Dr. Robert I. McClurg, et al. v. Orthalliance, Inc. involved a large group of orthodontists represented by Kassouni Law in Los Angeles County Superior Court. At the center of the dispute was a non-competition covenant that restricted where the orthodontists could practice after leaving their relationship with Orthalliance.
The litigation challenged whether Orthalliance, Inc., a practice-management company, could enforce contractual restrictions that limited affiliated orthodontists from practicing in their own communities. According to Kassouni Law’s results page, the firm obtained invalidation of the non-competition covenant. The firm also reports that the result led to a multi-million-dollar nationwide settlement involving Orthalliance.
The dispute raised important questions about long-term practice-management agreements and California’s public policy against restraints on lawful professional activity. It also shows how restrictive contract terms can become a central issue when healthcare professionals seek to leave an established business relationship.
What Was the Orthalliance Litigation About?
Orthalliance, Inc. was incorporated in 1996 and traded on the NASDAQ National Market under the ticker symbol ORAL. The company provided practice-management and consulting services to orthodontic practices across the United States through long-term management service agreements.
According to Orthalliance’s SEC filings, the company commenced operations in August 1997 with 55 allied practices, 81 orthodontists, and 147 offices across 16 states. By the end of 1998, those numbers had grown to 96 allied practices, 137 affiliated orthodontists, and 245 offices in 29 states.
Under these arrangements, Orthalliance provided business and administrative services to affiliated orthodontic practices. The agreements also required orthodontists to pay management fees and comply with contractual restrictions, including non-competition provisions.
Dr. Robert I. McClurg, et al. v. Orthalliance, Inc. was filed in Los Angeles County Superior Court. The plaintiffs included a large group of orthodontists who had entered into practice-management agreements with Orthalliance. The central dispute concerned whether the non-competition covenant in those agreements could be enforced under California law.
How Did Orthalliance’s Agreements Restrict the Orthodontists?
The Orthalliance agreements were structured as long-term business relationships. Depending on the agreement, Orthalliance provided services such as capital, administrative support, patient financing, and business management in exchange for management fees and contractual commitments from affiliated orthodontists.
The agreements also contained restrictions on competition. Publicly available federal court opinions involving Orthalliance agreements in other states provide examples of how some of these provisions operated. One litigated agreement prohibited the orthodontic entity and its shareholders from opening an orthodontic office within a 10-mile radius of Orthalliance-affiliated centers during the agreement’s term without written consent.
That agreement also imposed additional restrictions for two years after termination. These included limits on advertising, patient and staff solicitation, solicitation of other orthodontists, and solicitation of referrals from certain dentists.
Those provisions came from other Orthalliance litigation and should not be treated as the precise terms of the agreements challenged in McClurg. The contracts varied, and the specific language matters when assessing enforceability.
The long-term nature of these agreements also created difficulties for some affiliated orthodontists who later sought to leave their management relationships. Public court records from other Orthalliance disputes describe orthodontists who became dissatisfied with their arrangements or sought to challenge contractual obligations.
For the orthodontists involved in the California litigation, the dispute centered on whether Orthalliance could use contractual restrictions to limit their ability to continue practicing after leaving the management relationship. That question brought the non-competition covenant directly into conflict with California’s rules governing restraints on lawful professional activity.
Why Was the Non-Competition Covenant Challenged?
California has a long-standing public policy against contractual restraints on lawful trade and professional practice. Business and Professions Code section 16600 provides that contracts restraining a person from engaging in a lawful profession, trade, or business are generally void to that extent.
Section 16600 predates the Orthalliance litigation by more than a century. California courts have also interpreted the statute broadly in cases involving restrictions on a person’s ability to pursue lawful professional or business activities.
That legal framework became relevant to the Orthalliance dispute because the challenged agreements contained restrictions on competition involving orthodontic practices. The orthodontists sought to leave their existing management relationships while continuing to practice their profession.
The legal question was not simply whether the agreements contained restrictive language. It was whether the particular non-competition covenant could be enforced under California law, considering the structure of the parties’ relationship and the terms of the agreements.
The orthodontists challenged the covenant as an unlawful restraint on their ability to continue practicing orthodontics. The dispute therefore required the court to consider the enforceability of the contractual restriction under California’s rules governing restraints on lawful professional activity.
California’s Non-Compete Rules Did Not Automatically Resolve the Dispute
Section 16600 provides an important legal framework, but its application to a particular agreement depends on the language of the contract, the parties’ relationship, the circumstances surrounding the restriction, and the law applicable at the time.
That distinction matters in the Orthalliance litigation. The case involved practice-management agreements rather than a conventional employment relationship. The enforceability question therefore required analysis of the specific contractual arrangement rather than simply applying an employee non-compete rule.
Kassouni Law’s Role in the Orthalliance Litigation
Timothy Kassouni and Kassouni Law represented a large group of orthodontists in the Los Angeles County Superior Court litigation against Orthalliance.
Kassouni Law’s current attorney profile identifies the matter as Dr. Robert I. McClurg, et al. v. Orthalliance, Inc. and describes the result as the invalidation of a non-competition covenant in complex litigation on behalf of a large group of orthodontists. The profile also states that the result triggered a multi-million-dollar nationwide settlement.
