So Centre City Periodontists, P.C. v. Dentstply International, Inc.  U.S. District Court, E.D. Pennsylvania is an interesting and recent case worth mentioning. In that case, Centre City Periodontists, P.C. and dentists residing in Pennsylvania and New Jersey sued Dentsply International, Inc. in a class action for breach of express warranty. They claimed alleged deficiencies in the design and labeling of various models of the Cavitron ultrasonic scaler.
The crux of the dentists’ claim was that the Cavitron isn’t safe or suitable “for its indicated uses because the internal walls of the device’s waterlines naturally accumulate biofilm, exposing patients and dental staff to potentially hazardous bacteria levels in excess of safe water standards, even when operated and maintained in a manner consisted with the Directions for Use and related materials”.
According to the dentists, this inherent defect constituted a breach of the Cavitron’s express warranty against defects in materials or workmanship. Together with Dentsply’s failure to disclose this defect, this amounted to a breach of an express warranty of safety and suitable contained in the Directions for Use and related materials.
By way of background, a Cavitron is a device used to deliver high pressure, pulsating water stream into a patient’s mouth through a hand piece at the end of a flexible tube that is connected to the device’s main body. The water stream keeps the working area cool and frees up debris during non-surgical procedures. Only certain quality of water should be used because of the potential for pathogenic microorganisms to be transmitted through the water.
The U.S. Centers for Disease Control and Prevents established guidelines in 2003 to advise health professionals to use adaptive devices or closed water systems combined with chemical flushing and other measures in consultation with manufacturers to achieve no more than 500 colony forming units per milliliter (the regulatory standard for portable water established by the U.S. Environmental Protection Agency). In other words: water flushing isn’t enough on its own. Even the American Dental Association was recommending to its members in 1996 that biolfilm formation in waterlines should be managed using a combination of strategies such as chemical treatment and independent reservoirs.
Now, because the Directions for Use and related materials HAD NOT required the installation of of a closed water system or chemical flushing AND HAD NOT warned buyers of the biofilm problem, the dentists who launched the class action purportedly believed that the Cavitrons would deliver potable water consistent with safe water standards for its indicated uses when installed on an OPEN water source and FLUSHED only with water in accordance with the Directions for Use. Over time, these dentists noticed that, when left untreated, the Cavitron’s waterlines naturally accumulated potentially hazardous levels of biofilm.
So the dentists sued Dentsply in 2010 and alleged that Dentsply had allegedly breached an express warranty, negligently designed the Cavitrons and violated New Jersey’s Consumer Fraud Act. For the class to be certified as a class action to proceed under the rules of civil procedure, there number be (1) a numerous class that joinder of all members is impracticable, (2) common questions, (3) typical claims, and (4) adequate representation. Let’s look at each of these requirements, shall we?
The plaintiff dentists were unable to prove that the class was so numerous that having them individually sue is impractical. Yes, the plaintiff dentists pointed to the number of dentists practicing in New Jersey and Pennsylvania who COULD be included in the class of dentists who bought Cavitrons and also connected them to an open water source. But the Court could not “assume”, “speculate” or defer to “common sense” with respect to how many class members existed. The plaintiff dentists must produce evidence, direct or circumstantial, specific to the products, problems, parties, and geographic areas actually covered by the proposed class definition to allow a court to make a FACTUAL finding. And there was insufficient evidence here. While the plaintiffs failed at this point and the whole case could be dismissed as a result, the Court went to to assess the other components of having a class action certified.
This is the only component of certifying a class action that the plaintiff dentists were able to establish – namely, whether Dentsply’s conduct was common as to all members of the class. The plaintiff dentists argued that the breach of warranty claims all share as a common issue that Dentsply represented in the Directions for Use that the Cavitrons were suitable for its indicated dental uses if purchasers followed Dentsply’s installation and maintenance instructions. The Court agreed that these types of questions will result in common answers that apply across the board to all members of the class.
