Source: https://www.scribd.com/document/97584307/Limiting-Private-Equity-Dentistry-A-Report-by-Michael-Davis-DDS
Timestamp: 2018-12-12 01:06:02
Document Index: 298875369

Matched Legal Cases: ['§ 1334', '§ 157', '§ 1408', '§ 101', '§ 105', '§156', '§ 251', '§ 158', '§ 158', '§ 158', '§ 158', '§ 158', '§ 158', '§ 1292', '§ 256', '§ 251', '§ 251', '§ 158', '§ 1', '§ 311', '§ 1', 'art. 4551', 'art. 754', '§ 224', '§ 311', '§ 1', '§ 1', '§ 311', '§ 311', '§ 251', '§ 251', '§ 251', '§ 251', '§ 251', '§ 254', '§ 251']

Limiting Private Equity Dentistry: A Report by Michael Davis, DDS | Chapter 11 | Bankruptcy In The United States
A comprehensive report with References on Limiting Private Equity and Corporate owned dental practices in America.
North Carolina State Board of Dental Examiners v. Dental Care Partners, Inc; Dental One, Inc.; et. al.
Drs.Hughes Aguero & Assoc, PA; BBeatriz R. Aguero, DDS & Associates II, PA et. al. v. Dental One, Inc; Dental Care Partners, Inc. et. al. 13-CV-002407
Doc 26 Aspen Dental - Amended Class Action Complaint 3:12-CV-1565
Docket Report 13-Cv-00141 North Carolina State Board of Dental Examiners v Dental One 03132013
Doc 19-1 North Carolina Sate Board of Dental Examiners v DentalCare Partnters -Management Agreement 03162013
Doc 19 North Carolina State Board of Dental Examinters v DentalCare Partners -Affidavit of Keith Newton 03162013
Dental Practice Management Service Agreement
Objection by General Growth's Unsecured Creditors to Exclusivity
10000015213
10000024165
120926 US v Chris S. Villanueva, Trung M. Tang, Mauricio Dardano, Gabriel Shahwan, Akhil Reddy, MB2 Dental Solutions et. al.
Report submitted in response to request of Dr. Robert Gherardi, New Mexico Board of Dental Health CareJune 13, 2012
By: Michael W Davis, DDS 1751-B Old Pecos Trail Santa Fe, NM 87505 505-988-4448 MWDavisDDS@comcast.net
SUPPORT FOR LIMITING PRIVATE EQUITY DENTISTRY.................... 3 SMALL BUSINESS DENTISTRY ................................................................... 14 PRIVATE EQUITY DENTISTRY................................................................... 15 FOLLOW THE MONEY FLOW OF INTERSTATE CORPORATE DENTISTRY ..................................................................................................... 17 “SMALL SMILES:” A CASE STUDY IN STATE INVESTMENT COUNCIL INCOMPETENCE ............................................................................................. 19 BAHRAIN INVESTORS COLLECT NM TAXPAYER FUNDS ................... 26 AFFIDAVIT OF MARTIN MCGAHAN ......................................................... 29 5TH CIRCUIT COURT OF APPEALS RULING ............................................ 75 SMALL SMILES DENTAL CENTER SEPARATION AGREEMENT......... 98
Support for Limiting Private Equity Dentistry Background
It is important to get up to speed, with specific nomenclature of Interstate Corporate Dentistry, and specific factors of related Case Law. A Dental Management Service Organization (DMSO) controls the operations of their subordinate dental clinics. They pay staff salaries, including doctors’ salaries. They control the supplies available to each dental clinic. They (not the individual dentist) select the laboratory to be employed for lab services (dentures, crowns, bridges, etc.). They set production quotas and bonuses for individual doctors & individual clinics. They monitor and evaluate each clinical service provided, by each Provider they employ. They control the bank accounts of each individual dental clinic, and sweep those bank accounts on a very regular basis. They pay rent on real estate, of the clinic facilities. They select & maintain dental equipment for each subordinate clinic. They are responsible for the Licensure & Accreditation of each employee. They generally supply the Malpractice Insurance for their Employee Dentists, but often will not purchase “Tail Coverage”. On paper, the DMSO owns very few hard assets, but actually pulls the strings, of the Practice of Dentistry. Their most valuable assets are their contractual obligations, which have been demonstrated by the Fifth Circuit in re: OCA, Inc. December 12 2008 (07-30430), to represent the “Unlicensed and Unlawful Practice of Dentistry”. Increasingly, we are today seeing more DMSOs, which are offshore registered corporations, versus Delaware incorporation. “Owner”- The individual dental clinic Owners are generally shell companies, which the DMSO utilizes as an accounting device for pass through of moneys. Moneys sourced through Medicaid, private
insurance, and individual patient payments (private pay, insurance copayments, etc) are deposited into the bank accounts of local dental clinic “Owners”. However, these bank accounts are in reality controlled by the DMSO, and not the technical “Owner”. Shell company “Owners” is generally, duly Licensed Dentists of that particular state. However, they may not actually engage in clinical practice, within that state. The DMSO employs a bogus front “Owner”, to masquerade as an “Owner” for state regulatory requirements, usually for a modest monthly stipend. Other times, the bogus “Owner” is structured as a franchise operation. No “Owner” may freely sell “their” dental clinic, nor pass the asset of “their” dental clinic onto potential heirs. Thus, the legal definition of “Ownership” is not met. The fake dental clinic “Owner”, and not the DMSO, is generally registered with each state’s licensing agency. The fake “Owner” is foremost positioned for potential civil, criminal, and/ or regulatory violations, and not the controlling DMSO (true power of ownership). The DMSO can easily replace dental clinic “Owners”. Doctor/ Patient Relationship has been demonstrated to be a special legal contract or tort. It is a unique contractual relationship, in that one Party (Doctor) has access to expert knowledge and information not readily available to the Second Party (Patient). Because the Doctor’s expert standing places him or her at such an extreme potential advantage, the Doctor’s first obligation MUST be to the Patient’s best interest and welfare. By contrast, a private equity firm’s first obligation is towards their shareholders & corporate profits. The conflict of interest is obvious. A DMSO involved in the Practice of Dentistry is engaging in a conflict of interest. The extent to which a DMSO pressures doctors with production quotas, production bonuses, elimination of their selection of laboratories, control of essential patient materials & supplies, etc. represents the “Unlicensed and Unlawful Practice of Dentistry”, per the Ruling of the Fifth Circuit (07-30430). The Patient
is at a complete disadvantage in such a tort arrangement (Doctor/Patient Relationship). They are also usually completely ignorant of the influence of the Third Party (DMSO), within the Doctor/ Patient Relationship. Thus, the Doctor/ Patient Relationship is made to be an Unlawful Contract, in these situations. Informed Consent Process is not simply a Patient or Parent’s signature on a piece of paper, as some sort of waiver. As established by the American Medical Association (AMA), American Academy of Pediatric Dentistry (AAPD), ADA Principles & Code, etc. Patients must give Informed Consent, with full disclosures by Doctors, of risks and benefits of every reasonable treatment option, including no treatment. DMSOs, which pressure doctors towards offering higher paying services, or production quotas for patients or production bonuses, are not generally disclosed to patients. A full and complete Informed Consent Process has been repeatedly established in court rulings, as a patient’s legal right. The extent, to which the Informed Consent Process is distorted, misrepresented or denied patients, and/or parents of minor patients, may be unlawful. The extent, to which Third Parties such as Medicaid or private insurance carriers pay for misrepresented unlawful services, may generate further acts of fraud. (One may wish to reference the federal or state Unfair Trade Practice Act.)
Hedge Fund Managers & Investment Bankers (Private Equity Corporations) are usually the end point for the money flow. Please follow the money trail. Doctors deliver dental services to patients within a local state’s dental clinic. Remuneration for services is placed into the “Owner’s” bank account. The DMSO sweeps those receipts out, on a very regular basis. Money usually leaves the state of origination, of delivered and provided dental services. The nonOwner DMSO, which controls the operation, then passes money through to the hedge fund operators and investment bankers, who also own little to nothing tangible, except contractual obligations. These
groups are often registered in Delaware or a foreign nation, to avoid state tax consequences. The hedge fund managers and investment bankers position themselves as first lien creditors or mezzanine financiers, for accounting and liability purposes. Technical ownership potentiates liabilities. These groups want money and control without risks, tax consequences, or responsibilities of technical ownership. Most importantly, moneys generated by the practice of dentistry are not passed through to small business owner dentists, and taxed at Earned Income Rates (currently approx 35%), but taxed at Capital Gains rates (currently approx 15%). Moneys leave the local state economies, and consequences of local state taxes, in which the dental services were generated. Further, those moneys generated are taxed at lower rates, unfairly favoring Interstate Corporate Dentistry, versus local Small Business Dentists. This gives Interstate Corporate Dentistry an unfair competitive business advantage, over local Small Business Dentistry, within the marketplace. When government favors big business over small business, with an uneven playing field, we call that selection of winners & losers, “crony capitalism”.
US Court of Appeals, Fifth Circuit in re: OCA, Inc. (f/d/b/a Orthodontic Centers of America, et al) No. 07-30430 December 12, 2008
This Ruling represents landmark case law, in regards to special tort agreements, termed Business Service Agreements (BSAs), between DMSOs and licensed dentists. This scholarly ruling is well referenced in existing case law. This case precedence is further cited and upheld, in Fifth Circuit Rulings 09-41004 and 09-50769.
The Court has held that BSAs between DMSOs and licensed dentists are “Unlawful Contracts”. The Court further ruled that the BSAs are not severable agreements (no severability clause). Thus, if one aspect of the contract is deemed unlawful, the entire contract is unlawful and totally void and unenforceable. Further, the Court ruled that the activities of the DMSO represented the “Unlicensed and Unlawful Practice of Dentistry”. Though not specifically cited in the Ruling, this potentiates future rulings of fraud against DMSOs, under the Unfair Trade Practice Act. Also, corporations are to receive no special or different treatment under the rule of law, than individual “Persons”. In fact, the term “Persons” includes Corporations. Duly licensed dentists who participate in such unlawful contracts may also subject themselves to violations of statutes. On, November 4, 2011, Counseling and Mediation Services of Las Cruses, NM was convicted of Medicaid Fraud (Falsification of Documents)- a fourth degree felony offense, and the alternative of Fraud (over $20,000)- a second degree felony offense; and Fraud (over $20,000)- a second degree felony offense. The Office of the New Mexico Attorney General in an historic case, representing the first time a Corporation was convicted and sentenced for Medicaid fraud, conducted prosecution. In light of existing statutes, case law, and court rulings, the public record testimony presented to Texas Legislators on March 20, 21 and April 12, 2012, by Texas Dental Board representatives was highly disturbing. They actually made the contention, for the public record, that they had no mandate under Texas Statutes, to regulate corporate dentistry. All evidence and existing case law indicated just the opposite.
On April 25, 2012, the US Congress conducted public record testimony hearings in Washington related to Dental Medicaid, Fraud, Waste, and Abuse. In case after case, in state after state, regulators either ignored complaints and the problems, or simply failed to take reasonable action, to protect the public interest. Tens of millions of US taxpayer dollars simply went down a rat hole. State regulators hid under their desks. Much of this Medicaid fraud, waste, & abuse were directly tied to private equity corporate dentistry. One Congressman at the hearing asked about the federal government recovering matching federal moneys, when the States had acted in an irresponsible fiduciary oversight manner. He implied, that the feds might recover such funds from the states, for their total lack of due diligence in squandering Medicaid resources.
Interstate Dental Corporate Bankruptcies
With the bankruptcies in recent years of Allcare Dental, OCA, Inc. (aka Orthodontic Centers of America, Inc.), and Church Street Health Management (CSHM- d/b/a Small Smiles Dental, Wild Smiles, et al), and All Smiles Dental, we have learned a great deal. Court filings have helped trace the money flow. The bankruptcy of OCA, Inc. helped to initiate the case law ruling of the Fifth Circuit 07-30430. We have also seen the impact of patient abandonment on a grand interstate scale. Allcare Dental Management, Inc. and 13 related companies declared Chapter 7 Bankruptcy in December 2010. Like one might expect from a DMSO, they declared zero dollars in assets. They operated various dental clinics in NY, MI, IN, OH, ND, NH, WV, TN, and PA. One day they were open, and the next day without notice, the clinic doors were locked forever. Patients had paid for unfinished dental
treatment. Patients were abandoned in the middle of dental treatment. State attorney generals scrambled to assist abandoned patients. Local small business dentists often came to the rescue and provided care, of abandoned patients. We saw a raw example of the consequences of Interstate Corporate Dentistry. Corporations (a DMSO) engaged in the “Unlicensed & Unlawful Practice of Dentistry”, per Fifth Circuit Ruling. Any responsibilities to patients were served secondarily at best. State regulators were completely unprepared to handle the vast degree of patient abandonment, on such a large scale. Patients’ interests were not placed at the fore. From the bankruptcy of OCA, Inc. was generated the case law of the Fifth Circuit 07-30340. We saw practicing dentists (orthodontists) uncertain about the status of their clinical practice, and its future standing. Unmentioned in the Ruling were the many dentists involved in orthodontic specialty training, at various universities, whose funding was sponsored by Orthodontic Centers of America, Inc (or one of their other corporate names), in exchange for future employment obligations. These dentists were left in the cold. We learned that BSAs (contracts) between dentists and DMSOs are generally “Unlawful”. We learned that dental corporations should receive no special considerations under rule of law, and treated the same as individual “Persons”. We learned that DMSOs are actively engaged in the “Unlicensed and Unlawful Practice of Dentistry”. Again, the best interests of patients were a secondary issue to corporate interests, for OCA, Inc. The Chapter 11 Bankruptcy filing of Church Street Health Management gave us a good picture of the money trail, of Private Equity Dentistry. The Martin McGahan Affidavit (Note: Martin McGahan was also a former senior officer in the failed OCA, Inc.) specifically dealt with DMSOs controlling the “Owners’” bank
accounts, and sweeping the accounts “several times weekly”. The Affidavit specifically cited the responsibilities of CSHM (the DMSO), which are in line with the “Unlicensed and Unlawful Practice of Dentistry”, as defined by the Fifth Circuit Ruling. We saw first lien creditors (investment banks); The Carlyle Group, Arcapita Bank, and American Capital assume top-dog status in controlling equity. It was VERY clear, dental clinic ownership status held little meaning, other than a shell company, to pass through moneys. All Smiles’ Chapter 11 Bankruptcy and the aftermath added more troubling data. We saw All Smiles and Dr Richard Malouf retain the services of the famous Waller Lansden Law Firm, who is expert in defense of alleged white-collar crime. This law firm not only retains numbers of former Assistant US Attorneys Generals, but former USAG Alberto Gonzales. This well-connected law firm negotiated sweetheart deals with US Department of Justice, not only for Dr Malouf and All Smiles Dental, but CSHM (Small Smiles, et al), for alleged Medicaid fraud and patient abuses. The Dental Group Practice Association (DGPA) represents the bigger players in Private Equity Dentistry. Please note the listing of a single law firm under DGPA Partner Members, “Waller Lansden Dortch & Davis, LLP”.
The Doctor/Patient Relationship, and doctor obligations such as full disclosures to patients, within the framework of the Informed Consent Process, legally and ethically mandates that a doctor place the patient’s welfare, above all other interests. This contract between doctors and patients is compromised, when doctors are answerable to Third Parties, such as DMSOs. When Doctors operate under production quotas and various “bonus systems”, the patient’s best interest is challenged by a real or apparent conflict of interest, not disclosed to the patient. Doctors are challenged to operate freely in the patient’s best interest, when most aspects of clinic operation are
managed and controlled by the DMSO. Contract statements such as, “The DMSO will operate at arm’s length, to Doctor/Patient and Clinical Decisions” are bogus hogwash. DMSOs are obligated to act in the interest of shareholders and corporate profits, not patients’ welfare. The North Carolina Dental Board has been at the epicenter of fighting for patient rights, and against the intrusion of DMSOs into the Doctor/Patient Relationship. The NC Dental Board has retained the legal services of an outside legal firm, and does not rely on state regulation attorneys better suited to handling enforcement of administrative codes, on barbers and tattoo parlors. Regardless, the final outcomes are highly uncertain for the public welfare, because of the financial power, expert legal insider legal teams, and political influence of the DMSOs, and their equity partner investment bankers. In fact, one investment banking company, The Carlyle Group, which formerly held an equity position in Church Street Health Management, has a staff replete with Washington Insiders, including former US Cabinet members, & former members to the US Congress. The Carlyle Group has a troubling history of involvement with alleged Medicaid (& Medicare) abusers, such as CSHM and HCR ManorCare, but also alleged fraud of a New York State retirement fund. DMSOs and investment bankers & hedge fund operators, who hold equity positions in the DMSOs, are represented by the best attorneys, money can buy. The representation of the Waller Lansden Law Firm for CSHM is but a single example. Retained by Waller are a former US Attorney General, and Assistant Attorney Generals. Moreover, DMSOs are joining forces and collaborating in groups such as the Dental Group Practice Association, which lobby organized dentistry (American Dental Association, American Academy of Pediatric dentistry, etc.) and provide political influence money through PAC donations.
State government officials are not immune from influence of interstate DMSOs. The pathetic example of the New Mexico State Investment Council’s “acquisition of equity” in Small Smiles for $550,000 is but one example. Former NM Governor Bill Richardson also received a political donation from Small Smiles. Coincidence? Regulation of dental clinic Owners makes good sense, for local instate small businesses. Moneys generated instate, also generally stay within the state economy. Tax consequences of locally owned and operated dental clinics receive consequences of state taxation. They also generally receive the federal tax consequences of Earned Income Rates, versus Capital Gains Rates. DMSOs operate dental clinics as accounting shell companies, as accounting pass-through vehicles. The regulatory “Owners” are virtually inconsequential to them. State regulation of interstate corporate dental clinic Owners is important, but not nearly as important as regulation of the controlling DMSO, and investment bankers & hedge fund managers, who pull the strings. Virtually all such companies operate under “Unlawful Contracts”, as defined by the Fifth Circuit Ruling. Further, these “unlawful” operating dental clinics represent an unfair marketplace competitor and advantage, detrimental to lawful dental practitioners, especially due to their manipulated favorable tax situations. We term this “crony capitalism”, when government through tax code & favorite treatment, favors one competitor in the marketplace (private equity dentistry) over another (small business dentistry).
