Case 3:14-cv-01557 Document 1-1 Filed 07/29/14 Page 1 of 15 PageID #: 5

IN THE CHANCERY COURT FOR THE STATE OF TENNESSEE

DAVIDSON COUNTY
No. 1'1:- / 1Jf3/:L
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VERIFIED COMPLA1NT
Defendants.
Plaintiff,
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The plaintiff, CSHM LLC, ("CSHM"), a Delaware limited liability its
v,
SMALL SMILES OF RENO, LLC and
JAMES L. MANN,
CSHM LLC,
Complaint against the Defendants, Small Smiles of Reno LLC ("Small Smiles") and James L.
Mann ("Dr. Mann"), states as follows:
INTRODUCTION
1. Defendant Small Smiles and its owner, Dr. Marm, are aware that the Office of
Inspector General of the U.S. Department of Health and Human Services ("DIG") has given
CSHM until September 30, 2014 to sell its interest in the Second Amended and Restated
Management Services Agreement (the "MSA" or "Agreement") between the parties, pursuant to
which CSHM provides certain business, administrative, and support services to Small Smiles in
exchange for a monthly fee.
2. On June 13, 2014, Dr. Mann made a $150,000.00 offer to purchase CSHM's
contractual interest in that MSA, but CSHM rejected that offer as egregiously low.
3. Thereafter, Dr. Mann and Small Smiles set out on a course of conduct, m
violation of their contractual duties, designed to frustrate, impede and delay CSHM's efforts to
sell its interests to any other party in order to force CSHM to accept Dr, Mann's low-ball offer.
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EXHIBIT

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4. Defendants have, among other things:
(a) Refused to consent to release of financial infonnation concerning the
Small Smiles Center, even though the MSA and a Policy issued pursuant to the MSA authorize
CSHM to release such
(b) Contended that the MSA is invalid and cannot be transferred or sold;
(c) Filed a Complaint in Nevada state court seeking to enjoin CSHM's sales
efforts and cancel the MSA in violation of the MSA's forum-selection provisions requiring all
suits to have been filed in
(d) Failed to serve that Complaint for nearly four weeks after it was
(e) Filed a Motion for Preliminary Injunction seeking broad and unspecified
relief, including a complete termination of the contractually-authorized sales process; and
(f) Refused CSHM's reasonable request to transfer the litigation to Tennessee
court pursuant to the forum selection provisions.
5. Defendants' improper actions are calculated to delay the sales process by
frustrating CSHM's marketing efforts, and thereby preventing CSHM from selling its interest in
the MSA before the 010's deadline.
6. The purported basis for Defendants' actions is their alleged "concern" that
CSHM's provision of services pursuant to the MSA violates Nevada law. But the Nevada State
Board of Dental Examiners conducted a thorough investigation of the MSA and opted not to take
any action. During that investigation, Small Smiles' own attorney repeatedly asserted Ihat Ihe
MSA was enforceable and consistem with Nevada law in every way. But Dr. Mann and Small
Smiles have now changed their tune in the hopes of forcing CSHM to accept their lowball offer.
7. Their newfound arguments run contrary to the finding of a federal court in
Tennessee, which held that nearly-identical MSAs were valid contracts under Tennessee law,
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and that, even if some provisions violated public policy, those provisions should merely be
severed from the contract. Moreover, the U.S. Bankruptcy Court for the Middle District of
Tennessee has previously held that the Defendants' MSA (as well as several others) "are valid
and binding, in full force and effect, and enforceable in accordance with their tenns,"
8. CSHM therefore is forced to bring this action seeking a preliminary and
pennanent injunction, and other r l t ~ to require Defendants to comply with their contractual
obligations by: (l) cooperating in CSHM's contractually-authorized efforts to market and sell its
interest in the MSA; (2) consenting to the contractually-authorized disclosure of financial
information concerning the Small Smiles dental clinic for purposes of that sales effort; and (3)
ceasing to prosecute an action initiated by Dr. Mann and Small Smiles in the Nevada state courts
in violation of the MSA's valid forum-selection clause.
PARTIES
9. PlaintiffCSHM LLC is a limited liability company organized under Delaware law
with its principal place of business in Nashville, Tennessee. CSHM provides business,
administrative, and support services to dental centers located throughout the United States.
