1980) (quoting Restatement (Second) of Conflict of Laws § 187(2) (1971))).

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Here, as reflected by Mason, Gentile, Weinbach and the Dental Practice Law of

Colorado, Colorado has a fundamental public policy against agreements such as the purported

Management Services Agreements, which attempt to effectuate the corporate practice of

dentistry. Moreover, Colorado’s interest in the practice of dentistry in Colorado is materially

greater than Tennessee’s basic interest in standard contract evaluation, and Colorado law would

govern absent any contractual choice of law. Finally, under both Colorado and Tennessee law, it

is impermissible for parties to privately contract in contravention of public policy, and such

contracts will not be enforced. See, e.g. Peterman v. State Farm Mut. Auto. Ins. Co., 961 P.2d

487, 492 (Colo. 1998) (citing University of Denver v. Industrial Comm'n, 138 Colo. 505, 335

P.2d 292 (1959)); Blackburn & McCune, PLLC v. Pre-Paid Legal Servs., Inc., 398 S.W.3d 630,

651 (Tenn. Ct. App. 2010) (citing cases).

Stated simply, CSHM’s argument that Tennessee law governs is wrong for multiple,

independent reasons, and Colorado law actually governs. Yet, application of Tennessee law

would not change the ultimate outcome because Tennessee will declare void and not enforce

contracts that harm the public good (Blackburn & McCune, 398 S.W.3d at 651), and, as set forth

in the Senate Report, and confirmed by the Exclusion Agreement, CSHM’s contracts do, in fact,

harm the public good.

2. CSHM Has Not Established Even A Facially Valid And Enforceable Contract

Even if the purported contracts were not void, CSHM has not established, as it must to

succeed on its purported breach of contract claim, that the parties entered into a facially valid

contract. As noted above, the Management Services Agreements CSHM claims support its

breach of contract claim against Defendants are not CSHM agreements, but, rather, are

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agreements with SANUS. (See Plaintiff’s Mem. Exs. A-D.) CSHM claims the agreements were

transferred to it in a bankruptcy sale, but fails to support that bald assertion. CSHM attempts to

support the assertion with the conclusory statement of its General Counsel (Mem., p. 2; Gibson

Decl., ¶ 3), but that conclusory statement, which constitutes a legal opinion, is inadmissible.

Woods v. Lecureux, 110 F.3d 1215, 1220 (6th Cir. 1997) (testimony offering nothing more than a

legal conclusion is inadmissible); State Mut. Life Assur. Co. of Am. v. Deer Creek Park, 612 F.2d

259, 264 (6th Cir. 1979) (Federal Rules of Civil Procedure requires that affidavits “be made on

personal knowledge, setting forth such facts as would be admissible in evidence. Affidavits

composed of hearsay and opinion evidence do not satisfy Rule 56(e) and must be disregarded.”)

Moreover, the text of the purported Management Services Agreements CSHM relies on

establishes that they were not freely assignable (Exs. 3-6 at § 9.06), and that the bankruptcy by

which CSHM claims to have acquired the agreements made the agreements freely terminable by

the party to be bound (Exs. 3-6 at § 8.02.(b)). In short, CSHM has not established that it has a

contract to enforce.

Similarly, and equally fatal, CSHM has not established that the purported Management

Services Agreements are enforceable against Defendants. First, CSHM does not even contend

that it has a Management Services Agreement with Dr. Kuhn, individually. Thus, even under the

allegations of CSHM’s Complaint, there is no basis for a breach of contract claim against her. In

addition, as noted above, Dr. Kuhn purchased the four Defendant dental practices from Dr. Ellis

“free and clear of any and all liens, claims, pledges, charges, options, contractual restrictions and

encumbrances whatsoever”. (See Purchase Agreements, Exs. 3-6, § 1(a).) Dr. Kuhn,

accordingly, did not, as CSHM contends, purchase the companies “in exchange for agreeing to

perpetual Management Services Agreements” with CSHM. (Mem., p. 1.)

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3. The Purported Contracts Also Are Unenforceable Because They Have Been Terminated

CSHM also fails to recognize that, even if the purported Management Services

Agreements were not void, they have been terminated. As noted above, the bankruptcy by which

CSHM claims to have acquired the agreements made the agreements freely terminable by each

respective practice. Specifically, under Section 8.02 of the Management Services Agreements

upon which CSHM predicates its claim, either party has an explicit right to terminate if the other

party files for bankruptcy, is adjudicated bankrupt, or if a bankruptcy trustee is appointed.

