Choong H. Lee, Dmd, Pllc, Pet. V. Thaheld/lee-01, Llc, Res.

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
CHOONG H. LEE, DMD, PLLC, a
professional limited liability company, CH
LEE, PLLC, a professional limited liability
company,
Appellants,
v.
THAHELD/LEE-01, LLC, a Washington
limited liability company, and JOHANN
THAHELD, believed to be an unmarried
resident of Washington,
Respondents.
No. 68417-5-1
DIVISION ONE
UNPUBLISHED OPINION
FILED: March 10,2014
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Appelwick, J. — Lee is a licensed Washington dentist who owns and operates
two dental practices in Whatcom County. 	He entered into a service agreement with
Thaheld, 	a 	nondentist, to aid 	in operation and 	management of the practices. 	Lee
argues that the agreement is illegal in its entirety, because it violates Washington's
prohibition on 	corporate practice of dentistry, 	RCW 18.32.675(1). 	We agree. 	We
therefore reverse the decision of the trial court and remand with instructions to enter
partial summary judgment in Lee's favor.
FACTS
Dr. Choong-hyun 	Lee 	is 	a 	licensed 	Washington 	dentist 	and 	has 	practiced
dentistry 	in Whatcom 	County 	since 	2004. 	He 	operates 	one 	dental 	practice 	in
Bellingham through the legal entity Choong H. Lee, DMD, PLLC, and a second practice
in Blaine through the entity CH Lee, PLLC—collectively "Lee Dental Practices." Johann
Thaheld is not a dentist, but is the sole member and owner of Thaheld/Lee-01 LLC, a

No. 68417-5-1/2
dental consulting service business.1 	Thaheld 	is also a full-time faculty member at
Western Washington University and holds a Juris Doctorate.
By mid-2010, 	Lee's practices were struggling and losing money. 	During this
time, 	Lee 	met 	Thaheld, 	who 	reviewed 	financial 	statements, 	contracts, 	scheduling
practices, payroll, and other aspects of Lee's two practices. 	Thaheld noticed a number
of administrative and accounting problems that he communicated to Lee.
On 	July 	21, 	2010, 	Lee 	and 	Thaheld 	executed 	a 	service 	agreement. 	The
Agreement called Lee Dental Practices the "Providers" and Thaheld/Lee-01 	LLC the
"Service Company." The stated purpose of the agreement was to allow Lee to focus his
time and energy on practicing dentistry and delivering dental services. 	The Service
Company agreed to provide services necessary "for the day-to-day administration of the
non-dental aspects of Providers' dental practice." 	Thaheld and Lee agreed that the
Service 	Company would 	be 	compensated 	with a 	salary 	equal 	to 	Lee's 	salary 	or
$120,000, whichever was higher; a bonus of one half the practices' net profits; and one
half the increased terminal value of the practices.
The parties' relationship deteriorated over the following months. 	On March 18,
2011, Lee filed a complaint against Thaheld seeking declaratory judgment, injunctive
relief, and monetary damages. 	Lee alleged that the service agreement gave Thaheld
an impermissible financial interest in and substantial control over Lee Dental Practices.
1 Choong H. Lee, DMD, PLLC and CH Lee PLLC are appellants here. We refer
to these companies collectively as "Lee" or "Lee Dental Practices." 	Thaheld/Lee-01
LLC and Johann Thaheld, in his individual capacity, are respondents here. 	We refer to
the respondents collectively as "Thaheld."

No. 68417-5-1/3
He 	also 	alleged 	that 	the 	agreement 	was 	substantively 	unconscionable, 	because
Thaheld made material misrepresentations to induce Lee to sign it.
Thaheld 	counterclaimed for 	breach 	of contract, 	specific 	performance, 	unjust
enrichment, and breach of employment obligations. 	Thaheld requested that the trial
court dismiss Lee's complaint in its entirety. 	Alternatively, he asked the trial court to
enter a judgment declaring the service agreement to be legal.
Lee subsequently moved for partial summary judgment. 	He requested that the
trial court declare the service agreement illegal and unenforceable as a matter of law.
He argued that the agreement violated Washington's statutory prohibition on unlicensed
corporate practice of dentistry, RCW 18.32.675(1).
The trial court denied Lee's motion for partial summary judgment on January 27,
2012. 	However, the trial court certified its order for immediate review. 	Lee filed a notice
for discretionary review with this court, 	requesting 	review based on the trial court's
certification of the issue. 	We concluded that discretionary review was 	proper and
granted the motion.
DISCUSSION
The issue on appeal is whether the trial court erred in denying Lee's motion for
partial summary judgment. 	Lee argues that the service agreement grants Thaheld an
impermissible 	role 	in 	Lee 	Dental 	Practices. 	Specifically, 	he 	contends 	that 	the
agreement gives Thaheld expansive control over Lee's practices, enmeshes Thaheld in
the 	practices' 	finances, 	and 	imposes 	onerous 	restrictions 	on 	Lee's 	professional
freedom. 	Lee contends that this violates RCW 18.32.020(3) and RCW 18.32.675(1)

