Case Name: Brendon J. Zeidler, D.D.S. v. John Lund, D.D.S., Inc., et al.
Case No.: 1-13-CV-255043

This is an action by the purchaser of a dental practice, plaintiff Brendon J. Zeidler, D.D.S. (“Plaintiff”), against the sellers, defendants John Lund, D.D.S., Inc. and John Lund, D.D.S. (collectively, “Defendants”). On October 23, 2013, Plaintiff filed a complaint against Defendants for: (1) breach of written contract, (2) intentional misrepresentation, (3) concealment, and (4) rescission. On November 26, 2014, Defendants filed the instant motion for summary judgment.

I. Evidentiary Issues

Defendants’ request for judicial notice of Dr. Lund’s disciplinary record as reflected by the website for the Department of Consumer Affairs, Dental Board of California is GRANTED. (Evid. Code, § 452, subds. (c) and (h); see Moehring v. Thomas (2005) 126 Cal.App.4th 1515, 1523, fn. 4 [taking judicial notice of census information found on U.S. Census Bureau’s Website].) While Plaintiff objects to Defendants’ request, he concedes that Dr. Lund does not have a record of public disciplinary action. (Opp., p. 18.)

Plaintiff’s objections to evidence are OVERRULED. Plaintiff identifies a number of the assertions in Defendants’ Separate Statement of Undisputed Material Facts as the material he objects to, rather than setting forth any objectionable material directly from Defendants’ supporting exhibits as required by the California Rules of Court, rule 3.1354(b)-(c). Furthermore, even if the Court considered them, Plaintiff’s objections would have no impact on the ruling below.

II. The Second and Third Causes of Action for Intentional Misrepresentation and Concealment

The second and third causes of action arise from Plaintiff’s allegations that Defendants misrepresented the following facts (and failed to disclose contrary facts): (1) the dental practice had 728 active patients; (2) it generated $729,000 to $988,999 per year for the prior four years based on actual patient treatment performed in a legal and appropriate manner and legitimate and legal insurance billing practices; and (3) Defendants abided by all laws in operating their dental practice and complied with all rules and regulations pertaining to billing insurance companies and patients. (See Complaint, ¶¶ 17, 25.)

Defendants contend that there are no triable issues of fact with respect to these fraud claims because Plaintiff himself was able to verify the accuracy of the alleged representations by reviewing Defendants’ files prior to the sale; Defendants did not intend to hide anything from Plaintiff because they permitted full access to their files; and Plaintiff did not suffer any damages resulting from Defendants’ representations.

A. Misrepresentation/Reliance

While Defendants do not explain which elements of Plaintiff’s claims their first argument pertains to, it would appear to relate to the truth of their alleged statements to Plaintiff and the reasonableness of Plaintiff’s reliance thereon.

With respect to Defendants’ revenues, Plaintiff concedes that $729,000 to $988,999 was collected during the time period at issue, but alleges that these revenues were generated “as a result of fraudulent billing activity, billing for treatment that was unnecessary and billing for treatment which was never performed.” (See Complaint, ¶ 18.) Defendants do not dispute that they indicated that their revenues were based on actual patient treatment performed in a legal and appropriate manner and legitimate and legal insurance billing practices. Nor do they provide any evidence supporting the conclusion that their practice did, in fact, legally and appropriately generate this amount of income.

Instead, Defendants contend that Plaintiff should be prohibited from challenging their billing and treatment procedures, because he reviewed their records and warranted in the parties’ sale contract that he had reviewed and was satisfied with both the clinical and financial aspects of Defendants’ business. (See Defendants’ Separate Statement of Undisputed Material Facts (“DSUMF”), nos.10-22, 25-27.) Defendants assert that Plaintiff’s experts now rely upon the same documentation that was available to Plaintiff before the sale to opine that Defendants overtreated and overbilled patients. (See DSUMF, nos. 33-34.)

Defendants provide no legal support for their argument that Plaintiff’s agreement to perform due diligence superseded Defendants’ representations concerning their income, which itself is adequate reason to find that they failed to meet their burden based on this argument.

