OPINION AND ORDER REOPENING CASE AND GRANTING MOTION FOR SUMMARY JUDGMENT
THIS MATTER comes before the Court pursuant to the Plaintiffs’ Motions to Reopen the Case (#41); and the Plaintiffs’ Motion for Summary Judgment (# 42), the Defendants’ response (# 52), and the Plaintiffs’ reply (# 53).
According to the Amended Complaint (# 3), the Plaintiffs are an individual dentist and corporate organizations by which he practices dentistry in both Colorado and Georgia. In 1999, the Plaintiffs and Defendants entered into an agreement (“the Agreement”), under which the Defendants would supply various dental office management services — e.g. hiring and managing staff; leasing office space and equipment; providing bookkeeping, collections, and other administrative services, etc. — to the Plaintiffs in exchange for a percentage of the office’s profits. (The precise details of the agreement between the Plaintiff and Defendants for such services will be discussed more fully within the analysis below.)
Eventually, a dispute between the parties arose as to the Agreement, and this litigation followed. The Amended Complaint alleges nine claims for relief: (i) a request for a declaration that the parties’ contractual agreement for the business services is void as violative of Colorado public policy governing the unlicensed practice of dentistry; (ii) a request for a declaration that the agreement is void due to fraudulent inducement; (iii) a request for a declaration that the agreement’s non-competition clause is invalid; (iv) breach of contract is various respects; (v) negligence (many of the acts alleged to be breaches of the contract are also alleged to be acts of negligence); (vi) negligent misrepresentation, arising from similar conduct alleged in the negligence and breach of contract claims; (vii) fraud; (viii) violation of the Colorado Consumer Protection Act; and (ix) breach of fiduciary duty.
Shortly after this case was commenced, the Defendants filed a Chapter 11 petition in Bankruptcy Court. The parties initially agreed to close this case pending the resolution of the bankruptcy proceedings. The Plaintiffs moved before the Bankruptcy Court for relief from the automatic stay for the sole purpose of seeking summary judgment on the first claim for relief — the request for a declaration that the agreement is void as against public policy. Having obtained such relief, the Plaintiffs now move to reopen the case (# 41) to address that issue and, separately, for summary judgment (#42) declaring the agreement void.
ANALYSIS
A. Reopening of case
The Plaintiffs contend that there is now good cause to reopen the action, having obtained relief from the automatic stay in bankruptcy to address the issue of whether the Agreement is void. The Defendants do not oppose the request to reopen the case. The Court finds that there are good grounds to reopen the case, and the motion is granted.
B. Summary judgment
1. Standard of review
Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary.
See White v. York Intern. Corp.,
When, as here, the movant has the burden of proof at trial on a claim or defense, the movant must establish every element of its claim or defense by sufficient, competent evidence.
See
Fed.R.Civ.P. 56(e). Once the moving party has met its burden, to avoid summary judgment the responding party must present sufficient, competent, contradictory evidence to establish a genuine factual dispute.
See Bacchus Indus., Inc. v. Arvin Indus., Inc.,
2. Terms of the Agreement
The operative facts do not appear to be genuinely in dispute. The parties agree that they entered in the Agreement, and do not appear to dispute its terms.
The Plaintiffs and the Defendants entered into the agreement on July 1, 1999, regarding dental offices operated by Plaintiff James Mason in Georgia. In 2001, Plaintiff James Mason relocated his practice to Colorado, and in March 2001, the parties agreed to amend the Agreement to apply to the Colorado offices as well.
Section 1.1 of the Agreement provides that the Defendants shall provide “business and administrative support and services” needed for the “day-to-day operations” of the Plaintiffs’ practice. Specifically, those services include “employment, scheduling and training” of office staff; “provision and maintenance of the ‘offices,’ telephones and utilities”; the supplying of fixtures, furniture, and equipment; bookkeeping and accounting services; billing and collection services; and various other matters. Section 1.2 of the Agreement expressly states that the parties agree that the Agreement does not constitute the practice of dentistry in the State of Georgia, and further agree that any provision found to constitute such practice of dentistry will be severed from the Agreement. Section 1.4 provides that the Defendants shall lease to the Plaintiffs all of the furniture and equipment they require. Section 1.5 provides that the Defendants shall obtain and sublease offices to the Plaintiffs, consistent with the Plaintiffs’ needs and approval.