No. 68417-5-1/4
that together forbid 	nondentist corporations from 	owning, 	operating, 	or 	maintaining
dental practices.
In response, Thaheld argues that the agreement is valid as a 	matter of law,
because Lee retained complete control over all aspects of his dentistry practice. 	In any
event, Thaheld contends, the parties modified the agreement by their conduct, creating
questions of fact about its meaning. 	Thaheld also argues that, when interpreting the
agreement, we should recognize changes to the practice of dentistry in light of modern
economic realities.
We review summary judgment orders de novo. 	Hearst Commc'ns. Inc. v. Seattle
Times Co.. 154 Wn.2d 493, 501, 115 P.3d 262 (2005). 	Summary judgment is proper
only when there are no genuine issues of material fact and the moving party is entitled
to judgment as a matter of law. 	Id; CR 56(c). 	We review all facts and reasonable
inferences drawn from the facts in the light most favorable to the nonmoving party.
CTVC of Haw. Co. v. Shinawatra. 82 Wn. App. 699, 708, 919 P.2d 1243, 932 P.2d 664
(1996). 	The 	legality 	of an 	agreement 	is a 	question of law reviewed 	de 	novo.
Fallahzadeh v. Ghorbanian, 119 Wn. App. 596, 601, 82 P.3d 684 (2004).
I. 	Legality of Service Agreement
Washington law prohibits the corporate practice of dentistry. 	RCW 18.32.675(1)
specifies:
No corporation shall practice dentistry or shall solicit through itself, or its
agent, officers, employees, directors or trustees, dental patronage for any
dentists 	or 	dental 	surgeon 	employed 	by 	any 	corporation:
PROVIDED . . . [that this 	prohibition shall 	not] apply to corporations or
associations 	furnishing information 	or 	clerical services 	which can 	be
furnished 	by persons not licensed to practice dentistry, to any 	person
4

No. 68417-5-1/5
lawfully engaged in the practice of dentistry, when such dentist assumes
full responsibility for such information and services.
Under RCW 18.32.020(3), any person who "owns, maintains or operates an office for
the practice of dentistry" is engaged in the practice of dentistry.
This prohibition extends to 	most other learned 	professions that affect public
health and welfare, such as law, medicine, and optometry. 	Morelli v. Ehsan, 110 Wn.2d
555, 559, 756 P.2d 129 (1988). 	The Washington Supreme Court has explained the
reason for such prohibitions:
The 	ethics 	of 	any 	profession 	is 	based 	upon 	personal 	or 	individual
responsibility. 	One who practices a profession is responsible directly to
his patient or his client. 	Hence he cannot properly act in the practice of his
vocation 	as an agent of a 	corporation or business partnership whose
interests in the very nature of the case are commercial in character.
State ex rel. Standard Optical Co. v. Superior Court for Chelan County, 17 Wn.2d 323,
332, 135 P.2d 839 (1943). 	The prohibition maintains a high standard of professional
care by making dentists directly responsible to their patients, rather than a corporation.
State v. Boren, 36 Wn.2d 522, 528, 219 P.2d 566 (1950).
When a contract gives a nondentist or corporation the power to influence the
operation of a dental practice and share in the practice's profits, Washington courts hold
such contracts to be illegal. 	See, e.g., Morelli, 110 Wn.2d at 560-61; Boren, 36 Wn.2d
at 524, 532; Fallahzadeh, 119 Wn. App. at 603-04. 	In determining whether an illegal
business 	relationship 	exists 	between 	a 	dentist 	and 	a 	nondentist 	corporation, 	we
consider: (1) the extent to which the corporation exercises control over the practice's
operations and (2) the nature of the payment scheme between the practice and the
corporation. 	See Fallahzadeh, 119 Wn. App. at 603-05; see also OCA. Inc. v. Hassel,
389 B.R. 469, 476 (E.D. La. 2008).

