Recent New Jersey Decision on MSOs and Succession Agreements
A recent decision by the New Jersey Appeal Division addressed the issue of corporate dentistry practice and succession agreements.
In Galkin, et al. v. SmileDirectClub, LLC, et al., File No. A-2867-19, the New Jersey Appeal Division considered whether the nature of the defendants’ relationship violated New Jersey dental practice law.
Defendant SmileDirectClub, LLC (“SDC”) is a dental assisting organization that provides non-clinical assistive services to licensed dentists. In addition, the SDC procures clear aligners for straightening teeth from an FDA-certified manufacturer and impression kits from a laboratory for its customers, including defendant Smile of New Jersey (“SNJ”).
SNJ is a New Jersey company located in Tennessee that provides telehealth dental services to New Jersey patients, but does not have physical offices in New Jersey. SNJ has contracted with SDC for non-clinical administrative services, including billing and case management, as well as supplying the above aligners.
Plaintiffs Scott D. Galkin, DMD and the New Jersey Dental Association filed a lawsuit alleging that the defendants were engaged in the illegal practice of dentistry in the workplace. The trial court handed down a summary judgment in favor of the defendants, ruling that the SDC did not “monitor the clinical treatment of the patients or dentists with whom it contracted”. The complainants appealed.
On appeal, the Appeal Division upheld the trial court’s finding of summary judgment in favor of the defendants, and rejected the plaintiffs ‘argument that the defendants’ relationship was similar to that involved in Allstate Insurance Co. v. Schick, 328 NJ Super. 611 (Law Division 1999) and Allstate Insurance Co. v. Northfield Medical Center, 228 NJ 596 (2017).
In doing so, the Appeal Division found that SDC did not practice dentistry or control the licensed dentist who owed SNJ. Equally important, the Appeal Division rejected the plaintiffs’ argument that an “estate agreement between SDC and SNJ would allow SDC to effectively become the owner of SNJ through an agent of SDC”. In rejecting this argument, the Appeal Division held:
“However, the estate agreement requires that SNJ be owned by an orthodontist or licensed dentist in New Jersey. Thus, the safeguards in place in the agreements maintain the management and ownership of SNJ under the Dental Practice Act; its operations and those of the SDC must comply with the statutes.
It therefore appears that in these particular circumstances, the Appeal Division did not find that the succession agreement violated the practice of dental medicine in business since the SNJ maintained clinical control and treatment of the patients.