United States District Court, N.D. New York
CAROL TREIBER; LESLIE TALMAN; LORI SLAUTER; RODNEY HERRING; PATRICIA HUDDLESTON; CARL DORSEY; IRENE EVERS; KATHRYN HOVLAND; ISABELLE REALI; GERALDINE LANGFORD; and TROY FULWOOD, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs,
For Plaintiffs: JEFFREY M. NORTON, ESQ., RANDOLPH M. MCLAUGHLIN, ESQ., OF COUNSEL, NEWMAN FERRARA, LLP, New York, NY.
For Plaintiffs: BRIAN S. COHEN, ESQ., OF COUNSEL, COHEN LAW GROUP PC, New York, NY.
For Aspen Dental Management, Inc. & Robert A. Fontana, Defendants: Defendants, OF COUNSEL, HISCOCK & BARCLAY LLP, HISCOCK & BARCLAY LLP.
For Aspen Dental Management, Inc. & Robert A. Fontana, Defendants: DANIEL J. FRENCH, ESQ., OF COUNSEL, FRENCH ALCOTT, PLLC, Syracuse, NY.
For Aspen Dental Management, Inc. & Robert A. Fontana, Defendants: GRACIELA M. RODRIGUEZ, ESQ., OF COUNSEL, KING & SPAULDING LLP, Washington, DC.
For ADMI Corporation; ADMI Holdings L.P.; Leonard Green & Partners, L.P.; Green Equity Investors V, L.P.; Green Equity Investors Side V, L.P.; and LGP Smile Coinvest LLC, Defendants: JAMES E. BRANDT, ESQ., SARAH M. LIGHTDALE, ESQ., OF COUNSEL, LATHAM & WATKINS LLP, New York, NY.
MEMORANDUM-DECISION and ORDER
DAVID N. HURD, United States District Judge.
Plaintiffs Carol Treiber, Leslie Talman, Lori Slauter, Rodney Herring, Patricia Huddleston, Carl Dorsey, Irene Evers, Kathryn Hovland, Isabelle Reali, Geraldine Langford, and Troy Fulwood (collectively " plaintiffs" ) bring an Amended Complaint against defendants Aspen Dental Management, Inc. (" Aspen" ); Robert A. Fontana (" Fontana" ); ADMI Corporation; ADMI Holdings L.P.; Leonard Green & Partners, L.P.; Green Equity Investors V, L.P.; Green Equity Investors Side V, L.P.; and LGP Smile Coinvest LLC (collectively " defendants" ). Plaintiffs seek injunctive relief and compensatory damages.
Defendants Aspen and Fontana move to dismiss the Amended Complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure (" Rule " ) 12(b)(1) or alternatively for failure to state a claim under Rule 12(b)(6). Plaintiffs opposed and Aspen and Fontana replied.
Defendants ADMI Corporation; ADMI Holdings L.P.; Leonard Green & Partners, L.P.; Green Equity Investors V, L.P.; Green Equity Investors Side V, L.P.; and LGP Smile Coinvest LLC move to dismiss the Amended Complaint for lack of personal jurisdiction under Rule 12(b)(2) and for failure to state a claim under Rule 12(b)(6). Plaintiffs opposed and these defendants replied.
Oral argument was heard in Utica, New York. Decision was reserved.
A. The Parties
Plaintiffs are current and former recipients of dental treatment throughout eleven states at Aspen dental clinics. Plaintiffs all received dental care from licensed dentists employed by the clinic they attended.
Defendant Aspen is a Delaware corporation with its principal place of business in Syracuse, New York.
Defendant Fontana is Aspen's President and Chief Executive Officer, and Chairman of its Board of Directors. Aspen is wholly owned by ADMI Corporation.
Defendant ADMI Corporation is a Delaware corporation with its principal place of business in Syracuse, New York. ADMI Corporation is wholly owned by ADMI Holdings L.P.
Defendant ADMI Holdings L.P. is a Delaware limited partnership with its principal place of business in Los Angeles, California. Three of the Directors of ADMI Holdings L.P. are John Baumer, Alyse Wagner, and Peter Nolan (also defendant Leonard Green & Partners, L.P. principals).
Defendant Leonard Green & Partners, L.P. is a private equity firm organized under Delaware law and based in Los Angeles, California. Leonard Green & Partners, L.P. manages, but does not own: defendants Green Equity Investors V, L.P.; Green Equity Investors Side V, L.P.; and LGP Smile Coinvest LLC.
Defendants Green Equity Investors V, L.P.; Green Equity Investors Side V, L.P.; and LGP Smile Coinvest LLC are also all organized under Delaware law with their principal places of business in Los Angeles, California. Collectively, these three defendants hold a majority interest in ADMI Holdings L.P.