No. 68417-5-1/6
For instance, in Boren, two nondentists entered into a conditional sales contract
with a dentist who agreed to pay $55,000 for an 	on-going dental practice in $750
monthly installments. 	36 Wn.2d at 523. 	Under the contract, the dentist drew a $500
monthly salary. 	JU at 524. 	One of the nondentists worked for $500 a month as office
manager—"'buying the supplies and watching the charts and making out the accounts
and payments, and general manager, and looking after the advertising.'" 	\± 	The office
manager also received monthly bonus payments "in appreciation of the increase in
business." 	jd. 	The court held that this activity by a 	nondentist constituted owning,
operating, or maintaining a dentistry practice, and violated Washington law. jd. at 532.
In 	Fallahzadeh, 	Abraham 	Ghorbanian 	was 	a 	licensed 	dentist 	employed 	by
Sunrise Dental Family Center, Inc. 	119 Wn. App. at 599. 	Sunrise's owners offered
Ghorbanian the opportunity to purchase the dental practice and building where it was
located, 	jd. 	Inexperienced in business matters, Ghorbanian asked Akbar Fallahzadeh,
a nondentist, to act as a partner in purchasing the practice. 	Id, 	They signed a lease
agreement in which Fallahzadeh would lease the building to the practice in exchange
for 50 percent of the practice's net profits as rent. 	]d at 600. 	Ghorbanian bought the
practice, making a down payment and executing a promissory note for the balance. 	Id.
Fallahzadeh signed a $200,000 personal guaranty for the note. 	jd.
Ghorbanian employed Fallahzadeh as office manager, 	jd. 	Fallahzadeh had
check-writing 	authority 	and 	handled 	the 	practice's 	accounts, 	jd. 	In addition, 	he
periodically deposited personal funds into the accounts as loans to the practice. 	Jd.
However, their relationship soon soured. 	]d 	Ghorbanian 	became concerned that
Fallahzadeh 	was 	embezzling 	and 	instructed 	him not to 	return to work, effectively
6

No. 68417-5-1/7
terminating Fallahzadeh's employment. 	Jd 	Fallahzadeh brought an unlawful detainer
action 	against Ghorbanian. 	Id 	Ghorbanian raised several defenses, 	including the
illegality of the agreement. Jd
On appeal, we considered whether the parties' business relationship resulted in
an 	illegal 	partnership between a 	dentist and a 	nondentist. 	jd. 	at 601. 	We found
Fallahzadeh's 	office 	management 	analogous 	to 	Boren, 	because 	in 	both 	cases 	a
nondentist had complete control over the practice's finances, 	jd at 602-03. With the 50
percent net profit 	rent provision, 	Fallahzadeh also retained 	a 	substantial 	beneficial
interest in the practice's profits, 	jd at 603, 	The rent grossly exceeded market rate,
indicating that the purpose was to give Fallahzadeh a financial interest in the practice,
jd 	at 604-05. 	And, 	as 	landlord, 	Fallahzadeh 	had 	exclusive control over physical
improvements to the premises that might be necessary for patient care. 	Jd at 603-04.
These are precisely the public health and welfare concerns that give rise to the law
against corporate practice of dentistry, 	jd at 604. 	Therefore, we held the agreement
between Fallahzadeh and Ghorbanian to be illegal and void, 	jd at 605.
Lee also cites a federal district court case to argue that the service agreement
here is illegal: OCA, Inc., 389 B.R. 469.2 	In OCA, Inc., two Washington orthodontists
entered into long-term service agreements with Orthodontic Centers of America, Inc.
(OCA), which provides office management and patient billing support. 	Jd at 472. 	The
contracts gave OCA exclusive control over the practices' revenues and bank accounts.
2 Lee cites Engst v. Orthalliance, 	Inc., No. C01-1469C (W.D. Wash. 	Mar. 	1,
2004), an unpublished federal district court order, for the same proposition. 	However,
we do not discuss that case here, because Federal Rule of Appellate Procedure 32.1(a)
prohibits courts from citing unpublished federal judicial opinions issued prior to January
1,2007.