10. Defendant Small Smiles of Reno, LLC is a limited liability company organized
under Nevada law with its principal place of business in Reno, Nevada. Small Smiles is a dental
clinic located in Reno, Nevada.
II . Defendant James L. Mann is a resident of the state of Nevada and a dentist
licensed to practice in the State of Nevada. Dr. Mann is the sole owner of Small Smiles.
JURISDICTION AND VENUE
12. This Court has jurisdiction over this cause pursuant to Tenn. Code Ann. 16-10-
101 et seq., 16-11-102. and 20-2-201 et seq. because each of the Defendants consented to the
Court's exercise of personal jurisdiction in 8.12 of the MSA, which require that all actions,
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suits, or other proceedings associated with the MSA be brought in a court of competent
jurisdiction sitting in Davidson County, Tennessee and that "[i]n any such proceeding, such court
shall personal jurisdiction over all of the parties hereto."
13. Venue is proper in this Court pursuant to Tenn. Code Ann. 20-4-101 et seq.
FACTS RELEVANT TO ALL COUNTS
14. On February 10, 2009, Small Smiles and its then-owner, Dr. Riki Lambert,
entered into the MSA with FORBA Holdings, LLC ("FORHA"), an unrelated predecessor to
CSHM. FORBA later changed its name to Church Street Health Management, LLC ("Church
Street").
1S. On August 1, 2009, Dr. Mann purchased Small Smiles for a mere $100.00. In
connection with that purchase. he executed a "Counterpart Signature Page" to the MSA, which
confirmed that he had "reviewed the [MSA], dated as of February 10, 2009 (as such has been or
may be amended from time to timer and ;'hereby adopts. accepts and joins in the Agreement
and agrees to be bound by the terms and provisions thereof. ,.
16. At the time of Or. Mann's purchase of the stock of Small Smiles, FORBA showed
an amount due from Small Smiles of $4,407,583 for unpaid management fees and net cash
advances made to Small Smiles since entering into its contractual arrangement with FORBA. As
a result of negotiations in early 2009, FORBA agreed to reduce its monthly management fee to
Small Smiles. If the new, reduced monthly fee arrangement had been put into place at the
inception of the management services arrangement, the outstanding balance owed by Small
Smiles would still exceed $400,000 today.
17. In February 2012, Church Street filed for federal bankruptcy protection for the
purpose of assuming and assigning its rights under the MSAs pursuant to a sale of Church
Street's assets under applicable bankruptcy law.
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18. In May 2012, CSHM purchased substantially all of Church Street's assets,
including its interest in the MSA with Small Smiles, pursuant to a valid and binding bankruptcy
sale.
19. The U.S. Bankruptcy Court for the Middle District of Tennessee issued an Order
authorizing the sale, and held that the MSAs "are valid and binding, in full force and effect, and
enforceable in accordance with their terms."
20. Pursuant to that purchase, CSHM agreed to continue to provide management,
administrative, and business services in connection with the operations of Small Smiles in
exchange for a $40,000.00 monthly fee as provided for in the MSA with Small Smiles that it
acquired. The services that CSHM provides include payroll processing, accounting and other
administrative services.
21. The $40,000 management fee is at or below fees charged by CSHM to other
dental center owners with which it has MSAs, and is the same fee that CSHM's predecessor
charged Small Smiles at the time Dr. Mann acquired it.
22. The MSA requires Small Smiles to "fully comply" with certain federal programs
pertaining to the quality of care provided at dental clinics under contract with CSHM, including a
January 2010 Corporate Integrity Agreement ("CIA") between FORBA and DIG. Specifically,
2.09(c) of the MSA provides:
Notwithstanding anything in the Agreement to the contrary, [Small
Smiles] agrees that, at all times during the term of the Agreement,
it shall fully comply, and shall require its owners, officers, dentists
and other employees ("'Covered Persons") to fully comply, with the
applicable requirements of any compliance programs
("Compliance Programs") and Corporate Integrity Agreements
("CIA") established by and/or entered into by [CSHM] with the
Office ofInspector General (OIG) of the United States Department
of Health and Human Services and/or any State regulatory agency
relating to Health Care Program Requirements (as defined
hereinafter), and a/l applicable policies andprocedures adopted
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by /CSHM/ in order to implement the requirements ofall such
Compliance Programs and CIAs ("Policies and Procedures'?
