Recent New Jersey Decision on MSOs and Succession Agreements

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A recent decision issued by the New Jersey Appellate Division addressed the issue of the corporate practice of dentistry and succession agreements. 

In Galkin, et al. v. SmileDirectClub, LLC, et al., Docket No. A-2867-19, the New Jersey Appellate Division considered whether the nature of the defendants’ relationship violated the New Jersey Dental Practice Act. 

Defendant SmileDirectClub, LLC (“SDC”) is a dental support organization that offers non‑clinical support services to licensed dentists. Additionally, the SDC sources clear aligners to straighten teeth from an FDA‑certified manufacturer and impression kits from a lab for its clients, including the defendant Smile of New Jersey (“SNJ”).   

SNJ is a New Jersey company located in Tennessee that provides telehealth dental services to patients in New Jersey, but it has no physical offices in New Jersey. SNJ contracted with SDC for non-clinical administrative services, including billing and records management, as well as sourcing the above aligners.

Plaintiffs Scott D. Galkin, D.M.D. and the New Jersey Dental Association filed suit alleging that the defendants’ were engaging in the unlawful corporate practice of dentistry. The trial court granted summary judgment in favor of the defendants finding that the SDC did not “control clinical treatment to patients or the dentists with whom it contracts.” The plaintiffs appealed.

On appeal, the Appellate Division affirmed the trial court’s finding of summary judgment in favor of the defendants, and rejected the plaintiffs’ argument that the defendants’ relationship was akin to those involved in Allstate Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999) and Allstate Insurance Co. v. Northfield Medical Center, 228 N.J. 596 (2017).

In doing so, the Appellate Division found that SDC did not practice dentistry or control the licensed dentist who owed SNJ. Just as important, the Appellate Division rejected the plaintiffs' argument that a “succession agreement between SDC and SNJ would allow SDC to effectively take ownership of SNJ through an SDC designee.” In rejecting that argument, the Appellate Division held:

“However, the succession agreement requires SNJ be owned by a New Jersey-licensed orthodontist or dentist. Thus, the safeguards in place in the agreements maintain management and ownership of SNJ under the Dental Practice Act; its operations and those of SDC must comport with the statute.”

It appears, therefore, that under these specific circumstances, the Appellate Division did not find that the succession agreement violated the corporate practice of dentistry since SNJ maintained clinical control and treatment of the patients.