Any dental clinic, which cannot demonstrate a duly state licensed dentist, on-site and in FULL control of clinic operations, as defined by the Fifth Circuit, should be served with an immediate Cease & Desist Order, for the “Unlicensed and Unlawful Practice of Dentistry”. Any DMSO (individuals & corporations) engaging in
such “Unlawful Practice of Dentistry” should be civilly and criminally prosecuted to the fullest extent of the law. Any state moneys paid through Medicaid dental resources, to dental clinic “Owners”, which are controlled and managed by interstate DMSOs, should be addressed for immediate and full restitution. Under the Unfair Trade Practice Act, the state should seek treble damages for fraud. This is not a self-correcting problem, which the marketplace will eventually sort out. Government has established an uneven playing field, favoring interstate corporate dentistry, and investment bankers & hedge managers, over the interests of the small business dentistry and the public generally. More than establishing new laws, we need vigorous enforcement of existing law. Currently, the Modern Golden Rule applies: “Them with the gold… make the rules”.
Small Business Dentistry
Profits are passed through Solo Practitioner or Professional Corporation to Dentist(s) and taxed at Earned Income Rate (approx 35%). Profits generated through dental services generally remain within economy, of state & local of origination. Dentist Owners of dental clinics are generally fully & lawfully registered with their individual State’s Regulatory Authorities. These Dentists accept potential full liabilities for their business, if their clinic(s) violate state statutes. Individually, these Dentists operating as small businesses have limited resources to purchase the influence and favors of State & Federal Regulators. Potential statutory violations fall directly upon true & lawful Owners of Dental Business. Case Law has determined the Doctor/Patient Relationship to be legal contract (tort). In this special contract, the Doctor has a great disparity in specialty knowledge, which the Patient has little to no access. As such, legally, and ethically, the doctor MUST place the interest of the patient FIRST. In the context of Case Law, the Doctor has a legal & ethical Responsibility, to provide the Patient with the Informed Consent Process. This Patient Right allows the Patient to make an Informed Decision on healthcare treatment, after being presented with the risks & benefits of every reasonable treatment option, inclusive of no treatment. This Patient Right is not simply a signature on a piece of paper, but allows for patient Q&A and open discussion.
Private Equity Dentistry
Profits are passed through to Private Equity Firm and taxed at Capital Gains Rate (approx 15%). Profits leave state and location of dental services delivery, and go to Private Equity Corporation registered in Delaware or Offshore. Private Equity Firms through their Dental Service Management Organization (DMSO) hire dentists to masquerade as Clinic Owners for state regulation & licensure. These fake Owners have no ability to sell this asset, nor pass it down to heirs. Thus, the legal definition of Ownership is not met, and Rule of Law circumvented. If Regulatory sanctions or discipline falls upon the fake Owner Dentist, the DMSO simply hires a new fake Owner Dentist, with no disruption in business activity. Business as usual is allowed to continue, despite a regulatory sanction. Individually and collectively, Private Equity Dentistry has the fiscal resources to purchase influence & favors, from state and federal government. Private Equity Dentistry has the resources, to retain the best law firms defending alleged white- collar crime. Potential statutory violations generally fall upon Employee Dentists, who are supervised by the DMSO. Regulators generally disregard their lawful responsibilities to prosecute Dental Corporations, the same as Individual Persons, as directed under Fifth Circuit Ruling 0730430. Private Equity dental firms have an ethical & legal responsibility to place the interests of shareholders FIRST. Generation of corporate profits is their primary responsibility. Employee Dentists who do not comport with corporate responsibilities will be quickly terminated or disciplined.
Private Equity dental companies have no obligation to the Patient Informed Consent Process. This responsibility is passed through to the DMSO, who in turn, passes this obligation onto individual Employee Dentists. Employee Dentists may either elect to comport with the Rule of Law, and potentially face employment termination, or comport with directives and supervision from the DMSO, which is not always be in the Patient’s Best Interest, nor fully supports the Informed Consent Process and full disclosure. Rule of Law hinges on individual Employee Dentists, who are very low on the Corporate “totem pole”, and vulnerable to employment termination and discipline.
Follow The MONEY FLOW of INTERSTATE Corporate DENTISTRY
Services are provided by state licensed Dentists to Public. These services are lawfully provided, if contract of Doctor/Patient Relationship is honored, placing Patient’s Interests first. Contract is Lawful, if full disclosures are given Patient, within context of Informed Consent Process. Because of the inherently unequal nature to the Doctor/Patient Relationship, due to the Doctor’s expert knowledge and training, the Doctor must place the Patient’s Wellbeing, as their primary responsibility. Moneys from these dental services are deposited into “Owner’s” bank account. These moneys may be sourced from Medicaid, private insurance, private patient payments or co-payments, etc. The “Owner” is a shell company, set up as an accounting pass-through. These moneys leave the state of generation of dental services, leaving the local economy, and avoiding local & state taxation. “Owner” is usually registered with the individual State (usually a Licensed Dentist of that State), for potential regulatory violations and accountability. However, actual management and control is from an out-of-state, unregulated, and unlicensed Dental Service Management Organization (DMSO). “Owners” are not free to sell these dental practices (or “Franchises”), nor pass through to heirs, as “ownership” is a bogus façade, to circumvent Rule of Law. The DMSO controls all aspects of the Practice of Dentistry, within the individual dental clinics they manage. This includes control of dental clinic bank accounts, selection of dental laboratories, staffing, hours of operation, production quotas & bonuses, fee splitting with Dentist Employees, etc. This constitutes the Unlawful Practice of Dentistry (Fifth Circuit Ruling- 07-30430). Per this Ruling, Corporations are to be sanctioned the same as individual persons, for their “Unlawful Practice of Dentistry”. Responsibilities are not to
Patient’s Well-being. Obligation is to shareholders and corporate profits. The conflict of interest is obvious. If the DMSO is sold to a hedge fund or investment-banking group, the money flows again. Usually both the DMSO & investmentbanking group has their Registration of Incorporation in the State of Delaware, or offshore. This not only negatively impacts local state economies, and state taxation, but also reduces Federal Tax. Profits on dental services, for an individual small business dentist or small business group practice usually remain instate, and are taxed at the Ordinary Income rate of 35%. By contrast, the Interstate Corporate Profits are taxed at 15% Capital Gains Rate. This generates on uneven playing field in the dental marketplace, favoring Interstate Corporate Dentistry, over Small Business Instate Dentistry. Patients are not usually given full disclosure, as to which Parties are directing or influencing their dental care.
“Small Smiles:” A Case Study in State Investment Council Incompetence Mon, 2009-02-02 23:00 — James Scarantino
Newsflash: The State Investment Council doesn’t know what it’s doing with our money. In the Rio Grande Foundation’s last report on the State Investment Council (SIC), we asked whether the SIC was really on top of what was being done with our money. We took a close look at one of the SIC’s smallest investments, a $550,000 acquisition of equity in a lowincome dental chain called Small Smiles. We chose to investigate this investment for two reasons: (1) it would not be too large to overwhelm us; and (2) if we could get a handle on Small Smiles, then one would think the SIC would also have a full grasp of the facts surrounding this modest investment. We were able to gather a full range of information about Small Smiles. That information revealed its foreign corporate ownership as well as a raft of scandals about the way Small Smiles mistreats children and bills Medicaid for its services. All of that information came from sources other than the SIC. The SIC could not answer even the question as to how much of the state’s money was invested in Small Smiles. We ended up knowing more about this investment than the SIC itself. Our suspicions that the SIC does not know what is being done with our money were confirmed in a review of documents recently produced under a Public Records Act inspection. In late November 2008, we filed a request to inspect every document—every memorandum, e-mail, report and letter— containing any information about Small Smiles. We were able to inspect the documents at the SIC’s offices on Wednesday, January 7, 2009.
For an investment of over half a million dollars that has been its portfolio for nearly two years, the SIC had only 73 pages in its files. Many of those pages were duplicates of the same e-mails. Many were simply lists of companies. Many of the pages were merely cover letters containing no substantive information. Close to half of the pages produced did not mention Small Smiles at all. Some of the pages simply mentioned the words “Small Smiles” once without providing any information about the company, its finances, or operations. For instance, a list of all the New Mexico companies in which the SIC was invested would merely name Small Smiles, but would say nothing about the company’s affairs. Numerous versions of documents of that nature were among those turned over by the SIC. The e-mail correspondence conclusively shows that the SIC has been negligent in monitoring this investment. A little over a week after the Rio Grande Foundation began asking questions, an e-mail dated December 5, 2008, was sent from Brian Birk, the managing partner of Sun Mountain Capital, to Bruce Duty, a partner in Red River Ventures. Sun Mountain Capital is the investment firm in Santa Fe that manages the SIC’s New Mexico’s private equity investment program. Red River Ventures is the venture capital firm that made the investment in Small Smiles in 2007. “Hi, Bruce,” Birk writes, “it’s been a while since we’ve touched base….I was over at the SIC talking to Greg K [Greg Kulka, the SIC’s Director of Private Equity and ETI Investments] and somehow the topic of Small Smiles came up. As I recall, RR [Red River Ventures] has an investment in the company. Was that in the parent company, a subsidiary, or ??? If you could provide a little color that would be appreciated. Also, Greg and I could not remember the last time we received a quarterly report from Red River. Could you e-mail
us your latest, and are you current in your reporting?” [Emphasis added] Several things stand out. First, the SIC and its venture capital manager reveal they did not know where the money for the Small Smiles investment had gone, into “the parent company, a subsidiary, or ???” Yet, in its 2007 year-end report, the SIC touted Small Smiles as one of the “New Mexico companies” in which it had proudly invested taxpayer money. From all the records reviewed, including years of meeting minutes, this is the first time the SIC ever asked where our money went. Second, the e-mail proves that the SIC and its venture capital manager were not staying on top of this investment. They “could not remember the last time” they had received a quarterly report from Red River. The SIC’s ignorance was so bad it had to ask Red River whether it was current in its reporting, instead of being able to ascertain that information from the SIC’s own files. Bruce Duty of Red River Ventures answered two days later, December 8, 2008, at 3:06 p.m. All of the deletions were made by the SIC before disclosing the correspondence to us. “Brian and Greg: Yes, it has been a while since we’ve spoken. Unfortunately, every company in Red River’s portfolio is being impacted to some degree by ‘the storm.’ Those suffering the highest stress include Small Smiles and [deleted]. For both of these companies, the story is too much acquisition debt and too little EBITDA [earnings before interest, taxes, depreciation and amortization]. [Deleted] and [deleted] have never been profitable and will need to raise cash to avoid failure….
The situation at Small Smiles is [deleted]. The company has endured a year of adverse publicity that triggered investigations by the DOJ and 16 state AGs. Because of the intense scrutiny, the dentists across the system have significantly reduced the way they practice, resulting in the revenue per patient visit falling from over [deleted] a year ago to [deleted] currently. This the first time in nearly two years of holding an investment in Small Smiles that the SIC was informed of the scandals entangling company’s operations. A review of the minutes of the SIC’s meetings and the meetings of the New Mexico Private Equity Investment Advisory Council show that Small Smiles was never once mentioned or discussed by the people who supervise investments of state money. This e-mail sheds light on the problems with Small Smiles’ billing practices. The company is being investigated for overcharging and performing unnecessary procedures. It faces allegations that its dentists worked under billing quotas, and did unnecessary work to hit their numbers. Small Smiles has been suspended from some state Medicaid and private insurance programs because of its unethical billing practices. The fact that Small Smiles dentists “have significantly reduced the way they practice, resulting in revenue per patient falling” lends credence to the allegations against Small Smiles. It indicates that Small Smiles dentists were providing treatment based not on what was medically necessary, but based upon revenue targets. This time Greg Kulka, the SIC’s Director of Private Equity and ETI Investments, sent the follow-up e-mail to Red River. About one hour after receiving Bruce Duty’s first detailed report on Small Smiles he writes: “Bruce, My main question is about Small Smiles. I know they have offices here in New Mexico. Are they headquartered here? In other
words, are they considered a New Mexico company? Please let me know. Thanks. Remember: the SIC’s 2007 annual report boasted of its investment in Small Smiles, identified as “a New Mexico company.” Bruce Duty of Red River wrote back within minutes: “Greg, the corporate offices of Small Smiles are in Nashville, TN. Small Smiles has three clinics in New Mexico—two in Albuquerque, one in Santa Fe.” In fact, as Rio Grande Foundation has reported, though Small Smiles has corporate offices in Nashville, it is owned by Arcapita Bank of Bahrain. What Now for the State’s Small Smiles Investment? The December 2008 report by Sun Mountain Capital lists 54 New Mexico companies in which the SIC has made investments under its private equity program. Unlike the 2007 annual report, Small Smiles is no longer on the list. But $550,000 of New Mexico taxpayers’ money was invested in Small Smiles on the premise it was a New Mexico company. What has happened to that money? Has Red River been required to return it? Or has the SIC simply written off its investment in Small Smiles? The Rio Grande Foundation posed to these questions to the SIC. We have received no direct answer, only a retort that we “obviously don’t understand private equity.” Our research shows it is the SIC that should be asking the questions we’ve been asking. We may not “understand private equity”, but we do understand that taxpayer dollars, unbeknownst to the SIC, were invested in an Arabian owned business that abuses children, and that has been excluded from Medicaid programs because of unethical
billing practices and that is under investigation in nearly every state where it operates. We—ignorant as we are about “private equity”— were the ones who brought these facts to the SIC’s attention. Taxpayers pay the State Investment Officer Gary Bland a salary in excess of $300,000. He has a fiduciary obligation to manage our money prudently. That requires knowing what is being done with that money. In the case of Small Smiles, he has obviously failed to meet his obligations to taxpayers. The private equity program pushed by the Richardson Administration requires the SIC to pour hundreds of millions of dollars of investments in New Mexico private equity. This has resulted in a rush to get money out the door into the hands of venture capital risk takers. The SIC does not have the staff needed to adequately supervise those investments. Consequently, the SIC has deferred excessively to outside investment firms. We have not seen any real, traditional investment returns from the quarter billion dollars poured into the New Mexico private equity program. We are, in fact, losing money in many of those investments. The SIC does not reveal these losses in its annual reports. Instead, it continues to paint a rosy picture about its investments. That picture, as demonstrated in the Small Smiles investigation, is misleading and false. The Legislature needs to take a hard, detailed look at the SIC’s private equity investments. It needs to dig beyond the glossy pages on the annual report. It needs to go over each of the “New Mexico companies” listed and ask of each of them: are they profitable, have they paid us any dividends, have we made any capital gains, and, if not, why in the world are we continuing to lose money in failing companies?
Tuesday, January 13th, 2009 - Paul Gessing Some people may be worrying about grand jury investigations, but whatever the grand jury finds is nothing compared to what the Rio Grande Foundation is likely to dig up: Even some of the [State Investment Council's (SIC)] smallest acquisitions look questionable. Take for instance, its investment in Small Smiles. The SIC’s 2007 annual report showed an investment of an unstated sum in this New Mexico company. By directly contacting the venture capital firm that handled this investment, the Rio Grande Foundation learned that about $500,000 New Mexico taxpayer dollars have been invested in Small Smiles. The SIC itself had not been able to answer this question. Contrary to the SIC’s annual report, Small Smiles, is not a New Mexico company. It is a national chain of low-income dental clinics owned by a bank in Bahrain. Furthermore, at the time half a million taxpayers dollars were going to help Arab investors, Small Smiles was being blasted in an Emmy Award winning investigative television series called “Drilling for Dollars.” Small Smiles clinics in the Washington, D.C. area were exposed for abusing children by strapping them to “papoose boards.” Small Smiles had engaged in unethical billing practices. Parents came forward with complaints of unnecessary dental work being performed on their children without their consent. Geez, forcing unnecessary procedures on children in order to line their pockets, it doesn’t get more evil than that. As to the use of papoose boards to perform unnecessary dental work, okay, I was wrong it does get more evil.
Mind you, I’m the father of two young boys. My oldest needed to have a dental “appliance ” installed at the age of four to correct a problem. It was not a fun experience for him, but I was there the entire time to hold his hand. I can’t imagine how he would feel about me or the dentist if we had allowed him to be strapped into a papoose board. I’m thoroughly disgusted. How is it that the SIC has had so many questionable (I’m being kind here) and ill-fated investments? Well, you might remember that it has been standard policy under the Richardson administration to fire those advisors who did not want to issue rubber stamp endorsements of shady (okay, sugar-coating is not really my style) deals that Governor Richardson wanted to see approved. That’s right, I said, “Deals that Governor Richardson wanted approved.” After all, the Governor is the chairman of the SIC. Now, in light of all of the recent scandals, you may be wondering if the Governor has ever received any campaign contributions from anyone connected to Small Smiles. Well, I’m glad you asked. As it turns out, the Chairman and CEO of the holding company for Small Smiles is Michael Lindley of Nashville, Tennessee. Mr. Lindley did indeed donate a $1,000 to our Governor’s presidential campaign. He also gave a $1,000 to Congressman Ben Ray Lujan’s campaign. Of course, my guess is that our Speaker of the House, Ben Lujan solicited the funds on his son’s behalf. After all, other than the imprisoned former State Senator Manny Aragon, the only other elected official to receive funds cycle after cycle from Small Smiles
in New Mexico is Speaker of the House Lujan. Now, I’m sure none of this is tied to pay-to-play in New Mexico. It’s probably all just some strange coincidence.
IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION Case No. 12-01573 -----------------------------------------------------------------------IN RE: Chapter 11 CHURCH STREET HEALTH MANAGEMENT, LLC, et al. 1 Debtors (Joint Administration Pending) -----------------------------------------------------------------------AFFIDAVIT OF MARTIN McGAHAN, THE CHIEF RESTRUCTURING OFFICER OF CHURCH STREET HEALTH MANAGEMENT, LLC, IN SUPPORT OF CHAPTER 11 PETITIONS AND FIRST DAY PLEADINGS STATE OF TENNESSEE ) ) ss: COUNTY OF DAVIDSON ) Martin McGahan, hereby affirms, under penalty of perjury, as follows: 1. I am the Chief Restructuring Officer of Church Street Health Management, LLC (“CSHM”), one of the above-captioned debtors and debtors in possession (the “Debtors”). In my capacity as Chief Restructuring Officer, I am necessarily familiar with the Debtors’ operations, business affairs, and books and records.1
1 The Debtors (with the last four digits of each Debtor’s federal tax identification number and chapter 11 case number), are: Church Street Health Management, LLC (2335; Case No. 12-_____), Small Smiles Holding Company, LLC (4993; Case No. 12-_____), FORBA NY, LLC (8013; Case No. 12-_____), FORBA Services, Inc. (6506; Case No. 12-_____), EEHC, Inc. (4973; Case No. 12-_____)
INTRODUCTION 2. As discussed in more detail below, these Chapter 11 cases were filed to facilitate the sale of substantially all of the Debtors’ operations and assets (the “Assets”) pursuant to either Section 363 or 1129 of the Bankruptcy Code. In light of the Debtors’ current financial situation, the Debtors’ boards of managers and directors (the “Board”) and management, in
consultation with the Debtors’ restructuring consultants and legal and financial advisors, have determined that the Debtors’ best option to maximize the value of the Assets for stakeholders and to safeguard the welfare of the patients served by the dental centers who receive services from CSHM and FORBA NY, LLC (“FNY”) is to pursue the sale of the Assets in an orderly fashion through these Chapter 11 cases. JURISDICTION 3. The Court has jurisdiction over this matter under 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue of this proceeding is proper pursuant to 28 U.S.C. §§ 1408 and 1409. BACKGROUND AND SUMMARY 4. As of the date hereof (the “Petition Date”), the Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”). The Debtors remain in possession of their assets and continue to
manage their business and operations as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No trustee, examiner or committee of creditors has been appointed in these cases, and to the best of my knowledge, information and belief, there have been no informal committees formed prior to the filing of these Chapter 11 cases. 5. The Debtor, Small Smiles Holding Company, LLC ("SSHC"), formed in Delaware in September 2006, is the parent of a group of companies headquartered in Nashville, Tennessee that provide dental practice management services to 67 dental centers serving low income and underprivileged families in 22 states across the country (collectively, SSHC and its affiliates, the "Company,” the "Debtor," or the “Debtors”). The dental centers are owned by licensed dentists.