Further, while it is true that a promise that is inconsistent with a final contract between the parties is superseded, here, Defendants do not contend that they disclaimed any representations concerning their income in the sales contract, only that Plaintiff warranted that he had undertaken and was satisfied with his own review. (See DSUMF, no. 26; Simmons v. California Institute of Technology (1949) 34 Cal.2d 264, 274 [in fraud in the inducement cases, “‘a distinction must be made between … a parol promise …, which [is inconsistent with and thus] superseded by the final writing, … and a promise … not inconsistent with the writing, but which was the inducing cause thereof’”], quoting Cobbs v. Cobbs (1942) 53 Cal.App.2d 780, 783, 785.) Consequently, the parties’ contract is not inconsistent with and does not supersede Defendants’ alleged misrepresentations regarding the validity of their income or impose a duty upon Plaintiff to discover these misrepresentations. (See generally Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1500 [“It is well established in California that a party to a contract is precluded under section 1668 from contracting away his or her liability for fraud or deceit based on intentional misrepresentation.”]; Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239-1240 [plaintiff’s negligence in failing to discover the falsity of a statement is no defense to a claim for fraud].)

Defendants have thus failed to meet their burden to demonstrate that there are no triable issues of fact based on their first argument.

B. Intent

Defendants contend that “[a]ssuming, arguendo, Dr. Lund was aware of [the] alleged overtreatment and overbilling, which he was not, he never hid any aspect of his treatment or billing practices prior to the sale of his practice. Thus, he never intended to misrepresent anything.” (Mot., p. 12.) Defendants also introduce evidence that Dr. Lund served on the Ethics Committee for the Santa Clara County Dental Society and was never sued, was never found to have committed an ethical violation, and never failed to pass an insurance audit. (DSUMF, nos. 50-54.) Notably, although Dr. Lund provides a declaration in support of Defendants’ motion, he does not clearly state that he did not overbill or overtreat his patients.

As Defendants themselves note in their moving papers, “intent to induce [reliance] can be inferred from the fact that [Defendants] made the representation with knowledge that [Plaintiff] would act in reliance thereon.” (Gagne v. Bertran (1954) 43 Cal.2d 481, 488.) Here, Defendants assume for the sake of argument that Dr. Lund was aware of the alleged overbilling and overtreatment, and essentially contend that they had no way of knowing that Plaintiff would rely on their representations when he had direct access to their files. However, as already discussed, Plaintiff did not disclaim reliance on Defendants’ statements or have any duty to discover that they were false. Consequently, Defendants have not demonstrated that they had no reason to know that Plaintiff would rely on their representations. In addition, Defendants’ evidence concerning Dr. Lund’s practice history does not directly address the issue of his awareness or intent regarding overtreatment or overbilling that was not discovered by others while he was in practice.

Thus, Defendants fail to meet their initial burden to show that they did not intend to misrepresent or conceal information from Plaintiff.

C. Causation of Damages

Defendants’ position is that the practice’s revenues declined soon after Plaintiff took it over in February of 2012. (Mot., p. 13.) They contend, however, that Plaintiff cannot demonstrate that their alleged improper billing and treatments caused this to happen, because Plaintiff did not discover these practices until March of 2012 and did not begin to inform patients of them until October of 2013. (Id.) This argument does not demonstrate that the alleged practices could not have caused revenues to decline when Plaintiff took over Defendants’ practice, since one would expect a revenue stream based on overbilling and overtreatment to decline immediately once those practices were discontinued. Defendants offer no evidence supporting their argument that the decline would have begun at a later date if it were caused by their alleged overbilling and overtreatment.

Defendants further argue that other factors such as the practice’s high numbers of accounts receivable and “out-of-network” patients are “a more plausible proximate cause for the decline in patient numbers and revenue.” (Mot., p. 14.) While they concede that these factors were present before the practice was sold, Defendants argue that many of their patients may have simply preferred “to cut ties with a new dental practice than … continue to owe money to their dentist, pay higher deductibles for a young and inexperienced dentist, or both.” (Id., pp. 14-15.) Again, however, Defendants offer no evidence supporting this argument.

In light of the above, Defendants have failed to meet their initial burden to demonstrate that Plaintiff’s damages were not caused by their alleged fraud. As Defendants have failed to negate any element of the second and third causes of action, their motion for summary judgment is DENIED.