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ORTHODONTIC CENTERS OF ILLINOIS v. MICHAELS

December 13, 2005.

ORTHODONTIC CENTERS OF ILLINOIS, INC., Plaintiff/Counterdefendant,
v.
CHRISTINE MICHAELS, D.D.S., P.C., and CHRISTINE MICHAELS, D.D.S., Defendants/Counterplaintiffs.



The opinion of the court was delivered by: MILTON SHADUR, Senior District Judge

MEMORANDUM OPINION AND ORDER

Orthodontic Centers of Illinois ("Orthodontic Centers"), invoking federal jurisdiction on diversity grounds, has sued Christine Michaels, D.D.S., P.C. and Christine Michaels, D.D.S. (for convenience collectively "Dr. Michaels," treated as a singular feminine proper noun), asserting various claims stemming out of its business relationship with Dr. Michaels. Orthodontic Centers has moved for partial summary judgment pursuant to Fed.R.Civ.P. ("Rule") 56 on two of those claims: breach of contract and default on five promissory notes. In turn Dr. Michaels has advanced two counterclaims asserting breach of contract and breach of fiduciary duty, and she has moved for summary judgment on both.

Both parties have submitted statements of undisputed facts as called for by this District Court's LR 56.1.*fn1 For the reasons set forth in this memorandum opinion and order, Orthodontic Centers' motion for partial summary judgment on Dr. Michaels' liability on five promissory notes is granted, while all other motions are denied — but as explained hereafter, the grounds for denial of each party's motion for summary judgment on its or her breach of contract claim also spell doom for that claim itself, and the same is true as to Dr. Michaels' breach of fiduciary duty claim.

  Rule 56 Standards

  Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose courts consider the evidence in the light most favorable to nonmovants and draw all reasonable inferences in their favor (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002)). But to avoid summary judgment a nonmovant "must produce more than a scintilla of evidence to support his position" that a genuine issue of material fact exists (Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001)). Ultimately summary judgment is appropriate only if a reasonable jury could not return a verdict for the nonmovant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Where as here cross-motions for summary judgment are involved, these principles require the adoption of a Janus-like perspective: As to each motion, the nonmovant's version of any disputed and evidence-supported facts is credited.

  Background

  Orthodontic Centers is a Delaware corporation with its principal place of business in Metairie, Louisiana (M. St. ¶ 1). It is a wholly owned subsidiary of Orthodontic Centers of America (hereafter simply "Centers," to distinguish it from the subsidiary that has filed this action), which has the same place of incorporation and principal place of business (id. ¶ 2). Dr. Michaels (the individual) is an Illinois-licensed dentist specializing in orthodontics and practicing through her Illinois professional corporation, Christine Michaels D.D.S., P.C., which also has its principal place of business here in Illinois (id. ¶¶ 3, 5, 6).

  In 1996 Dr. Michaels and Orthodontic Centers entered into a Business Management Agreement ("Agreement"). Under Agreement § 2.1 Orthodontic Centers was obligated to "provide or arrange for the provision to [Dr. Michaels] of the business management services required by [Dr. Michaels] to successfully operate [her] orthodontic practice" (O. St. ¶ 1). In particular, Orthodontic Centers was responsible for hiring administrative staff,*fn2 leasing and subleasing office space, furnishing and equipment, providing patient scheduling systems and clinical forms, managing inventory, producing financial and operational data on the orthodontic office's operations, designing and executing a marketing plan and providing Dr. Michaels with a range of financial services (Agreement §§ 2.2-2.10). That range of services encompasses accounting and bookkeeping, payment of Dr. Michaels' accounts payable (including rent under leases and subleases), monitoring and payment of "Centers Expenses" (a defined term under the Agreement, including among other things staff salaries, corporate overhead expenses and licenses and taxes), payroll administration and billing and collections (id. § 2.10). Orthodontic Centers established a bank account on Dr. Michaels' behalf and was appointed as Dr. Michaels' attorney-in-fact to carry out those financial management responsibilities.*fn3