A. Organizational Structure; Overview of the Debtors’ Operations (i) Management and Employees 6. The daily operations of the Debtors are delegated by the SSHC and CSHM Boards of Managers (the “Board”) to the CSHM executive management team, which is jointly led by interim management personnel and incumbent CSHM management. As further discussed below, I am a managing director of Alvarez & Marsal Healthcare Industry Group, LLC (“A&M”) and was appointed Chief Restructuring Officer by the Board in October 2011. 7. As of the Petition Date, the Debtors, through EEHC, Inc. (“EEHC”) had approximately 72 full-time, 2 part-time, and 2 “as needed” employees (collectively, the “Employees”). There are no unions representing the Employees. (ii) Leased Facilities
8. The Debtors do not own any real property. The corporate office space occupied by the Debtors in Nashville, Tennessee, Pueblo, Colorado and Chicago, Illinois is leased by the Company. Additionally, all of the dental centers for which the Company provide management services lease the office space they occupy. In many cases, SSHC or CSHM has guaranteed the dental centers’ performance under those leases or assumed obligations under existing guarantees. (iii) Assets and Liabilities 9. As of the Petition Date, the Debtors had aggregate assets (at book value) and liabilities on a consolidated, unaudited basis of approximately $895,300,000 and approximately $303,400,000, respectively. For the fiscal year ended December 31, 2011, the Debtors had contractual revenues of approximately $138,600,000 ($28,200,000 collectible) and incurred a positive change in net assets of approximately $101,000,000 (of which $110,400,000 is uncollectible revenue). B. Pre-Petition Indebtedness 10. The Company’s financing facilities are arranged on a Shari’ahcompliant basis, employing structures that have been used in numerous transactions in the United States for at least the past 15 years. These structures have two basic purposes. First, they are designed to comply with Shari’ah rules regarding finance. Second, the structures are intended to be characterized as loans for tax and other United States law purposes, including bankruptcy laws. Although the financing facilities are structured to comply with Shari’ah, the facilities are not in any way governed by Shari’ah law. The governing law applicable to the financing facilities is the law of the State of New York.
11. All of the Company’s financing facilities employ the same fundamental structure. For the reasons outlined below, the facilities interpose a special purpose vehicle between the Company and the entities providing financing to the Company (the “Finance Providers”). There are two such special purpose vehicles (the “SPVs”) for the Company facilities - SSO Funding Corp. (“SSO”) and SSH Funding Corp. (“SSH”). Each of these SPVs is minimally capitalized, and is ultimately owned by an independent third-party corporate services provider, Global Securitization Services, LLC, that is unaffiliated with either the Company or the Finance Providers. 12. The SPVs function as conduits for the provision of financing by the Finance Providers to the Company. This conduit structure is used because, under Shari’ah, the Company was not permitted to enter into conventional financing agreements directly with the Finance Providers. Instead, the Company had to enter into documentation drafted to comply with Shari’ah precepts. 2Conversely, the Finance Providers did not want to enter directly into Shari’ah-compliant financing documents that departed from their conventional financing documentation. Therefore, the SPVs were placed between the Finance Providers and the Company to (1) enter into conventional finance facilities with the Finance Providers, and (2) use the funds obtained from such conventional facilities to provide Shari’ah-compliant facilities to the Company. The chief characteristic of this arrangement is that for each conventional financing facility provided to an SPV, there is a corresponding, matching Shari’ah-compliant facility provided by such SPV to the Company. 13. For United States law purposes, each corresponding pair of conventional and Shari’ah facilities is intended to be a single facility between the relevant Finance Providers and the Company. The
payment and other provisions in the conventional facilities and Shari’ah facilities are drafted to operate on a back-to-back basis, so that conventional obligations imposed upon an SPV will be matched by Shari’ah obligations imposed upon the Company. For example, each Shari’ah facility is structured to provide its SPV with amounts needed and at thetimes needed to enable such SPV to make all debt service and other required payments under its corresponding conventional financing facility. (In practice, the Company has in fact wired payments directly to the Financing Providers rather than to the SPVs.) 14. On this basis, and to simplify analysis, the Company’s financing facilities are described below as if each corresponding pair o Shari’ah and conventional financing facilities were in fact one facility. In addition, only conventional finance terms, such as principal and interest, are used to describe the obligations associated with such facilities. Although the Shari’ah facilities employ differen terminology to characterize obligations, the Shari’ah facility obligations should be considered for United States law purposes as conventional financing obligations. (i) Prepetition First Lien Facility and Prepetition Second Lien Facility 15. SSO, as borrower, CIT Healthcare LLC, as collateral agent and administrative agent and any successor of CIT Healthcare LLC, as collateral agent and administrative agent (in such dual capacity, “Prepetition A/C Agent”), and certain banks, financial institutions and other institutional lenders party thereto from time to time (collectively, the “Prepetition First Lien Facility Lenders”) are parties to that certain Amended and Restated Credit Agreement dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Prepetition First Lien Credit Agreement” and together with all other loan and security documents executed in connection therewith, the “Prepetition First Lien Documents”) whereby the Prepetition First
Lien Facility Lenders provided a first lien secured credit facility comprised of up to $131,475,000.00 in aggregate principal amount of term loans (the “Prepetition First Lien Facility”). 16. SSO, CSHM (f/k/a FORBA Holdings, LLC), as lessee, along with SSHC, FNY and EEHC (as successor to FORBA Services, Inc. (“FORBA Services”)), as guarantors pursuant to certain guaranties executed in connection therewith, and CIT Healthcare LLC, as collateral agent (in such capacity, the “Prepetition Collateral Agent” and together with the Prepetition A/C Agent, the “Prepetition Agent”), are parties to that certain Amended and Restated Registered Lease Financing and Purchase Option Agreement dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Lease Agreement”) and related security documentation for the benefit of SSO (the “Lease Financing”). The Lease Agreement is the Shari’ahcompliant agreement that corresponds to the conventional Prepetition First Lien Credit Agreement. 17. As of the Petition Date, the Debtors were indebted and liable to the Prepetition Agent and the Prepetition First Lien Lenders, without objection, defense, counterclaim or offset of any kind under the Prepetition First Lien Documents and the Lease Agreement in the principal amount of no less than $128,225,000 plus interest accrued and accruing, costs and any fees and expenses due and owing thereunder (collectively, the “Prepetition First Lien Facility Obligations”). 18. SSO, as borrower, the Prepetition A/C Agent, and certain banks, financial institutions and other institutional lenders party thereto from time to time (collectively, the “Prepetition Second Lien Facility Lenders”) are parties to that certain Second Lien Credit Agreement dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Prepetition Second Lien Credit Agreement” and,
together with all other loan and security documents executed in connection therewith, the “Prepetition Second Lien Documents” and together with the Prepetition First Lien Documents, collectively, the “Prepetition Credit Documents”) whereby the Prepetition Second Lien Lenders provided a second lien secured credit facility comprised of up to $25,000,000.00 in aggregate principal amount of term loans (the “Prepetition Second Lien Facility”). 19. SSO, CSHM, along with SSHC, FNY and EEHC (as successor to FORBA Services, Inc. (“FORBA Services”)), as guarantors pursuant to certain guaranties, and Prepetition Collateral Agent are parties, with Arcapita Investment Funding Ltd. (“AIFL”) and AIA Limited (“AIA”) to that certain Amended and Restated Senior Murabaha Facility Agreement dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Commodities Agreement”) and related security documentation for the benefit of SSO (the “Senior Murabaha Facility” and together with the Prepetition First Lien Facility, the Prepetition Second Lien Facility, and the Lease Financing, collectively the “Prepetition Facilities,” and the lenders under the Prepetition Facilities, collectively the “Senior Lenders”). The Commodities Agreement is the Shari’ah-compliant agreement that corresponds to the conventional Prepetition Second Lien Credit Agreement. 20. As of the Petition Date, the Debtors were indebted and liable to the Prepetition Agent and the Prepetition Second Lien Lenders, without objection, defense, counterclaim or offset of an kind under the Prepetition Second Lien Documents and the Commodities Agreement in the principal amount of no less than $25,639,000 plus interest accrued and accruing, costs and any fees and expenses due and owing thereunder (collectively, the “Prepetition Second Lien Facility Obligations” and, together with the Prepetition First Lien Facility Obligations, the “Prepetition Secured Obligations”).
21. As more fully set forth in the Prepetition Credit Documents, prior to the Petition Date, the Debtors granted security interests in and liens on, among other things, substantially all assets of the Debtors (collectively, the “Prepetition Collateral”), subject to certain limitations (the “Prepetition Liens”) to the Prepetition Agent as collateral agent under the Prepetition Credit Documents. 22. The Prepetition First Lien Facility Lenders, the Prepetition Second Lien Facility Lenders, and the Prepetition Agent are party to that certain Intercreditor Agreement, dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Prepetition Intercreditor Agreement”), that governs the respective rights, interests, obligations, priority, and positions of the various Prepetition First Lien Facility Lenders and Prepetition Second Lien Facility Lenders. Pursuant to the Prepetition Intercreditor Agreement, as of the Petition Date, the Prepetition First Lien Facility Lenders’ right to payment is senior to the Prepetition Second Lien Facility Lenders’ right to payment under the Prepetition Credit Documents. 23. The Prepetition Secured Obligations are (i) legal, valid, binding and enforceable against each applicable Debtor and (ii) not subject to any contest, attack, objection, recoupment, defense, counterclaim, offset, subordination, recharacterization, avoidance or other claim, cause of action or other challenge of any nature under the Bankruptcy Code, under applicable non-bankruptcy law or otherwise. Moreover, as of the Petition Date, the Prepetition Liens on the Prepetition Collateral were legal, valid, enforceable, non-avoidable, and duly perfected and are not subject to avoidance, attack, offset, recharacterization or subordination under the Bankruptcy Code, under applicable non-bankruptcy law or otherwise and, as of the Petition Date.
(ii) Subordinated Indebtedness 24. SS Holding Company, Inc., SSH, AIFL, and AIA are parties to that certain Subordinated Murabaha Facility Agreement dated as of February 1, 2010 whereby a deferred payment purchasing facility was made available to SSH in the maximum amount of $30,000,000.00 (the “SSH Purchasing Facility”). As of the Petition Date, the current outstanding balance of the SSH Purchasing Facility is $37,389,000. Further, SSH, American Capital, Ltd. (“American Capital”) and Carlyle Mezzanine Partners, L.P. (“Carlyle”; and along with American Capital, “Purchasers”) are parties to that certain Amended and Restated Subordinate Debt Note Purchase Agreement dated as of February 1, 2010 whereby SSH issued promissory notes to Purchasers in the initial aggregate principal amount of $31,000,000.00 (the “Subordinated Notes”). As of the Petition Date, the curren outstanding balance of the Subordinated Notes is $38,616,000. 25. SSH, American Capital and Carlyle, as collateral agents for SSH (in such capacity the “Collateral Agents”), AIFL and AIA Limited are parties to that certain Amended and Restated Subordinated Murabaha Facility Agreement dated as of February 1, 2010 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Subordinated Murabaha Facility Agreement”) whereby a deferred payment purchasing facility was made available by SSH to CSHM in the maximum amount of $61,000,000.00 (the “Purchasing Facility”). As of the Petition Date, the current outstanding balance of the Purchasing Facility is $76,005,000. The Purchasing Facility is a Shari’ahcompliant facility that corresponds to two separate conventional facilities – the SSH Purchasing Facility and the Subordinated Notes. These two conventional facilities were provided through SSH to the Company through a single agreement, the Subordinated Murabaha .
C. Events Leading to the Chapter 11 Filing 26. The Company is party to a Management Services Agreement (“MSA”) with each dental center for which the Company provides management services (collectively the “Dental Centers”). Pursuant to each MSA, the Company provides the Dental Centers with management services such as billing and collection, bookkeeping, accounting and tax services, dentist and staff recruitment, payroll services, human resources, information technology support, equipment and supplies procurement, leasing, repairs and capital improvements, and assistance with compliance, legal issues, governmental affairs, and licensing and permitting. In exchange for providing these services to the Dental Centers, the Company receives a management fee from which it funds its operations. 27. The Company has been a pioneer in supporting dental centers that provide dental care for low-income families.3 It is recognized that children living below the poverty level experience more dental decay and twice as many untreated decayed primary teeth than their upper and middle class contemporaries. For a variety of social and economic reasons, the prevalence, extent and severity of cavities are all more extreme in low-income children. As a result, more extensive and invasive treatment of their teeth is required at an early age. 28. Compounding the problem of dental decay in low-income children is the fact that there is a critical shortage of dentists willing to treat these children. Most of these children, in theory, have access to care through the Medicaid and State Children’s Health Insurance Programs (“SCHIP. The Government Accounting Office and the American Dental Association among others, however, have identified three primary reasons for why most dentists do not treat Medicaid patients: (1) low Medicaid reimbursement rates – generally only 50% to 70% of usual and customary rates; (2) high broken appointment rates among Medicaid patients; and (3) high administrative costs
associated with submitting claims to Medicaid. Non-monetary reasons, including a reluctance by some providers to mix Medicaid patients with more affluent patients, as well as a reluctance to locate clinics in poor neighborhoods, also play a role in limiting the number of dentists who treat a sizable number of Medicaid patients. The Dental Centers play a vital role in filling this critical void. In sum, the Company has developed a successful business model that enables the Dental Centers to focus on providing high quality dental care to Medicaid and SCHIP children, without having to worry about administrative and other factors that ordinarily deter dentists from treating these children. 29. As a result of the efforts of the Dental Centers, more than 1.5 million patients have been served during the past five years improving overall dental health and access to care in many lowincome areas in the twenty-two states in which the Company has had a presence. In 2011, more than ninety percent of the revenues of the Dental Centers came from state Medicaid and SCHIP programs. 30. In September 2006, SSHC acquired substantially all of the assets of FORBA, LLC and its affiliates (“Old FORBA”), which were principally owned by members of the DeRose family. In connection with that acquisition, the Company was capitalized by a group of private equity sponsors and lenders with a mix of equity, senior secured debt and subordinated debt. Presently, the Company is capitalized with $181,700,000 in equity, $153,864,000 million in senior secured debt and $76,005,000 million in subordinated or mezzanine indebtedness. 31. Under the current owners of the Company, the Company grew from providing management services to 47 Dental Centers in September 2006 to providing management services to 67 Dental Centers today.
32. In 2007, The Office of Inspector General of the U.S. Department of Health and Human Services ("OIG") began an investigation of the Company and the Dental Centers. At about the same time period, the United States Department of Justice (the "DOJ"), began an investigation of the Company and the Dental Centers. Thereafter, a number of state Attorneys General commenced parallel state investigations of the Company and the Dental Centers. The New York State Office of Medicaid Inspector General ("OMIG") also commenced an investigation. 33. In addition to these investigations by various governmental entities, in November 2007, Dental Centers in the Washington, D.C. area became the subject of a local television investigative news report which was extraordinarily negative and suggested that the Dental Centers were providing services which were not medically necessary. That program was subsequently rebroadcast on “Good Morning America.” In addition, media outlets in other areas of the country picked up the story. The Company, on behalf of the Dental Centers, vigorously disputed the allegations in the media and endeavored to educate the media about the profound treatment needs of its patient population. 34. The cumulative effect of the investigations by the governmental entities along with the negative news stories placed an extraordinary burden on the Company. During the pendency of the investigations, the Company spent millions of dollars to defend itself and the Dental Centers. 35. In January 2010, the Company entered into Settlement Agreements with the DOJ and the 22 states in which it operated (the “States”) to bring an end to the investigations (the “Settlement Agreements”). Without admitting to any wrongdoing, the Company agreed to pay a total of $24,000,000 to the DOJ and the States over a five-year period and entered into two Corporate Integrity Agreements
– one with the OIG (the “OIG CIA”) and one with OMIG (the “NY CIA”). Pursuant to the OIG CIA and the NY CIA (together, the “CIAs”), the Company agreed to maintain the robust compliance program it had developed over the course of the investigations, and to engage an independent monitor to oversee the quality of care being provided to patients at the Dental Centers. Since the inception of the CIAs, that independent monitor, Strategic Health Solutions (“SHS”) has conducted more than 24 site visits and 18 desk audits. Payments to SHS have been approximately $80,000 per month. In addition to the services of SHS, the Company engaged an Independent Review Organization (“IRO”) to conduct an annual claims review designed to ensure that the Dental Centers are accurately coding and billing the services provided. The IRO, FTI Consulting Inc., also reviews the quality of care provided as part of its assessment. Payments to the IRO have been approximately $430,250 to date. 36. Under the terms of the CIAs, the Company is required to submit an Annual Report to the OIG and OMIG every March attesting to, among other things, its compliance efforts over the course of the previous year. In conjunction with the submission of its first Annual Report on March 15, 2011, the Company identified deficiencies in its compliance infrastructure. Thereafter, the Company replaced its Chief Compliance Officer and invested significant resources in its compliance program. Between March 2011 and January 2012, for instance, the number of employees and independent contractors, and the corresponding payroll, grew. 37. At the time that the Settlement Agreements were executed, the Company amended its senior and subordinated financing facilities. In addition, the Company’s existing equity owners made an additional cash infusion in an amount equal to $30,000,000 to the Company, which was made available to the Company under the SSH Purchasing Facility and the Purchasing Facility.
