American Dental Partners, Inc. ( NASDQ: ADPI) Lawsuits thru June 2011
Stockholder Litigation
On or about February 22 and 23, 2010, Special Situations Fund III L.P., Special Situations Cayman Fund, L.P., and Special Situations Fund III Q.P., L.P. excluded themselves from the class action settlement resolving consolidated actions entitled “In re American Dental Partners, Inc. Securities Litigation,” civil action number 1:08-CV-10119-RGS, and filed an opt-out complaint in the United States District Court for the District of Massachusetts, against us and certain of our executive officers, entitled “Special Situations Fund III, L.P. et al. v. American Dental Partners, Inc. et al.,” civil action number 1:10-CV-10331, which we refer to as the Opt-Out Action.
The Opt-Out Action complaint (i) asserts that the plaintiffs purchased over 500,000 shares of our common stock during the period of February 25, 2004 through December 13, 2007; (ii) alleges that we and certain of our executive officers violated the federal securities laws, in particular, Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, by making allegedly material misrepresentations and failing to disclose allegedly material facts concerning the lawsuit by Park Dental Group against our subsidiary, PDHC, Ltd., entitled PDG, P.A. v. PDHC, Ltd., Civ. A. Nos. 27-CV-06-2500 and 27-CV-07-13030, filed in the Fourth Judicial District of Hennepin County, Minnesota on February 3, 2006 and conduct at issue in that action during the period of February 25, 2004 through December 13, 2007, which had the effect of artificially inflating the market price of our common stock; (iii) asserts control person claims under Section 20(a) of the Securities Exchange Act against the executive officers named as defendants; and (iv) claims that certain of the alleged misrepresentations also violated Section 18 of the Securities Exchange Act.
The plaintiffs seek an unspecified amount of monetary damages, costs and attorneys’ fees and any other relief the Court deems proper. We are unable to provide a range of potential damages with respect to this action.
On June 11, 2010, we and the other defendants filed a motion to dismiss the Opt-Out Action. On March 31, 2011, the Court denied the motion to dismiss with respect to the Section 10(b) and Section 20(a) claims, but granted the motion to dismiss with respect to the Section 18 claim. We intend to defend ourselves vigorously with respect to this matter.
On March 17, 2011, Dental Associates, P.C., the affiliated practice at Redwood Dental Group, filed a lawsuit against us and our subsidiary, American Dental Partners of Michigan, LLC, in the Wayne County Circuit Court in Michigan, Case No. 11-003213-CK. On April 15, 2011, we filed all necessary papers to move the lawsuit to the United States District Court for the Eastern District of Michigan, where the action is now pending, Case No. 2:11-cv-11624-DPH-MJH.
The complaint claims, among other things, (i) that we and our subsidiary breached fiduciary duties owed to Dental Associates; (ii) that our subsidiary breached the service agreement between it and Dental Associates; (iii) that we and our subsidiary tortiously interfered with Dental Associates’ relationships with its employees, patients, prospective patients and the state of Michigan; and (iv) that we and our subsidiary were unjustly enriched by these alleged actions.
The complaint seeks, among other things, (i) unspecified monetary damages; (ii) attorneys’ fees and litigation costs; (iii) certain injunctive relief, including termination of the service agreement; (iv) the establishment of a constructive trust with respect to certain Dental Associates’ funds managed by us; (v) a detailed audit and accounting with respect to revenues generated by Dental Associates and the payment of those funds to or for the benefit of us and our subsidiary; and (vi) such other equitable or just relief as the Court finds appropriate. We are unable to provide a range of potential damages with respect to this action.
On May 9, 2011, we and our subsidiary filed a Rule 12(b)(1) and (6) motion to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim and to compel arbitration, or alternatively to stay litigation pending arbitration. The Court has scheduled a hearing on this motion for September 27, 2011. We and our subsidiary intend to defend ourselves vigorously with respect to this matter.
On or about April 29, 2011, OCG, Ltd., the affiliated practice at Orthodontic Care Specialists in Minnesota, served an amended complaint against us and our subsidiary, Apple Park Associates, Inc. The original complaint was served on us and our subsidiary on or about November 18, 2010. The complaint is captioned for the Hennepin County District Court in Minnesota. However, as of the filing date of this quarterly report, OCG has not filed the complaint with the Court and no case number has therefore been assigned.
The original complaint included a single count alleging that we and our subsidiary breached fiduciary duties owed to OCG and that, as a direct and proximate result, OCG was damaged in an amount in excess of $50,000. The original complaint sought, among other things, a judgment in favor of OCG on its breach of fiduciary duty claim and an award of attorneys’ fees and litigation costs.
The amended complaint claims, among other things: (i) that we and our subsidiary breached fiduciary duties owed to OCG; (ii) that we and our subsidiary breached an alleged contract pursuant to which OCG would remain neutral in litigation between us and PDG, P.A. and provide certain orthodontic services for one clinic staffed by the orthodontic practice of Metro Dentalcare, in exchange for Metro Dentalcare’s orthodontic practice being merged into OCG, which merger has not occurred; (iii) promissory estoppel with respect to alleged promises made by us and our subsidiary to OCG regarding that merger and the elimination of Metro Dentalcare’s orthodontic practice as a competitor to OCG; and (iv) unjust enrichment with respect to alleged financial benefit received by us and our subsidiary from our relationship with Metro Dentalcare’s orthodontic practice that would have allegedly inured to the financial benefit of OCG.
The amended complaint seeks, among other things, (i) monetary damages for the breach of fiduciary duty claim in excess of $50,000; (ii) monetary damages for the breach of contract, promissory estoppel and unjust enrichment claims in excess of $50,000; and (iii) attorneys’ fees and litigation costs. The amended complaint also provides notice of OCG’s intent to seek leave to further amend its complaint at a future time to seek punitive damages. We are unable to provide a range of potential damages with respect to this action.
We are our subsidiary served OCG with our responses to the amended complaint on August 5, 2011.
For the year ended December 31, 2010 and the six months ended June 30, 2011, the net revenue we received under the service agreement with Dental Associates represented approximately 3% of our consolidated net revenue for both periods and earnings before interest, taxes, depreciation and amortization represented approximately 5% and 4%, respectively, of our consolidated earnings before interest, taxes, depreciation and amortization.