For purposes hereof "Health Care Program Requirements" means
the statutes, regulations. and written directives of Medicaid,
Medicare, and all other State and Federal health care programs
applicable to [CSHM] and [Small Smiles].
(emphasis added).
23. The parties further agreed that any breach of 2.09 of the MSA "shall be
considered a material breach of the Agreement by Practice." MSA at 2.09(d).
24. The parties also emphasized the importance of compliance with agreements with
federal authorities in MSA 2.09(e), which provides: "Practice agrees that, in the event of any
conflicts between the terms of the Agreement and the applicable terms of any Compliance
Programs. CIAs and/or Policies and Procedures. the applicable terms of the Compliance
Programs, CIAs and/or Policies and Procedures shall control:' (emphasis added).
25. Section 8.12 of the MSA requires that "all actions, suits, or other proceedings
with respect to this Agreement shall be brought only in a court of competent jurisdiction
sitting in Davidson County, Tennessee, or in the U.S. District Court for the Middle District of
Tennessee." (emphasis added).
26. The Nevada State Board of Dental Examiners (the ;'Nevada Board") initiated an
investigation concerning the arrangement between Small Smiles and FORBA in November 2007.
During the course of that investigation, Small Smiles' attorney argued strenuously that the
parties' arrangement, as embodied in the MSA, complied with Nevada law in all respects. Small
Smiles' attomey also provided the Nevada Board with a copy of the MSA, and contended that
the parties' arrangement, including the MSA, was "fully compliant" with and "firmly within the
boundaries established by" applicable Nevada regulations.
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27. The Nevada Board completed its investigation in July 2011, and infonned Small
Smiles that it declined to take any enforcement action unless the Board received additional
complaints.
28. When CSHM purchased substantially all of Church Street's assets in the
bankruptcy sale, CSHM agreed to be bound by the tenns of the CIA. The DIG thereafter alleged
that, after its acquisition of the Church Street assets, CSHM failed to comply with certain CIA
reporting obligations and sought to exclude CSHM from future participation in Federal health
care programs. CSHM disputed O]O's allegations, but ultimately entered into an Exclusion
Agreement with OIG in April 2014.
29. Pursuant to that Exclusion Agreement, CSHM "agrees to be excluded from all
Federal health care programs ... for a period of five years ... effective on September 30, 2014."
CSHM agreed to either shut dOV.ll its operations in an orderly manner prior to September 30,
2014, or it is afforded the option to "divest all or substantially all of the assets and operations of
CSHM ... through anns-length transaction(s) to an entity (or entities) that, prior to
the divestiture, is (are) not related to or affiliated with CSHM." Exclusion Agreement at 10(b).
Thus, CSHM has until September 30 to sell its interest in the MSA.
30. Following execution of the Exclusion Agreement, CSHM began the process of
divesting itself of its interests in the MSAs for its associated dental centers. To ensure the
process went smoothly, and in light of the September 30, 2014 deadline to complete the process,
CSHM promulgated a corporate Policy effective May 19,2014 (the "May 19 Policy"), pursuant
to the applicable provision of the MSAs, requiring that all centers cooperate in the effort.
31. The May 19 Policy explains that the Exclusion Agreement "recognize[s] that
CSHM's orderly sale of its interests in the MSAs was in the best interests of the Medicaid
programs and the patients served by the Associated Dental Centers." Therefore, consistent with
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an centers' (including Small Smiles) obligation "to fully comply with all policies and procedures
adopted to by CSHM in order to implement the Corporate Integrity Agreement, CSHM requires
that all Associated Dental Centers cooperate fully in the efforts to operate its business and divest
its interests." The policy explains that any failure to fully cooperate "would endanger CSHM's
ability to divest its interests in contliet with the Exclusion Agreement." The Policy also advises
that CSHM may have to release Center-specific financial information in order to efTectuate the
transactions, but that it will only do so "subject to ... the recipient's agreement to maintain
confidentiality of all such information" and to abide by applicable HIPAA provisions.