B. The Facts
The following facts, taken from the Amended Complaint, are assumed true for purposes of the motions to dismiss. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
1. Aspen and the Practices
Aspen holds itself out as a dental services corporation providing integrated business support services to dental care practices around the country (the " Practices" ). These services are provided pursuant to Business Service Agreements with owners of the Practices. The owners of record are licensed dentists. Among other things, Aspen provides marketing, advertising, benefits administration, accounting, scheduling, patient satisfaction, training, purchasing, insurance processing, and information technology services to the Practices. As of the date of filing the Amended Complaint, Aspen provides these business services to 376 Practices with locations in twenty five states: Alabama (1), Arizona (7), Connecticut (17), Florida (29), Georgia (5), Illinois (16), Indiana (29), Iowa (15), Kentucky (9), Maine (8), Massachusetts (28), Michigan (20), Nebraska (4), New Hampshire (10), New York (39), Ohio (42), Oklahoma (4) Oregon (6), Pennsylvania (36), Rhode Island (3), South Carolina (8), Tennessee (17), Vermont (1), Washington (4), and Wisconsin (18). The Practices collectively serve millions of patients each year. Aspen purports to allow dentists to focus on providing clinical care to patients while providing the back-end business support that is needed for a dental office to operate smoothly.
According to plaintiffs however, Aspen is actually a giant in the " Corporate Dentistry" industry--an emerging business model in which a corporation runs the business side of a practice and hires licensed dentists as employees and independent contractors. Plaintiffs allege that Aspen engages in the unlawful corporate practice of medicine through its corporate structure and business model. They contend that because licensed dentists are employed and controlled by profit-driven, non-professional investors, the pressure to increase production interferes with the dentists' ethical obligations to their patients. For example, plaintiffs allege that defendants set and monitor production goals that both dental professionals and non-professional staff must meet in order to keep their jobs and earn bonuses. Further, defendants created a system to automatically add certain procedures to a patient's treatment plan if a dentist or hygienist does not specifically recommend it. This system also prioritizes appointments by profit, as opposed to the needs of patients, wherein appointments are regularly canceled and rescheduled so that patients with more lucrative procedures can be scheduled in their place.
In the New York State, Aspen maintains thirty nine dental Practices, in addition to the following facilities. Aspen's principal executive offices are located at a Practice Support Center (the " Center" ) in Syracuse, New York. From these offices, Aspen and its Board of Directors and senior management including Fontana set all company-wide operational policies and procedures, and operate, direct, control, and manage the Practices. The Center includes a patient scheduling center which handles more than 70,000 calls monthly and schedules approximately 35,000 new patients a month for appointments at the Practices. The Center also provides the systems and software programs utilized by the Practices, houses all technology support functions for the Practices, originates all marketing and advertising, serves as a centralized denture manufacturing laboratory, and manages nationwide payroll. Aspen also handles accounts payables and receivables for Practices, as well as the purchasing of each local Practice's assets, equipment, and performs all human resource functions for the Practices including recruiting, interviewing, and hiring all dentists and staff.
Plaintiffs contend that Aspen drives revenue and production goals at the expense of patient care. Each local Practice's performance is reviewed on a monthly and year-end basis, which includes comparison of " budgeted" versus " actual" revenues as well as comparisons on specific treatments and comparison to performers within the top 20%. According to plaintiffs, Aspen's senior management sets performance and sales goals for each Practice based on the previous year's earnings. Aspen also determines a monthly budget that dictates what each Practice is expected to bill based on that Practice's local demographics. Aspen monitors the production of each dentist and exerts pressure on the dentists and Office Managers to hit performance and sales goals.
Further, employees are financially incentivized to provide certain treatments and meet production goals. For example, hygienists are incentivized by Aspen to sell products such as fluoride and Arestin. Office Managers, who play a vital role in the overall performance of each Practice and are responsible for staff management, patient service, and office administration, are also incentivized through a profit-contingent bonus program. They are responsible for ensuring that their Practice meets the targeted goals and blamed if a dentist falls short. The incentives encourage Office Managers to maximize patient turnover while simultaneously minimizing expenses. The profit-based incentive program also encourages Office Managers to bill patients for treatments that were not provided.
Dentists are also incentivized through a profit-contingent bonus program. Aspen's standard contract for an Associate Dentist includes specific goals and incentives based on monthly averages of revenues and deposits. For example, " Level 1 eligibility -- Average revenue & deposit must be $10,000 over budgeted goal. If this level is achieved the bonus earned is ...