38. Not surprisingly, the combination of adverse publicity and the settlements with the DOJ, OIG and OMIG drew the attention of the plaintiffs’ bar. Almost immediately after the Settlement Agreements were executed, trial lawyers began soliciting patients of the Dental Centers to become plaintiffs in lawsuits against the Company and certain Dental Centers and assert a variety of tort and fraud claims against the Company and those Dental Centers. Since January 2010, approximately 11 lawsuits on behalf of over one hundred plaintiffs have been filed against the Company and certain of the Dental Centers, in primarily three states, Ohio, New York and Oklahoma (the “Patient Litigation”). In addition, a previously-filed malpractice case in New Mexico was expanded to add fraud claims against the Company similar to those asserted in the Patient Litigation. That case went to trial in August 2011 and resulted in a jury verdict in favor of the Company and the applicable Dental Centers. Not to be deterred, the plaintiffs’ attorneys have told the Company that they represent a number of former patients and have requested the charts of those patients, presumably in an effort to file additional lawsuits against the Company and certain Dental Centers. 39. The Company and the Dental Centers are beneficiaries of certain Dentists Liability Policies (the “Policies”) issued by National Fire Insurance Company of Pittsburgh, PA (“National Union”), an affiliate of Chartis, Inc. The Company tendered to National Union the Plaintiff Suits for defense and indemnity under the Policies. National Union denied coverage, and, among other actions, commenced a lawsuit in 2010 against the Company in the United States District Court for the Middle District of Tennessee seeking rescission and reformation of the Policies (the “Coverage Litigation”). The Company filed counterclaims against National Union, alleging bad faith refusal to honor the Policies and violation of the Tennessee Consumer Protection Act. The Company also brought a third party complaint against its insurance broker, Affinity Insurance Services, Inc., for negligence, negligent misrepresentation and violation of the Tennessee Consumer Protection Act. After some preliminary
litigation and subsequent negotiations, the parties jointly moved to administratively close the Coverage Litigation, and the District Court entered an order administratively closing the case without prejudice, granting any party the right to petition to have the Coverage Litigation reopened on 30 days’ written notice to the other parties. 40. Notwithstanding the challenges posed by the negative publicity and Patient Litigation, the Dental Centers have consistently had very high patient satisfaction scores and rankings. In 2009, the Company adopted a “net promoter score” (“NPS”) system in all of the Dental Centers. NPS is a customer loyalty metric developed by Bain & Company, Fred Reichhold and Satmetrix and has been embraced by many leading companies worldwide as a standard for measuring and improving customer loyalty. The top NPS scores as reported by Satmetrix for 2011 includes companies such as USAA (87%), Apple (72%) and Amazon (70%). The average 2011 NPS score across all the Dental Centers was 88%. 41. The Company remains fully committed to complying with its obligations under the CIAs and to assisting the Dental Centers in providing high quality dental care to patients. 42. The cost of complying with the Settlement Agreements, the CIAs and the addition of necessary staff and external professionals to improve its compliance programs, along with the litigation and solicitation efforts of the plaintiffs’ attorneys have been a significant drain on the Company's resources and the staff of the Dental Centers. The negative publicity, the Company believes, has also had an impact on its revenues. The prospect of additional litigation from plaintiffs also inhibits the Company's ability to consider growth opportunities. While these obligations are not completely debilitating, the Company believes that by entering into these Chapter 11 proceedings it can emerge better capitalized and with either a resolution or a reasonable strategy for the litigation that has burdened the Company recently. The Company remains convinced that this Chapter 11 will allow it to
continue its vital mission of facilitating high quality dental care for an under-served population and continue fulfilling its obligations under the Settlement Agreements and CIAs. 43. As a result of the variety of issues facing it, the Company now believes (notwithstanding the significant investments from its equity sponsors, senior secured lenders and subordinate lenders) its worth is likely less than the full amount of the secured debt for which it is obligated. Thus, as of the filing, the equity and subordinated indebtedness has no value at all. 44. During the Summer of 2011, the Company realized it would have difficulty meeting its obligations to the Senior Lenders. On August 30, 2011, the Board authorized the retention of A&M, a turnaround firm, to provide it advice and guidance. 45. On September 30, 2011, the Company was unable to meet its regularly scheduled debt service payment to its secured lenders. Shortly thereafter, the Board retained the services of A&M. I, as managing director of A&M, was chosen as Chief Restructuring Officer. Subsequently, the Board terminated the services of its CEO and COO of the Company. 46. The Company has worked closely with the Senior Lenders on plans to address its situation, as outlined below. The Company entertained refinancing and/or restructuring proposals from the majority of the Senior Lenders as well as other potential lenders. Ultimately, the Company determined to proceed with the plan outlined by the majority of the Senior Lenders, as set forth in more detail in this Affidavit. 47. This filing is made primarily to facilitate a sales transaction whereby the majority of the Senior Lenders (or some other buyer, if one can be found during the first 30-45 days of this case) can acquire substantially all of the assets of the Company and recapitalize the
Company. As shown from the first day motions already on file, it is the Company's intention to assume all obligations it has incurred with SHS, the DOJ, OIG and OMIG. In addition, the filing is also being made so that the Company can address in an organized fashion the Patient Litigation and potential future plaintiffs’ suits. D, Decision to Pursue Sale of the Assets and the Debtors’ Marketing Efforts 48. In connection with A&M’s retention, the Debtors started exploring various restructuring alternatives during the last quarter of 2011. Negotiations ensued between the Debtors and the Senior Lenders concerning various out of court restructuring alternatives. A&M highlighted that, while the impact of certain of the Debtors’ cost-saving initiatives was still unknown, there was a real possibility that a sale of the Assets, whether in connection with an out-of-court restructuring or through a sale process under Section 363 of the Bankruptcy Code (a “363 Sale”) or through a plan under Section 1129 of the Bankruptcy Code (the “Plan”) would be the most likely options. A&M and the Debtors continued to negotiate with the Senior Lenders with respect to various restructuring and sale options. In connection therewith, the Debtors, in consultation with A&M, analyzed extensive restructuring and sale alternatives, and determined that a 363 Sale or Plan was the most feasible option, due to the uncertainty and difficulties that would attend any out-of court restructuring of the Debtors. 49. Commencing shortly after its engagement by the Company in September 2011 and continuing through early February of this year, A&M contacted numerous potential buyers and lenders who might have interest in investing in or lending to the Company. Various routes were explored, including but not limited to, a consensual foreclosure process with the existing lending group, some sort of take-out lending whereby the existing lenders would reduce their indebtedness and allow a new lender to recapitalize the company, new capitalization from existing equity or some combination of those
options. Approximately 21 capital sources were contacted by, or contacted, A&M. Ultimately, out-of-court alternatives were jettisoned in favor of proceedings under chapter 11 because of the certainty a bankruptcy filing and transactions in bankruptcy provide. 50. By December 2011, two potential financing providers with potential interest in purchasing the Assets emerged, both of whom were existing Senior Lenders. However, a group led by Garrison Investment Group (the “Stalking Horse”) emerged with the support of a majority of the Senior Lenders to provide financing on a priming basis ahead of the pre-Petition secured indebtedness. 51. Accordingly, the Debtors are diligently working with the Stalking Horse to negotiate and finalize an Asset Sale Agreement (the “Stalking Horse ASA” ). The Debtors hope to file a motion to sell the Assets, approve bid procedures and provide certain protections as outlined in the Stalking Horse ASA within the next few days. The Debtors have determined that the Stalking Horse ASA is superior to any other proposal received. Our evaluation included the following factors, among other things, (i) the Stalking Horse has completed substantially all of its material due diligence and accordingly did not require up-front payment of the Stalking Horse’s fees and expenses; (ii) the Stalking Horse ASA will have the support of most, if not all, of the Senior Lenders; and (iii) the Debtors have a high degree of certainty that the Stalking Horse has the ability to close the sale of the Assets (the “Sale”). 52. The Debtors are prepared to submit the Stalking Horse ASA to further the sale process that will be described in detail in the Debtors’ motion to sell the Assets, approve bid procedures and provide certain protections as outlined in the Stalking Horse ASA (the “Sale Motion”). Accordingly, the Debtors will seek approval of the sale process described in the Sale Motion in order to ensure that the sale process yields the highest and best offer for the Assets and will maximize the value received by the Debtors therefor. Although it is
anticipated that a credit bid may be the winning bid in the 363 sale process, such sale will result in the assumption of a significant portion of the Debtors’ existing unsecured obligations and ensure the continued provision of services to the Dental Centers and its patients. If the Debtors are not able to consummate the Sale, their financial limitations would lead to an orderly but relatively quick shut down of all operations.
53. Pursuant to the Settlement Agreements with the DOJ and the States, the consent of the DOJ and States may be necessary to a sale of substantially all the Assets. Accordingly, prior to the Petition Date, the Debtors approached the DOJ and obtained a consent to a waiver of the “change of control” provision related to a Sale of Assets in a bankruptcy. In addition, all the States except for one have consented to waive the “change of control” provision in the Settlement Agreements. It is hoped that the final state, Virginia, will consent prior to the sale of the Assets. 54. Pursuant to the Sale Motion, the Debtors wish to have the Sale Motion considered the week of March 12, 2012, for the marketing period to extend from the Petition Date to the week of April 2, 2012, for an auction to occur by the week of April 9, 2012, for the Court to approve the Sale to the successful bidder at the auction the week of April 9, 2012, and for a closing of the Sale to occur by April 30, 2012. E. The Chapter 11 Filing 55. The Board was made aware in November 2011 that the cash flow of the Company would likely render it unable to proceed much past mid-February 2012. Thus, no longer able t sustain viable long-term business operations in light of that financial situation, the Board and the Debtors’ management determined that the Debtors’ best option to maximize the
value of the Assets for stakeholders while safeguarding the welfare of the patients served by the Dental Centers was to pursue DIP financing and an acquisition transaction with the Stalking Horse in an orderly fashion through these Chapter 11 cases. The Board authorized the filing of these Chapter 11 cases and the proposed sale process described in the Sale Motion. 56. In order to subject the Stalking Horse’s bid for the Assets to competitive bidding in a manner that best assures the consummation of a transaction that will maximize value for their estates, the Debtors seek to pursue the sale process described in the Sale Motion. If the Debtors do not receive any additional bids pursuant to the Sale Motion, the Debtors will request that the Court authorize the Debtors to consummate the transaction with the Stalking Horse, which the Debtors believe will provide the highest value for stakeholders. 57. It is unlikely that cash sufficient to fully satisfy the Senior Lenders will be generated from a sale of the Assets, although that is the purpose of putting the Assets up for auction. Although it is unlikely that the general unsecured creditors will receive anything from the Assets on account of their claims, some of the creditors who potentially make up the unsecured creditor pool hold executory contracts, many of which will be cured, assumed and assigned as part of the sale of the Assets. As set forth earlier, the Debtors will be assuming all obligations to the DOJ, States, OIG, OMIG, SHS and the monitor. Finally, the path charted for this Chapter 11 also provides for a potential resolution of the Patient Litigation. FIRST DAY MOTIONS AND ORDERS 58. To enable the Debtors to operate during the pendency of these Chapter 11 cases, the Debtors have requested various forms of relief in “first-day” motions (the “First Day Motions”) filed contemporaneously herewith. In general, the First Day Motions seek to provide the Debtors with relief necessary to navigate the initial stages of their Chapter 11 cases and to implement the proposed sale transaction while ensuring that the services
provided by the Debtors which are critical to maintaining the day to day operations at the Dental Centers are not interrupted and complying with the necessary protections afforded to the Debtors’ key constituencies under the Bankruptcy Code. I believe that such relief is crucial to the Debtors’ prospects for successfully implementing the proposed sale of the Debtors’ business and assets. 59. I submit this affidavit in support of the First Day Motions.4 Except as otherwise indicated, all facts set forth herein are based on my personal knowledge of the Debtors’ operations, business affairs and books and records or on my review of relevant documentation. If I were called upon to testify, I could and would testify competently to the facts set forth herein. I am authorized to submit this affidavit on behalf of the Debtors. I have reviewed each of the First Day Motions and I believe that the relief sought in such motions (i) is necessary to enable the Debtors to operate within the parameters of Chapter 11 with a minimum of disruption while preserving and protecting the value of the Debtors’ estates and (ii) constitutes a critical element in implementing the proposed sale of the Debtors’ business and assets. 60. The First Day Motions consist of the following: *I. expedited motion of Debtors for entry of an order setting emergency hearing on certain of Debtors’ first day motions (the “First Day Hearing Motion”); *II. expedited motion of Debtors pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedures for joint administration and procedural consolidation of cases (the “Joint Administration Motion”); *III. expedited motion of Debtors for orders approving secured post-petition financing, use of cash collateral, granting adequate protection, granting related relief, and setting a final hearing (the “DIP Motion”);
*IV. expedited motion of Debtors for entry of an order (i) authorizing, but not requiring, Debtors to pay certain prepetition wages, salaries and other compensation, (ii) authorizing, but not requiring, the Debtors to maintain benefits programs, (iii) directing financial institutions to honor all related checks and electronic payment requests (iv) authorizing payment of reimbursable employee expenses, and (v) authorizing payment of workers’ compensation benefits (the “Employee Wage Motion”); *V. expedited motion of Debtors for an order authorizing maintenance of existing bank accounts, continued use of existing business forms, continued use of existing cash management system, and granting other relief (the “Cash Management Motion”); *VI. expedited motion of Debtors for entry of an order retaining an Investment Banker (the “I-Banker Retention Motion”); *VII. motion of Debtors pursuant to Bankruptcy Rule 1007 for an order granting an extension of time to file statements of financial affairs and schedules of (i) assets and liabilities, (ii) current income and expenditures and (iii) executory contracts and unexpired leases (the “Schedules Motion”); *VIII. motion of Debtors to set noticing and case management procedures in support of motion for joint administration (the “Noticing Procedures Motion”); *IX. second expedited Motion of Debtors to shorten notice and set expedited hearing for certain motions (the “Second Expedited Scheduling Motion”); X. motion of the Debtors for entry of an order (i) authorizing payment of prepetition obligations with respect to workers’ compensation, general liability, and other insurance policies, (ii) authorizing continuance of all insurance programs and satisfaction of all obligations related thereto, and (iii) directing financial institutions to honor all related checks and electronic payment requests (“Insurance Programs Motion”);
XI. Expedited Motion Of The Debtors For Entry Of An Order (I) Authorizing, But Not Requiring, Debtors To Pay Pre- And Post- Petition Tax Obligations And (Ii) Directing Financial Institutions To Honor All Related Checks And Electronic Payment Requests (the “Tax Motion”); XII. motion of Debtors for entry of an order authorizing Debtors to honor certain pre-petition obligations incurred within twenty day period prior to petition date (the “Pre-Petition Obligations Motion”); XIII. expedited motion of Debtors for entry of an administrative order pursuant to sections 105(a) and 331 of the Bankruptcy Code establishing procedures for interim compensation and reimbursement of expenses for professionals and committee members (“Interim Compensation Motion); XIV. motion of Debtors for entry of an order pursuant to Section 365(a) of the Bankruptcy Code authorizing the rejection of certain executory contracts nunc pro tunc to the petition date (the “Contract Rejection Motion”); XV. application of Debtors Pursuant To 11 U.S.C. §§ 105(A) And 363(B) To (I) Retain Alvarez & Marsal Healthcare Industry Group, LLC To Provide The Debtors A Chief Restructuring Officer And Certain Additional Personnel And (II) Designate Martin J. McGahan As Chief Restructuring Officer For The Debtors Nunc Pro Tunc To The Petition Date (the “A&M Retention”) XVI. application of Debtors to retain GCG, Inc. as Claims, Noticing and Balloting Agent to the Debtors and Debtors-InPossession Pursuant to 28 U.S.C. §156(c) (the “GCG Retention”) XVII. motion of Debtors for entry of an order: (i) (a) approving bidding procedures for the sale of substantially all assets, (b) scheduling an auction, (c) scheduling a sale hearing, (d) approving assumption and assignment procedures related to the sale, (e) authorizing payment of a break-up fee and expense
reimbursement and (f) approving the form of the sale notice; and (ii) (a) authorizing the sale of the Debtors’ assets free and clear of liens, claims, encumbrances, and other interests, (b) authorizing and approving the related purchase agreement, (c) approving the assumption and assignment of certain executory contracts and unexpired leases related thereto and (d) granting related relief (the “Sale Motion”); and XVII. motion of Debtors for entry of an order authorizing the Debtors to employ professionals utilized in the ordinary course of business (the “Ordinary Course Motion”). 61. It is anticipated that only those First Day Motions identified with an asterisk above will be heard and resolved at a hearing before the Court on February 22, 2012. I. EXPEDITED MOTION FOR EMERGENCY HEARING 62. The Debtors request entry of an order setting certain of the Debtors’ First Day Motions for emergency hearing on Wednesday, February 22, 2012. The requested relief is critical to the Debtors’ ability to satisfy its payroll obligations on February 24, 2012. Without the use of cash collateral, the Debtors would be unable to sustain business operations, resulting in immediate and irreparable harm to the Debtors’ creditors and estates as the Debtors would be compelled to liquidate their assets at a substantially reduced price, as opposed to the sale process currently contemplated. II. JOINT ADMINISTRATION AND PROCEDURAL CONSOLIDATION OF CASES 63. The Debtors are affiliates of each other as that term is defined in section 101(2) of the Bankruptcy Code and as that term is used in Bankruptcy Rule 1015(b). CSHM is the chief operating entity of the Debtors. In light of the multiple financial and operational interrelationships among the Debtors, joint administration of the Debtors’ cases I appropriate. Moreover, the joint administration of the
Debtors’ Chapter 11 cases will permit the Clerk of the Court to use a single general docket for each of the Debtors’ cases and will further the interests of judicial economy and administrative expediency. The rights of the respective creditors of each of the Debtors will not be adversely affected by joint administration of these cases inasmuch as the relief sought is purely procedural and is in no way intended to affect substantive rights. 64. The Debtors will file separate Statements and Schedules for the Debtor entities. 65. Therefore, the Debtors believe it to be in the best interests of their estates, creditors and other parties in interest that an immediate order be entered providing for the joint administration of the Debtors’ Chapter 11 cases pursuant to Bankruptcy Rule 1015(b). III. DIP MOTION 66. The Debtors request entry of an interim order and thereafter a final order (i) authorizing, on an interim and permanent basis, the Debtors to obtain secured post-Petition financing and to use the Senior Lenders’ cash collateral pursuant to sections 363 and 364 of the Bankruptcy Code and Bankruptcy Rule 4001(b) in accordance with an agreed budget, and granting adequate protection to the Senior Lenders (the “DIP”). The requested relief is critical to the Debtors’ ability to continue providing services to the Dental Centers necessary to maintain day to day operations without disruption of the services they provide to their dental patients, as the Debtors navigate the Chapter 11 process and conduct their sale process, thereby preserving and protecting the going concern value of their assets and businesses for the benefit of their stakeholders. To the extent the Court does not approve the DIP, the Debtors ask permission to use their cash collateral to continue their operations. Without the use of cash collateral, the Debtors would be unable to sustain business operations, resulting in immediate and irreparable harm to the Debtors’ creditors
and estates as the Debtors would be compelled to liquidate their assets at a substantially reduced price, as opposed to the sale process currently contemplated. 67. In the exercise of their business judgment, the Debtors have determined that they can continue operations during these cases utilizing the requested post-Petition secured financing and the Senior Lenders’ cash collateral in accordance with a budget, a copy of which I attached to the DIP Motion (the “Budget”). The ability to obtain such financing and use cash collateral will enable the Debtors to preserve and enhance the value of their businesses and assets for the benefit of all creditors through a going concern sale for maximum value. Such relief will also allow the Debtors to develop and confirm a chapter 11 plan. 68. The DIP does prime the existing Prepetition Secured Obligations. The priming is permitted because the requisite lenders under the primed facility have consented. The Debtors attempted but were unable to obtain (a) unsecured credit allowable under 503(b)(1) of the Bankruptcy Code section as an administrative expense, (b) credit for money borrowed secured solely by a lien on property of the estate that it not otherwise subject to a lien, or (c) credit for money borrowed secured by a junior lien on property of the estate which is subject to a lien, in each case, on more favorable terms and conditions than those provided in the DIP Credit Agreement and this Interim Order. Further, the Debtors propose to adequately protect the Senior Lenders by making adequate protection payments as set forth in the Budget and on account of the diminution in the Senior Lenders’ secured position. 69. The Senior Lenders have consented to the priming of their secured indebtedness in exchange for the adequate protection set forth in the DIP Motion. In the event the Court does not approve the DIP on the terms presented, the Senior Lenders do not consent and the DIP Lenders will not loan amount sufficient to keep the Company’s
operations in tact. It is my belief that the Debtors will need to cease operations shortly after the hearings on February 22, 2012 should the Court not approve the adequate protection to the Senior Lenders and the DIP Lenders refuse to make the loan on other terms. 70. Attached to the DIP Motion are the following exhibits: the DIP Agreement, the proposed interim order, and the Budget. The DIP Agreement and the Budget were prepared at my direction and under my supervision. They accurately reflect, or are summaries of, the books and records of the Company and the result of the negotiations with the DIP Lenders. They are complete and accurate to the best of my information, knowledge and belief. IV. WAGE MOTION & AUTHORIZING HONORING OF PREPETITION CHECKS 71. The Debtors’ ability to continue providing the management services as they navigate the Chapter 11 process depends upon the maintenance of the Debtors’ numerous employees. As a result of the bankruptcy filing, a portion of the wages, salary, benefits and other payments owed to or in respect of such employees and independent contractors (the “Pre-Petition Employee Obligations”) have become pre-petition obligations which, absent authorization from this Court, the Debtors would be unable to satisfy. The decline in employee morale that accompanies a bankruptcy filing and cessation of operations would be compounded by the Debtors’ failure to provide their employees with fundamental benefits of employment. This would undoubtedly jeopardize the Debtors’ ability to maintain their remaining workforce and provide adequate services to the Dental Centers they serve, and would likely have a negative effect on the value of the Debtors’ assets. 72. The Debtors believe that authorization to pay the Pre-Petition Employee Obligations is required in order to insure that there is no disruption in the Debtors’ workforce. Moreover, absent an order
granting this relief, the Banks upon which paychecks are drawn may not be certain of the Debtors’ rights and obligations, causing both confusion and delay in the payment of the Debtors’ Pre- Petition Employee Obligations. Any interruption in payment of wages, salaries, related benefits and other obligations could undermine confidence in future payment and could therefore have a host of negative implications on the Debtors’ staffing, operations and proposed sale. Accordingly, the Debtors believe that the relief requested is in the best interests of their estates, creditors and other parties in interest. 73. The Debtors estimate that the amount of the Pre-Petition Employee Obligations sought to be paid is $1,500,000. V. CASH MANAGEMENT MOTION 74. Prior to the Petition Date, the Debtors, in the ordinary course of their business, maintained an integrated network of bank accounts (collectively, the “Bank Accounts”) that facilitate the timely and efficient collection, concentration, management and disbursement of funds. The Debtors seek a waiver of the requirement contained in the United States Trustee’s Operating Guidelines that the Bank Accounts be closed and that new postpetition bank accounts be opened. If enforced in these Chapter 11 Cases, this requirement would cause undue disruption to the Debtors’ continued operations and would impair their efforts to maximize value through the Chapter 11 process. 75. State Medicaid agencies and other government reimbursements are paid to the Dental Centers.5 In connection with the management services provided by the Debtors, and on a regular basis several times weekly, the funds in the Dental Centers’ bank accounts are swept into the Debtor’s Bank Accounts.