Importantly, the common issues must be typical among the class. The claims of the class representative must be generally the same as those of the class in terms of the legal theory advanced and the factual circumstances underlying that theory. Also, the class representative must not be subject to a defence that is both inapplicable to many class members and likely to become a major focus of the litigation. Finally, the interests and incentives of the representatives must be sufficiently aligned with those of the class.
On these issues of typicality, the plaintiff dentists failed to satisfy this requirement. First, some plaintiff dentists bought their Cavitrons at a discount from an UNAUTHORIZED dealer (this could defeat that plaintiff dentist’s claim since the warranty covers only products purchased from an AUTHORIZED Dentsply dealer). Second, some plaintiff dentists acknowledged that they hadn’t necessarily read (or recall having read) all of the relevant provisions of the Cavitron’s Directions for Use; but not being aware of the content CANNOT be typical representatives of a class that was allegedly misled and damaged by Dentsply’s representations in those same Directions for Use! For these and other reasons, the Court held that the plaintiff dentists’ claims are not sufficiently typical to warrant certification of the class action.
Because some of the plaintiff dentists had specific issues that diverged the interests and the incentives between them and the class members, which meant that they could not fairly and adequately represent the class. For example, some of the plaintiff dentists had untimely claims because they bought Cavitrons too early on and could be barred from bringing claims based on the statute of limitations. And this fight to have these particular plaintiff dentists involved involved in the class action might create intra-class conflict because the plaintiffs may be incentivized to spend resources to save their less valuable claims without any obvious benefit to class members with more valuable, timely claims.
Another problem with adequacy is the fact that a plaintiff dentist and one of the their lawyers had been friends for twenty-five years and still regularly kept in touch despite living on opposite coasts. The plaintiff dentists treated that solicitor’s family members. And the plaintiff dentist replied that he available to help when approached by the solicitor about the lawsuit. All of this raised serious concerns as to the plaintiff dentist’s adequacy to represent the class.
For these and other reasons (including finding that a class action was not superior to other available methods for adjudicating this controversy), the Court refused to certify the class.
So this blog is all about class actions launched against dentists (because of their infection control practices – or lack thereof).
As I write this, a Guelph dental practice is about to get sued in a class action by patients. By way of background, Guelph Dental Associates (which also operate under the name “Growing Smiles”) was shut down by public health inspectors and its 3,600 patients were urged to get tested for hepatitis B and C and HIV as a result of improper sterilization. This all started after the parents of a young patient complained about developing a bacterial infection after a trip to the dentist in June, which triggered an inspection and the shutdown. Weeks later, with the practice still not open, Gary Will of Will Davidson LLP says he signed up a few patients in a class action lawsuit (which could theoretically include all 3,600 patients) and is seeking millions of dollars in damages.
So what exactly would patients be suing the dental practice / dentist(s) for?
Well, let’s look at the case of Healey v. Lakeridge Health Corp.  O.J. No. 231, to gain some insight, shall we? There, the Ontario Court of Appeal had to deal with class actions against Lakeridge Health Corporation (“Lakeride“) and some physicians arising from incidents in which large numbers of people were exposed to 2 patients with tuberculosis (“TB“). IMPORTANTLY: none of the persons suing had actually tested positive for TB. But they sued anyways on behalf of a class of patients because they received noticed advising them that they should be tested and that in turn caused them MENTAL ANXIETY, SUFFERING, and DISTRESS. They admitted that they didn’t have a psychiatric illness. So the question before the Ontario Court of Appeal was: could they receive compensation for their suffering?
Now, in order to prove that Lakeridge was responsible, the patients would have to demonstrate (1) that Lakeridge owed them a duty of care; (2) that Lakeridge’s behaviour breached the standard of care; (3) that the patients sustained damage; and (4) that the damage was caused, in fact and in law, by Lakeridge’s breach. So let’s look at each of those things now…
Duty of Care
So the first thing the court examined was whether Lakeridge owed a DUTY OF CARE to uninfected persons. The Court of Appeal said YES it does: Lakeridge owes a duty of care to patients and visitors at the hospital to take reasonable care to prevent the transmission of infectious diseases. Importantly, this duty of care to avoid physical harm to person or property “embraces the category of claims for nervous shock” (paragraph 37). Whoa… what’s this “nervous shock” category all about?