The Agreement’s financial terms are found in Article III. Section 3.1 provides that the Plaintiffs shall pay a monthly services fee, calculated according to a formula set forth in Exhibit B to the Agreement. That formula calculates the total value of services provided by the Plaintiffs each month, the actual payments received for such services, and the Plaintiffs’ operating expenses, then sets the monthly fee as: (value of services) — (.6 x (payments received-operating expenses)). Although an oversimplification, the monthly fee payable to the Defendants is essentially 40% of the Plaintiffs’ monthly receipts, plus reimbursement of operating expenses incurred by the Defendants.
Section 8.5 of the Agreement provides that its validity, interpretation, and performance will be governed by the laws of the State of Georgia, without regard to that state’s principles of conflicts of law.
3. Governing law
The Defendants contend that, because the Agreement states that it is to be gov
However, as relevant here, the choice of law provision of the contract is immaterial. The Defendants are correct that, to the extent the Court is required to apply the substantive law of contracts, it would be appropriate to apply Georgia law to determine, for example, whether the parties entered into a binding agreement, or how an ambiguous term of the Agreement should be construed. However, nothing in this case requires the application of substantive contract law, as neither party contests that a binding contract exists or disputes the meaning of its terms. The question presented here is whether one or more of those unambiguous terms are contrary to the public policies of the State of Colorado, thereby preventing enforcement of the Agreement in this state. There can be no colorable argument that the determination of Colorado’s public policies must be made in light of Georgia law, and thus, the Court rejects any argument by the Defendants that the choice of law provision in the Agreement is relevant here. 1
4. Validity of the Agreement under Colorado public policy
The Plaintiffs raise several arguments as to how the Agreement violates Colorado’s public policy: (i) that the Agreement is similar to those found to be prohibited by the Colorado courts in the early 20th century,
citing People v. Painless Parker Dentist,
The Court puts aside the Plaintiffs’ arguments with regard to historical findings of the Colorado Supreme Court, as those findings pose only an academic relevance 2 now that the Colorado legislature has statutorily codified its rules against the unauthorized practice of dentistry. Instead, the Court focuses its analysis on the Plaintiffs’ arguments that the Agreement violates public policies as embodied in current statutory law.
a. Fee-sharing
C.R.S. § 12-35-129(l)(v) provides that the Board of Dental Examiners can take disciplinary action against a dentist who, among other things, “shar[es] any professional fees with anyone except those
Turning to the first argument, the Defendants contend first that dictionary definitions of “fee sharing” or “fee splitting” refer only to prohibiting “sharing a professional fee with a referring party.” Citing Black’s Law Dictionary, 8th ed. The Defendant goes on to argue that an earlier version of the statute prohibited “[s]haring professional fees with anyone or paying any person for sending or referring patients,” and that the legislature later omitted the second clause as “redundant” because fee sharing necessarily entails “paying any person for sending or referring patients.” They argue that because the Agreement does not entail payments from the Plaintiffs based on referrals of patients, the financial arrangement between the parties does not constitute fee splitting.
The Court finds this argument without merit. The Defendants do not cite to any authority for the proposition that the change in the statutory text was made because the legislature necessarily equated or limited “fee sharing” solely to the practice of making referral payments, nor do the Defendants offer any logical explanation why, if the legislature indeed perceived a redundancy, it chose to omit the pinpoint-specific definition of the prohibited act in favor of a more general description readily susceptible to overinterpretation. The Court has some doubt as to whether definitions from legal or general dictionaries are useful aids to interpreting a statute’s terms, especially when the legal definition addresses its application to the context of the practice of law, not dentistry. Assuming some application, however, the Defendants have inexplicably truncated the definition of “fee splitting” from Black’s Law Dictionary, which defines the term as not only a lawyer paying for client referrals, but also “[t]he division of attorney’s fees between two or more lawyers who represent a client jointly but are not in the same firm.” This latter definition bears some resemblance to the facts here, as the Agreement contemplates the division of client payments for dental services between two distinct legal entities who are jointly engaged in supplying (or facilitating the supplying) of those services.
