United States District Court, N.D. Illinois, Eastern Division
December 13, 2005.
ORTHODONTIC CENTERS OF ILLINOIS, INC., Plaintiff/Counterdefendant,
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
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
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.
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
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
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. ¶
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. Locke, Liddell & Sapp, L.L.P., No. 14-04-00516,
2005 WL 1404440 (Tex.App. 14th Dist. June 16)).
There is then a gap in the record as to events that may have transpired between October 2003 and the next recorded
communication between the parties. That occurred on July 21,
2004, when Centers wrote Dr. Michaels that she had not made her
contractual payments since September 5, 2003, that she was
obligated under the Agreement to do so and that she should
communicate with Orthodontic Centers to become current in her
obligations and avoid the necessity of litigation (O. St. ¶ 12).
Following Dr. Michaels' refusal to pay, Orthodontic Centers
Orthodontic Centers' Claims
Orthodontic Centers argues that Dr. Michaels breached the
Agreement when she terminated it on September 5, 2003 without
adhering to the procedure set forth in Agreement § 6.2. In
response, among other defenses, Michaels contends that the
Agreement is void because it enables Orthodontic Centers to
practice dentistry in contravention of the Illinois Dental
Practice Act ("Act," 225 ILCS 25/1 to 25/57).*fn6
In material part the Act outlaws the unlicensed practice of
dentistry. Act §§ 8 and 37 prohibit generally the "practice of
dentistry" by any person not holding a valid and current license.
More specifically in terms of the issues posed by this
litigation, Act § 44 provides: No corporation shall practice dentistry or engage
therein, or hold itself out as being entitled to
practice dentistry, or furnish dental services or
dentists, . . . or advertise or hold itself out with
any other person or alone, that it has or owns a
dental office or can furnish dental service or
dentists. . . .
That section does contain several exceptions to the blanket
prohibition, including permission to any corporation to furnish
clerical services (Act § 44 (c)) and permission to dental
management services organizations (an undefined term) to provide
"non-clinical business services that do not violate the
provisions of this Act" (Act § 44 (g)). Any corporation that
violates Act § 44 "is guilty of a Class A misdemeanor" (Act §
44's final sentence).
Illinois courts have had no occasion to analyze Act § 44. There
is, however, relevant caselaw regarding the closely related
concept of the corporate practice of medicine, as well as a rule
of construction embedded in the Act, both of which aid this
Court's interpretive task. Thus when the Illinois Supreme Court
first addressed the notion of such corporate practice of
dentistry in Dr. Allison, Dentist, Inc. v. Allison,
360 Ill. 638, 642, 196 N.E. 799, 801 (1935), it spoke in the strongest
terms of "the inappropriateness of any corporate attempt to
practice one of the learned professions, involving personal and
confidential relations" and it refused to grant any relief to
the corporate plaintiff. That concept, firmly grounded in the
public interest, has been upheld repeatedly by Illinois courts
(see, e.g., Carter-Shields v. Alton Health Institute, 201 Ill.2d 441, 458, 77 N.E.2d 948,
957 (2002)) and the public interest is specifically made one of
the animating purposes underpinning the Act itself. In that
respect Act § 2 states that "[t]he practice of dentistry in the
State of Illinois is hereby declared to affect the public health,
safety and welfare," so that the express vesting of nondelegable
duties in licensed dentists requires that the Act "be liberally
construed to carry out these objects and purposes" (id.). Even
more pointedly, Act § 37 begins with this declaration:
The practice of dentistry by any person not holding a
valid and current license under this Act is declared
to be inimical to the public welfare, to constitute a
public nuisance, and to cause irreparable harm to the
Dr. Michaels points to a number of provisions in the Agreement
that she believes run afoul of the Act's proscription of
In particular she contends that the employment and financial management arrangements established
under the Agreement and the Agreement's non-compete clause all
enable Orthodontic Centers to practice dentistry in violation of
the Act. To support that argument Dr. Michaels has attached a
copy of the Agreement, a number of affidavits and most
significantly Centers' Form 8-K report filed just last month
with the SEC (M. Add. St. ¶ 37 and Ex. 8).