The firm’s description provides the clearest publicly available account of its role and the reported outcome. The public record available for the Los Angeles Superior Court proceeding does not provide enough detail to reliably reconstruct every motion, hearing, negotiation, or litigation strategy used in the case.
For that reason, specific litigation tactics should not be inferred from the outcome alone. What can be stated from the firm’s published account is that Kassouni Law represented the orthodontists in the dispute and obtained invalidation of the non-competition covenant.
That result addressed a central issue for the orthodontists: whether the contractual restriction could continue to limit their ability to practice after their management relationships with Orthalliance ended.
What Happened to the Non-Competition Covenant?
According to Kassouni Law’s results page, the Los Angeles County Superior Court litigation resulted in the invalidation of the non-competition covenant. The firm describes the result as an invalidation of a covenant that illegally restricted the free trade of orthodontists. The firm also reports that the result was the catalyst for a multi-million-dollar nationwide settlement involving Orthalliance.
The reported invalidation addressed the non-competition covenant challenged in the litigation. It provided relief to the orthodontists represented in the California proceeding from the restriction at issue.
Several distinctions matter when considering the reported result.
- The result arose from litigation involving a specific group of orthodontists and their contractual relationship with Orthalliance.
- A California Superior Court ruling does not create published appellate precedent binding courts throughout the state.
- The enforceability of a contractual restriction depends on the agreement, the parties’ relationship, the applicable law, and the circumstances of the dispute.
- The result should not be treated as a ruling that automatically invalidates every non-compete involving a healthcare professional.
The firm’s published account also connects the California litigation to a broader nationwide settlement. That settlement expanded the resolution beyond the orthodontists involved in the California proceeding, although the available public materials provide limited detail about the settlement’s precise terms and scope.
What Was the Impact of the Orthalliance Litigation?
The reported nationwide settlement represented a broader resolution of disputes involving Orthalliance-affiliated orthodontists. The firm’s results page describes the settlement as involving millions of dollars and connects it to the invalidation of the non-competition covenant in the California litigation.
The litigation also took place during a period of significant change for Orthalliance and its affiliated practices. In November 2001, Orthalliance merged with Orthodontic Centers of America, Inc. (OCA). Subsequent litigation involving affiliated orthodontists continued after the merger.
Federal court records from later proceedings document extensive litigation involving orthodontists and the combined company’s practice-management arrangements. Those proceedings provide context for the broader disputes surrounding the Orthalliance business model.
The McClurg litigation formed part of that larger history. For the orthodontists represented by Kassouni Law, the reported invalidation of the non-competition covenant addressed a central contractual restriction and contributed to a broader settlement involving orthodontists across the country.
The available public materials do not provide enough detail to describe every settlement term or determine the precise relief received by each participating orthodontist. Those details should therefore not be inferred beyond what the available records establish.
What Does the Orthalliance Case Show About Non-Compete Agreements?
The Orthalliance litigation offers several practical lessons about restrictive covenants in professional practice arrangements.
The language of the restriction matters. The enforceability of a non-competition covenant depends on the agreement’s terms, the parties’ relationship, and the law applicable to the dispute. A restriction affecting a professional’s ability to continue practicing can raise significant issues under California law.
The label placed on an agreement does not answer every enforceability question. Orthalliance’s relationships with affiliated orthodontists involved practice-management agreements rather than conventional employment contracts. That distinction matters when determining which legal rules apply. The analysis must focus on the substance of the contractual restriction and the applicable law.
Restrictions on professional practice can raise serious concerns under California law. The Orthalliance litigation involved contractual restrictions that the orthodontists challenged as unlawful restraints on their ability to practice. The firm’s reported result was invalidation of the non-competition covenant.
Some federal cases involving Orthalliance agreements in other states describe geographic, advertising, patient-solicitation, and referral restrictions. Those provisions provide historical context, but they should not be assumed to be identical to the covenant challenged in the California litigation.
Long-term professional practice agreements warrant careful review. The Orthalliance disputes involved long-term contractual relationships between orthodontists and a practice-management company. The litigation shows why professionals should examine restrictive covenants and other exit provisions before entering or leaving a long-term arrangement.
A litigation result can contribute to broader settlement discussions. Kassouni Law reports that the invalidation of the non-competition covenant served as the catalyst for a multi-million-dollar nationwide settlement involving Orthalliance. The available public materials provide limited detail about the settlement’s terms, so its precise scope should not be inferred beyond the firm’s published account.
How Is the Orthalliance Litigation Relevant Today?
California’s treatment of non-competition agreements has continued to develop since the Orthalliance litigation.
One important later development was the California Supreme Court’s decision in Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008). Edwards held that an employee non-competition agreement was invalid under Business and Professions Code section 16600, rejecting the proposed narrow-restraint exception in that employment context.
California has since amended section 16600. The current statute expressly provides that it applies broadly to void non-compete agreements in an employment context and states that the statute is not limited to contracts where the restrained person is a party. Those amendments took effect January 1, 2024.