(Plaintiff’s Mem. Exs. A-D, § 8.02(b).) Here, CSHM’s predecessor was adjudicated bankrupt

and a bankruptcy trustee was appointed, so, even if the Management Services Agreements

existed and were binding, each Defendant dental practice had an unlimited right to terminate.

Moreover, in their April 15, 2014 notices, Defendants informed CSHM that each purported

Management Services Agreements were “immediately voided, terminated, and of no further

force and effect.” (Exs. 11-14, p. 1.) Accordingly, even if the agreements had been enforceable

before April 15, 2014, they were terminated at that time and are no longer of any force or effect.

B. CSHM Has Not Established That It Will Suffer Irreparable Harm Absent The Injunction It Requests

CSHM’s request for preliminary injunction also should be denied because CSHM cannot

establish that it will suffer irreparable injury without the injunction. Even if CSHM were able to

show a likelihood of success on the merits, which it cannot, that showing would be insufficient to

warrant a preliminary injunction because “a plaintiff must also make a clear showing that it is at

risk of irreparable harm, which entails showing a likelihood of substantial and immediate

irreparable injury.” Malibu Boats, LLC v. Nautique Boat Co., Inc., 3:13-CV-656-TAV-HBG,

2014 WL 417886, *16 (E.D. Tenn. Feb. 4, 2014) (citation and quotation omitted). CSHM relies

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on Malibu Boats to acknowledge its obligation to show a likelihood of substantial and immediate

irreparable injury (Mem., p. 13), but does not acknowledge the court’s additional statements that:

(1) the showing of irreparable harm must be clear; (2) harm generally is not irreparable if it can

be compensated by money damages; and, (3) the possibility of adequate compensatory relief at a

later date, in the course of resolving the dispute, “weighs heavily against a claim of irreparable

harm.” Malibu Boats, 2014 WL 417886, *16. Under these applicable standards, CSHM has not

demonstrated and cannot demonstrate irreparable harm.

CSHM claims irreparable harm based on: (1) obligations it contends it has under the

Corporate Integrity Agreement; (2) unspecified adverse impacts CSHM claims Dr. Kuhn’s

separation from CSHM will have on CSHM’s efforts to sell; and (3) unspecified adverse impacts

CSHM claims Dr. Kuhn’s complete separation from CSHM will have on the purported “good

will between CSHM and the federal government,” as well as CSHM’s reputation. (Mem., p. 15.)

Each of CSHM’s contentions is meritless.

First, CSHM’s arguments based on the Corporate Integrity Agreement are specious. For

example, because the Management Services Agreements CSHM claims it has with the Defendant

clinics are void, unenforceable and terminated, CSHM simply does not have reporting

obligations pursuant to the CIA with regard to the Defendant clinics. CSHM admits as much

when it acknowledges that the CIA obligations apply only to “dental centers that [CSHM]

manages.” (Mem., p. 2.) Additionally, CSHM offers and has no support for its suggestion that

Dr. Kuhn “as a practical matter” is preventing CSHM from meeting any obligations. (Mem., p.

14.) In reality, CSHM has not asked for any information that Dr. Kuhn has refused to provide.

Further, in light of the Exclusion Agreement removing CSHM from all federal health care

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programs, it appears CSHM may not even have CIA reporting obligations. (See Exclusion

Agreement, Ex. 2, generally (not referencing continuing obligations under the CIA).)

Second, CSHM’s arguments based on its effort to sell are equally unavailing. CSHM

offers no admissible evidence supporting its conclusory allegation that Defendants’ effort to

sever all relationships with CSHM will harm the sale process. Instead, CSHM relies solely on

conclusory and inadmissible allegations in the Declaration of its General Counsel. (Mem., pp.