“Nervous shock” or “psychological injury” is a type of claim that, if proven, can result in a court paying compensable damages. In order to establish damages for nervous shock, the patients would have to prove (1) they suffered the type of damages that are compensable and (2) that the psychological injury was caused by Lakeridge’s negligence (was the damage a reasonably foreseeable consequence of the defendant’s negligence)? After reviewing a long-line of cases in Canada, the UK and Australia, the Court of Appeal found that that claimants DID NOT prove that they had suffered the type of damages that are compensable. Here’s what they wrote:
Now, even though the Court of Appeal dismissed the case on the grounds that the patients had not proven “nervous shock” or “psychological harm”, the Court went on to talk about the other factors that make up a successful claim for negligence – starting with “Causation”. In other words: even if the patients suffered and that suffering could be compensated, was their suffering caused by Lakeridge’s actions / omissions? The Court of Appeal stated that yes, there could be causation and it could be determined at a trial (if it ever got there). Keep in mind that the Court had already dismissed the case, but wanted to complete their analysis in case they got something wrong.
The Court of Appeal went on to examine whether the patients could receive “aggregate damages”. Aggregate damages are covered in section 24(1) of the Class Proceedings Act and say that a court can determine aggregate damages for an entire class of claimants where certain criteria are met. Here, the Court felt that the assessment of damages required proof of harm suffered by the INDIVIDUAL class members, so relying on “aggregate damages” wasn’t available to the class claimants. There were significant and numerous individual issues pertinent to the issue of liability and damages that must be determined.
The Court of Appeal held that the harm suffered by the class members was NOT compensable because they hadn’t proven that they had suffered from a physical disability or illness, had not suffered from a recognizable psychiatric illness, and had not suffered from any serious / prolonged psychological injury. Objectively speaking, they had suffered upset, disgust, annoyances, anxieties, fear, and / or agitation that falls short of actual injury.
In case you missed it, be sure to check out our presentation to the 4th year dental students at UWO this week. For your benefit, we recorded our presentation in these four videos:
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact me (Michael Carabash) or David Mayzel.
Looking to sell your dental practice? Read this first…
So you’ve decided that you want to sell your practice. Maybe it’s because of health reasons or perhaps you want to do something different. Or maybe you have other opportunities that you want to pursue (like just associating at practices). Whatever your reason may be, you need to think about some of these things:
Generally, if you’re a seller, it’s better for you to sell shares of your dentistry professional corporation because you may be able to take advantage of the $750,000 lifetime capital gains exemption (see blog post here about it). This could result in tax savings (assuming the dentist was earning income at the top marginal tax rate) of up to $174,000. You can also multiply the lifetime capital gains exemption by having certain family members (e.g. spouse) involved in owning the right kinds of shares. Worth mentioning is that, even if you do take advantage of the lifetime capital gains exemption, you may still pay an alternative minimum tax. But this tax can be offset against taxes due in the following 7 years (think: continuing to associate!). Be sure to speak with your accountant about this! If you don’t have a professional corporation, there are strategies in place that will allow you to create a new one and roll over your assets into it on or before the day you sell the shares (and still take advantage of the lifetime capital gains exemption).
Get your Minute Book to to date
Your minute book is a compendium of documents concerning your corporation. It will have the certificate and articles of incorporation, registries and ledgers, meeting minutes, share certificates, and more. It’s important for record-keeping (like proving that you’ve owned the right type of shares for the requisite period of time required to be eligible for the lifetime capital gains exemption). It’s also important because, in the context of a deal, the purchaser’s lawyer will want to see it up to date and completed before the deal can be closed). Here’s a blog post I wrote about corporate minute books. Be sure to speak with your lawyer and accountant about getting your minute book properly organized and up to date!
Dealing with Staff and Associates.
Purchasers like seeing staff on contracts that can be terminated with notice (or payment in lieu of notice). If you don’t have your staff on contracts, then doing so can increase the value of your practice. I’ve seen purchasers successfully reduce the purchase price because staff and associates were not on contracts. The purchaser was adamant that staff sign contracts beforehand that contained restrictive covenants like non-competes and non-solicits. And the fact that the vendor didn’t have them and wasn’t willing to ask for them resulted in a significant reduction to the purchase price!
