DENTISTRY ‑- RIGHT OF A CORPORATION TO PRACTICE DENTISTRY THROUGH LICENSED DENTISTS EMPLOYED AS AGENTS OF THE CORPORATION

DENTISTRY ‑- RIGHT OF A CORPORATION TO PRACTICE DENTISTRY THROUGH LICENSED DENTISTS EMPLOYED AS AGENTS OF THE CORPORATION

A corporation may not enter into membership agreements with individuals to render dental services to such members at specified prices, such services to be rendered by licensed dentists employed by the corporation.

Dentists entering into such a contract with a corporation to render services to the members of the corporation would be in violation of the dental laws.

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                                                                    June 5, 1957

Honorable George C. Starlund
Assistant Director
Department of Licenses
General Administration Building
Olympia, Washington                                                                                                                Cite as:  AGO 57-58 No. 80

Dear Sir:

            By letter previously acknowledged you have submitted to this office two questions concerning chapter 18.32 RCW, which we paraphrase as follows:

            (1) Can a corporation enter into membership agreements with individuals to render dental services to such members at specified prices, such services to be rendered by licensed dentists employed by the corporation, without violating the provisions of RCW 18.32.290 and RCW 18.32.310?

            (2) Can a registered dentist enter into a contract with such a corporation to perform dental services to be rendered by the dentist at prices specified in the membership agreement without violating the same two sections of the code?

            The answer to both questions is in the negative.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            With your request you have submitted two forms of contracts.  One contract is between the American Dental Service, Inc., as party of the first part, and Dr. E. Z. Kreidel, a licensed dentist, as party of the second part.  The second contract is between the Washington Dental Service, Inc., as party of the first part, and Dr. Gail W. Wiener, a licensed dentist, as party of the second part.  With both of these contracts you have submitted the forms of membership agreements entered into between the company and the participating members together with schedules showing the average cost of dental services listed, and comparative costs to members for each service.

            The two contracts contain similar provisions as follows:

            (1) That each company will sell membership plans wherein the company guarantees to the participating member to provide dental care at reduced rates as provided and set forth in the membership contracts; copies of the membership agreements together with schedule of costs being attached to each contract with the dentist.

            (2) That the second party, the dentist, in each contract agrees to render all dental service provided in said membership agreement to all members referred to the dentist by the company at the prices listed under the heading "Members' Cost" as contained in the attached schedule of cost.

            The difference in the two contracts is as follows:

            In contract No. 1, paragraph 3 thereof, the company agrees to pay the dentist the agreed price for services to members of the company who have defaulted in payment for his services.  In the second contract, the company makes no commitment to pay the dentist for services rendered to defaulting members of the company, but does agree to pay to the dentist 25% of all net membership fees collected by the company.

            Also submitted with your request were copies of the articles of incorporation of both companies.  These articles have been carefully examined and we note differences in the articles as follows:

             [[Orig. Op. Page 3]]

            The objects and purposes of the American Dental Service, Inc., are, as stated in Article II, as follows:

            "1. To transact the business of promoting, developing and acquiring a relationship with reputable and licensed dentists, for the purpose of providing a plan or a system of adequate low cost dental care for individuals, families, groups or organizations, industrial employees' groups, and others.

            "2. To draft, promote, sell and convey contracts providing for low cost dental care on a membership plan basis to the general public.

            "3. To develop and maintain all necessary facilities, means and properties for the purpose of carrying on the promoting, selling and maintaining of a low cost membership plan of dental care for the general public."

            The objects and purposes of the Washington Dental Service, Inc., as stated in Article II of its articles of incorporation are as follows:

            "1. To transact business of promoting, developing and acquiring relationship with reputable and licensed dentists for the purpose of providing a system of adequate prepaid dental care for individuals, families, groups, industrial employee group and others.

            "2. To draft, promote, sell and convey contracts providing for prepaid dental care to the general public.

            "3. To develop and maintain all necessary facilities, means and property for the purpose of carrying on the promoting, selling and maintaining of prepaid dental care for the general public."

            As we interpret the contracts of both companies with their respective dentists, the sole purpose of each corporation is to sell memberships to the public, and thereby issue membership cards to the participating members which entitle such members, for a period of one year, to receive from dentists employed by the company dental services at reduced prices as specified in the membership agreement.

             [[Orig. Op. Page 4]]

            The laws applying to the questions here presented, are as follows:

            RCW 18.32.290 subsections (6) and (7) provide:

            "It shall be unlawful for any person, firm or corporation:

            "(6) To advertise any amount as a price or fee for the services of any person engaged as a principal or agent in the practice of dentistry, or for any material or materials whatsoever used or to be used; or

            "(7) To employ 'cappers' or 'steerers' to obtain patronage;"

            And, RCW 18.32.310, in so far as material, provides:

            "No corporation shall practice dentistry, or in any manner solicit dental patronage for any dentists or dental surgeons employed by any corporation: . . ."

