|
ITEM 7.01
|
Regulation FD Disclosure
|
As disclosed in the Company’s Form
10-K for the year ended December 31, 2006, PDHC was served with a complaint (the “PDG Complaint”) on February 3, 2006 from PDG. PDHC and PDG are parties to the Service Agreement. The PDG Complaint was filed in the Fourth Judicial
District of Hennepin County, Minnesota, court file number 27-CV-06-2500.
The PDG Complaint alleges certain breaches of the Service Agreement, violations
of the Minnesota Dental Practice Act (unlawful practice of dentistry), violations of the Minnesota Franchise Act, fraud and misrepresentation, unjust enrichment, breach of fiduciary duty and the implied covenant of good faith and fair dealing,
tortious interference with contract and prospective economic advantage and constructive trust and accounting. PDG seeks to have the Service Agreement declared void or voidable, or to have the
Service Agreement reformed by the Court. PDG also seeks monetary damages in an unspecified amount and return of the “Park Dental” name to PDG. PDHC
filed an answer to the PDG Complaint, asserted various affirmative defenses, and counterclaimed for breach of the Service Agreement, breach of implied covenant of good faith and fair dealing, fraud and misrepresentation and tortious interference
with employment relationships. PDHC seeks to dismiss the PDG Complaint with prejudice, and recover compensatory damages, interest, and costs and attorneys’ fees.
In January 2007, PDHC filed a motion for summary judgment seeking to have several of PDG’s claims dismissed before trial, including the claim that the Service Agreement is void or voidable. On June 12, 2007,
the Court issued its decision on PDHC’s motion for summary judgment. The Court dismissed PDG’s claim that the Service Agreement is illegal and should be voided as a matter of public policy. In addition, the Court dismissed PDG’s
claims for violation of the Minnesota Franchise Act, unjust enrichment and tortious interference with PDG’s relationships with certain of its former dentists. The Court denied PDHC’s motion to dismiss PDG’s claims for breach of the
implied covenant of good faith and fair dealing and fraud and misrepresentation, finding disputed issues of material fact to be resolved at trial.
Prior
to the Court rendering its decision on PDHC’s motion for summary judgment, on March 28, 2007, PDHC received a notice of termination of the Service Agreement from PDG, stating an effective date of December 31, 2007. PDHC disputes that
PDG has properly terminated the Service Agreement, and PDHC filed a motion with the Court for leave to amend PDHC’s counterclaims in the PDG Complaint to include additional claims with respect to the termination of the Service Agreement by PDG.
The Court denied PDHC’s motion. On June 21, 2007, PDHC commenced a lawsuit (“PDHC Complaint”), court file no. 27-CV-07-13030, against PDG in the same Court alleging breach of contract and the implied covenant of good faith and
fair dealing based upon PDG’s termination of the Service Agreement and seeking a declaratory judgment and monetary damages.
The trial with respect to
the PDG Complaint was scheduled to begin on July 5, 2007. However, on that date, the Court postponed and rescheduled the trial for both the PDG Complaint and the PDHC Complaint until November 13, 2007, in the interest of judicial
efficiency.
PDG filed its answer and counterclaims to the PDHC Complaint on July 23, 2007. PDG asserted various affirmative defenses and added the
Company to the case as a third-party defendant. PDG also counterclaimed against PDHC for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, conversion, trespass to chattels and replevin, and
against both PDHC and the Company for unfair competition, tortious interference with contract or business expectancy, breach of fiduciary duty, defamation, unfair dealing, lender liability and civil conspiracy.
On August 2, 2007, PDHC filed its reply to PDG’s counterclaims and the Company filed its answer to PDG’s claims (with respect to the PDHC Complaint). Each
has asserted various affirmative defenses to PDG’s claims, and the Company also asserted counterclaims against PDG for unfair competition, misappropriation of trade secrets and common law breach of confidentiality.
On October 9, 2007 and October 16, 2007, the Court issued orders with respect to certain motions filed by the parties. Specifically, the Court denied
PDG’s motion for a temporary injunction to provide time for PDG to transition to new dental facilities. In particular, the Court denied PDG’s requests to (i) require PDHC to continue providing services under the Service Agreement
after December 31, 2007 and until September 30, 2008, (ii) preclude PDHC from excluding PDG doctors from Park Dental dental facilities after December 31, 2007 and (iii) preclude PDHC and the Company from recruiting dentists
for another affiliated professional corporation. The Court also granted PDHC’s motion to dismiss its request for declaratory judgment that PDG was obligated to perform the Service Agreement after December 31, 2007. The Court granted
PDG’s motion to amend its complaint to add punitive damages to the relief
sought with respect to PDG’s claims of breach of fiduciary duty, tortious interference with contract or business expectancy and defamation. The Court
granted PDHC’s motion for summary judgment with respect to PDG’s claims of conversion, trespass to chattels and replevin. The Court also granted in part and denied in part PDHC’s motion for summary judgment on PDG’s claims for
defamation. Finally, the Court denied PDHC’s motion for summary judgment on PDG’s claims of unfair competition/tortious interference with contract or business expectancy, breach of fiduciary duty/unfair dealing/lender liability/good faith
and fair dealing, and civil conspiracy.
The parties previously engaged, unsuccessfully, in court-ordered mediation and the cases are scheduled to be tried
together beginning November 13, 2007.
PDHC believes PDG’s claims in the PDG Complaint and PDG’s counterclaims in the PDHC Complaint are
baseless and without merit. There is no assurance of adjudication of the cases in PDHC’s favor. Disruption or termination of the Service Agreement at Park Dental could have a material adverse effect on our business, financial condition and
results of operations.
For the year ended December 31, 2006 and the nine months ended September 30, 2007, revenues generated from our Service
Agreement at Park Dental represented 29% and 24% of our consolidated net revenues, respectively. PDHC and the Company have incurred approximately $3.7 million in expenses related to the dispute with PDG and intend to continue to contest all claims
in the PDG Complaint and counterclaims in the PDHC Complaint and pursue their respective counterclaims and claims vigorously. We expect to incur ongoing expenses in connection with the PDG Complaint and PDHC Complaint.