More importantly, however, is that the Defendants’ argument is appears nonsensical. Interpreting the Colorado statute to prohibit only referral-based fee sharing would permit innumerable instance of clearly prohibited fee-sharing. For example, under the Defendants’ interpretation of the statute, a dentist would be free to overtly enter into an agreement to share patient fees with his or her landlord, auto mechanic, or barber, so long as the sharing was not based on patient referrals. This is clearly not the object of the statute.
The Defendants’ second argument seeks to exploit an exception in C.R.S. § 12-35-129(l)(v) that permits fee sharing if a dentist “pays to an independent advertising or marketing agent compensation for advertising or marketing services.” The Defendants argue that, among the 14 categories of obligations listed in Section 1.1 of the Agreement is the duty of the Defendants to provide “consulting advice
This argument, too, is without merit. Even assuming that the “marketing” services contemplated by the Agreement are the type contemplated by the marketing exception in the statute, the statutory exception applies only to payments that are made “for advertising or marketing services.” Thus, that portion of the Plaintiffs monthly service fees that might be attributable to marketing efforts by the Defendants might be exempt from the prohibition on fee splitting, but to the extent that payment is attributable to any one of the other 13 categories of services provided by the Defendants, the marketing exception provides the Defendants no solace. The marketing services the Defendants provide are a relatively small component of the overall package for which they are compensated, particularly compared to such services as office rent and equipment leasing. Thus, even if some portion of the Plaintiffs’ fees are devoted to advertising, the bulk of the monthly service fee is impermissible fee sharing.
The Defendants’ final argument asserts that, if they are indeed engaged in prohibited fee sharing, such fact, alone does not render the Agreement void as against public policy. The Defendants contend that the only legislative sanction contemplated by C.R.S. § 12 — 35—129(l)(v) is disciplinary action against the dentist involved, and that if the legislature had intended to go further and nullify contracts involving fee sharing, it could have done so.
It is a long-standing axiom of contract law that a contractual provision is void if the interest in enforcing the provision is clearly outweighed by a contrary public policy.
FDIC v. American Cas. Co.,
The Colorado legislature has, at times, expressly stated that contracts contravening particular legislative enactments are deemed void.
See e.g. Ingold v. AIM-CO/Bluffs, LLC,
The Defendants cite to
Irwin v. Curie,
When proscribing conduct, however, legislators seldom address themselves explicitly to the problems of contract law that may arise in connection with such conduct. Usually they do not even have these problems in mind and say nothing as to the enforceability of terms. In such situations it is pointless to search for the “intention of the legislature,” and the court’s task is to determine on its own whether it should, by refusing to enforce the promise, add a sanction to those already provided by the legislature ... The legislation is significant, not as controlling the disposition of the case, but as enlightening the court concerning some specific policy to which it is relevant. A court will examine the particular statute in the light of the whole legislative scheme in the jurisdiction to see, for example, if similar statutes in the same area contain explicit provisions making comparable promises unenforceable. It will look to the purpose and history of the statute. The fact that the statute explicitly prohibits the making of a promise or the engaging in the promised conduct may be persuasive in showing a policy against enforcement of a promise but it is not necessarily conclusive. On the other hand, the fact that the statute provides a civil sanction, whether in addition to a criminal penalty or not, may suggest that no other civil sanction such as unenforceability is intended, but this is not necessarily conclusive either.