32. Shortly after entering into the Exclusion Agreement, CSHM, through its
management and its agents, began marketing its interests in the MSAs, as permitted by the
Exclusion Agreement. including by disseminating consolidated regional financial information
that was not specific to any associated center. CSHM also received inquiries concerning the
Small Smiles center from certain parties and, consistent with the May 19 Policy, distributed
additional information concerning that Center to them. All of those parties executed a
contidentiality agreement requiring them to preserve the confidentiality of that information.
33. Shortly thereafter, Dr. Mann and Small Smiles communicated their objection to
the dissemination of information concerning the Small Smiles clinic, demanded the retraction of
all such infonnation, and expressed their refusal to abide by the May 19 Policy. Immediately
thereafter. all of the parties who received center-specific infonnation were asked to return or
destroy that infonnation.
34. Defendants also have contended that the MSA is invalid and cannot be sold,
despite the fact neither Small Smiles nor Dr. Mann objected to the assumption, assignment and
sale in Church Street's bankruptcy proceedings and was deemed to have consented to that sale
by the Bankruptcy Court.
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35. On May 23, 2014, unbeknoVvnst to CSHM, Dr. Mann and Small Smiles filed a
Complaint for Declaratory and Equitable Relief against CSHM in the Second Judicial District
Court of the State of Nevada in and for the County of Washoe. That filing was made
notwithstanding the contractual provisions requiring that all suits concerning the MSA be
brought in Tennessee. Defendants did not serve CSHM with a copy of their Complaint or
otherwise infonn CSHM that the suit had been filed.
36. Thereafter, in an effort to resolve the issues, counsel for both Dr. Mann and
CSHM engaged in negotiations concerning Defendants' current objections to the MSA and the
sales process. Since those negotiations commenced, CSHM has refrained from further
marketing.
37. On June 13, 2014, Dr. Mann sent CSHM a "fonnal letter of intent to acquire all
rights to the" MSA for "$150,000 plus collectable Accounts Receivable and applicable prepaid
expenses," which is a fraction of what Small Smiles incurred in fees and net cash advances from
CSHM's predecessors and is only about half of the amount owed to CSHM, even if it is assumed
that the reduction in fees put in place in early 2009 was retroactive to the inception of Small
Smiles LLC under the FORBA services arrangement.
38. On June 18, 2014, CSHM, believing that Dr. Mann's purchase price was not
acceptable, rejected that offer.
39. That same day, CSHM reminded Dr. Mann that Small Smiles owed CSHM
$403,459.00 for several years for unpaid management fees, and formally demanded that Small
Smiles bring its indebtedness current within seven days. Small Smiles has not made any further
payments on its indebtedness.
40. On June 18, 2014, Defendants' counsel forwarded a courtesy copy of a Motion
for Preliminary Injunction that Defendants filed in the Nevada State Court. CSHM was, as of
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that time, unaware that any action had been filed because it had not been served with a copy of
the Complaint (even though Defendants filed the Complaint four weeks earlier).
41. Defendants' Motion for Preliminary Injunction seeks exceedingly broad relief,
including an injunction preventing CSHM from marketing its interests in the Small Smiles MSA
and from sharing Small Smiles' information (which any buyer would consider essential to its
decision to purchase CSHM's contractual interest).
42. Defendants' outright refusal to cooperate in the sales process. including its
refusal to consent to disclosure of financial information to potential bidders, and its filing of an
action in an inappropriate forum are interfering with and frustrating CSHM's ability to sell its
interest in the MSA by the DIG's September 30, 2014 deadline. Potential purchasers cannot
assess the value of CSHM's contractual interests absent that financial information. CSHM has
thus been impeded in its efforts to pursue its divestment obligations in the Exclusion Agreement.
COUNT I
(Breach of Contract)
43. CSHM incorporates and realleges by reference paragraphs I through 42 of this
Complaint as though fully stated herein.
44. The MSA is a valid and existing contract between Small Smiles and CSHM.
45. Dr. Mann is bound by the terms of the MSAs by virtue of his execution of the
"Counterpart Signature Page."
