Judge William Woolley of Sedgwick County District Court of Kansas on December 9, 2021, ruled on a motion and cross motion for summary judgement in Troilo, et al, versus Yager et al. (See attached pdf file) In a 62-page decision, in a legal clash between United Dentists of Kansas (UDKS), versus Delta Dental of Kansas (DDKS), Judge Woolley wrote related to plaintiff’s motion for summary judgement, “The 2000 DDKS articles and 2019 DDKS bylaws legally gave exclusive power to the members (participating provider dentists) to adopt amendments to the DDKS articles and bylaws.”
“Therefore, the DDKS board did not have the power to adopt the amendments to the articles and bylaws in 2020. The DDKS board did not obtain member approval to adopt the 2020 amendments to the DDKS articles and bylaws. Because the DDKS members did not approve the 2020 amendments to the DDKS articles and because the DDKS board did not have the power to adopt the 2020 amendments to the articles and bylaws, the 2020 amendments are illegal.”
In defendant’s (DDKS) cross motion for summary judgement the Judge stated, “Under Kansas law, the board of directors of a Kansas Nonprofit Dental Service Corporation Act corporation may owe fiduciary duties to the members (participating dentists) of that corporation. Therefore, members have standing to bring breach of fiduciary duty claims against the directors for breaching those duties to the members.”
Judge Woolley added, “Under Kansas law, members (participating member dentists) of an Act corporation can have standing to bring derivative action lawsuits against the board directors of that corporation for breach of the fiduciary duty to the corporation.” A derivative legal action is brought by a shareholder against the directors, officers, or management of the corporation for an alleged failure by management.
“The fact that the court has held that the board of directors did not have the corporate power to adopt the 2020 amendments to the DDKS articles and bylaws does not preclude the members (dentists) from bringing breach of fiduciary duty claims for the board having illegally adopting those 2020 amendments. For purposes of summary judgment, Plaintiffs (officers in UDKS) sufficiently represent the interests of the members to have standing to bring the claims in this lawsuit.”
Judge Woolley opined, “If the appointed directors (in DDKS) had not taken the additional steps to give super-powers to themselves, at the expense of the elected member directors (by participating member dentists, the governor and the (Kansas state insurance) commissioner, then the exercise of the court’s discretion would be a closer call.” He added, “The 2020 amendments marginalized the power of the elected directors.”
Plaintiffs’ (UDKS directors, Drs. Mark Troilo and Christopher Leiszler) motion for summary judgement was granted. Defendants’ (DDKS) motion for summary judgement was denied.
United Dentists of Kansas
Immediately following the court’s decision, United Dentists of Kansas issued a press release which quoted Kansas District Judge William Woolley, “These facts are sufficient to allege the six directors (DDKS) acted with sufficient self-interest.”
UDKS said, “… We learned… that the court has ruled in our favor, effectively reversing the amendments voted on by six of Delta’s board members to seize power from participating dentists.”
“This could not have happened without the support of HUNDREDS of Kansas dentists, and we thank YOU for your ongoing support in these efforts.”
The news release also posted an informative link to a report in The Kansas Reflector.
Attorney for United Dentists of Kansas, F. James Robinson, Jr. partner of the law firm, Hite, Fanning & Honeyman L.L.P., was asked for comment for Dentistry Today. “At this point, it is too soon to predict what will happen in the case. The decision is not yet appealable as a matter of right because there are still unresolved claims in the district court. No doubt the parties will be discussing the next steps shortly.”
Delta Dental of Kansas
Chief Innovation and Marketing Director, Sarah E. Patterson proved the following for Dentistry Today. “A small group of dentists has spent 2+ years attempting to pass amendments to our bylaws with the goal of increasing their own personal compensation at the expense of Kansans and Kansas employers.”
“The bylaw amendments significantly interfere with the Board’s management authority over the company, substantially decrease DDKS’ network size, reduce consumer cost and insurance protections, and significantly increase costs for Kansans and Kansas employers. The dentists are targeting only our company and no other insurer with these harmful changes that increase healthcare costs and reduce access to care.”