While the Agreement's language may or may not of itself
establish an improper relationship between the parties,*fn8
Centers' own statement in its Form 8-K report confirms its (and
hence Orthodontic Centers') violation of Act § 44. That report
states in pertinent part (M. Add. St. ¶ 13; M. Ex. 8) (emphasis
Before the issuance of Staff Accounting Bulleting 101
("SAB 101") by the SEC in December, 1999, we
considered ourselves to be a partner in nationwide
orthodontic practices and considered our revenues to
be derived from direct service to patients. After SAB 101, and
after long discussions with our accountants and the
SEC staff, we revised our view and considered
ourselves an orthodontic practice support firm whose
revenues were derived from administrative services to
our doctors. . . .
With the issuance in December 2003 of revised
Financial Accounting Standards Board Interpretation
No. 46 ("FIN 46"), we again tested our relations with
our doctors and determined on the basis of the FIN 46
guidance that we were indeed an orthodontic
practice for financial reporting purposes and
therefore must recognize our revenue on that basis
under SAB 101 and FIN 46. . . . [B]ecause we are the
only publicly traded orthodontic practice, we have
no peer guidance or rulings to look to for assistance
in developing methods that comply with SAB 101 or FIN
By thus overtly confirming that it is an "orthodontic practice"
and, as such, derives its revenues from the direct servicing of
patients, Centers (speaking for each of its subsidiaries,
including Orthodontic Centers) has held itself out as owning
and running an orthodontic practice, in direct contravention of
Act § 44.*fn9
Although voiced long ago in a four-Justice
dissenting opinion, the statement by Justice Douglas (who had
earlier been the SEC's Chairman) in Scherk v. Alberto-Culver
Co., 417 U.S. 506
, 527 n. 6 (1974) that a Form 8-K filing is
required of a company whenever substantial events occur impacting
the security was good law then and remains good law today. Those
public filings are intended not only "to protect investors
through the requirement of full disclosure" but also to attract
investment into a company (Tcherepnin v. Knight, 389 U.S. 332
, 335 (1967)).
In the present context it is really irrelevant that SEC filings
are prescribed in the primary interest of investors rather than
of those seeking dental care. What controls instead is that the
SEC's requirements are for the protection of the public, just as
are the requirements of the Act (it will be remembered that the
Illinois General Assembly has mandated that the Act be broadly
construed).*fn10 Centers (and hence Orthodontic Centers)
cannot represent to the broader public that it is an orthodontic
practice to induce investment on the one hand, while on the other
hand disclaiming that representation as somehow limited in scope.
That representation, although filed with the SEC, is broadcast to
the public at large and that public includes the universe of
prospective consumers in the dental services market as well.
Orthodontic Centers has sought to wriggle out of Centers'
month-old acknowledgment that it is indeed "the only
publicly-traded orthodontic practice" by pointing to its
year-old quarterly SEC filing (Form 10-Q) that disclaimed such
status in this fashion:
OCA [Centers] does not hold any ownership interest in the Affiliated Practices [such as Dr. Michaels'] and
does not employ the orthodontists or other
practitioners in the Affiliated Practices. The
patients who are parties to patient contracts with
Affiliated Practices are the patients of the
Affiliated Practices, not patients of OCA. OCA does
not practice orthodontics or other forms of
dentistry, and is prohibited from doing so by the
laws of each jurisdiction in which the Company
That effort to blur (or to eliminate entirely) the true
significance of its total involvement in the orthodontic practice
simply won't fly not only because Centers' earlier-quoted Form
8-K statement was more recent and obviously made with full
knowledge of what had gone before, but more importantly because
that most recent admission comports with reality.*fn11
In that respect Orthodontics Centers attempts to put a false
face on the matter by stating in its just-filed Supp. Reply at 3
(emphasis in original):
Conspicuously, Michaels has not shown or even
attempted to show how the manner in which OCA
determined its revenues and other financial
information for public reporting purposes could have
affected the contractual relationship between OCS
and Michaels, P.C. or overridden any provision of the
That seeks to obscure the real points (1) that Centers was of course speaking in its Form 8-K of the contractual relationships
between each of its subsidiaries (such as Orthodontic Centers)
and the Affiliated Practices (such as Dr. Michaels') and (2) just
as significantly, that the SEC-compelled acknowledgment reflected
in the Form 8-K does not "override" the Agreement but rather
portrays its effect in its true light.