5 The Dental Centers are parties to the government license, not the Company.
76. Dismantling the Debtors’ cash management system would likely disrupt the Debtors’ relationships with their key stakeholders and may hinder their ability to maintain operations during their Chapter 11 cases. In particular, the Debtors need to keep their Bank Accounts open because it would be very disruptive to the Company’s cash flow and ability to meet its obligations, including its payroll obligations and payments for supplies to be provided to the Dental Centers, if it had to terminate the sweeps in order to open new bank accounts and direct the swept funds to those accounts. Accordingly, if the Debtors are compelled to close the Bank Accounts, the Debtors and Dental Centers would face a major cash flow crisis. If the relief requested in the Cash Management Motion is granted, the Debtors will not pay, and the banks where the Bank Accounts are maintained will b directed not to pay, any debts incurred before the Petition Date, other than as specifically authorized by this Court. 77. To minimize expense to their estates, the Debtors also have requested authority to continue to use all correspondence and business forms (including, but not limited to, letterhead and invoices, etc.) and checks existing as of the Petition Date, without reference to their status as debtors in possession. Because of the nature of the Debtors’ businesses and the notice of consummation of cases that will be sent to all of the Debtors’ stakeholders and creditors, parties doing business with the Debtors likely will be made aware of the Debtors’ status as Chapter 11 debtors in possession. Changing correspondence and business forms would be unnecessary and burdensome to the estates, as well as expensive and disruptive to the Debtors’ business operations. For these reasons, the Debtors have requested authority to use their existing checks and business forms without placing the label “Debtor in Possession” on such checks or forms. 78. The Debtors’ primary transactional bank is Pinnacle Financial Partners, which contains several accounts maintained and controlled by CSHM, including the Debtors’ main operating account. Pinnacle is a financial institution on the United States Trustee’s list of approved
post-petition banks. CSHM and the other Debtors also use various other banks for their banking needs, primarily for depositor purposes. The Debtors agree not to use any financial institution which is not on the United States Trustee’s list of approved post-petition banks. 79. The Debtors are seeking authority to continue utilizing their current cash management system. The basic structure of the Debtors’ cash management system constitutes the Debtors’ ordinary, usual and essential business practice. The Debtors’ cash management system is similar to those commonly employed by others who provide services to dental providers or other health care providers of comparable size and complexity. The widespread use of such systems is attributable to the numerous benefits they provide, including the ability: (a) to tightly control corporate funds; (b) to ensure cash availability; and (c) to reduce administrative expenses by facilitating the movement and concentration of funds and the development of timely and accurate account balance and presentment information. 80. Given the corporate and financial structure of the Debtors, it would be difficult, if not impossible, for them to establish an entirely new system of accounts and a new cash management system. If the Debtors are compelled to close the Bank Accounts and revise their cash management procedures, the Debtors would face a major cash flow crisis. Thus, under the circumstances, maintenance of the Debtors’ cash management system is not only desirable, it is also in the best interests of the Debtors’ estates and creditors. Lastly, preserving the usual business atmosphere (to the greatest extent possible) for employees and avoiding the distractions that would inevitably be attendant with any disruption in the cash management system will facilitate the Debtors’ transition to Chapter 11. 81. Requiring the Debtors to change deposits and other procedures could result in harm to the Debtors, their estates and creditors because it would disrupt the Debtors’ existing cash management system.
82. The exhibits attached to the Cash Management Motion were prepared by me or others at my direction and are compiled from the books and records of the Company or are summaries of information from the books and records. I believe them to be true and accurate to the best of my knowledge, information and belief. VI. I-BANKER RETENTION 83. The Debtors request entry of an order pursuant to Bankruptcy Rule 2014(a) Sections 327(a) and 328(a) of the Bankruptcy Code authorizing and approving the Debtors’ retention of Morgan Joseph TriArtisan, LLC (“Morgan Joseph”) as Investment Banker (“Investment Banker”) in these cases effective as of their retention date and on the terms and conditions of that certain anticipated letter agreement to be dated as of February 21, 2012 by and among the Debtors and Morgan Joseph. The relief requested includes approval of an indemnification provision in the Retention Agreement. 84. The Debtors believe it is necessary and in the best interests of their creditors and estates to engage Morgan Joseph to act as Investment Banker to the Debtors during these cases. The Debtors are attempting to hold a sale of their Assets on a relatively short schedule. The Debtors want to maximize the publicity and interest in the sale of their Assets in an effort to maximize the bids and attract the best bidders for the process. I believe that by having an Investment Banker such as Morgan Joseph will enhance the chance for the greatest bid and the best bidders for the auction. As discussed, the Debtors intend to file the Sale Motion for an auction-style sale of substantially all of their assets pursuant to Section 363 of the Bankruptcy Code. In order to maximize value to the estate, the requested procedures for the 363 Sale will include marketing their assets to potential purchasers. Morgan Joseph is an experienced Investment Banker in this industry and in bankruptcy generally, with the ability to effectively reach numerous parties and generate
substantial interest in the 363 Sale. In addition, Morgan Joseph will also formulate and consolidate information for prospective bidders in a format that will facilitate such prospective bidders’ ability to evaluate and analyze the terms of the 363 Sale on the requested timeframe. VII. SCHEDULES MOTION 85. The Debtors and their professional advisors are working diligently to prepare the Schedules of Assets and Liabilities, the Statements of Financial Affairs and lists of executory contracts (collectively, the “Schedules”) to reflect accurately the financial circumstances of the Debtors as of the Petition Date. However, prior to the filing of these cases, the Debtors were unable to direct the resources necessary to complete the Schedules due to the fact that their management and other personnel spent a significant amount of time preparing for the Chapter 11 filing, including the DIP, the proposed sale transaction and attending to their usual demanding daily duties. 86. The Debtors are requesting a fifteen (15) day extension. 87. Furthermore, the Debtors have potentially thousands of creditors and other parties in interest. The Debtors are also parties to numerous personal property leases and other executory contracts. Accordingly, to complete the Schedules, the Debtors will be required, among other things, to organize and review their books and records as of the Petition Date so as to compile and present all of the foregoing information, review their records to determine their liabilities to each individual creditor as of such date, identify all potential claimants to whom a bar date notice must be sent, as well as identify all payments that were made to creditors within the 90-day period prior to filing (or one year period with respect to insiders). 88. Based on the foregoing, and due to the other pressing activities in which the Debtors are engaged at this time, the Debtors will require
additional time to finalize their Schedules. Notwithstanding the requested extension, the Debtors hope to file their Schedules in advance of such extended date. VIII. NOTICING PROCEDURES MOTION 89. The Debtors seek, on an expedited basis, an order authorizing the Debtors to limit the scope of notice of certain matters to a discrete list of parties. The only matters not to be subject to the limited notice list would be as to the commencement of the case, the meeting of creditors and of the sale of Assets to the Stalking Horse or such other higher and better bidder. In addition, the Debtors request that the Court establish certain case management and administrative procedures in order to assist the orderly and efficient administration of these cases, including the scheduling of regular omnibus hearing dates. In light of the large number of creditors in these cases, the Debtors believe that limited notice of routine matters will dramatically reduce the burden, complication, delay, and cost to the Debtors’ estates associated with administering these cases and providing notice of proceedings in these cases. Expedited consideration is necessary to maximize the benefit from limiting the scope and manner of subsequent notices and establishing Omnibus hearing dates. The Debtors are not looking to limit notice of the Petitions, Bar Date, or sale procedures. IX. SECOND EXPEDITED SCHEDULING MOTION 90. The Debtors request entry of an order setting certain of the Debtors’ First Day Motions for hearing on or after March 13, 2012 but prior to March 16, 2012, with objections thereto to be filed on or before March 8, 2012. The requested relief is critical to the Debtors’ ability to maintain operations and the administration of these cases. Without the entry of these orders, the Debtors would be unable to sustain business operations or the administration of these chapter 11 cases, resulting in immediate and irreparable harm to the Debtors’
creditors and estates as the Debtors would be compelled to liquidate their assets at a substantially reduced price, as opposed to the sale process currently contemplated. 91. In an effort to preserve judicial economy, the Debtors identified issues and relief truly needed at the very beginning of these cases for the hearing requested on February 22, 2012. As a result, the following First Day Motions were identified as vital to continued pursuit of reorganization, but were anticipated to be able to be resolved on a slightly slower time frame than items I – IX above. However, quick resolution is required and time remains of the essence with respect to the First Day Motions listed below in items X-XVIII. ALL REMAINING MOTIONS AND MATTERS LISTED BELOW WILL NOT BE HEARD FEBRUARY 22, 2012 X. INSURANCE PROGRAMS MOTION 92. The Debtors maintain certain insurance programs as described in the Insurance Programs Motion, including general liability, umbrella, workers’ compensation (and employers’ liability), crime, automobile, property, professional liability, directors and officers and employment practices liability and pollution policies, and pay certain prepetition obligations related thereto in the ordinary course of business. In the ordinary course of business, the Debtors also pay other obligations relating to the insurance programs, including broker fees. 93. The Debtors do not believe that any amounts are outstanding with respect to the insurance programs, but to the extent they become due and payable and request that the Court direct the Debtors’ financial institutions to receive, process, honor and pay all checks presented for payment or electronic payment request from the Debtors’ payroll account and
granting authority to reissue any dishonored checks relating to the insurance programs. 94. The Debtors believe maintenance of the insurance programs is of paramount importance to ensure continued coverage under applicable policies in order to protect their estates, and to maintain working relationships with the Debtors’ insurers. The Debtors’ maintenance of their relationships with their insurance providers is further critical to ensuring the continued availability of insurance coverage and reasonable pricing of such coverage. XI. TAX MOTION 95. The Debtors seek authority, but not the direction, to pay certain prepetition taxes which tend to arise in the ordinary course of business. Sales and use taxes typically arise in the approximate aggregate amount of $20,000 each month and are generally owed to the authorities contained on Schedule A to the Tax Motion. In order to satisfy their legal obligation to remit such taxes and to avoid any of the negative implications that could arise if the Debtors were to cease payment of such taxes, the Debtors submit that authorization to pay the taxes is justified and will enable the Debtors to maintain stable operations during the initial stages of their Chapter 11 cases and while they pursue sale of the Assets.
XII. PRE-PETITION OBLIGATIONS MOTION 96. Debtors request entry of an order pursuant to Sections 105(a) and 503(b) confirming the administrative expense priority status of undisputed obligations relating to goods and services received by the Debtors within twenty days prior to the petition date, authorizing, but not requiring, the Debtors to pay such obligations in the ordinary course of business, and honoring such payment checks and issuance of replacement checks if needed.
97. The services and goods provided by numerous suppliers and service providers (“Vendors”) are essential to the Debtors’ ongoing business operations. The Vendors may discontinue providing goods and services if their pre-petition obligations remain unsatisfied, thereby interrupting the Debtors’ provision of management services to the Dental Centers and impairing the Debtors’ ability to reorganize efficiently. XIII. INTERIM COMPENSATION MOTION 98. The Debtors request entry of an order pursuant to Sections 105(a), 331, 363(c), 507(a), 1107(a) and 1108 of the Bankruptcy Code, Bankruptcy Rule 2016 and Local Rule 2016-1 for entry on an expedited basis of an order establishing certain procedures for interim compensation and reimbursement of expenses for professionals and committee members. 99. The procedures requested in the Interim Compensation Motion will relieve the burden on the Court imposed by alternative interim compensation procedures that require monthly court orders, while, preserving all rights of objection, enabling the parties to closely monitor costs of administration, and enabling professionals to maintain a level cash flow. XIV. CONTRACT REJECTION MOTION 100. The Debtors request entry of an order authorizing Debtors to reject approximately a dozen executory contracts listed on Exhibit A to the Contract Rejection Motion (the “Executory Contracts”) nunc pro tunc to the petition date. 101. The Debtors seek to reject the Executory Contracts because they either (a) ceased performance under the listed Executory Contracts (or never commenced performing) or (b) determined that the listed
Executory Contract is burdensome and does not provide any value to the Debtors’ estates. 102. The Debtors believe that expedited rejection of the Executory Contracts nunc pro tunc and/or retroactive to the Petition Date is necessary because the Debtors do not wish to burden the estates with unnecessary administrative expenses. Due to the timing of the filing o Debtors’ bankruptcy cases, if the Executory Contracts are not rejected as of the Petition Date, the Debtors would face assertion of unnecessary and potentially significant. XIII. INTERIM COMPENSATION MOTION 98. The Debtors request entry of an order pursuant to Sections 105(a), 331, 363(c), 507(a), 1107(a) and 1108 of the Bankruptcy Code, Bankruptcy Rule 2016 and Local Rule 2016-1 for entry on an expedited basis of an order establishing certain procedures for interim compensation and reimbursement of expenses for professionals and committee members. 99. The procedures requested in the Interim Compensation Motion will relieve the burden on the Court imposed by alternative interim compensation procedures that require monthly court orders, while, preserving all rights of objection, enabling the parties to closely monitor costs of administration, and enabling professionals to maintain a level cash flow. XIV. CONTRACT REJECTION MOTION 100. The Debtors request entry of an order authorizing Debtors to reject approximately a dozen executory contracts listed on Exhibit A to the Contract Rejection Motion (the “Executory Contracts”) nunc pro tunc to the petition date. 101. The Debtors seek to reject the Executory Contracts because they either (a) ceased performance under the listed Executory Contracts
(or never commenced performing) or (b) determined that the listed Executory Contract is burdensome and does not provide any value to the Debtors’ estates. 102. The Debtors believe that expedited rejection of the Executory Contracts nunc pro tunc and/or retroactive to the Petition Date is necessary because the Debtors do not wish to burden the estates with unnecessary administrative expenses. Due to the timing of the filing of Debtors’ bankruptcy cases, if the Executory Contracts are not rejected as of the Petition Date, the Debtors would face assertion of unnecessary and potentially significant administrative claims against their estates. administrative claims against their estates. XV. ALVAREZ & MARSAL RETENTION 103. Attached to the Application of Debtors to Retain Alvarez & Marsal Healthcare Industry Group, LLC to Provide the Debtors a Chief Restructuring Officer (the “CRO Application”) is that certain letter dated October 7, 2011 between the Company and A&M (the “Engagement Letter”). I have reviewed the CRO Application and the Exhibit (the Engagement Letter), a true and correct copy of which is attached as Exhibit A to the CRO Application. 104. I have been serving as the Debtors’ CRO since October 7, 2011. Pursuant to the CRO Application, I will continue in that role postpetition should the Court approve the retention application. 105. In addition, I will ask Maria Arnaoudona and Laura Katherine Schembri (the “Additional Personnel” and along with me, the “Engagement Personnel”) to assist me in carrying out my duties as CRO. 106. The Engagement Personnel will engage in those job functions generally set forth under the “Scope of Services” set forth in the Application and incorporated verbatim herein.