Restatement (Second), Contracts, § 179, comment b. Far from suggesting that the existence of a disciplinary penalty for fee sharing operates as an exclusive remedy, thereby prohibiting nullification of a fee-sharing agreement, this language suggests that the professional penalty is but a single, possibly inconclusive factor to be weighed among many others.
Northern Indiana,
on the other hand, appears to hew quite closely to Section 178 of the Restatement. There, a utility agreed to buy a fixed amount of coal from the defendant at designated prices. When the utility found it could buy electricity more cheaply than it could generate it, it ceased buying coal under the agreement and sued to declare the contract void under federal law. The court explained that although there are statutory remedies that might exist to nullify the contract, the question presented was whether the court should judicially impose a voidness remedy. “To decide whether” voiding the agreement was appropriate, it explained, “we must consider the reciprocal dangers of overdeterrence and underdeterrence,” namely, balancing the benefits of “creating stability in contract relations and preserving reasonable expectations” of the parties against the deterrent value of “refusing to let the violator [of public policy] enforce the contract.”
There can be little doubt that the Defendants had some justifiable expectation that the Agreement would be enforceable, and indeed, the parties have treated it as such and performed according to its terms for several years. There is some reason to question whether the Defendants had complete confidence in the enforceability of the Agreement as written, as the Agreement contains several disclaimers seeking to avoid any construction that would suggest that the Defendants are engaged in the practice of dentistry, and provides for sev-erability should that occur. But, in general, the Court finds that the parties legitimately expected that the Agreement would be performed according to its terms, and finds that this factor weighs substantially in favor of enforcement.
The second factor, the degree of forfeiture that would result if the contract were voided is not nearly as favorable to the Defendants. Although voiding of the contract would deprive the Defendants of compensation according to the Agreement’s formula, there is no apparent reason why the Defendants could not pursue an equitable claim for unjust enrichment as to the reasonable value of the services it has provided to the Plaintiffs for which it has not received payment. Although Colorado courts have refused to invoke equitable doctrines to substitute for enforcement of an agreement that is void as against public policy, it is clear that this limitation only applies to prevent a
wrongdoer
from recovery.
See Equitex, Inc. v. Ungar,
The Court can discern no specific public policies that would be advanced by enforcing the contract, other than the general policies reinforcing the stability of
The final three factors generally examine the closeness of the connection between the public policy and the nature of the Agreement. Here, the Agreement’s formula clearly calculates the fees payable to the Defendants as a direct percentage of fees paid for dental services. This is undoubtedly a form of fee splitting that violates the statute. Thus, voiding the Agreement would directly further the public policy of prohibiting fee splitting. By contrast, allowing the Defendants to nevertheless enforce the Agreement would effectively condone that which the Colorado legislature has sought to prohibit. The record does not reflect the extent to which the Plaintiffs’ decision to enter into an Agreement that provided for prohibited fee sharing was knowing or intentional, but the Court finds that, even if it were to assume that the Plaintiffs were fully aware that the Agreement was violative of the regulations, and did so with the intention of later disclaiming its effect, this factor adds little weight. As the Colorado courts make clear, the good or bad faith of the contracting parties is not of significance in deciding whether the public interest requires a contract to be voided.
Finally, the Court considers those additional factors discussed in comment b to Section 179 of the Restatement. As noted above, Colorado prohibits fee splitting in many of its regulated professions, but none of those regulatory schemes address the question of whether an agreement for professional services that impermissibly splits fees is voidable. The fact that the statute only proposes discipline for the dentist agreeing to split the fees is not persuasive evidence that the legislature intended such agreements to be enforceable against the dentist. Logically, the Defendants cannot seek to enforce the Agreement into the future, as doing so would force the Plaintiffs to continuously violate state law. If the Agreement can be voided prospectively on public policy grounds, there is little logic in finding that the same public policies do not permit it to be voided retrospectively as well. Once again, any unfairness to the Defendants that results from voiding the Agreement in its entirety is largely mitigated by the available remedy of a claim for unjust enrichment.