In part Orthodontic Centers' wriggle-out effort seeks to draw a
line between itself and Centers (the SEC-reporting entity), and
in part it says that Centers was speaking differently during the
term of the Agreement than it now does. But as to the first part,
that effort to separate the current litigant from its parent is
smoke and mirrors: What Centers has so recently confirmed is the
relationship that each of its subsidiaries such as Orthodontic
Centers has with dentists such as Dr. Michaels. And as to the
second part, the Form 8-K itself recognizes that the truth it
speaks was always the truth: There has been no change in the
actual relationship between the subsidiaries such as Orthodontic
Centers and dentists such as Dr. Michaels, only a change in the
recognition forced on Centers by the SEC.
By definition every corporation a law-created concept of a
disembodied entity acts through individual human beings. Hence
it will not do for any corporation to say "we [the disembodied
entity] didn't do it those people [the human beings] did." In this instance Orthodontics Centers cannot gainsay, in
addition to the congeries of other factors that go to make up its
interrelationship with Dr. Michaels, that it receives 50% of Dr.
Michaels' net profits. When all the underbrush of attempted
disclaimer is cleared away, that means that of every dollar
derived from patient care from the practice of dentistry by
Dr. Michaels individually and by any other orthodontists and
dental technicians working in Dr. Michaels' facility, 50 cents
less a ratable part of the associated expenses*fn12 go
directly into Orthodontic Centers' corporate pocket. Orthodontic
Centers cannot divorce itself from that economic reality by
protesting that the people in the fruits of whose personal
service efforts it shares efforts that provide patient care
are not formally on its payroll.
Little wonder that the SEC accounting standards reflect that
reality and compel what is a fatal admission by Centers, speaking
of and for Orthodontic Centers and its other subsidiaries. In
short, Orthodontic Centers' attempted switch-hitting will not be
sanctioned in this Court.
This leaves then the question of what to do with the Agreement.
Under Illinois law, "when a statute declares that it shall be unlawful to perform an act and imposes a penalty for its
violation, contracts for the performance of an act are void and
incapable of enforcement" (Aste v. Metro. Life Ins. Co.,
312 Ill.App.3d 972, 980, 728 N.E.2d 629, 635 (1st Dist. 2000)). As
Ransburg v. Haase, 224 Ill.App.3d 681, 684-85, 586 N.E.2d 1295,
1297 (3d Dist. 1992) (quoted in Aste) teaches:
As a general rule, courts will not enforce a contract
involving a party who does not have a license called
for by legislation that expressly prohibits the
carrying on of the particular activity without a
license where the legislation was enacted for the
protection of the public, not as a revenue measure.
Here the Act confirms all of those criteria. It both declares
it unlawful for a corporation to hold itself out as owning and
operating a dental office and imposes a criminal punishment for
its violation. And the Act also states unambiguously that the
regulations it contains are motivated by a desire to serve the
public interest. Thus the Agreement, the mechanism through which
Orthodontic Centers engages in its business and the basis on
which it holds itself out unlawfully as being engaged in an
orthodontic practice, is void and incapable of enforcement.
Almost without exception, parties to such a void contract will
be left where they have placed themselves (see, in addition to
Ransburg and cases cited there, such cases as Broverman v.
City of Taylorville, 64 Ill.App.3d 522, 527, 381 N.E.2d 373, 376
(5th Dist. 1978)). It is true that in a context wholly different from the present one Illinois caselaw has recognized two limited
exceptions to that rule: (1) where the parties are not in pari
delicto (that is, where the party seeking relief is not similarly
culpable) or (2) where the law that makes the contract unlawful
is intended for the protection of the party seeking relief
(Ransburg, 224 Ill. App.3d at 686, 586 N.E.2d at 1298-99). But
even a brief analysis makes it obvious that neither exception
applies to Orthodontic Centers to begin with, even if it could
somehow qualify to seek relief under those exceptions.*fn13
As to the first potential escape hatch, Orthodontic Centers is
the unlicensed party that has unlawfully held itself out as
capable of providing dental care. It can hardly be argued that
Orthodontic Centers is "comparatively the more innocent" under
such circumstances (Ransburg, id. at 687,
586 N.E.2d at 1299). And as for the second possibility, the Act was designed to
protect patients, not to protect corporations particularly
those corporations violating its proscriptions.
In sum, Orthodontic Centers cannot enforce the Agreement. Its
motion for summary judgment on its breach of contract claim is
denied to the contrary, Dr. Michaels is entitled to judgment as
a matter of law in that respect.
