Opinion
Civil Action No. 3:01-CV-1569-N.
April 23, 2004
ORDER
Before the Court is Plaintiffs Ronald Barnett, Robert Buck, Monte Collins, Michael Habern, Lester Kuperman, Joe Richards, Claude Stevens, Hal Stevenson's (collectively, the "Individual Orthodontists") and Barnett Orthodontics, Inc., Buck Orthodontics, P.C., Johnson Collins Orthodontics, P.A., Habern Orthodontic Associates, P.C., Lester H. Kuperman, D.D.S., M.S., Inc., Joe M. Richards, D.D.S., M.S., P.A., and Hal C. Stevenson, D.D.S., M.S., P.C.'s (together with the Individual Orthodontists, the "Barnett Plaintiffs") second motion for partial summary judgment filed on August 29, 2003. The Barnett Plaintiffs ask the Court to declare that the Asset Purchase Agreements, Service Agreements, and Employment Agreements they entered into with Defendant OrthAlliance New Image, Inc. ("OrthAlliance") violate the Texas Dental Practices Act and are therefore illegal and unenforceable as a matter of law. In addition, the Barnett Plaintiffs move for partial summary judgment on OrthAlliance's counterclaims for: (1) specific performance of the agreements, (2) breach of contract related to the agreements, (3) promissory estoppel, (4) tortious interference with contract, and (5) release and indemnification. Because the agreements at issue are virtually identical to agreements found illegal by the Court in its previous order of March 27, 2003, and because OrthAlliance raises no genuine issue of material fact concerning the enforceability of such agreements, the Barnett Plaintiffs' motion is granted.
The facts of this case closely track those set forth in more detail by the Court's Memorandum Opinion and Order dated March 27, 2003. See Penny v. Orthalliance, Inc., 255 F. Supp.2d 579, 579-81 (N.D. Tex. 2003). In brief, the Individual Orthodontists entered into a series of agreements with OrthAlliance by which OrthAlliance acquired the physical assets of the Individual Orthodontists' practices and agreed to provide practice management services in exchange for monetary consideration. The Court previously declared a virtually identical set of agreements entered into by OrthAlliance illegal as a violation of the Texas Dental Practices Act. Penny v. Orthalliance, Inc., 255 F. Supp.2d at 583.
Penny is currently pending in the Fifth Circuit Court of Appeals.
In Penny, the Court determined that the Purchase and Sale Agreements, Service Agreements, and Employment Agreements entered into by OrthAlliance and Plaintiffs must be construed as a single contract. See Penny, 255 F. Supp.2d at 583. The agreements at issue here, like those considered previously in Penny, operate to allow OrthAlliance to practice dentistry in violation of the Texas Dental Practices Act ("TDPA"). Because the agreements permit OrthAlliance to own, operate, and maintain the offices in which it employs or engages the individual plaintiffs to practice dentistry, they violate sections 251.003(a)(4) and 256.001 of the TDPA. See Penny, 255 F. Supp.2d at 582-83. Accordingly, there is no genuine issue of material fact concerning the illegality of the agreements at issue.
Because the Court determines that these agreements are illegal in their entirety, there is no genuine issue of material fact concerning OrthAlliance's counterclaims for (1) specific performance of the Agreements, (2) breach of contract related to the Agreements, (3) promissory estoppel, and (4) tortious interference with contract. Penny v. Orthalliance, Inc., No. 3:01-cv-1569-N; 2003 WL 21640570, *1 (N.D. Tex. July 9, 2003) (granting partial summary judgment to Plaintiffs on identical OrthAlliance counterclaims).
The release and indemnification counterclaim also fails as a matter of law. A release, just like any other contract, is subject to the public policy of the State. See Sacks v. Dallas Gold Silver Exch., Inc., 720 S.W.2d 177, 180 (Tex.App. — Dallas 1986, no writ).
Whether a contract violates public policy is a question of law, which we review de novo. Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 555, 44 Tex. Sup.Ct. J. 554 (Tex. 2001); Ins. Co. of N. Am. v. Easton, 73 Tex. 167, 11 S.W. 180, 181 (1889). We determine the validity of a release by considering all the attendant circumstances at the time of the making. Tricentrol Oil Trading Co. v. Annesley, 809 S.W.2d 218, 221, 34 Tex. Sup.Ct. J. 580 (Tex. 1991); Houston Oilers, Inc. v. Floyd, 518 S.W.2d 836, 838 (Tex.Civ.App.-Houston [1st Dist.] 1975, writ ref'd n.r.e.).
In examining an agreement to determine if it is contrary to public policy, we look to see whether the agreement has a tendency to injure the public good. Sacks, 720 S.W.2d at 180. While we have no standard definition or test that applies to all cases, courts generally find a contract violates public policy if it is illegal or inconsistent with or contrary to the best interest of the public. Locomotive Eng'rs Conductors Mut. Protective Ass'n v. Bush, 576 S.W.2d 887, 890 (Tex.App.-Tyler 1979, no writ).Ranger Ins. Co. v. Ward, 107 S.W.3d 820, 827 (Tex.App. — Texarkana 2003, pet. denied). A release seeking to enforce the terms of an illegal contract violates the public policy of the state. Otherwise, parties to unlawful contracts could simply include a release or waiver provision to divest courts of their authority to declare such contracts illegal. See Reply Brief at 22. Such a result is plainly inconsistent with the refusal of Texas Courts enforce rights flowing from an illegal contract. See, e.g., Woolsey v. Panhandle Refining Co., 115 S.W.2d 675, 678 (Tex. 1938) (noting that the Texas Supreme Court "has repeatedly refused to enforce contracts which are either expressly or impliedly prohibited by statutes or by public policy"); Mercury Life Health Co. v. Hughes, 271 S.W.2d 842, 846 (Tex.App.-San Antonio 1954, writ ref'd) ("The court will not lend its aid in the enforcement of rights growing out of an illegal contract, but will leave the parties to the unlawful contract where it finds them."); E.D. Systems Corp. v. Southwestern Bell Tel. Co., 674 F.2d 453, 460 (5th Cir. 1982) ("Texas law is well settled that a party to a contract cannot compel performance if the contract is illegal."). Accordingly, the Court holds that OrthAlliance's release and indemnification counterclaim fails as a matter of law, and grants Plaintiffs' motion for partial summary judgment in its entirety.