Accordingly, upon full consideration of all the relevant factors, the Court finds that the public interest prohibiting fee
b. Maintenance of a dental proprietorship
C.R.S. § 12 — 35—113(l)(b) provides that a person who “is a proprietor of a place where dental ... services are performed” is engaged in the practice of dentistry. As relevant here, C.R.S. § 12-35-103(14)(b) defines a “proprietor” as a person who “places in possession of a dentist ... such dental material or equipment as may be necessary for the management of a dental office on the basis of a lease or any other agreement for compensation for the use of such material, equipment, or offices.” Similarly, a proprietor is also one who “retains the ownership or control of dental equipment or material or a dental office and makes the same available in any manner for use by dentists.” 7 C.R.S. § 12 — 35—103(14)(c).
There can be little dispute that, under the statutory definition, the Defendants are engaged in the practice of dentistry as “proprietors” of a dental office. Section 1.4 of the Agreement requires that “[the Defendants] shall acquire ... equipment reasonably required for the operation of the Practice,” and then “lease[] to the Orthodontist” such equipment. The Agreement expressly provides that “Ownership of the ... Equipment shall remain, as between the parties hereto, exclusively in [the Defendants] at all times during the term hereof.” The Defendants’ ownership of the equipment and agreement to lease it to the Plaintiffs clearly constitutes “placfing] in possession of a dentist ... [dental] equipment ... on the basis of a lease,” and thus renders the Defendants “proprietors” of a dental operation under C.R.S. § 12 — 35—103(14)(b). Likewise, it is undisputed that the Defendants “retain[] the ownership” of dental equipment provided to the Plaintiffs, thus rendering them proprietors of a dental practice under C.R.S. § 12 — 35—103(14)(c) as well. This, in turn establishes that the Defendants are engaging in the practice of dentistry under C.R.S. § 12 — 35—113(l)(b), and because they lack a license to engage in such practice, the Defendants are in violation of C.R.S. § 12 — 35—112(l)(a).
Likewise, Section 1.5 of the Agreement provides that the Defendants “shall lease or otherwise arrange for the officers and premises” of the Defendants’ practice, and “hereby subleases the Offices to [the Plaintiffs].” This too renders the Defendants “proprietors” of a dental practice, as the Defendants “Retain[] the ownership or control of ... a dental office and makes the same available” for use by the Plaintiffs. C.R.S. § 12-35-103(14)(c).
The Defendants do not dispute that they constitute “proprietors” as that term is defined in the statute, but argue that not every “proprietor” is necessarily engaged in the practice of dentistry under the statute. They contend that “what Section 113 actually forbids is being ‘the proprietor of
To the extent that Miller helps clarify the meaning of the phrase “proprietor of a place where dental ... services are performed,” such clarification is not helpful to the Defendants. Indeed, in many material respects, the services provided by the Defendants are identical to those offered by the company in Miller — in both cases, the corporate entity owns or controls both the physical location of the dental offices and the dental equipment to be used therein, and leases that space and equipment to the dentists themselves. The Defendants emphasize that, unlike the company in Miller, they do not prescribe or control the particular dental techniques that the Plaintiffs perform. Although this is a valid distinction between the facts of Miller and the instant case, it has no apparent bearing on the issue of whether the Defendants are “practicing dentistry” as a result of being “proprietors” of a dental office. The statutory definition of a “proprietor” is not susceptible to an interpretation that turns on whether the alleged proprietor controls the nature of the dental services performed; rather, it is focused only on the alleged proprietor’s ownership of the premises and equipment used in the dental practice. 8
In any event, even if the Court were to accept the Defendants’ argument that, to practice dentistry as a proprietor, one must also control the place in which equipment is delivered to a dentist, it is clear that the Agreement empowers the Defendants to do so. The Agreement makes clear that the Defendants hold the primary lease on the actual physical space where the Plaintiffs’ practice — and the Defendants’ equipment — is located. Thus, the Defendants are the proprietors — i.e. they “retain the ownership or control” of the physical premises (and all of the equipment therein) — of a “place where dental ... services are performed.” 9
c. Maintaining a financial interest in a dental practice
The Plaintiffs also contend that the Agreement improperly gives the Defendants a financial interest in a dental practice in violation of C.R.S. § 12-35-116(1). That statute states “The conduct of the practice of dentistry ... in a corporate capacity is prohibited,” unless the corporate entity is a professional service corporation. The Court finds nothing in the text of the cited statute that supports, directly or by inference, the assumption that an outside entity’s maintaining a financial interest in a dental practice is contrary to public policy. Even assuming it is, it is clear that the portion of the Agreement that purportedly creates such a financial interest is the formula in Exhibit B to the Agreement, which the Court has already voided as a prohibited fee-splitting provision. Accordingly, this argument by the Plaintiff, even if meritorious, warrants no further relief.