Recovery on the Promissory Notes
Orthodontic Centers additionally moves for partial summary
judgment establishing Dr. Michaels' liability for the unpaid
balance due on the five promissory notes referred to earlier.
Because analysis reveals that the already-described taint
attached to Orthodontic Centers' services does not extend to the
notes, and because there is no genuine issue of material fact as
to Dr. Michaels' liability on those notes, Orthodontic Centers is
entitled to the relief that it seeks.*fn14
It is undisputed that the notes stemmed from an early stage in
the parties' relationship, reflecting the obligation to repay
amounts advanced by Orthodontic Centers to facilitate
Illinois-licensed orthodontist Dr. Michaels' establishment of her
own practice. They were not reflective of fees or other payments due
to Orthodontic Services for its services under the Agreement or
otherwise.*fn15 Because the creation of Dr. Michaels'
practice was of course perfectly legal under the Act, the
promissory notes can be enforced by Orthodontic Centers so long
as it "can establish [its] claim without requiring the aid or
proof of the illegal contract" (Central Republic Trust Co. v.
Evans, 378 Ill. 58, 70, 37 N.E.2d 745, 751 (1941)).
Orthodontic Centers need not rely on the illegal Agreement at
all.*fn16 Dr. Michaels has not contested the signatures on
the promissory notes, nor has she disputed the fact that
Orthodontic Centers is the holder of those notes (M. Resp. St. ¶
13). Nor does Orthodontic Centers need to rely on the Agreement
to rebut Dr. Michaels' single defense on the issue of liability.
On that score Dr. Michaels urges that because Orthodontic Centers
was her fiduciary under the Agreement and because Orthodontic
Centers' actions caused a delay in her payment of the notes, it is
precluded from recovering any money due on those notes.
In that regard, although a determination of whether Orthodontic
Centers was Dr. Michaels' fiduciary might require recourse to the
illegal Agreement, Orthodontic Centers correctly responds that
Dr. Michaels is liable on the principal regardless of whether
Orthodontic Centers was her fiduciary and breached any fiduciary
duty (see, e.g., Smith v. First Nat'l Bank of Danville,
254 Ill.App.3d 251, 265-67, 624 N.E.2d 899, 910-11 (4th Dist. 1993)).
Because relief based on such a breach would call for the
equitable remedy of rescission (here the repayment of the funds
advanced by Orthodontic Centers), the finding of such a breach
would only excuse Dr. Michaels from paying the interest that has
accrued on the notes (id.).
Thus Orthodontic Centers' partial motion for summary judgment
is granted as to Dr. Michaels' liability for whatever is later
determined to be the remaining amount due on the promissory
notes. Ultimate judgment in that respect remains for the future.
Dr. Michaels' Breach of Contract Counterclaim
For her part, Dr. Michaels has moved for summary judgment on
her two counterclaims for breach of contract and breach of
fiduciary duty. Neither branch of her motion succeeds.
As to the former, Dr. Michaels asserts that Orthodontic Centers
improperly reimbursed itself for certain corporate overhead expenses. Under Agreement § 4.3 Orthodontic Centers was
"responsible for the payment of all Centers Expenses . . .
without reimbursement by the Orthodontic Entity, unless otherwise
agreed to by the parties hereto." As already noted, Centers
Expenses include a multitude of items such as staff salaries,
taxes and fees, lease amounts, liability insurance premiums and
"corporate overhead charges and expenses." According to Dr.
Michaels, while she agreed to pay for certain Centers Expenses
such as lease amounts, she never agreed to pay for corporate
It is unnecessary to engage in a full analysis of Dr. Michaels'
claim. Because the Agreement has already been held to be void,
Dr. Michaels can enforce its provisions only if she falls within
one of the earlier-discussed exceptions to the rule against
recovery on a void contract: either because she is not in pari
delicto with Orthodontic Centers or because the General Assembly
intended to protect her under the Act.*fn17
As to the first of those exceptions, Dr. Michaels has not
even with the benefit of favorable inferences created a general
issue of material fact as to her not being in pari delicto with
Orthodontic Centers. To succeed in that regard, Dr. Michaels must
provide "some pleading or evidence that [she] had no knowledge of
the illegality and that [Orthodontic Centers] did" (O'Hara v. Ahlgren, Blumenfeld & Kempster,
158 Ill.App.3d 652, 565, 511 N.E.2d 879, 882 (1st Dist. 1987)). Dr. Michaels has
submitted no evidence at all to that effect. Instead her only
tendered evidence has focused on the terms of the Agreement and
on the financial statements that Orthodontic Centers provided to
her, in which Orthodontic Centers described itself as a "partner"
and retained 50% of the practice's profits. To adapt O'Hara's
language to this case (id.):
Absent . . . evidence or pleading disclosing [Dr.