107. I have more than 10 years of experience serving the needs of financially and operationally challenged organizations. I work to address critical business processes, including cash flow management and enhancement, profit improvement, strategic assessment and business plan implementation. Over the last decade, I have worked on both debtor and creditor-side engagements, primarily within the healthcare sector, including Sunrise Senior Living, Sunwest Management, Inc., Medical Staffing Network, St. Vincent Catholic Medical Centers, Orthodontic Centers of America, Inc., and World Health Alternatives. 108. Prior to the execution of the Engagement Letter, A&M was retained to provide financial advisory services for the Company through Waller Lansden Dortch & Davis, LLC, the Company’s legal counsel. 109. Since our retention last fall, the Engagement Personnel has developed significant and relevant experience and expertise regarding the Debtors, their operations and the unique circumstances of these cases. 110. It is my intention to carry out some or all of the following tasks should the Court approve my retention as CRO: a. assisting the Debtors’ in the ongoing assessment and review of the Company’s operations; b. assisting the Debtors’ financial personnel in the management of the daily cash disbursements and projected cash needs of the Company as projected in the Budget; c. assisting in the reporting, planning and compliance with the Debtors’ debtor in possession financing. d. assisting in the overall financial reporting and administrative requirements of the Bankruptcy Code, including post-petition reporting requirements and claim reconciliation efforts;
e. serving as the principal contact with the Debtors’ key constituents/creditors with respect to financial and operational matters; and f. performing such other services in connection with the restructuring process as reasonably requested or directed by the Boards and other authorized personnel of the Debtors, consistent with the role played by A&M in this matter and not duplicative of services being performed by other professionals in these proceedings. 112. A&M and I have no affiliation or other business connection with the Debtors, their creditors, equity holders, current or former officers and directors, prospective buyers or investors, other parties in interest, or the attorneys or accountants of any of the foregoing, or the United States Trustee or any person employed in the Office of the United States Trustee. 113. A&M and I do not hold an interest adverse to the Debtors’ estates. As of the Petition Date, we are owed no money by the Debtors. We do hold a retainer of approximately $225,000 as of the Petition Date. 114. A&M and I are not involved in this case as a creditor, service provider or professional of any entity with which A&M or I or any affiliate of A&M has an alliance agreement, marketing agreement, joint venture, referral arrangement or similar agreement. 115. A&M does not have any employee, officer or director serving on any of the Debtors’ Boards and has no right to vote on whether to retain me or A&M. Pre-petition, neither A&M nor I was eligible to vote by the Board on my retention or A&M’s retention. Neither A&M nor I have been conferred the authority by the boards or any manager pursuant to which A&M could be unilaterally retained.
116. The engagement contemplated by the Engagement Letter will be a parttime position for me. I estimate that approximately sixty percent of my time will be spent on this engagement. The other engagements I am involved with do not create a conflict with my handling of this matter for the Debtors. However, because of confidentiality arrangements with the engagements I am currently handling, I cannot disclose those without breaching the confidential nature of those engagements. I will be glad to discuss those engagements with the Court in an in camera-type proceeding if necessary. In the other matters on which I am engaged, none of them involve potential buyers of the assets, nor are they with or no behalf of creditors or parties in interest of other companies in the dental management business. For the other Engagement Personnel, this will be a full-time engagement. 117. In the ninety days prior to the Petition Date, A&M has received $1,224,174.97 in fees and expenses on account of its work for the Debtors. It received a retainer of $100,000 on September 16, 2011. That retainer was increased to $250,000 within the ninety days prior to filing this case. 118. The rates for people working on this matter are accurate as reflected in the CRO Application. The terms of our compensation, indemnification and the dispute resolution procedure set forth in the CRO Application is accurate and reflects A&M’s agreement with the Debtors in total. A&M agrees to make a CRO Report as set forth in the CRO Application. 119. Based upon my experience in cases similar to this, I believe A&M’s rates and the work it will do are reasonable and are similar to the market for such services for engagements of this nature in both out-of-court restructurings as well as in chapter 11 proceedings. XVI. RETENTION OF GCG
120. For the reasons set forth in the application to retain GCG, the Debtors believe it is necessary and in the best interests of their creditors and estates to engage GCG to act as outside agent to the Clerk of the Bankruptcy Court in order to assume full responsibility for the distribution of notices and proof of claim forms, and the maintenance, secondary processing and docketing of all proofs of claim filed in the Debtors’ chapter 11 cases. In addition, in connection with any plan of reorganization proposed by the Debtors, the Debtors have determined that it will require the services of GCG to act as solicitation agent with respect to, among other things, the mailing of a disclosure statement, the plan and related ballots, and maintaining and tallying ballots in connection with the voting on such plan. XVII. SALE MOTION 123. As set forth above, despite the Debtors’ best efforts to maintain the viability of their operations, the Debtors’ have experienced pervasive financial difficulties. The Debtors pursued a number of initiatives to alleviate their financial problems, but were unable to resolve them. Accordingly, the Debtors retained A&M to provide consulting services and to assist the Debtors with analysis of their restructuring, sale and other options. After a comprehensive review of such options, the Debtors, in consultation with A&M, determined that a sale of substantially all of the Debtors’ assets pursuant to Section 363 of the Bankruptcy Code was the most viable course of action due to the difficulties that would accompany an out-of-court restructuring. 124. In order to maximize value obtained for the Assets, the Debtors thereafter conducted a process whereby the Debtors solicited interest from a number of potential purchasers and ultimately engaged negotiations with two potential purchasers. As discussed above, as a result of this process, the Stalking Horse’s bid emerged as the superior deal. While the Debtors believe that the Stalking Horse’s bid
is a market-tested offer that provides fair consideration for the Assets, the Debtors seek authority to subject it to an open auction to allow interested parties a final opportunity to bid for the Assets. The Debtors respectfully submit that the sale process to be further described in the Sale Motion will result in the maximization of the Assets and is in the best interests of the Debtors’ estates, creditors and other stakeholders. XVIII. ORDINARY COURSE PROFESSIONALS MOTION 125. The Debtors employ various professionals in the ordinary course of business. The Debtors desire to continue to employ ordinary course professionals to render many of the services to their estates similar to those services rendered prior to the petition date. These professionals render a wide range of legal, accounting, tax and other services for the Debtors that impact the Debtors’ day-to-day operations. It is essential that the employment of ordinary course professionals, many of which are already familiar with the Debtors’ affairs, be continued on an ongoing basis so as to avoid disruption of the Debtors’ normal business operations. The Debtors submit that the proposed employment of ordinary course professionals and the payment of monthly compensation on the basis set forth in the Ordinary Course Motion are in the best interest of their estates and their creditors. 126. The relief requested will save the estates the substantial expenses associated with applying separately for the employment of each professional. Further, the requested relief will avoid the incurrence of additional fees pertaining to preparing and prosecuting interim fee applications. Likewise, the procedure outlined in the Ordinary Course Motion will relieve the Court and the U.S. Trustee of the burden of reviewing numerous fee applications involving relatively small amounts of fees and expenses. [CONCLUDED ON THE FOLLOWING PAGE]
IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 07-30430 In The Matter Of: OCA, INC, formerly doing business as Orthodontic Center of America; ORTHALLIANCE NEW IMAGE; ORTHODONTIC CENTERS OF TEXAS INC; PEDOALLIANCE INC; ORTHOALLIANCE, INC, a Delaware Corporation Debtors DOUG CROSBY, DDS, DONALD B DOAN, DDS, GLENWOOD JORDAN, DDS, ELGIN E WELLS; Plaintiffs-Appellees OCA INC, A Delaware Corp; PEDOALLIANCE INC; Plaintiffs-Appellants RICHARD R WOEHRLE, DDS, MS; MICHAEL M DILLINGHAM DDS PC, a Texas Professional Corporation; MICHAEL M. DILLINGHAM, DDS; AUSTIN ORTHODONTIC SPECIALISTS; ROBERT P. BUCK; BUCK ORTHODONTICES ASSOCIATES PC; STEPHEN N COLE; BAY AREA ORTHODONTICES PC Plaintiffs-Appellees v. ORTHALLIANCE NEW IMAGE; ORTHONDONTIC CENTERS OF TEXAS INC; Defendants-Appellants
DUDLEY M HODGKINS; DUDLEY M HODGKINS, DDS, MSD, PC, A Texas Professional Corp; WILLIAM R IZZARD; RUBY IZZARD DDS PC Defendants-Appellees ORTHOALLIANCE INC, a Delaware Corporation; Defendant-Appellant RON RISINGER, D.D.S.; RON RISINGER, DDS PC Movants-Appellees ROBERT PACKARD; PACKARD ORTHODONTICS PA Amicus Curiae United States Court of Appeals Fifth Circuit FILED December 12, 2008 Charles R. Fulbruge III Appeal from the United States Bankruptcy Court for the Eastern District of Louisiana Before GARWOOD, CLEMENT, and ELROD, Circuit Judges. GARWOOD, Circuit Judge: Debtors-appellants OCA, Inc., formerly doing business as Orthodontic Centers of America, Inc.; OrthAlliance New Image, Inc.; Orthodontic Centers of Texas, Inc.; PedoAlliance, Inc.; and OrthAlliance, Inc. (collectively “OCA”) directly appeal the January 17, 2007 interlocutory order of the bankruptcy court granting partial summary judgment and holding that the Business Services Agreements or Management Agreements (collectively the “BSAs”) that OCA entered with a number of
orthodontists and their professional corporations (collectively the “Orthodontists) were illegal under Texas law. We affirm.1
FACTS AND PROCEEDINGS BELOW This case arises out of a dispute over various BSAs, which OCA had entered into with Orthodontists in the state of Texas.2 According to the terms of the BSAs,OCA purchased or leased office space and purchased equipment for each office. OCA was also responsible for billing patients, filing insurance claims, hiring nondental personnel, setting dress codes, and managing a bank account through which the dental practice’s funds flowed. The Orthodontists were not authorized to withdraw funds from the operating account, so OCA periodically transferred money from these accounts to pay the Orthodontists their compensation. In exchange, the Orthodontists agreed to work a minimum number of hours each week at the practice and not to perform orthodontic work outside that office. The Orthodontist would receive an hourly rate for seeing patients, and OCA would receive an hourly management fee in addition to being reimbursed for its overhead. Profits were then split according to the respective ownership interests of OCA and the Orthodontists. The BSAs were to be in force for long periods of time, some up to forty years, and their terms severely restricted the Orthodontists’ ability to terminate or assign them.
The following dentists and professional corporations were parties to this appeal: Dou Crosby, D.D.S.; Donald B. Doan, D.D.S.; Elgin E. Wells; Dudley M. Hodgkins; Dudley M Hodgkins, D.D.S., M.S.D., P.C., a Texas Professional Corporation; Lisa L. Kerns; Lisa Loomi Kerns, D.D.S., P.C., a Texas Professional Corporation; William F. Terhune; William F Terhune, D.M.D., P.C., a Texas Professional Corporation; William R. Izzard; Rudy Izzard D.D.S., P.C.; Richard R. Woehrle, D.D.S., M.S.; Michael M. Dillingham, D.D.S., P.C., a Texa Professional Corporation; MichaelM. Dillingham, D.D.S.; Austin Orthodontic Specialists, Inc. Robert P. Buck; Buck Orthodontics Associates, P.C.; Stephen N. Cole; Bay Area Orthodontics P.C.; Ron Risinger, D.D.S.; Ron Risinger, D.D.S., P.C.; Don A. Woodworth, D.D.S.; Woodwort Orthodontics, P.A.. Lisa L. Kerns; Lisa Loomis Kerns, D.D.S., P.C., a Texas Professiona Corporation; William F. Terhune; William F. Terhune, D.M.D., P.C., a Texas Professiona Corporation; and Richard R. Woehrle, D.D.S., M.S. were dismissed as parties to this appea before oral argument because they reached a settlement with OCA. OCA entered into contracts with orthodontists in many states, but this appeal only deals with contracts between OCA and orthodontists practicing in Texas.
The Orthodontists entered this case at various points in the litigation stream. Appellee orthodontist Buck initially brought suit against Orthalliance, Inc. in Texas state court seeking an accounting and a declaration that his BSA was void for illegality under Texas law. The case was removed to federal court and later transferred to the United States District Court for the Northern District of Texas on November 11, 2002. Appellee orthodontist Cole brought a similar suit that was eventually consolidated with Buck’s case and others in Penny v. OrthAlliance, Inc. (“Penny”), Case No. 3:01-CV-1569-N, in the Northern District of Texas, in June 2004.3 The district court severed Cole’s and Buck’s cases from the Penny litigation in July 2005. OCA’s filing for chapter 11 protection in the proceedings below in the Eastern District of Louisiana stayed Cole’s and Buck’s cases on March 6, 2006. The bankruptcy court, however, lifted the stay for the purpose of allowing the Northern District of Texas district court to rule on whether Buck’s and Cole’s BSAs were void for illegality under Texas law. On November 20, 2006, the district court for the Northern District of Texas held that the BSAs were void for illegality because they were nearly identical to the contracts in Penny that were held to be illegal under Texas Occupation Code § 251.003(a)(4). The district court then transferred the remainder of the case to the bankruptcy court for the Eastern District of Louisiana. Appellee orthodontist Izzard terminated his BSA in April 2005, before OCA filed for bankruptcy. Appellees orthodontists Wells, Doan, Dillingham, Crosby, Jordan, Hodgkins, and Woodworth were still performing under their respective BSAs when OCA filed for bankruptcy. After filing for chapter 11 protection, OCA, as debtor in possession, commenced adversary proceedings in the bankruptcy court against ________________
See Penny v. Orthalliance, Inc., 255 F. Supp. 2d 579 (N.D. Tex. 2003).
Hodgkins and Izzard seeking a declaration that their BSAs were not void for illegality under Texas law. Appellees orthodontists Doan, Crosby, Wells, and Dillingham brought adversary proceedings seeking to have their BSAs declared void for illegality. In a contested proceeding, appellee orthodontist Woodworth filed a motion for summary judgment, which sought to have his BSA declared void for illegality. The bankruptcy court held a joint hearing to determine the legality of all of the Texas BSAs on January 10, 2007. At this hearing, the bankruptcy court announced from the bench that it was granting the Orthodontists’ motions for partial summary judgment and holding that the BSAs were void for illegality under Texas law based on several prior Texas federal district court rulings in similar cases. The bankruptcy court entered its Order Granting Partial Summary Judgment on January 17, 2007. On January 19, 2007, OCA moved to have the bankruptcy court certify its interlocutory judgment for direct appeal under 28 U.S.C. § 158(d)(2), and the Orthodontists moved to have the January 17, 2007 order made final. On March 7, 2007, the bankruptcy court granted OCA’s motion and certified that the requirements to directly appeal its January 17, 2007 order to the Fifth Circuit were present. It also denied the Orthodontists’ motions to make its earlier judgment final.4 OCA filed its petition for direct review of the bankruptcy court’s interlocutory order with the Fifth Circuit on March, 16, 2007. The petition was granted on May 15, 2007. OCA directly appealed to this court the bankruptcy court’s January 17, 2007 interlocutory order pursuant to 28 U.S.C. § 158(d)(2). This statute was enacted to provide for direct review of bankruptcy court judgments, orders, or decrees by the applicable court of appeals in cases where the bankruptcy court or the district court certify that there __________________
On March 9, 2007, the bankruptcy court separately denied Woodworth’s motion to make his judgment final and granted OCA’s motion to certify the bankruptcy court’s January 17, 2007 order for direct appeal with respect to Woodworth.
is no controlling decision from the Supreme Court or circuit court, the case involves a matter of public importance, there are conflicting precedents, or an immediate appeal may materially advance the progress of the bankruptcy proceeding. 28 U.S.C. § 158(d)(2)(A)(i)– (iii). If this certification is made, the applicable court of appeals has jurisdiction if it authorizes the direct appeal. Id. § 158(d)(2)(A). On March 7, 2007, the bankruptcy court certified that this case met the requirements for direct appeal because it involved a question of law on which there was no controlling decision by the Fifth Circuit or the Supreme Court, it involved a matter of public importance, and a direct appeal would materially advance the progress of the case. A panel from this court granted OCA’s petition for leave to appeal under section 158(d). The only question is whether section 158(d)(2) permits this court to hear direct appeals from interlocutory orders of bankruptcy courts.5 The text of the statute grants the courts of appeals “jurisdiction of appeals described in the first sentence of subsection (a).” Id. § 158(d)(2)(A) (emphasis added). The first sentence of section 158(a) grants district courts jurisdiction over of section 158(d)(2) are met, this court has jurisdiction to hear OCA’s direct appeal from the bankruptcy court.6
Prior to the adoption of section 158(d)(2), this court generally lacked jurisdiction to review interlocutory orders of bankruptcy courts. Promenade Nat’l Bank v. Phillips (In re Phillips), 844 F.2d 230, 231 (5th Cir. 1988). Woodworth argues that his appeal is not properly before this court because the certification for direct appeal of his case was not signed until March 9, 2007, which was more than 30 days after the judgment was entered on January 17, 2007. At oral argument Woodworth argued that his case was distinguishable from the other orthodontists because his was a contested proceeding, not an adversarial proceeding, and his judgment is final. Assuming arguendo that Woodworth is correct and his judgment is final, his argument still fails because a party may request certification for direct appeal up 60 days after the entry of the judgment, order, or decree. 28 U.S.C. § 158(d)(2)(E). This 60 day limit applies regardless of whether the judgment, order, or decree is final or interlocutory. OCA received certification for direct appeal on March 9, 2007, which is within 60 days of the entry of the judgment or order to be appealed on January 17, 2007. Therefore, the appeal was timely filed. Additionally, Woodworth argued that his case was not properly included in OCA’s petition for leave to appeal to the Fifth Circuit. After reviewing the record, however, we conclude that OCA did properly include Woodworth in its petition for direct appeal, so this court does have jurisdiction over his appeal.
Since this is an appeal from an interlocutory order from the bankruptcy court regarding a question of law on which there is no controlling precedent, we will treat this appeal essentially as we treat certified questions from district courts. See 28 U.S.C. § 1292(b).