4. Remedy
The Defendants argue that, if portions of the Agreement are void as against public policy, the Court should not nullify the contract as a whole. The Defendants point out that the Agreement contemplates that possibility, and expressly provides for severability and possible amendment of the contract’s terms to avoid any conflict. The Plaintiffs concede that the Bankruptcy Court has only authorized this suit insofar as the parties seek a declaration as to the facial validity of the Agreement, and that the Court is not being asked to fashion a remedy at this time. Accordingly, the Court declines to do so. It will simply enter a declaration that certain portions of the Agreement are void as against Colorado public policy, leaving it to the parties to determine the appropriate course of conduct to follow as a result.
CONCLUSION
For the foregoing reasons, the Plaintiffs’ Motion to Reopen the Case (# 41) is GRANTED. The Plaintiffs’ Motion for Summary Judgment (# 42) is GRANTED. The Court DECLARES that Sections 1.4, 1.5 and the formula contained in Exhibit B of the Agreement are void as against the public policy of the State of Colorado. Having resolved the only issue that the parties are authorized to pursue in this action, the Court directs that the Clerk of the Court again close this case.
Notes
. The Court assumes, and will limit its analysis to, that the parties’ arguments relate only to the Plaintiffs' operations located in Colorado. The parties have not addressed, and the Court renders no opinion as to, whether any practice the Plaintiffs maintain in Georgia is affected by this ruling.
. The Court briefly addresses below the historical relevance of one of these cases as it relates to one of the Defendants’ arguments.
. The Court notes that, as with their quotation from
Black’s Law Dictionary,
the Defendants’
. Indeed, with respect to the fee-splitting aspect, it is not the provision of services under the Agreement that violates Colorado’s public policy; it is the Agreement’s means of computing payment for such services.
. Obviously, the Defendants cannot force the Plaintiffs to continue to perform a contract that requires them to violate state law, and thus, the Defendants would not enjoy the future revenues contemplated by the Agreement. The Court does not opine as to whether the Defendants could state a equitable claim that would allow them to recover for these expected future profits.
. As the Plaintiffs' motion points out, Colorado prohibits fee-splitting to one extent or another in many of the professions it regulates.
. The statute exempts a seller’s retention of ownership in dental equipment in the form of a chattel mortgage, but there is no suggestion in the parties’ Agreement that that exemption would be applicable here.
. The Defendants appear to believe that Section 103’s use of the phrase "management of a dental office" is intended to encompass only the type of "management" that the corporation in Miller engaged in, which included dictating the particular dental techniques that would be used. The Court finds nothing in Miller, the statute, nor any other source that would suggest that the legislature had such an unusual conception of the commonly-understood term "management” when it wrote the statute.
. The Court is somewhat sympathetic to the Defendants’ suggestion that the plain language of the statute appears to have a surprisingly broad sweep. Indeed, it appears from the statutory text that any landlord leasing office space to a dental practice would be engaged in the practice of dentistry, as would, say, an entity leasing computers or X-ray machines to the dentist. Nevertheless, where the statutory language is clear, this Court must apply it as written. If the Defendants believe the statute to have too broad a reach, their complaints must be directed to the legislature, not this Court.