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The Cincinnati Insurance Co. v. Gage Center Dental Group, P.A.

United States District Court, Tenth Circuit

November 1, 2013

THE CINCINNATI INSURANCE COMPANY, Plaintiff,
v.
GAGE CENTER DENTAL GROUP, P.A., ET AL., Defendants.

MEMORANDUM AND ORDER

KATHRYN H. VRATIL, District Judge.

The Cincinnati Insurance Company seeks a declaratory judgment that it is not obligated to defend or indemnify Gage Center Dental Group, P.A., Anthony J. Pleviak, D.D.S., Robert S. Hall, Jr., D.D.S., Michael T. Gardner, D.D.S., Darin W. Loewen, D.D.S., S. Bruce Banks, D.D.S., Jeffrey L. Burkett, D.D.S. and Brenda Vink-Wilson in a pending state court lawsuit. This matter is before the Court on Plaintiffs Motion For Summary Judgment [Or To Dismiss Or Stay] (Doc. #45) and Defendants' Motion For Summary Judgment (Doc. #47), both filed May 20, 2013. For reasons set forth below, the Court finds that defendants' motion should be sustained in part as to the duty to defend. Pending resolution of the state court lawsuit, the Court reserves ruling on the question of Cincinnati's duty to indemnify.

Legal Standard

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247 (1986); Vitkus v. Beatrice Co. , 11 F.3d 1535, 1538-39 (10th Cir. 1993). A "genuine" factual dispute is one "on which the jury could reasonably find for the plaintiff, " and requires more than a mere scintilla of evidence. Liberty Lobby , 477 U.S. at 252. A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Id . at 248.

The moving party bears the initial burden of showing that there are no genuine issues of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986); Justice v. Crown Cork & Seal Co. , 527 F.3d 1080, 1085 (10th Cir. 2008). Once the moving party meets its burden, the burden shifts to the nonmoving party to show that a genuine issue remains for trial with respect to the dispositive matters for which it carries the burden of proof. Nat'l Am. Ins. Co. v. Am. Re-Ins. Co. , 358 F.3d 736, 739 (10th Cir. 2004); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586-87 (1986). As to these matters, the nonmoving party may not rest on its pleadings but must set forth specific facts. Fed.R.Civ.P. 56(e)(2); Matsushita , 475 U.S. at 586-87; Justice , 527 F.3d at 1085. Conclusory allegations not supported by evidence are insufficient to establish a genuine issue of material fact. Jarvis v. Potter , 500 F.3d 1113, 1120 (10th Cir. 2007); see Kidd v. Taos Ski Valley, Inc. , 88 F.3d 848, 853 (10th Cir. 1996).

When applying this standard, the Court must view the factual record in the light most favorable to the party opposing the motion for summary judgment. Duvall v. Ga.-Pac. Consumer Prods., L.P. , 607 F.3d 1255, 1260 (10th Cir. 2010). Summary judgment may be granted if the nonmoving party's evidence is merely colorable or is not significantly probative. Liberty Lobby , 477 U.S. at 250-51. Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Id . at 251-52.

Facts

The following facts are either uncontroverted or where controverted, the contentions of each party are noted.

Gage Center is a Kansas professional association of eight dentists with its place of business in Topeka, Kansas. Drs. Gregory K. Johnson, Eric C. Johnson, Anthony J. Pleviak, Robert S. Hall, Jr., Michael T. Gardner, Darin W. Loewen, S. Bruce Banks and Jeffrey L. Burkett each own a oneeighth interest in Gage Center and each is an officer and director of Gage Center. Brenda Vink-Wilson is the office administrator.

The Underlying Lawsuit

On July 22, 2011, Drs. Gregory Johnson and Eric Johnson (the "Drs. Johnson") filed suit in the District Court of Shawnee County, Kansas against Drs. Pleviak, Hall, Gardner, Loewen, Banks and Burkett (the "doctor defendants") and Brenda Vink-Wilson (collectively, the "Gage defendants"). On March 19, 2012, the Drs. Johnson filed an amended petition (the "petition") which alleges as follows:

Beginning in approximately January of 2010, the doctor defendants became openly hostile with the Drs. Johnson, and forced them to significantly reduce their compensation. Gage Center, without input from the Drs. Johnson, restricted their ability to withdraw from their shareholder retained earnings accounts because their revenues were not sufficient to cover the administrative expenses. After only three months, the Drs. Johnson generated enough revenue to bring their retained earnings accounts to a positive balance. The doctor defendants then assumed that the Drs. Johnson were fraudulently inflating their practice revenues. In the spring of 2010, the Gage defendants, acting in their self interests and motivated by greed and jealousy, formed a secret, unauthorized informal committee to investigate the alleged improper conduct by the Drs. Johnson. The predetermined outcome of the investigation was that the Drs. Johnson were conducting their practice improperly or with malicious motives. The secret committee was not created to protect the interests of Gage Center, but to deprive the Drs. Johnson of their practice while retaining all of their patients in order to increase the revenue of the doctor defendants. The Gage defendants were acting outside the scope of their roles as directors of Gage Center. The unauthorized committee and investigation was not conducted in good faith, but to impair the Drs. Johnson's practices and their ability to practice, in a manner that would harm Gage Center. The Gage defendants sought to impair the practices of the Drs. Johnson sufficiently to cause them to leave the practice, which would trigger restrictive competition covenants and thus create a windfall of patients for the doctor defendants. The formation and operation of the secret unauthorized committee violated Gage Center Articles of Incorporation and Bylaws. Further, the investigation created a hostile, disruptive atmosphere for the dental practices of the Drs. Johnson and made Gage Center an intolerable place in which to practice dentistry.