  In return for the services so provided, Orthodontic Centers was entitled under Agreement § 4.1 to payment of a monthly "Management Fee," which it withdrew directly from Dr. Michaels' account. But there was clearly more to the parties' relationship than mere "management" as dealt with in the Agreement, for the financial records submitted by the parties shows that Orthodontic Centers also received 50% of the profits from Dr. Michaels' practice. There is no argument about that — indeed, until Centers wrote a letter to Dr. Michaels on November 18, 2002 (M. Ex. B at 756), ostensibly to accompany "a substantially new look to your financial statements," and stating that "[w]e've removed the antiquated notions of balance sheets and statements of cash flow as well as arcane accounting concepts such as partner drawing rollforwards and amortization periods," its financial statements forthrightly showed Dr. Michaels and Orthodontic Centers as "partners" and allocated 50% of the calculated net income to each (among the many statements reflecting that consistent treatment, see, e.g., M. Ex. B at 741, 743).*fn4 Under the Agreement the parties' relationship was to continue for 20 years unless earlier terminated on grounds specified in the Agreement. Those grounds were set out in Agreement §§ 6.2 and 6.3.

  In addition to enlisting the business acumen of Orthodontic Centers, Dr. Michaels utilized its financial wherewithal by obtaining cash advances needed for the establishment of her practice. Between June 30, 1995 and June 30, 1996 Dr. Michaels executed five promissory notes in favor of Orthodontic Centers, reflecting advances in the total sum of $193,224 (O. St. ¶ 13; Paternostro Aff. Exs. B, C & D). Four of those promissory notes were executed by Dr. Michaels' corporation and one was executed by Dr. Michaels in her individual capacity (Paternostro Aff. Exs. B, C & D).

  For a number of years the Agreement between Orthodontic Centers and Dr. Michaels proceeded amicably. It was not until 2003 that problems started to arise.*fn5 In June Dr. Michaels attended a meeting in Miami organized by other orthodontists (all of whom had comparable agreements with subsidiaries of Centers) and by attorneys from the law firm of Goldstein, Tanen & Trench P.A. to discuss the orthodontists' rights and options under those agreements. After the meeting Dr. Michaels expressed to Bart Palmisano ("Palmisano"), Centers' chief operating officer, her desire to terminate the Agreement (O. St. ¶ 5; M. Resp. ¶¶ 5, 27). Those negotiations ended without a resolution (O. St. ¶ 5; M. Resp. ¶ 5).

  On August 23 Dr. Michaels then attended a second meeting in Miami to discuss her concerns and complaints and "to explore whether there was any interest in the orthodontists forming a group to pool funds to negotiate and/or litigate with [Centers] on more equal financial footing" (Michaels Aff. ¶ 19). At that meeting Centers served Richard Goldstein of the law firm and Dr. Ramos, a member of the orthodontist group, with a lawsuit for tortious interference with contract (M. Add. St. ¶ 19; M. Resp. Ex. 1 ¶ 18).

  Just a few days later (on August 27) Dr. Michaels' staff members at her Lombard and Aurora offices discovered that they could not log on to WALRUS, Orthodontic Centers' patient scheduling, information and billing system (M. St. ¶ 20). Shortly after being alerted to the problem, an employee in the information technology department of Orthodontic Centers restored access to both offices (M. Resp. Exs. 9, 10). According to one of Dr. Michaels' staff members in the Lombard office, the Orthodontic Centers employee advised her that the shutdown was due to "some kind of litigation" (M. Resp. Ex. 9). On the following day Palmisano called Dr. Michaels to apologize for the "computer glitch" and explained that the shutdown was the result of an inexperienced computer technician (O. St. ¶ 6; M. Resp. ¶ 6).

  On August 29 Palmisano sent what appears to be a form letter to Dr. Michaels, explaining the pending litigation against Richard Goldstein and Dr. Ramos, notifying Dr. Michaels that Centers would defend itself "vigorously" if claims were brought against it and encouraging Dr. Michaels to alert Orthodontic Centers to any problems that she may be having with their services (Buchman Aff. Ex. B). Before she received that letter, on September 5 Dr. Michaels sent a notice to Palmisano stating that she believed Centers had interfered with her ability to treat patients and repudiated the Agreement by "locking [her] practice out of Walrus." As a result she "no longer deem[ed] the [Agreement] to be in effect" (Paternostro Aff. Ex. A).

  Only a month later Centers and all of its subsidiaries filed suit in a Texas state court against Dr. Michaels and numerous other orthodontists and attorneys, charging them with tortious interference and conspiracy (M. Add. St. ¶ 25). Dr. Michaels appears to have been dismissed as a party to that litigation, which ultimately settled out of court (see Orthodontic Centers of America v. ...


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