Michaels'] lack of knowledge of illegality and
[Orthodontic Centers'] awareness of same, it would
appear that the parties were in pari delicto.
Dr. Michaels fares no better as to the second exception
referred to above. Even though the licensure of professionals
might perhaps be viewed by the skeptic as motivated by
protectionism, the Illinois courts have rejected such a
perspective. What has been said for nearly 90 years and has been
reiterated as recently as in Ransburg, 224 Ill.App.3d at 685,
586 N.E.2d at 1298 as to the practice of architecture applies
with equal force to the Act's regulation of the practice of
The statute was not intended to protect architects by
limiting the work to licensed architects. Rather, its
real purpose was to protect the public from damage
caused by the work of incompetent and unlicensed
Such regulation has as its focus the need to "safeguard the
public health and welfare" (Carter-Shields, 202 Ill.2d at 458,
77 N.E.2d at 957). So Dr. Michaels cannot recover under Rule 56 on her
counterclaim for breach of the Agreement. And as with Orthodontic
Centers' like motion, what has been said here also precludes any
recovery on that claim on the merits.
Dr. Michaels' Breach of Fiduciary Duty Counterclaim
Dr. Michaels additionally argues that by reimbursing itself for
corporate overhead expenses, Orthodontic Centers breached its
fiduciary duty to Dr. Michaels. According to Dr. Michaels such a
fiduciary duty arose from her appointment of Orthodontic Centers
as her attorney-in-fact for all of the functions listed in
Agreement § 2.10, including the payment of Centers Expenses.
Orthodontic Centers disputes that reading of Agreement § 2.10,
positing that it was named as Dr. Michaels' attorney-in-fact only
for billing and collections. But that dispute as to the scope of
the attorney-in-fact designation need not be resolved, because
any potential recovery on Dr. Michaels' breach of fiduciary duty
claim would again require this Court to enforce the illegal
By contrast, Holstein v. Grossman, 246 Ill.App.3d 719,
616 N.E.2d 1224 (1st Dist. 1993) involved a contract for the referral
of clients from one attorney to another. Although the court
denied the plaintiff's Count I claim for breach of contract, it
held that the plaintiff could recover on his Count II breach of
fiduciary duty claim. In that regard Holstein, id. at 742,
616 N.E.2d at 1239 explained:
Unlike count I, plaintiff's recovery under count II
does not require this court to enforce an agreement
which is unenforceable on public policy grounds.
In this case, however, this Court would have to enforce the
underlying Agreement for Dr. Michaels to succeed on her breach of
fiduciary duty claim. More specifically, it would be necessary to
interpret the scope of and to enforce not only the
attorney-in-fact appointment in Agreement § 2.10 but also a host
of other provisions in which the parties allocate responsibility
for Centers Expenses: Agreement §§ 4.3 (Centers Expenses
generally), 2.2, 3.9 and 4.1(b) (rents), 2.8 (marketing), 2.11
(staff salaries), 3.6 (licenses/taxes/fees) and 5.2 (liability
Thus Dr. Michaels' breach of fiduciary duty claim also fails at
the summary judgment stage. And based on the just-completed
analysis, that claim too is fatally deficient on the merits.
Because the Agreement is void and unenforceable as a matter of
law, neither party is entitled to recover on its or her breach of
contract claims, nor is Dr. Michaels able to recover on her
breach of fiduciary claim. Indeed, all of those claims are
extinguished as a matter of law. Only Orthodontic Centers' claim
for Dr. Michaels' liability on the five promissory notes survives
and on that issue alone this Court grants summary judgment in favor of Orthodontic Centers as to liability. This
action is set for a status hearing at 8:45 a.m. December 20, 2005
to discuss the procedure and timetable required to establish the
amount of that liability.
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