California also enacted additional restrictions on the use and enforcement of void non-compete agreements through legislation that took effect in 2024. These developments are relevant to current disputes, but they should not be applied retroactively to determine what the law was when the Orthalliance litigation occurred.
The Orthalliance case should therefore be viewed in its historical and contractual context. Its result does not automatically determine whether every modern non-compete or restrictive covenant is enforceable.
Today, the analysis depends on several factors, including the language of the restriction, the type of agreement, the parties involved, applicable statutory exceptions, and the circumstances surrounding the dispute. Current California law is also different in important respects from the law that applied during the Orthalliance litigation.
For orthodontists, dentists, and other professionals involved in practice-management or dental support organization arrangements, the case remains a useful example of why restrictive covenants deserve careful legal review. A contractual restriction may have significant consequences when a professional seeks to leave a long-term business relationship.
When Should a Business or Professional Review a Non-Compete Agreement?
Restrictive covenants in practice-management and other professional arrangements deserve attention at several stages:
- Before signing a long-term practice-management, franchise, or business services agreement that includes a non-competition or non-solicitation clause.
- When preparing to leave a practice-management relationship, whether the exit is voluntary or disputed.
- When a management company or former business partner threatens to enforce a restrictive covenant.
- When negotiating a separation, buyout, or contract termination.
- When a demand letter alleges that a professional has violated a restrictive covenant.
- When a lawsuit is filed or threatened over contractual restrictions on professional practice.
The specific contract language, governing law, professional activity, and nature of the restriction can all affect enforceability. A lawyer can review the agreement and circumstances before the professional takes action.
Questions About a Restrictive Covenant or Business Litigation?
The Orthalliance litigation involved a dispute over the enforceability of a non-competition covenant in practice-management agreements. Kassouni Law represented a large group of orthodontists in the Los Angeles County Superior Court litigation. According to the firm’s published results, the litigation resulted in invalidation of the non-competition covenant and contributed to a multi-million-dollar nationwide settlement involving Orthalliance.
Kassouni Law’s California business law practice handles contract disputes, restrictive covenant matters, and complex business litigation. Legal counsel can review the agreement, governing law, and circumstances to help determine the available options.
Contact Kassouni Law at 877-770-7379 or submit an inquiry online. Submitting a contact form does not create an attorney-client relationship.
Frequently Asked Questions
What was the Orthalliance litigation?
Dr. Robert I. McClurg, et al. v. Orthalliance, Inc. was a complex business litigation matter filed in Los Angeles County Superior Court on behalf of a large group of orthodontists who had entered into practice-management agreements with Orthalliance. The litigation challenged the enforceability of the non-competition covenant in those agreements under California law. According to Kassouni Law’s results page, the litigation resulted in invalidation of the covenant and triggered a multi-million-dollar nationwide settlement.
Who did Kassouni Law represent in the Orthalliance case?
Kassouni Law, led by Timothy Kassouni, represented a large group of orthodontists who were parties to long-term practice-management agreements with Orthalliance, Inc. The firm handled the complex litigation in Los Angeles County Superior Court on their behalf.
What was the non-competition covenant in the Orthalliance case?
Federal court opinions addressing similar Orthalliance agreements describe the covenant as prohibiting the orthodontic entity and its shareholders from opening orthodontic offices within a ten-mile radius of affiliated centers during the term of the agreement. For two years after termination, the restrictions also covered advertising, soliciting patients and referrals, and other activities within the defined geographic area.
What happened to the Orthalliance non-compete?
According to Kassouni Law’s results page and Timothy Kassouni’s professional profile, the Los Angeles County Superior Court litigation resulted in invalidation of the non-competition covenant. The orthodontists were no longer bound by the geographic and post-termination restrictions in the covenant.
Did the Orthalliance litigation result in a settlement?
Kassouni Law’s results page reports that the covenant’s invalidation was the catalyst for a multi-million-dollar nationwide settlement against Orthalliance, a publicly traded corporation. The settlement extended the resolution to Orthalliance-affiliated orthodontists beyond the California plaintiffs.
Why is the Orthalliance case relevant to non-compete disputes?
The case illustrates how Business and Professions Code section 16600 can reach restrictive covenants in professional practice arrangements, not only traditional employment contracts. It also shows how a successful result in state court can influence the resolution of related disputes across a broader group of affected parties.
Does the Orthalliance case determine whether a non-compete is enforceable today?
No. The Orthalliance litigation was a Los Angeles County Superior Court matter decided under the law applicable at the time. Superior Court decisions do not create binding published appellate precedent. California’s non-compete law has continued to develop since the case, including through Edwards v. Arthur Andersen LLP (2008) and recent legislation effective January 1, 2024. Whether any particular non-compete is enforceable depends on the specific agreement, the applicable law, and the current legal framework.
This article provides general legal information about the Orthalliance litigation and California non-compete law. It does not constitute legal advice. The information in this article is based on publicly available sources, including Kassouni Law’s own case descriptions, court opinions, and SEC filings. The enforceability of any particular contractual restriction depends on the specific agreement, the applicable law, and the circumstances involved. No attorney-client relationship is created by reading this content. Please consult a qualified California attorney for advice about your specific situation.