46. CSHM has fully performed its obligations under the MSA.
47. Defendants have breached their obligations under the MSA by performing certain
actions, including but not limited to:
(a) Refusing to cooperate in CSHM's efforts to sell its interest in the MSA;
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(b) Refusing to comply with the terms of the Corporate Policy issued May 19,
2014;
(c) Refusing to consent to release of financial information concerning the
Small Smiles center; and
(d) Filing and pursuing a legal action in Nevada notwithstanding the MSA's
forum selection provisions.
48. As a result of Defendants' breaches of the MSAs, CSHM has suffered and will
continue to sutler damages and other irreparable hann.
COUNT II
(Preliminan Injunction and Temporary Restraining Order)
49. CSHM incorporates and realleges by reference paragraphs 1 through 42 of this
Complaint as though fully stated herein.
50. The MSA is a valid and existing contract between Small Smiles and CSHM.
51. Dr. Mann is bound by the terms of the MSAs by virtue of his execution of the
"Counterpart Signature Page."
52. CSHM has fully performed its obligations under the MSA.
53. CSHM will likely succeed on the merits of its breach of cOlltract claim as
Defendants have breached their obligations under the MSA by performing certain actions,
including but not limited to:
(a) Refusing to cooperate in CSHM's efforts to sell its interest in the MSA:
(b) Refusing to comply with the tenus of the Corporate Policy issued May 19,
2014;
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(c) Refusing to wnsent to release of financial information concerning the
Small Smiles center; and
(d) Filing and pursuing a legal action in Nevada notwithstanding the MSA's
forum selection provisions.
54. Enforcement of forum selection clauses constitutes an important public policy,
and Defendants' tiling in Nevada in violation of the MSA has unnecessarily disrupted CSHM's
settled expectations regarding the forum for such disputes.
55. CSHM has suffered and continues to suffer irreparable harm as the result of
Defendants' refusal to cooperate in the sales process and Nevada court filings. Defendants'
outright refusal to cooperate in the sales process, including its refusal to consent to disclosure of
financial information to potential bidders, and its filing of an action in an inappropriate forum are
interfering with and frustrating CSHM's ability to sell its interest in the MSA by the OIG's
September 30,2014 deadline.
56. Defendants will not be harmed by entry of a temporary restraining order and
preliminary injunction.
57. The public interest favors entry of a temporary restraining order and preliminary
injunction.
PRAYER FOR RELIEF
WHEREFORE CSHM respectfully requests that the following relief be granted:
1. That the Court issue a restraining order, temporary injunction, and permanent
injunction enjoining Small Smiles, Dr. Mann and all persons acting in concert with either or both
of them from:
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(a) Prohibiting Defendants from failing to comply with the terms and
conditions of CSHM's May 19 Corporate Policy requiring cooperation with CSHM's efforts to
sell its interest in the MSA;
(b) Prohibiting Defendants from delaying, obstructing, frustrating or impeding
CSHM's sales process;
(c) Prohibiting Defendants from objecting to the contractually-authorized
disclosure of financial information concerning the Small Smiles dental clinic for purposes of
CSHM's sales effort; and
(d) Prohibiting Defendants from prosecuting their action in the Nevada state
courts.
2. That the Court enter Judgment against Defendants for costs and attorney's fees;
3. That the Court tax the costs of this action to Defendants; and
4. That the Court award CSHM such other and further relief as this Court deems just
and equitable.
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VERIFICATION
STATE OF TENNESSEE )
) 5S.
COUNTY OF DAVIDSON )
I, MICHAEL F. GRIES, being duly sworn, make oath and verify that I am the
Chief Restructuring Officer of CSHM LLC, the Plaintiff in this action, that I have read the
foregoing complaint and have personal knowledge of the facts state therein unless otherwise
stated, and the same are true and correct to the best of my knowledge, infonnation and belief.
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Michael F. Grie;
The foregoing instrument was acknowledged before me on this J.f!!!day of July, 2014, by
Michael F. Gries, who is personally known to me or satisfactorily proven by identification.
iflimiltieofTem=
My Commission Expires: ._Q' f- Zp/&?<-__
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Respectfully submitted,
RApLEY ARANT SOULT CUMMINGS LLP
By:
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Peter C. Sales (
1600 Division Stre
P.O. Box 340025
Nashville, Tennessee 37203
(615) 252-2365
Atlorneysfor Plainl{ffCSHM LLC
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