James Mann and Small Smiles Reno v CSHM-CSHM Memo for TRO- Filed July 22, 2014

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.

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No.

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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,

-1-




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.

3




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.

.._




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

-6-




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

-8-




·

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).




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

11




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

-12-




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

-13-




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.

-14-




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.

-15-




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.

6




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

-17-




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.

-18-




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. );

9




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

-20-




(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

-21-




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

-22-




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

-23-




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).

-24-



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-

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James Mann and Small Smiles Reno v CSHM-CSHM Memo for TRO- Filed July 22, 2014

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