“Delta Dental is encouraged by the fact that the court agrees with the corporation’s assessment that dentists cannot govern the corporation’s affairs through articles or bylaws changes, including the Board’s management authority to establish dentist fees. The Judge was very clear that dentists cannot interfere with our management of the company through amendments to the articles or the bylaws. The judge’s numerous statements in the ruling confirm the corporation’s position:
- “This means the articles of incorporation of a K.S.A. 40-19a03 cannot be amended to provide for the management by anyone other than the board. This means neither the board nor the members of DDKS can pass articles or bylaws amendments that give management of the corporate affairs to the members.”
- “The Code is clear that DDKS is to be managed by the board…”
- “Under the Act, management by the board is the rule, without exception.”
- “This means that neither the board nor the members of DDKS can pass articles or bylaws amendments that give management of the corporate affairs to the members.”
- “This language cannot be any clearer as a specific acknowledgement of the Act’s requirement that the board, and only the board, manages DDKS.”
- “The Act prevents any attempt by the members to take the management powers from the board.”
- “…one of the board’s major management decisions is how to divide the net revenue between the members or the other DDKS service missions.”
“While we are disappointed with parts of the court’s decision, our position continues to be that the Board of Directors adopted a safety measure to ensure a very small group of dentists can’t enact illegal and harmful changes to the company that would harm DDKS, Kansans, Kansas employers and dentists. We have spent the past two years defending the company from harmful and illegal attacks from a small group of dentists, and the Court has affirmed that we were right in doing so, even if the Court disagrees with some of the protections we adopted on behalf of the company. We will continue to work to ensure the company and our stakeholders are protected.”
History of Similar Legal Conflict
Dentistry Today reported on this legal battle between United Dentists of Kansas (UDKS) and DDKS initially in March 2021. Much of the dispute comes down to how much, if any control, participating member dentists have in electing voting board members to Delta Dental of Kansas (DDKS).
Judge Wooley has clearly ruled that DDKS’s board of directors should govern the company. Arguments persist as to what persons should be represented on that board and participating member dentists’ election of board members. Should participating membership dentists be shut out of a voice in determining board membership selection? The current ruling as it stands today, is that member dentists must have a voice.
“DDKS board must have ten (10) members, six of whom are appointed and four of whom are elected. Two board members are appointed by the governor and four are appointed by the (state insurance) commissioner. The remaining four are elected by the dentist members.”- Judge William Woolley.
In a somewhat related lawsuit, in a consolidated complaint filed November 26, 2019, in the US District Court Northern District of Illinois, plaintiffs allege Delta Dental guilty of unfair market dominance, price fixing, and effectively establishing a monopsony over participating dentists. The American Dental Association (ADA) is a plaintiff member to this civil action.
In 2020, Washington State Dental Association President, Dr. Dennis Bradshaw announced member dentist approval and amendment acceptances by Dental Service of Washington (d/b/a Delta Dental of Washington). “The successful adaptation of these governance changes means that we are on track to settle Bradshaw, Irwin, Russell, and WSDA v. Washington Dental Service, and that we have locked in a win better than what we could have achieved through litigation alone.”
CLICK HERE TO READ THE PDF FILE OF ORDER ON MOTION AND CROSS MOTION FOR SUMMARY JUDGEMENT
Conclusion
It is undetermined at this time if parties in Troilo et al, versus Yager et al may reach a future agreement. The lead attorney for UDKS strongly implied negotiations will move forward. DDKS may opt to appeal Judge Woolley’s ruling and forgo settlement talks for now? It is difficult to read the tea leaves.
UDKS is asking for donations. They obviously see a future victory at hand and require funding to support their objectives.
DDKS is very firm in their positions, which may or may not stand up to legal challenge on appeal.
FEATURED IMAGE CREDIT: Tingey Injury Law Firm on Unsplash