            Questions very similar to the ones here involved were presented to our supreme court in the case ofState ex rel. Lundin v. Merchants Protective Corporation, 105 Wash. 12, 177 Pac. 694.  In this case a "merchants protective corporation" sold to individuals in the business community membership certificates for a fee of $10.00, which entitled a holder thereof to legal services consisting, in part, of a defense of the member from any civil or criminal action in any justice of the peace or police court without further cost to the member.  The corporation also undertook to provide legal advice on all new state laws and city ordinances without charge to the certificate holder.  The corporation at the same time entered into a contract with a firm of attorneys whereby the attorneys agreed to render the services provided for in the membership certificate to any holder thereof.  A portion of the membership fee collected by the corporation was paid to the attorneys for their services.

            The court in its opinion pointed out that the methods employed were of a very elusive nature, but that apparently the only function of the corporation was the solicitation of members and the collection of membership fees; and that the attorneys under contract with the corporation became to all intents  [[Orig. Op. Page 5]] and purposes either the corporation itself, or the agents of the corporation in rendering the service which the corporation had agreed to furnish to its members.  Concerning this arrangement, reading from page 16 of the opinion the court said:

            "We are convinced, therefore, that the respondent corporation is either a mere pretense for the gathering of money, without thought or intent of carrying out its declared object in good faith, or that, if it is a responsible body, it is engaged as a corporation in the practice of the law.  It must take one position or the other.  If it is the one, there is no legal excuse for its existence, certainly none for its doing business in the state of Washington, for it is no more than a broker soliciting legal business for lawyers who are to become principals in the transaction, which of itself would make them amenable to discipline.  If it is the other, it is a principal doing business through its agents (its attorneys); it is violating the letter and the spirit of our law, as well as a sound public policy.  If it is doing the things that it assumes to do in its articles, it is giving legal advice and counsel, and prosecuting without fee, other than the membership fee, the suits of its subscribers in the police and justice courts, and it is advising them upon all state laws and city ordinances, and will, if need be, prosecute criminally those who have offended against its membership.  This is a practice of the law.  Meisel & Co. v. National Jewelers' Board of Trade, 90 Misc. Rep. 19, 152 N.Y. Supp. 913;Savings Bank v. Ward, 100 U.S. 195; Thornton, Attorneys at Law, § 69.

            "The practice of the law is not a business that is open to a commercial corporation.

            "'Since, as has been seen, the practice of law is not a lawful business except for members of the bar who have complied with all the conditions required by statute and the rules of the courts, and as these conditions cannot be performed by a corporation, it follows that the practice of law is not a lawful business for a corporation to engage in.  As it cannot practice law directly, it cannot do so indirectly, by employing competent lawyers to practice for it, as that would be an evasion which the law will not tolerate.'  2 R.C.L. 946."

             [[Orig. Op. Page 6]]

            The court then pointed out that the practice of law is a personal right and could not be exercised by a corporation even though it attempted to act through licensed attorneys employed as agents of the corporation.  Reading from page 18 of the opinion, the court made the following pertinent statement:

            "When stripped of all fabrication, the respondent has taken money from its subscribers under a contract of retainer to care for their legal business to the extent declared in its certificate of membership.  This the law, as well as the policy of the law governing the admission and conduct of attorneys, forbids."

            The paragraph just quoted, with the change of a few words, might well be fitted to the identical factual situation presented by these dental service contracts.  So transposed, the citation would read as follows:

            When stripped of all fabrication, the dental service company has taken money from its subscribers under a contract of retainer to care for their dental services to the extent and at the prices declared in its certificate of membership.  This the law, as well as the policy of the law governing the licensing and conduct of dentists, forbids.

            It is therefore our conclusion that in each of the contracts hereinabove referred to the service company is acting as a "capper" or "steerer" (as those words are used in RCW 18.32.290, supra,) to obtain patronage for the dentist.  In contacting the public to effect the sale of memberships, the company would inevitably quote the reduced dental cost as the only inducement to the purchase of the membership.  This constitutes the advertising of dental service and puts both the dentist and the company in violation of RCW 18.32.290 (6) and (7).

            The service company is also violating RCW 18.32.310 in that it is both practicing dentistry and soliciting dental patronage for a dentist employed by it.

            The contracting dentist is associating with and aiding and abetting an unlicensed person (the service company) in the practice of dentistry.  This  [[Orig. Op. Page 7]] is a violation of RCW 18.32.230 (5) and (7), for which the license of the dentist could be revoked.

            We are not unmindful of an opinion issued from this office to the insurance commissioner February 12, 1957, AGO 57-58 No. 16.  That opinion involved an interpretation of the health care service act, chapter 48.44 RCW only.  No question of a possible violation of the dental laws of the state of Washington was either presented or considered.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

ROY C. FOX
Assistant Attorney General