DISCUSSION The Texas Occupations Code prohibits a person from practicing dentistry without a license. Tex. Occ. Code § 256.001. Texas defines practicing dentistry as engaging in any one of ten different activities. See Tex. Occ. Code § 251.003(a). In this case, the bankruptcy court granted the Orthodontists’ motions for partial summary judgment and held that the BSAs between OCA and the Orthodontists were void for illegality because they enabled OCA, which is unlicensed, to practice dentistry without a licence by owning, maintaining, or operating a place of business in which it employed or engaged by contract someone else to practice dentistry. Tex. Occ. Code § 251.003(a)(4).7 OCA argues bankruptcy appeals from interlocutory orders or decrees if granted leave by the district court. Id. § 158(a)(3). Since interlocutory orders are included in the first sentence of subsection (a) and all of the other jurisdictional prerequisites that this ruling was erroneous because it is a corporation and is hence not a “person” under section 251.003(a)(4), the bankruptcy court should have permitted the parties to use the severability clause in the BSAs to cure the BSAs’ illegality, and the bankruptcy court failed to consider whether an assignment of part of OCA’s rights or obligations under the BSAs to an affiliate would have rendered the BSAs legal. I. Standard of Review; Applicable Law
______________________ 7 Section 251.003(a)(4) provides “(a) For purposes of this subtitle, a person practices dentistry if the person: . . . (4) owns, maintains, or operates an office or place of business in which the person employs or engages under any type of contract another person to practice. 81
When directly reviewing an order from a bankruptcy court, findings of fact are reviewed for clear error and conclusions of law are reviewed de novo. FED. R. BANKR. P. 8013; Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008). A lower court’s grant of summary judgment presents a question of law reviewed de novo. Since all of the BSA’s in this appeal involved the practice of dentistry in Texas, Texas law governs their enforceability. See Butner v. United States, 99 S.Ct. 914, 918 (1979) (“Property interests are created and defined by state law. . . . [T]here is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” ) II. Are Corporations “Persons” for Purposes of Section 251.003(a)(4)? Legislation governing the operations of dentists is codified in the Texas Occupations Code (the “Code”). When the Code was recodified in 1999, the legislature added section 1.002, which provides that the “Government Code (Code Construction Act), applies to the construction of each provision in this code except as otherwise expressly provided by this code.” Tex. Occ. Code § 1.002. The Texas Government Code defines the term “person” to include corporations “unless the statute or context in which the word or phrase is used requires a different definition.” Tex. Gov’t Code § 311.005(2). Section 251.003(a) does not contain its own definition of “person,” but nevertheless, OCA argues that the term should not be read to include corporations. The basis of its argument is that the recodification of the Code was not meant to enact substantive change in the law and the prior version of section 251.003(a)(4) did not itself expressly include corporations in its definition of person. See Tex. Occ. Code § 1.001(a) (stating that the revisions were not meant to make any substantive changes).
The previous version of section 251.003(a)(4) provided that anyone who engaged in the following conduct was engaged in dentistry: “(4) Anyone who owns, maintains or operates any office or place of business where he employs or engages under any kind of contract whatsoever, any other person or persons to practice dentistry as above defined shall be deemed to be practicing dentistry himself, and shall himself be required to be duly licensed to practice dentistry as hereinabove defined and shall be subject to all of the other provisions of this Chapter, even though the person or persons so employed or engaged by him shall be duly licensed to practice dentistry as hereinabove defined.” Tex. Rev. Civ. Stat. art. 4551a(4) (1935) (emphasis added) (“Article 4551a(4)”). OCA argues that the references to he, himself, and him limit the definition of “person” to natural persons. OCA also notes that Article 4551a(4) was passed in 1935 along with an identical criminal statute, Tex. Penal Code art. 754a(4) (1935) (“Article 754a(4)”), which only applied to natural persons. OCA argues that the doctrine of in pari materia requires the civil statute and the penal statute to be read in harmony because they were adopted by the same legislature regarding the same subject matter. See Garrett v. Mercantile Nat’l Bank at Dallas, 168 S.W.2d 636, 637 (Tex. 1943); Braun v. State, 49 S.W. 620, 622-23 (Tex. Crim. App. 1899). Consequently, the civil statute should be read to only apply to natural persons because the criminal statute’s application was limited to natural persons. One problem with this argument is that when these statutes were passed Texas did not subject corporations to criminal liability. See Robert W. Hamilton, Corporate Criminal Liability in Texas, 47 TEX. L.REV. 60, 60 (1968) (noting that Texas did not subject corporations to criminal prosecutions at that time); see also Linda C. Anderson, Corporate Criminal Liability for Specific Intent Crimes and Offenses of Criminal Negligence—The Direction of Texas Law,
15ST.MARY’S L.J. 231, 233 (1984) (stating that the Texas Penal Code was revised in 1974, and that revision incorporated many of Professor Hamilton’s suggestions and imposed criminal liability on corporations). Since Texas did not subject corporations to criminal prosecution before 1974, the fact that Article 754a(4) did not apply to corporations tells us little about whether Article 4551(a)(4), a civil statute, was meant to apply to corporations.8 That still leaves OCA’s argument that the previous iteration of section 251.003(a)(4) did not apply to corporations. However, since at least 1925 it has been the law in Texas that in civil statutes “unless a different meaning is apparent from the context” the word “‘Person’ includes a corporation.” Article 23(2) Revised Civil Statutes of Texas, 1925, repealed by Acts 1985, 69th Leg. ch. 479, § 224. This provision was essentially replaced by the above referenced provision of TEX. GOV’T CODE § 311.005(2), likewise enacted by Acts 1985, 69th Leg., ch. 479, § 1. See also, e.g., James N. Tardy Co v. Tarver, 39 S.W.2d 848, 850 (Tex. 1931) (“person” in Texas civil statute includes corporation under Article 23); Wyche v. Wichita Engineering Co., 374 S.W.2d 728, 732 (Tex. Civ. App.–Dallas 1964, writ ref’d n.r.e.) (same); United States v. Texas Construction Co., 237 F.2d 705, 706 (5th Cir. 1955) (same; not citing Article 23). Assuming arguendo that OCA’s argument is correct, we would have to determine how to apply recodified section 251.003(a)(4) when, on the one hand, there is the general legislative directive that the recodification was not meant to make substantive changes to the law, Tex. Occ. Code § 1.001(a), and, on the other hand, the current statutory definition of “person” includes corporations “unless the statute or context in which the word or phrase is used requires a different definition.” Tex. Gov’t Code § 311.005(2). When presented with a similar situation, the Texas Supreme Court held that a
Section 251.003(a)(4) provides “(a) For purposes of this subtitle, a person practices dentistry if the person: . . . (4) owns, maintains, or operates an office or place of business in which the person employs or engages under any type of contract another person to practice.
legislative statement that an amendment did not make substantive changes to a law does not overcome the unambiguous language of a recodified statute that the legislature enacts, even if the language in the new statute does change the prior law. Fleming Foods of Tex., Inc. v. Rylander, 6 S.W.3d 278, 283-84 (Tex. 1999). In reaching this decision, the Texas Supreme Court noted that if the general statement that none of the changes made during the recodification was allowed to overturn the current plain language in the statute, no citizen would be able to know what the current law was without combing through volumes of session laws. Id. at 284-85. That was deemed to be an unacceptable result. Id. at 285. Given the holding in Rylander, the only remaining question would be whether the current statutory language unambiguously includes corporations within the definition of person. As stated above, the Code’s definition of person includes corporations unless the statute’s text or context requires a different definition. Tex. Gov’t Code § 311.005(2). The text of the statute does not require a deviation for the general definition because its wording does not refer exclusively to a natural person. Tex. Occ. Code § 251.003(a)(4). This construction is supported by another subsection of the statute and a revisor’s note. Following the definition of what constitutes practicing dentistry, the statute specifically excludes a number of persons from that definition.9 Tex. Occ. Code § 251.004(a). In this section, Dental Health Service Corporations incorporated under the Texas Non-Profit Corporation Act are specifically excluded. Id. § 251.004(a)(8).10 ____________________
These exclusions were added in 2001, after the recodification. 10 Section 251.004(a)(8) provides: “(a) A person does not practice dentistry as provided by Section 251.003 if the person is: . . . (8) a Dental Health Service Corporation chartered under Section A(1), Article 2.01, Texas Non-Profit Corporation Act (Article 1396-2.01, Vernon’s Texas Civil Statutes); . . . .”
If corporations were not “persons” under section 251.003(a), there would have been no reason for the legislature to specifically exclude these particular entities. Additionally, the section 251.003 revisor’s note four comments that the previous version of section 251.003(a)(5) [Article 4551a section (5)] referred to a “person, firm, group, association, or corporation,” but that was replaced with “person” because “under Section 311.005(2), Government Code (Code Construction Act), ‘person’ is defined to include a corporation or any other legal entity. That definition applies to the revised law.” Tex. Occ. Code § 251.003(a) revisor’s note 4 (for the 1999 revision of Article 4551a into the Occupations Code). OCA argues that the revisor’s note is inapplicable because it refers to section 251.003(a)(5) (relating to dental appliance fitting etc.), not section 251.003(a)(4). This objection is misplaced, however, because “person” has the same meaning throughout section 251.003(a). Since the plain language of the Code unambiguously includes corporations in its definition of “person,” that language must be given effect even if the previous version of section 251.003(a)(4) did not apply to corporations. III. Are the BSAs illegal? Under Texas law, a contract is illegal, and thus void, if the contract obligates the parties to perform an action that is forbidden by the law of the place where the action is to occur. Miller v. Long-Bell Lumber Co., 222 S.W.2d 244, 246 (Tex. 1949). Contracts are presumptively legal, so the party challenging the contract carries the burden of proving illegality. Franklin v. Jackson, 847 S.W.2d 306, 310 (Tex. App.—El Paso 1992, writ denied). “When two constructions of a contract are possible, preference will be given to that which does not result in violation of law.” Lewis v. Davis, 199 S.W.2d 146, 149 (Tex. 1947).
The bankruptcy court, relying on decisions from various federal district courts for the Northern, Eastern, and Western districts of Texas interpreting similar BSAs, granted partial summary judgment in favor of the Orthodontists and held that the BSAs were illegal under Texas Occupation Code § 251.003(a)(4) because, as written, they allowed OCA to practice dentistry without a license by owning, maintaining, or operating a place of business in which OCA engaged someone else in the practice of dentistry. See Penny v. OrthAlliance, Inc., 255 F. Supp. 2d 579, 581-83 (N.D. Tex. 2003); Becka v. Orthodontic Ctrs. of Am., Inc., No. 4:03-CV-80, slip op. at 6-11 (E.D. Tex. Mar. 31, 2005); Buck v. OrthAlliance, Inc., No. 3:05-CV-1485N, slip op. at 4 (N.D. Tex. Nov. 20, 2006); Turner v. OCA, Inc., No. MO-05-CV-091, slip op. at 14 (W.D. Tex. Dec. 5, 2006).11 OCA or its subsidiaries were the defendants in each of those cases, and OCA has not argued that the BSAs at issue in this case are materially different from those at issue in Penny, Becka, or Turner. A review of the record confirms that their terms are substantially similar. OCA does not directly dispute that the terms of the BSAs enable it to practice dentistry under section 251.003(a)(4) . Instead, it argues that the BSAs do not run afoul of various regulations promulgated by the Texas State Board of Dental Examiners. This argument, however, is irrelevant, because the regulations cited by OCA were promulgated to _______________
The opinion in Becka was later vacated upon the agreement of the parties. Packard v. OCA, Inc., No. 4:05-CV-273, slip op. at 8 (E.D. Tex. Feb. 23, 2007) (magistrate judge). Since the bankruptcy court ruled on January 17, 2007, two other Texas federal district courts have held that other very similar BSAs, which are not a part of this appeal, violated Texas law. Packard at 8-12; Orthodontic Ctrs. of Tex., Inc. v. Wetzel, No. 1-06-CA-626-LY, slip op. at 5-8 (W.D. Tex. Jul. 10, 2007);
bankruptcy court’s judgment. Furthermore, given the pervasiveness of the involvement in the practice of dentistry that the BSAs require OCA to engage in, the fact that every district court that has By failing to argue why it believes that the bankruptcy court’s holding that the define whether a “person” was “practicing dentistry” under section
251.003(a)(9), not section 251.003(a)(4), of the Code. See Tex. Occ. Code § 254.0011.12 By failing to argue why it believes that the bankruptcy court’s holding that the BSAs violated section 251.003(a)(4) was erroneous, OCA has failed to raise an issue that would merit reversing the considered whether similar BSAs violate Texas law has held that they were void for illegality, and the longstanding tradition in Texas preventing condemning unlicensed individuals or corporations (other than professional corporations in the relevant profession) from in substance owning a controlling equity interest in the practice of a licensed learned health professional, see, e.g., Garcia v. Texas Board of Medical Examiners, 384 F. Supp. 434, 437-440 (W.D. Tex. 1974); Flynn Bros. Inc. v. First Medical Associates, 715 S.W.2d 782, 784-85 (Tex. App.–Dallas 1986, writ ref’d n.r.e.), we hold that the bankruptcy court did not err. ____________________
Section 251.003(a)(9) provides that
“a person practices dentistry if the person: . . .
(9) controls, influences, attempts to control or influence, or otherwise interferes with the exercise of a dentist’s independent professional judgment regarding the diagnosis or treatment of a dental disease, disorder, or physical condition; . . . .” Section 251.003(a)(9) is modified by § 251.003(b) which provides: “(b) The practice of dentistry under Subsection (a)(9) does not: (1) require an entity to pay for services that are not provided for in an agreement; or (2) exempt a dentist who is a member of a hospital staff from following hospital bylaws, medical staff bylaws, or established policies approved by the governing board and the medical and dental staff of the hospital.” Section 254.0011 provides: (a) The board may adopt rules relating to the practice of dentistry as described by Section 251.003(a)(9) to prohibit a dentist from engaging in contracts that allow a person who is not a dentist to influence or interfere with the exercise of the dentist's independent professional judgment. (b) Rules adopted by the board under this subtitle may not preclude a dentist's right to contract with a management service organization. Rules affecting contracts for provision of management services apply the same to dentists contracting with management service organizations and to dentists otherwise contracting for management services.
IV. Severance OCA next argues that the bankruptcy court erred by holding that the BSAs were void for illegality because they contained severability and modification clauses, so the bankruptcy court should have severed or modified the illegal portions of the BSAs in order to cure any defects instead of voiding them for illegality. To support its argument, OCA cites a case in which this court held that an indemnity agreement was not void for illegality merely because one provision of the agreement was illegal. Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 721-22 (5th Cir. 1995). The Orthodontists respond by arguing that reformation is not applicable in this situation because the portion of the contract that is illegal is the main or essential purpose of the agreement, not merely an incidental promise. See Williams v. Williams, 569 S.W.2d 867, 871 (Tex. 1978). We first note that in the proceedings below, OCA did not raise this severability argument in its motion for partial summary judgment. It only raised this contention orally at the hearing to determine whether the BSAs were facially illegal, and at that time, OCA’s position was that, if the bankruptcy court held that the BSAs were illegal, it should then hold an additional hearing, before certifying the issue for appeal, to consider whether provisions could be would not hold a “reformation hearing until some higher court decides whether they’re illegal or not.” OCA acquiesced to that decision, and never filed a motion to hold a reformation hearing. It is only on appeal that OCA argued that Texas law requires a court to consider severability before voiding a contract for illegality. However, this court generally does not consider arguments first raised on appeal. See Kinash v. Callahan, 129 F.3d 736, 739 n.10 (5th Cir. 1997). Furthermore, while Texas law does allow a severability clause to save a contract that contains illegal provisions, the existence of a severability clause does not guarantee that a contract will always thus
be saved from illegality. Williams makes it clear that severability is only appropriate when the illegal provision is not an essential part of the contract. 569 S.W.2d at 871. Even OCA’s cited precedent acknowledges this limitation. Avenell, 66 F.3d at 722 (“‘[W]here the subject matter of the contract is legal, but the contract contains an illegal provision . . . the illegal provision may be severed and the valid portion of the contract enforced.’” (quoting Panasonic Co. v. Zinn, 903 F.2d 1039, 1041 (5th Cir. 1990)) (emphasis added)). In this case, the illegal portions of the BSA are not simply incidental provisions. As written, the BSAs create an interlocking set of obligations that required OCA to exercise considerable control over the Orthodontists’ practices. For instance, OCA conducted the financial and marketing activity of the practices, and it maintained the facilities, equipment, and support personnel required to operate the practices. The BSAs also stipulated how much each Orthodontist was required to work, and greatly restricted their ability to perform services outside of the BSAs. In exchange for these services, OCA charged a fee that was tied to the profits of the practices. The BSAs provided little to no ability for the Orthodontists to oversee any of OCAs decisions related to their practice. Ultimately, the Orthodontists were essentially only left with control over severed to cure the illegality. In response, the bankruptcy court stated that it diagnosing and treating their patients. Accordingly, the subject matter of the agreement runs afoul of section 251.003(a)(4)’s prohibition of unlicensed persons from owning, operating, or maintaining a premises at which those persons also employ or engage another person to practice dentistry. OCA has never attempted to identify any specific provisions of the BSAs that could be severed to make the BSAs compliant with section 251.003(a)(4). Instead, OCA repeatedly states that since the statute only prohibits both owning, operating, or maintaining a premise and
engaging someone else in the practice of dentistry, this court could sever provisions so that OCA would only be performing one of these functions. Even if that might be possible (and we do not hold that it is), nevertheless OCA’s failure to identify specific provisions of the BSAs to be severed, renders this court unable to determine whether such severance would cure the BSAs’ illegality. As a result, we decline to reverse the judgment of the bankruptcy court on the basis of OCA’s argument that provisions of the BSAs could be severed to cure the illegality. V. Assignment Finally, OCA contends that the bankruptcy court should not have held that the BSAs were void for illegality because the BSAs grant OCA the power to assign its obligations, without the consent of the Orthodontists, if the assignee is a controlled affiliate of OCA. The Orthodontists counter that OCA never raised this argument in the bankruptcy court, so it is waived. A thorough review of the record confirms that OCA did not raise the issue of assignment in the bankruptcy court. At oral argument, OCA also admitted that it had not raised the assignment issue below. Since this issue was not properly presented to the bankruptcy court, it cannot be raised now for the first time on appeal. See Kinash, 129 F.3d at 739 n.10. Additionally, it is unclear whether Texas corporate law would allow OCA to assign its obligations to one of its controlled affiliates in order to avoid the requirements of section 251.003(a)(4). See Pan E. Exploration Co. v. Hufo Oils, 855 F.2d 1106, 1132-33 (5th Cir. 1988) (holding that Texas law permitted disregarding the corporate form because the corporation was established to circumvent a statute); see
also Flynn Bros., Inc., 715 S.W.2d at 785 (holding that it was illegal to form a corporation to avoid the Texas Medical Practice Act’s restrictions against unlicensed persons practicing medicine). Moreover, OCA has provided no legal basis to support its conclusion that since it could have assigned its obligations, the contracts are not void for illegality. OCA cites an Illinois case in which a court rejected a claim that a contract was void for illegality because the contract had been assigned and the assignment cured the illegality. Heller Equity Capital Corp. v. Clem Envtl. Corp., 596 N.E.2d 1275, 1280 (Ill. App. 1992). Heller is distinguishable, however, because in that case the curing assignment had already occurred. Heller, 596 N.E.2d at 1280. Here OCA has not alleged that it has even attempted to have any of its obligations under the BSA actually assigned to one of its affiliates.13 OCA also cites Texas cases, which stand for the general proposition that a contract that could have been performed in a legal manner should not be voided because it was performed in an illegal manner. See Lewis, 199 S.W.2d at 149; Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138 S.W.3d 915, 921 (Tex. App.—Dallas 2004, pet. struck). Lewis and Signal Peak are also not on point because both of those cases dealt with contracts that were not facially illegal, meaning there was a way for the parties to legally fulfill their obligations under the express terms of the contract. In this case, the bankruptcy court correctly held that the BSAs, as written, cannot be performed legally by the current parties. Without knowing which obligations would be assigned to which affiliates, it is impossible for this court to determine whether the assigned BSA could be performed legally. For this reason and
________________________ 13 OCA has not attempted to make any assignments to cure the defects in the BSAs even though four separate federal district court judgments have voided similar BSAs for illegality under Texas law. 92
because OCA failed to raise this argument below, we decline to reverse the judgment of the bankruptcy court on this ground.