14-15.) Moreover, impacts on sale price (if any) would be compensable via money damages (if

there were a basis for recovery), and cannot amount to irreparable harm. Still further, CSHM’s

assertions miss the mark for the additional reason that, to the extent Dr. Kuhn’s April 15, 2014

notices adversely affect CSHM’s efforts to sell, there will be no final judgment resolving

CSHM’s purported breach of contract claim before the September 30, 2014 sale deadline set

forth in the Exclusion Agreement (CSHM has not even initiated the arbitration CSHM itself

claims will be required to resolve the issue), and certainly not well before that deadline (as would

be required to obviate any impact in the sales process). Thus, an injunction would not even

obviate the purported harm CSHM asserts, and CSHM’s assertion that “[n]o arbitral award

[could] remedy” the situation (Mem., p. 15) is hollow rhetoric.

Third, CSHM’s argument suggesting unspecified damage to its reputation and to the

purported goodwill between CSHM and the federal government is tellingly false. Simply put,

CSHM’s reputation already is very negative, there is no goodwill between CSHM and the federal

government, and CSHM offers no evidence of any. In reality, as set forth in the Factual

Background above, CSHM has repeatedly violated federal requirements, as well as its

commitment to adhere to such requirements, and has now been excluded from all federal health

care programs because of its misconduct. (Exclusion Agreement, Ex. 2.) Additionally, CSHM

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ties its argument concerning goodwill to a suggestion that Defendants’ conduct could cause

CSHM to fail to comply with the Exclusion Agreement (Mem., p. 15), but CSHM provides no

basis for the suggestion and there is none. Furthermore, even if there were goodwill that could

be damaged (which there is not), any damage at this point would be meaningless because, based

on the Exclusion Agreement, CSHM has been excluded from working with the federal

government for five years. (See Ex. 2.)2

CSHM simply has not demonstrated and cannot clearly demonstrate, as it must, that it

will suffer substantial and immediate irreparable injury if the injunction it requests is not issued.

Accordingly, CSHM’s request for injunction should be denied.

C. Granting The Injunction CSHM Is Requesting Would Cause Substantial Harm To Defendants And Others

CSHM’s request for injunction also fails because issuing the injunction would cause

substantial harm to Defendants and others. As just one example, CSHM seeks to continue taking

for its own benefit, rather than providing to Defendants, all of the profits of the Defendant dental

practices, which often are more than $100,000 per month in total. CSHM may argue that such

harm could be later remedied by money damages, but the reality is that CSHM likely will be

bankrupt as of September 30, 2014, the date by which it must remove itself from all federal care

programs and have shut down or divested its assets. (See Ex. 2.) Accordingly, Defendants will

2 CSHM also throws into its irreparable injury argument the suggestion from Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373 (6th Cir. 1995), that injunctions pending arbitration are appropriate if all preliminary injunction requirements are satisfied, and if an arbitration award could not return the parties to the status quo ante. (Mem., p. 15.) Critically, however, CSHM’s suggestion that an arbitral award here could not return the parties to the status quo ante is meritless. First, the status quo that existed prior to CSHM’s request for injunction is that the purported Management Services Agreements are void and/or terminated, and CSHM has been so notified. Second, CSHM offers and has no support for the conclusory assertion on which its arbitration argument is based, which is that Defendants’ conduct “will cause CSHM to violate the CIA and the Exclusion Agreement.” (Mem., p. 15.)

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be damaged. Moreover, contrary to CSHM’s argument, for the reasons set forth in the Mason,

Gentile, and Weinbach cases, permitting CSHM continue attempting to engage in the

impermissible corporate practice of dentistry in Colorado hurts Colorado citizens. Additionally,

CSHM’s “no harm” argument is meritless. CSHM has no support for the idea that its

involvement in the Defendant dental clinics improves care, and, in truth, as reflected in the

Senate Report (Ex. 1), CSHM’s involvement in dental clinics is what sometimes leads to care

problems. Finally, forcing Defendants to continue being associated with CSHM will,

particularly in light of CSHM’s exclusion, damage Defendants’ reputations and goodwill.

D. Granting The Injunction CSHM Requests Would Harm The Public Interest

CSHM’s injunction request also fails because granting the requested injunction would

harm the public interest. As an initial matter, CSHM does not, as it claims, have any interest in

enforcing a purported contract, which, as set forth above, actually is void and unenforceable.