No. 68417-5-1/8
Jd 	The orthodontists agreed to pay OCA a specified sum for each "'patient hour,'"
along with 50 percent of each practice's profits. 	Jd 	The court held that OCA's control
over the practices' operations and its beneficial interest in the practices' profits violated
Washington law. 	Jd at 478.
Several provisions of the service agreement give Thaheld (the Service Company)
the 	power to 	exercise significant control 	over 	Lee's 	practices. 	For 	instance, 	the
agreement 	creates 	a 	two 	member 	policy 	board, 	responsible 	for 	development,
management, and overall operation of the practices. 	The agreement names Lee and
Thaheld 	as 	the 	initial policy 	board 	members. 	A majority vote 	is 	required 	for all
decisions. 	The board's responsibilities and authority include: capital improvements and
expansion, 	marketing 	and 	advertising, 	setting 	patient fees 	and 	collection 	policies,
establishing and 	maintaining contractual relationships with other providers and third-
party payors, 	strategic planning, capital expenditures, 	patient concerns and claims,
workplace 	health 	and 	safety, 	and 	approving 	or disapproving 	any 	merger 	with 	or
acquisition of another dental practice.
The agreement also gives the Service Company power to negotiate and enter
into contracts "with 	third parties 	as 	are 	reasonably 	necessary and 	appropriate for
Providers' 	provision of Dental Care." 	Lee must 	execute contracts at the Service
Company's behest. 	He must sign all leases and intellectual property over to the Service
Company. 	The agreement also specifies that, for an initial term of 40 years, Lee cannot
voluntarily terminate his employment without finding another qualified dentist to replace
him. 	These provisions result in Thaheld being substantially in control of Lee's practices,
even if he is not practicing hand-in-mouth dentistry.
8

No. 68417-5-1/9
Like 	Boren 	and 	Fallahzadeh, 	Thaheld 	also 	assumed 	sole 	responsibility 	for
handling the practices' accounts—both in fact and under the terms of the agreement.
The agreement gives the Service Company irrevocable, "exclusive special power of
attorney" to bill patients; manage all accounts; and take possession of, endorse, and
deposit all 	payments for 	dental care. 	The agreement further makes the Service
Company agent and attorney in fact for Lee's practices.
Significantly, 	the service 	agreement 	gives 	Thaheld 	a 	substantial 	beneficial
interest in Lee's practices. The agreement provides for the Service Company to be paid
an annual service fee equal to the highest paid dentist's salary or $120,000, whichever
is greater. 	In addition, the Service Company shall receive a formula-based monthly
performance fee from 10 percent up to 50 percent of the practices' profits. 	Thaheld also
stated 	in 	his declaration that he and Lee agreed that the Service Company would
receive a bonus of one half the practices' net profits. 	This is analogous to Fallahzadeh
and OCA, Inc., where the nondentists' payment included 50 percent of the practices'
profits.
And, 	not 	only 	does Thaheld 	retain 	a 	substantial 	beneficial 	interest 	in 	the
practices' profits, he also has the power to terminate the agreement. 	In the event of
termination, Lee must immediately sell the practices on the open market. 	Fifty percent
of the net sales proceeds must go directly to the Service Company. 	These profit
sharing provisions give Thaheld an impermissible financial interest in the Lee's dental
practices.
Thaheld 	points 	to 	several 	provisions 	in 	the 	agreement 	to 	argue 	that 	Lee
nevertheless retains complete control over dental care decisions and the practice of
9

No. 68417-5-1/10
dentistry. 	For instance, U 2.5 specifies that dentists "shall be solely responsible for and
shall have complete authority, responsibility, supervision, and control over the provision
of all Dental Care." 	The same provision further states that the "Service Company shall
not have or exercise any control or supervision over the provision of Dental Care."
Other provisions specify the same: fl 3.4 (all dental decisions will be made solely by
dentist 	members 	of the 	Policy 	Board3), U 	11.1 	(dental 	care 	shall 	be the sole
responsibility of dentists and 	the 	Service Company shall 	not interfere), U 11.2 (the
Service Company is an independent contractor and cannot exercise control over the
manner or method of dentistry services).
However, 	these 	provisions 	do 	not 	save 	the 	agreement 	from 	illegality.
Washington law is clear that noninvolvement in delivery of professional services is not
determinative. 	Fallahzadeh, 119 Wn. App. at 603. 	This is apparent from the structure
of RCW 18.32.020, which provides several definitions for the practice of dentistry. 	Most
definitions include typical hand-in-mouth dentistry, such as cleaning teeth, diagnosing
tooth 	pain, 	performing x-rays, 	and so on. 	See, e.g., RCW 18.32.020(1), 	(2), 	(5).
Conversely, owning, maintaining, or operating an office for practice of dentistry under
RCW 18.32.020(3) does not involve only the direct delivery of hand-in-mouth dentistry
services. 	Such activity is nevertheless impermissible for a nondentist. 	See Boren, 36
Wn.2d at 532.
Indeed, we rejected Fallahzadeh's argument that his firing demonstrated that
Ghorbanian retained complete control of all business and professional activities for the
3 However, this provision goes on to state: "provided that nondentist members of
the Policy Board may participate in the analysis and discussion process."
10