CONCLUSION For the foregoing reasons, the judgment of the bankruptcy court is AFFIRMED.
Dental Group Practice Association dgpaonline.org
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DGPA Full Members (as of June 13, 2012):
Affordable Care, Inc. Allied Dental Practices Altima Dental Canada Aspen Dental Management, Inc. Birner Dental Management Services, Inc. Children’s Dental Group Dental Associates Dental Care Alliance Dental Corporation Holdings, Ltd. Dental Corporation of Canada, Inc. Dental Partners DentalOne Partners, Inc. Dentistry For Children Gentle Dental Group / Northwestern Management Services Gentle Dental/InterDent, Inc. Gentle Dental Partners Great Expressions Dental Centers Heartland Dental Care JDC Healthcare Management Katsur Management Group Lumino The Dentists Midwest Dental NorthEast Dental Management Ocean Dental
OrthoSynetics Pacific Dental Services, Inc. Smile Brands, Inc. Towncare Dental Partnership, Inc. West Coast Dental Services, Inc. Western Dental Centers
DGPA Industry Partner Members
Industry Partner Members are companies that are drawn together by common interests and shared goals in the purposes of the Association, and can collaborate closely to introduce new technologies, business processes and patient services.
3M ESPE American Orthodontics Apex Benco Dental Brasseler USA Dental, LLC CareCredit Carestream Dental DDS Solutions Dear Doctor, Inc. Delta Dental of MI, IN, OH DemandForce DenMat DentalEZ DENTSPLY International Dickinson Wright, LLP GC America Group Practice Solutions Henry Schein Hu-Friedy Jefferies & Company Kavo/Sybron Group Keystone Dental Medusind Solutions
NobelBiocare OraPharma, Inc.(sold to a PE in Canada-June 2012 ORMCO Ortho Organizers, Inc. Patterson Dental Philips-Sonicar & Zoom! Whitening Planet DDS Premier Dental Products PreXion Quality Systems, Inc. Septodont Sirona Dental Systems Strauss Diamond Instruments TIDI Products Ultradent Products Inc. US Bank Waller Lansden Dortch & Davis, LLP
Small Smiles Dental Center Transition, Separation, Confidential Severance and General Release Agreement
The following contract was given to employees of the Small Smiles in Rochester, NY when clinic was closing- April 2012.
http://www.scribd.com/doc/96177386/Small-Smiles-Separation-Agreement-for-Rochester-NewYork-Employees
363 Sale, 53, 70 3M ESPE, 112
A&M Alverez & Marsel, 36, 52, 53, 54, 61, 79, 80, 81, 82, 83, 84 administrative expense, 64, 76 AFFIDAVIT, 33 affirm, 90 AFFIRMED, 109 Affordable Care, Inc., 111 AIFL, 41, 43, 44 ALL REMAINING MOTIONS AND MATTERS LISTED BELOW WILL NOT BE HEARD, 74 All Smiles’, 12 Allcare, 10 Allied Dental Practices, 111 Altima Dental Canada, 111 Alvarez & Marsal, 36, 60, 79 ALVAREZ & MARSAL RETENTION, 79 Amended and Restated Credit Agreement, 39 American Capital, 12, 43, 44 American Orthodontics, 112 Annual Report, 49 Annual Report to the OIG and OMIG, 49 Apex, 112 Arab investors, 30 Arcapita Bank, 12, 27 Aspen Dental Management, Inc., 111 Asset Sale Agreement ASA, 54 Assets and Liabilities, 36, 71 Assignment, 107 Attorney General, 9, 14 Attorneys Generals AG, 12 audits, 48 AUSTIN ORTHODONTIC SPECIALISTS, 88
Birner Dental Management Services, Inc., 111 bonuses, 4, 6, 21 Brasseler USA Dental, LLC, 112 Brian Birk, 24 broken appointment, 46 Bruce, 24, 25, 26 Bruce Duty, 24 burdensome, 68, 77, 78 Business Service Agreements BSAs, 8, 11, 90, 91, 92, 93, 95, 96, 101, 102, 103, 104, 105, 106, 107, 108, 109
cured cure, 57, 108 current owners, 47
DDS Solutions, 112 Dear Doctor, Inc., 112 Debtor in Possession DIP, 68 Debtors, 33, 34, 35, 36, 37, 40, 42, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 88, 90 DIP, 42 decline to reverse the judgment, 107, 109 definition, 5, 18, 97, 98, 99, 100, 101 Delta Dental of MI, IN, OH, 112 DemandForce, 113 DenMat, 113 Dental Associates, 111 Dental Care Alliance, 111 Dental Centers, 45, 46, 47, 48, 49, 50, 51, 55, 56, 58, 63, 65, 67, 76 Dental Corporation Holdings, Ltd., 111 Dental Corporation of Canada, Inc., 111 Dental Group Practice Association, 12, 14, 111 Dental Management Service Organization DMSO, 4 Dental Partners, 111 Dental Service Management Organization, 18, 20 DentalEZ, 113 DentalOne Partners, Inc., 111 Dentist Owners, 17 Dentistry For Children, 111 DENTSPLY International, 113 DGPA, 12, 111, 112 dgpaonline.org, 111 Dickinson Wright, LLP, 113 difficulty meeting its obligations, 52 DIP Motion Budget, 59, 64, 65 DIP MOTION, 63 dishonored checks, 75 District Court for the Middle District of Tennessee Coverage Litigation, 50 DMSO, 4, 5, 6, 7, 8, 10, 11, 12, 13, 15, 18, 19, 20, 21 Doctor/Patient Relationship, 6, 13, 17, 20
Capital Gains, 7, 15, 18, 21 capitalized, 38, 46, 47, 51 CareCredit, 112 Carestream Dental, 112 Carlyle Mezzanine, 44 Cash Management Motion, 67, 69 CASH MANAGEMENT MOTION, 66 cash management system, 59, 67, 68, 69 Chapter 11, 12, 33, 34, 35, 44, 51, 56, 57, 58, 62, 63, 65, 66, 67, 68, 69, 71, 76 Chartis, Inc, 50 Chief Restructuring Officer CRO, 34, 36, 52, 61, 79 children, 22, 27, 30, 45 Children’s Dental Group, 111 Church Street Health Management CSHM, 10, 12, 14, 34 CIT Healthcare LLC, 39, 40 Collateral Agent, 40, 41 Commodities Agreement, 41, 42 Compensation Motion, 60, 77, 78 comply, 37, 38 Confidential, 114 consent, 30, 55, 64, 107 contract, 5, 8, 13, 17, 20, 95, 96, 98, 100, 101, 104, 105, 108, 114 Contract, 6, 13, 20, 60, 77, 78 CONTRACT REJECTION MOTION, 77, 78 control, 4, 6, 7, 15, 20, 56, 69, 104, 106 Corporate Integrity Agreements CIA, 48 Corporations, 7, 9, 11, 19, 21, 97, 100 cost of complying, 51 Counseling and Mediation Services of Las Cruses, NM, 9 CSHM, 10, 12, 14, 34, 36, 38, 40, 41, 44, 62, 68 cure the illegality., 106, 107
Bain & Company, 51 Bank Accounts, 66, 67, 69 BANKER RETENTION, 70 bankruptcies bankruptcy, 10 Benco Dental, 112 bid, 55, 57, 70, 84
DOJ, 25, 47, 48, 49, 53, 55, 57 DONALD B DOAN, DDS, 88 DOUG CROSBY, DDS, 88 Dr Richard Malouf, 12 DUDLEY M HODGKINS, DDS, 89
Great Expressions Dental Centers, 112 Greg Kulka, 24, 26 Group Practice Solutions, 113
EEHC, 34, 36, 40, 41 ELGIN E WELLS, 88 Engagement Letter, 79, 80, 82 Engagement Personnel, 79, 80, 82 estates, 57, 58, 62, 63, 66, 67, 68, 69, 70, 73, 74, 75, 77, 78, 79, 81, 83, 85 ethical, 17, 19 Events Leading to the Chapter 11 Filing, 44 executory contracts, 57, 59, 60, 61, 71, 77, 78 EXPEDITED MOTION FOR EMERGENCY HEARING, 62
Healthcare Industry Group, LLC, 36, 60, 79 Heartland Dental Care, 112 hedge fund managers, 7, 15 Henry Schein, 113 high administrative costs associated with submitting claims to Medicaid, 46 high quality dental care, 46, 51, 52 himself, 98 Hodgkins and Izzard, 92 Hu-Friedy, 113
legal, 5, 6, 13, 17, 18, 19, 34, 43, 45, 75, 80, 85, 96, 101, 102, 105, 108 Legislature, 28 Lenders, 39, 40, 41, 42, 52, 53, 54, 55, 57, 63, 64, 65 litigation, 50, 51, 91 Living, Sunwest Management, Inc, 80 loans, 37, 40, 41 low-income children, 45 Lujan, 32 Lumino The Dentists, 112
management fee, 45, 91 management services, 35, 36, 45, 47, 65, 67, 76, 104 Management Services Agreement BSAs, 45 Manny Aragon, 32 March, 9, 49, 56, 74, 92, 93, 94 Maria Arnaoudona, 79 Marketing Efforts, 53 MARTIN McGAHAN, 33 Medicaid, 5, 6, 9, 10, 12, 14, 15, 20, 22, 26, 27, 45, 46, 47, 67 Medicaid fraud, 9, 10 Medical Staffing Network, 80 Medusind Solutions, 113 memorandum, 23 Michael Lindley, 31 MICHAEL M DILLINGHAM, 88 Midwest Dental, 112 Murabaha, 41, 43, 44
illegal under Texas law, 90 Independent Review Organization IRO, 48 Informed Consent, 6, 13, 17, 19, 20 INSURANCE PROGRAMS, 74 Intercreditor Agreement, 42 INTERIM COMPENSATION MOTION, 76, 78 Interstate Corporate Dentistry Corporate Dentistry, 4, 7, 8, 11, 21 investigations, 25, 30, 47, 48 investment bankers, 7, 14, 15, 16
February, 39, 40, 41, 42, 43, 44, 54, 56, 62, 65, 70, 74 fee splitting, 21 felony, 9 Fifth Circuit Ruling- 07-30430, 21 Fifth Circuit Rulings 09-41004 Fifth Circuit Ruling, 8 financing, 37, 38, 39, 49, 54, 56, 59, 63, 64, 81 Financing and Purchase Option Agreement, 40 First Day Motions, 57, 58, 61, 62, 73, 74 FIRST DAY MOTIONS AND ORDERS, 57 First Lien Credit Agreement, 39, 40 FNY, 34, 40, 41 FORBA, 34, 40, 41, 46
James Scarantino, 22 JDC Healthcare Management, 112 Jefferies & Company, 113 JOINT ADMINISTRATION AND PROCEDURAL CONSOLIDATION OF CASES, 62 junior lien, 64
National Fire Insurance Company of Pittsburgh, PA National Union, 50 negative publicity, 51 Net Promoter Score NPS, 51 NEW IMAGE, 88, 89 New Mexico, 1, 9, 14, 23, 24, 25, 26, 27, 28, 30, 32, 50 New York, 14, 37, 47, 49 New York State Office OMIG, 47 NobelBiocare, 113 NorthEast Dental Management, 112 NOTICING PROCEDURES MOTION, 73
Garrison Investment Group Stalking Horse, 54 GC America, 113 General Release Agreement, 114 Gentle Dental Group / Northwestern Management Services, 111 Gentle Dental Partners, 111 Gentle Dental/InterDent, Inc., 111 GLENWOOD JORDAN, DDS, 88 Global Securitization Services, LLC, 38
Katsur Management Group, 112 Kavo/Sybron Group, 113 Keystone Dental, 113
Laura Katherine Schembri, 79 lawsuits, 49 Leased Facilities, 36
OCA, 4, 8, 10, 11, 12, 88, 90, 91, 92, 93, 94, 95, 97, 98, 99, 101, 102, 103, 104, 105, 106, 107, 108, 109 Ocean Dental, 112 Office of Inspector General of the U.S. Department of Health, 47 Ohio, 49 Oklahoma, 49 OraPharma, Inc., 113 Order Granting Partial Summary Judgment, 93 ORDINARY COURSE PROFESSIONALS MOTION, 85 Organizational Structure, 36 ORMCO, 113 ORTHALLIANCE, 88, 89 Ortho Organizers, Inc., 113 ORTHODONTIC CENTERS OF, 88 Orthodontic Centers of America, Inc, 10, 11, 80, 90 ORTHODONTICES ASSOCIATES PC, 89 Orthodontists, 90, 91, 93, 95, 102, 105, 106, 107 OrthoSynetics, 112 Owner, 5, 7, 18, 20 Owner’s Owner Dentist, 7, 20 ownership, 5, 7, 12, 20, 22, 91 Ownership, 5, 18 owning, 95, 102, 103, 106
Pre-Petition Employee Obligations, 65, 66 Prepetition First Lien Documents, 40, 41 Prepetition First Lien Facility and Prepetition Second Lien Facility, 39 Pre-Petition Indebtedness, 37 PRE-PETITION OBLIGATIONS MOTION, 76 PreXion, 113 principal amount, 40, 41, 42, 44 Private Equity dental, 19 Private Equity Dentistry, 1, 2, 4, 12, 18 production, 4, 6, 13, 20 Professional Corporation, 17, 88, 90 Profits, 17, 18, 21, 91
Quality Systems, Inc., 113
Red River Ventures, 24, 25 Regulators, 17, 18 Reichhold, 51 restructuring, 34, 52, 53, 81, 84 RESTRUCTURING OFFICER, 33 RETENTION OF GCG Garden City Group - Smith and Company, 83 RICHARD R WOEHRLE, DDS, 88 Richardson, 14, 28, 31 Rio Grande Foundation, 22, 23, 27, 29, 30 ROBERT P. BUCK, 88 ROBERT PACKARD, 89 RON RISINGER, D.D.S, 89 RUBY IZZARD DDS, 89
Pacific Dental Services, Inc., 112 papoose board, 31 patient abandonment, 10, 11 Patient Litigation, 49, 51, 53, 57 Patterson Dental, 113 Paul Gessing, 30 payments that were made to creditors, 71 PEDOALLIANCE, 88 Penny v. OrthAlliance, Inc, 91, 102 Petition Date, 35, 36, 37, 40, 42, 43, 44, 55, 56, 61, 66, 67, 68, 71, 77, 79, 81, 83 Philips-Sonicar & Zoom! Whitening, 113 Planet DDS, 113 Policies, 50 Practice of Dentistry, 4, 6, 8, 11, 12, 15, 20 practicing dentistry himself, 98 Practitioner, 17 Premier Dental Products, 113
Section 363, 34, 53, 70, 84 Secured Obligations, 42, 43, 64 Separation, 3, 114 Septodont, 113 services and goods, 76 Settlement, 48, 49, 51, 55 Settlement Agreements, 48, 52, 56 Severance, 104, 114 Shari’ah, 37, 38, 39, 40, 42 SIC, 22, 23, 24, 25, 26, 27, 28, 30, 31 Sirona Dental Systems, 113 Small Business Dentistry, 2, 8, 17 small businesses, 15, 17 Small Smiles, 3, 10, 12, 14, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 34, 35, 114 Smile Brands, Inc., 112 special purpose vehicles SVPs, 37 SS Holding Company, 43 SSH Purchasing Facility, 43, 44, 49 SSHC, 35, 36, 40, 41, 46 SSO, 37, 39, 40, 41 SSO Funding Corp, 37 St. Vincent Catholic Medical Centers, 80 State Children’s Health Insurance Programs SCHIP, 45 State Investment Council, 3, 14, 22, 30 State Investment Officer, 28 Statements of Financial Affairs, 71 STEPHEN N COLE, 89 Strauss Diamond Instruments, 113 Subordinate Debt Note Purchase Agreement, 44 Subordinated Indebtedness, 43 Sun Mountain Capital, 24, 27 Sunrise Senior, 80
SALE MOTION, 84 sale of Assets to the Stalking Horse, 73 Sales and use taxes, 75 sanction sanctions, 18 Satmetrix, 51 Schedules, 59, 63, 71, 73 SCHEDULES MOTION, 71 SCHIP, 46 Scope of Services, 80 SECOND EXPEDITED SCHEDULING MOTION, 73 Second Lien Credit, 41, 42 TAX MOTION, 75 TENNESSEE, 33 terminated the services of its CEO and COO, 52 testify, 58 Tex. Gov’t Code, 97, 100 Tex. Occ. Code, 95, 97, 99, 100, 101, 103 Texas, 9, 88, 89, 90, 91, 92, 93, 95, 97, 98, 99, 100, 101, 102, 103, 105, 107, 108, 109 Texas defines, 95 The Carlyle Group, 12, 14 The First Day Motions consist of the following, 58
thousands of creditors, 71 TIDI Products, 113 to practice dentistry without a license by owning, maintaining, or operating a place of business, 102 Towncare Dental Partnership, Inc., 112 trial lawyers, 49
Unfair Trade Practice Act, 6, 9, 16 unsecured creditors, 57 US Bank, 113 US Congress, 9, 14 US Department of Justice DOJ, 12 USAG Alberto Gonzales, 12
WAGE MOTION & AUTHORIZING HONORING OF PRE-PETITION CHECKS, 65
waiver, 6, 56, 66 Waller Lansden Dortch & Davis, LLP, 13, 113 Waller Lansden Law Firm, 12, 14 Washington, 9, 14, 30, 47 West Coast Dental Services, Inc., 112 Western Dental Centers, 112 WILLIAM R IZZARD, 89 World Health Alternatives, 80 wrongdoing, 48
Ultradent Products Inc., 113
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