Additionally, contrary to CSHM’s entire argument (Mem., p. 17), as also set forth above,

denying CSHM’s request for injunction will not reduce the quality or quantity of patient care

Defendants provide, and will not interfere with CSHM’s obligations. Finally, as set forth at

length the in the Mason, Gentile, and Weinbach cases, requiring Defendants to continue to do

business with CSHM permits CSHM to continue attempting to engage in the impermissible

corporate practice of dentistry in Colorado, which hurts the public, and is improper and against

fundamental Colorado public policy. Accordingly, granting the requested injunction would harm

the public interest.

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E. Even If CSHM Were Otherwise Entitled To An Injunction (Which It Is Not), The Court Should Not Grant Any Injunction Because CSHM Comes To The Court With Unclean Hands

Although CSHM’s request for injunction fails under each of the four injunctive relief

factors, and certainly fails when all of those factors are considered together, even if that were not

the case, issuing the injunction CSHM requests would be improper for the additional,

independent reason that CSHM requests the injunction with unclean hands. Sixth Circuit law is

clear that “‘[t]he concept of unclean hands may be employed by a court to deny injunctive relief

where the party applying for such relief is guilty of conduct involving fraud, deceit,

unconscionability, or bad faith related to the matter at issue to the detriment of the other party.’”

Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995)

(quoting Novus Franchising, Inc. v. Taylor, 795 F.Supp. 122, 126 (M.D. Pa.1992).) Here,

CSHM has engaged in both bad faith and unconscionable conduct. First, as it tacitly admits by

accepting a five year exclusion from Medicare and Medicaid, CSHM has an established history

of violating federal law. These misdeeds potentially threaten the good standing of all dental

practices that continue to be associated with CSHM.

Additionally, as described in the Factual Background above, CSHM never disclosed its

intention to seek a temporary restraining order before placing a single call to Colorado on its way

to the Court. This, of course, prevented Defendants from contesting in any way, much less

reasonably contesting, CSHM’s request. Finally, CSHM’s attempt to violate Colorado law and

take all profits of all of the Defendant dental practices is unconscionable. See Haun v. King, 690

S.W.2d 869, 872 (Tenn. Ct. App.1984) (unconscionability is present where contract terms are so

oppressive that no reasonable person would make or accept them); Davis v. M.L.G. Corp., 712

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P.2d 985, 991 (Colo. 1986) (unconscionability is present where contract terms unreasonably

favorable one party).

CONCLUSION

CSHM is seeking an injunction to improperly prevent Defendant Dr. Jodi Kuhn from

operating, without interference from CSHM, the four Defendant Colorado dental clinics CSHM

admits Dr. Kuhn owns. CSHM’s request for injunction, however, is not justified under the facts

or the law. CSHM cannot establish a likelihood of success on its claims for reasons including

that the purported contracts it seeks to enforce are unenforceable and void. Moreover, CSHM has

not established and cannot establish any of the other preliminary injunction factors. CSHM will

not suffer irreparable harm absent the injunction, granting the injunction will cause substantial

harm to Defendants and others, and granting the injunction would disserve the public interest.

Finally, CSHM’s request for injunction also fails because of CSHM’s unclean hands.

WHEREFORE, for all of the foregoing reasons, Defendants request that the Court enter

an Order denying CSHM’s Motion requesting that the Court issue a preliminary injunction

prohibiting Defendants from continuing efforts they have undertaken to separate from CSHM.

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Respectfully submitted,

s/Gregory S. Reynolds Gregory S. Reynolds (BPR# 18204) Riley Warnock & Jacobson, PLC 1906 West End Avenue Nashville, TN 37203 (615) 320-3700 Telephone (615) 320-3737 Facsimile [email protected]

Sean D. Baker (pro hac vice pending) CRUX LEGAL LLC 1899 Wynkoop Street, Suite 225 Denver, Colorado 80202 (720) 508-8713 Telephone [email protected]

Attorneys for Defendants

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document was served via the Court’s ECF Electronic Filing System upon the following:

Peter C. Sales Bradely Arant Boult Cummings LLP 1600 Division Street, Suite 700 Nashville, TN 37203 [email protected] Dan Barnowski David I. Ackerman Dentons US LLP 1301 K. Street, NW, Suite 600 Washington, D.C. 20005 [email protected] [email protected]

on this 6th day of May, 2014.

s/Gregory S. Reynolds

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mailto:[email protected]





doc 24 cshm v kuhn response

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