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Broadhead v. Watterson

United States District Court, W.D. Virginia, Harrisonburg Division

February 24, 2016

FREDERICK W. BROADHEAD, D.M.D., PC, et al., Plaintiffs,
v.
DIANE GLASSCOE WATTERSON, etc., et al., Defendants.

MEMORANDUM OPINION

Elizabeth K. Dillon United States District Judge

This case arises from a business relationship gone sour. In 2010, plaintiff Frederick W. Broadhead, D.M.D., and his then-partner Harry H. Heard, D.D.S., hired defendant Dianne Glasscoe Watterson to evaluate their dental practice, Front Royal Dental Care. The parties entered into two one-year consulting contracts.

Sometime in 2012, Drs. Broadhead and Heard got into a business dispute. Five years earlier, Dr. Heard had agreed to sell Front Royal to Dr. Broadhead. Under the terms of their deal, Dr. Broadhead was to make the second and final payment to Dr. Heard on October 31, 2012. As that date approached, however, Dr. Heard had a change of heart and wanted to remain a part owner of Front Royal. When Dr. Broadhead refused to alter their deal, Dr. Heard resigned from Front Royal and set up a competing dental practice. Dr. Broadhead then brought an arbitration against Dr. Heard, which resulted in a settlement.

Dr. Broadhead thinks that Watterson used information she acquired during her consulting for Front Royal to hurt him in his dispute with Dr. Heard and that she helped Dr. Heard set up his competing practice As a result, Dr. Broadhead believes that Watterson exacerbated the dispute and that she is thus responsible, at least in part, for the ensuing arbitration.

Seeking to recover the attorney’s fees that he incurred in the arbitration and other relief, Dr. Broadhead and his business, plaintiff Frederick W. Broadhead, D.M.D., PC (FWB), the current owner of Front Royal, filed this case against Watterson and her business, defendant Professional Dental Management, Inc. (PDM), alleging claims for breach of fiduciary duty and business conspiracy. Watterson and PDM now move to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on which relief may be granted. For the following reasons, the court will grant the motion as to the breach-of-fiduciary-duty claim, but deny it as to the business-conspiracy claim.

I. BACKGROUND

The facts recited in this section and relied on below are taken from Dr. Broadhead and FWB’s complaint and documents attached to it. Zak v. Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015). For purposes of Watterson and PDM’s motion to dismiss, the court accepts the complaint’s well-pleaded factual allegations as true and construes them in the light most favorable to Dr. Broadhead and FWB. Coleman v. Md. Court of Appeals, 626 F.3d 187, 189 (4th Cir. 2010).

A. Dr. Heard agrees to sell Front Royal to Dr. Broadhead.

In 2007, Dr. Heard agreed to sell Front Royal to Dr. Broadhead, and they entered into a purchase agreement. (Compl. ¶¶ 8-9, Dkt. No. 7-1.) Under the terms of the agreement, Dr. Broadhead was to make two payments-one on October 31, 2007, and another on October 31, 2012. (Id. ¶ 9.) During the intervening five years, Drs. Heard and Broadhead were to act as co- owners of the practice. (Id. ¶ 10.) After the second payment, Dr. Heard had the option of becoming an employee. (Id.)

B. Drs. Heard and Broadhead hire Watterson.

In February 2010, Drs. Heard and Broadhead sought out the services of a consultant to evaluate Front Royal’s strengths and weaknesses and to make recommendations on how to improve its efficiency and profitability. (Id. ¶ 12.) The next month, they hired Watterson, signing a one-year consulting contract (First Contract). (Id. ¶ 13; Compl. Ex. A, Dkt. No. 7-1.)

As relevant here, the First Contract-which comprises only a single page-provides:
Terms and Conditions
We agree to confidentiality regarding all information of a proprietary nature which we may encounter in our work with your practice. All names and locations will be kept in strict confidentiality. We will be using consulting methods and material which is proprietary to our business. You and your staff agree to confidentiality regarding such material, and to restrict its use to the purpose of the engagement.
. . . .
General Provisions
My clients, Drs. Harry Heard and Fred Broadhead, clearly understand their full responsibility in generating and implementing any results from, or related to, our work together. Professional Dental Management is hereby released and discharged of any liability whatsoever from the practice and from any and all participants involved in the in-office consultation and related consulting activities.

(Compl. Ex. A.)

PDM’s name appears next to Watterson’s at the top and bottom of the First Contract but without a corporate designation such as “Inc.” (Id.) And Watterson’s name appears without a corporate title such as “CEO.” (Id.)

Over the next year, Watterson visited Front Royal several times. (Compl. ¶ 16.) During her visits, she met with Drs. Heard and Broadhead and staff members; she asked staff members and patients to fill out surveys and evaluations; and she reviewed the practice’s “production analysis, collections and payment data, scheduling data, tax returns, fee schedules, and insurance tracking data.” (Id. ¶¶ 15-19.) Watterson prepared a report titled “Practice Overview” from the information she obtained. (Id. ¶ 20.)

In March 2011, Drs. Heard and Broadhead decided to retain Watterson for another year, signing a new one-year consulting contract (Second Contract)-also just a page. (Id. ¶ 21; Compl. Ex. B, Dkt. No. 7-1.) Like the First Contract, the Second Contract contains confidentiality and release provisions. The confidentiality provisions are identical, and the release provisions differ in only two material respects: unlike the release provision in the First Contract, the release provision in the Second Contract names Front Royal as a client and designates PDM as a corporation. (Compl. Ex. B.) Also unlike the First Contract, the Second Contract identifies Watterson as PDM’s CEO. (Id.)

During the next year, Watterson continued to visit Front Royal, analyze its various data, and provide advice on how to increase its efficiency and profitability. (Compl. ¶ 22.) She used the information she acquired to prepare a second report titled “Front Royal Dental Care Summary Report.” (Id. ¶ 23.) When the Second Contract expired on April 1, 2012, Drs. Heard and Broadhead decided against retaining Watterson for another year. (Compl. Ex. B.)

C. Drs. Heard and Broadhead get into a business dispute.

Sometime in 2012, Drs. Heard and Broadhead got into a business dispute. (Compl. ¶ 24.) Dr. Heard did not want to go through with the sale of Front Royal. (Id.) Instead, he wanted to remain a co-owner of the practice. (Id.) Dr. Broadhead, however, wanted to complete the sale as planned and believed that Dr. Heard’s about-face violated the purchase agreement (Id. ΒΆ 25.) In November 2012, Dr. Heard ...


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