The Gage defendants violated the Gage Center Bylaws by conducting special meetings of the Board of Directors without notifying the Drs. Johnson. At these meetings, the Board has taken corporate action, including approval and adoption of inaccurate or incomplete written minutes of prior meetings.

Employees of Gage Center, including Vink-Wilson, communicated to Gage Center employees false and misleading information about the Drs. Johnson with the intent to increase hostility toward the Drs. Johnson and to injure their reputation and business. The Gage defendants attempted to persuade staff that the Drs. Johnson were improperly caring for their patients and were motivated by greed. The Gage defendants told employees of the Drs. Johnson they were not meeting the standard of care to which other Gage Center dentists were held.

During November of 2010 through February of 2011, Vink-Wilson told many patients of the Drs. Johnson that they were being investigated for insurance fraud and that patients would need to find different dentists within Gage Center because the Drs. Johnson might lose their ability to bill insurance. At the direction of the doctor defendants, Vink-Wilson made false statements to patients of the Drs. Johnson with malicious intent to oust Drs. Gregory and Eric Johnson from employment with Gage Center. The Drs. Johnson have repeatedly demanded that the Gage defendants cease and desist from making such false and misleading statements, but they have refused.

In November of 2010 the secret committee produced a report which concluded that the Drs. Johnson were performing unnecessary procedures and charging insurance companies for unnecessary procedures. The Drs. Johnson disputed these findings. The Gage defendants continue to make false allegations of improper operation by the Drs. Johnson, but have taken no action on behalf of Gage Center.

At a Board of Directors meeting in June of 2011, Dr. Hall moved for Gage Center to inform patients of the Drs. Johnson that a particular insurance company had terminated coverage for treatment by the Drs. Johnson and to invite those patients to switch to the doctor defendants. In fact, this particular insurance company had never terminated or restricted coverage for the Drs. Johnson in any way. Dr. Banks seconded Dr. Hall's motion and the doctor defendants then unanimously approved the motion. The doctor defendants decided to place the Drs. Johnson on probation and to reduce their salaries by 50 per cent if they did not conduct themselves in accordance with Dr. Hall's motion. The Gage defendants intended to interfere with patients of the Drs. Johnson and their employment agreement with Gage Center without regard for the best interests of Gage Center.

The Drs. Johnson experienced disruptions, unexplained cancellations of patient appointments and heated and unprofessional exchanges with Vink-Wilson in the presence of their patients. They have also suffered workplace rumors and innuendo as a result of "uncommon questioning of staff' who were encouraged to make false accusations about them. The conduct of the Gage defendants has caused the Drs. Johnson to lose patients and reduced their retained earnings accounts.

Count I of the state court amended petition alleges that the defendant doctors breached their fiduciary duties by forming the secret committee with the intent to injure the Drs. Johnson, by creating an environment of disloyalty, harassment, defamation and false accusations against the Drs. Johnson, and by giving employees permission to make false and defamatory statements regarding the Drs. Johnson.

Count II asserts that with the intent to injure the Drs. Johnson, the Gage defendants made or ratified false and defamatory statements about the Drs. Johnson with regard to their methods of practicing dentistry, their eligibility to accept certain third party insurance and their future of practicing dentistry.

Count III asserts a claim for intentional interference with business expectancies. It alleges that individually or together, the Gage defendants have intentionally acted to deprive the Drs. Johnson of the economic and non-economic benefits of their existing relationships with patients, including by making defamatory statements and false accusations.

Count IV asserts intentional interference with contract. Specifically, it alleges that the Gage defendants have intentionally or with reckless disregard sought to reduce the number of patients of the Drs. Johnson. Count V asserts that the Gage defendants have conspired to defame and slander the Drs. Johnson.

The petition alleges that the Gage defendants have caused the Drs. Johnson to suffer harm to their professional reputations, lost income and profits and non-economic injuries including mental strain, anguish and suffering.

The Insurance Policies

Cincinnati Insurance Company issued Gage Center a Dentist's Package Policy, Policy Number EDN 001 06 34, which included a Business Owners Package Policy ("BOP Policy") and a Commercial Umbrella Policy ("Umbrella Policy"), with a policy period from December 1, 2007 to December 1, 2010. Doc. #46-1. Cincinnati Insurance issued a renewal policy to Gage Center containing the same coverages for the policy period from December 1, 2010 to December 1, 2013. Doc. #46-2.

BOP Insurance Policy Provisions

The BOP insuring agreement provides that Cincinnati will "pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury, " "property damage, " or "personal and advertising injury" to which the insurance applies. Doc. #46-1 at 5. It further provides that it will defend the insured against any "suit" seeking those damages. Id . The ...


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