If you don’t plan on practicing after the sale, you will probably be ok with agreeing to REASONABLE restrictive covenants like non-competes and non-solicits. Whether a non-compete or non-solicit is enforceable will depend on whether they are reasonable (and a host of factors will help determine this). You can read my blog about non-competes here (http://www.dentistlawyers.ca/are-non-complete-clauses-legal-it-depends/15/) and my article about non-solicits here (see http://www.dentistlawyers.ca/are-non-solicitation-clauses-legal-article-in-ontario-dentist-magazine/01/).
Dealing with the Lease
Purchasers like leases that are favourable and which can be easily assigned. So you may want to have a dental lawyer review your lease to ensure it doesn’t have unfavourable terms like demolition clauses, no renewal options, etc. I’ve personally seen vendors lose HUNDREDS of thousands of dollars because their lease contained unfavourable terms (e.g. demolition clause) which the purchaser just wouldn’t accept without a significant price reduction. Purchasers and their financiers generally like to see 10 year terms with 2 renewal terms of 5 years each. They also like to see low rent that increases slowly over time. It’s also important for the lease to address how the tenant can assign it (i.e. whether landlord consent is required and if, so, if such consent can be withheld).
Get an appraisal
Typically, a purchaser and their financier will ask the vendor for an appraisal. The cost is roughly $3,500 to $7,000. There are various appraisal companies that will do this for dental practices (e.g. Fair Market Value Inc., Tier Three, Al Heaps and Associates, Hill Kindy, ROI Corp., Professional Practice Sales, etc.). Go with a reputable company.
Listed vs. Private Sale
Most appraisal companies are also realtors who help broker deals. They can list your practice, market it (e.g. blasting out e-mails, doing open houses, etc.), and bring prospective buyers to the table. Vendors will need to give them a cut of the overall purchase price (I’ve seen it range from 6-12% in the most extreme cases; 7%-10% is the norm).
Many vendors are asked to stay on and associate to help with the transition. To this end, the parties will need to enter into an associate agreement. This will include the key terms fo their relationship (e.g. term, compensation, termination, restrictive covenants, etc.).
A big part of buying a dental practice involves purchasing the dental records. The purchaser will want to make sure that the number of active, semi active and new patients being represented in the appraisal is true and accurate. The vendor may sometimes be required to give written promises (called representations and warranties) in the agreement of purchase and sale. Instead of giving these promises, the vendor simply allows the purchaser to do a chart audit and convince themselves that everything is good to go.
Be prepared to show your practice’s financial statements, tax returns, accounting records, etc. to prospective purchasers.
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or firstname.lastname@example.org.
Michael Carabash is your business law adviser. He is an entrepreneur at heart who helps you see the big legal picture. He drafts clear and effective agreements that protect your rights while promoting your interests. He can be reached at 647.680.9530. or email@example.com.
Ljubica Durlovska is your transition lawyer. She helps you with staff and associates, maintaining your corporation, and other business matters. She can be reached at 416.443.9280, extension 206 or firstname.lastname@example.org.
Jonathan Borrelli is your employment lawyer. He helps you with staff and associates matters, including hirings, terminations, switching staff to written contracts and resolving disputes. He can be reached at 416.443.9280, extension 204 or email@example.com.
Benjamin Kong is an experienced business law clerk. He assists David and Michael with corporate matters and purchase / sale transactions. He can be reached at 416.443.9280, extension 207 or firstname.lastname@example.org.
Julie Whitehouse is an experienced business law clerk. She assists David and Michael with corporate matters and purchase / sale transactions. She can be reached at 416.443.9280, extension 203 or email@example.com.
David, Michael, Ljubica, Jonathan, Ben and Julie are a truly dynamic team. Their diverse knowledge, skills, and experiences will help you get the best deal possible while promoting your interests and protecting your rights. You can read dentist testimonials here.