No. 68417-5-1/11
dentistry practice. 	Fallahzadeh, 119 Wn. App. at 603. 	In Standard Optical, the fact that
an optometrist retained complete professional control did not prevent the Washington
Supreme 	Court 	from 	concluding 	that 	his 	employer 	was 	illegally maintaining 	and
operating an optometry practice. 	17 Wn.2d at 334-35. 	Likewise, in OCA, Inc., simply
because OCA refrained from making decisions about individual patient care did not
mean it lacked requisite interest in or control over the orthodontists' practices. 	389 B.R.
at 478. The same is true here.
Finally, 	Thaheld 	argues 	that, 	when 	interpreting 	the 	agreement, 	we 	should
recognize changes to the practice of dentistry in light of modern economic realities.
This is a policy argument best addressed to the legislature. 	For now, the statutory
prohibition and case law are clear that nondentists may not own, operate, or maintain a
dental practice.
We reverse the trial 	court and 	hold 	that the service agreement is an illegal
contract, because it results in Thaheld owning, operating, or maintaining Lee's dental
practices. 	This effectively creates a partnership between a dentist and a nondentist,
which violates Washington's prohibition on corporate practice of dentistry.
II. 	Effect of Illegal Agreement
The 	service agreement here is facially invalid, because 	it creates an 	illegal
partnership between a dentist and a nondentist. 	Thaheld nevertheless argues that this
issue is not resolvable on summary judgment, because there are genuine issues of
material fact. 	He contends that the parties' subsequent conduct indicates that they did
not intend to give Thaheld 	impermissible control over 	Lee's dental 	practices. 	For
instance, Thaheld argues that Lee actually asserted unilateral control over almost all
11

No. 68417-5-1/12
business decisions, such as closing the Blaine practice and not paying Thaheld as they
agreed.
However, the parties' conduct does not go to whether the agreement is void as a
matter of law. 	The legality of such an agreement is a question of law, not a question of
fact. 	Fallahzadeh, 119 Wn. App. at 601. 	Moreover, we rejected this very argument in
Fallahzadeh: 	Thaheld's 	lack 	of 	involvement 	in 	hand-in-mouth 	dentistry 	does 	not
preclude his ability to exert significant control over Lee's practices. 	See id. at 603-04.
In the alternative, Thaheld argues that the parties modified the agreement by
their subsequent conduct. 	Thaheld is correct that, when interpreting a written contract,
courts may consider extrinsic evidence to ascertain the parties' intent. 	Go2Net. Inc. v.
C I Host, Inc., 115 Wn. App. 73, 84, 60 P.3d 1245 (2003). 	This includes the parties'
subsequent acts and conduct. 	Jd 	However, admissible extrinsic evidence does not
include evidence that would vary, contradict, or modify the written word. 	Hollis v.
Garwall, 	Inc., 	137 	Wn.2d 	683, 	695, 	974 	P.2d 	836 	(1999). 	Thaheld 	attempts 	to
contradict the written words of the agreement by arguing that the parties' subsequent
conduct shows that they did not intend to enforce the agreement as written.
An illegal contract is void and unenforceable. 	In re Marriage of Hammack, 114
Wn. App. 805, 810, 60 P.3d 663 (2003). 	Such a contract is void ab initio, or, in other
words, null from the beginning, 	jd at 810-11. It is as if the contract was never created,
because a void agreement is by definition not a contract. 25 David K. Dewolf & Keller
W. Allen, Washington Practice: Contract Law and Practice § 1:7, at 12 (2d ed.
12

No. 68417-5-1/13
2007). 	The entire relationship between Lee and Thaheld violates Washington law.
Thus, the entire agreement fails and no part of it can be enforced.4
We reverse the decision of the trial court and remand with instructions to enter
partial summary judgment in Lee's favor.
WE CONCUR:
4A savings clause in a void contract is also unenforceable. 	See Golden Pisces,
Inc. v. Fred Wahl Marine Const., Inc.. 495 F.3d 1078, 1081-82 (9th Cir. 2007).
13