May 1, 2014
VCA Antech prevails in breach-of-contract suits
Laboratory services provider continues suing veterinarians
By: Edie Lau
For The VIN News Service
One of the largest providers of veterinary diagnostic laboratory services in the United States is winning suits against clinics and clinic owners who sought to cancel extended service contracts with the company before their terms were up.
VIN News Service photo
Following the settlement of a breach-of-contract suit with Antech Diagnostics, the Animal Hospital of Towne Lake continues to do business with the veterinary laboratory, as evidenced by an Antech samples pickup box located outside a rear door of the clinic in Woodstock, Georgia.
VCA Antech has since 2011 sued at least 21 veterinary businesses for breach of contract, court records show. Two cases ended with court decisions affirming VCA Antech’s legal arguments and resulted in awards to Antech of about $183,000 and $63,000, respectively. VCA won a third case by default when the defendant did not respond to the complaint or appear in court.
Eleven cases settled out of court. Terms of the settlements are not publicly recorded. Seven cases are ongoing.
The contracts — which were confidential until they became part of the court record — gave clinics incentives such as cash in the form of forgiven loans, discounts, free lab work and/or radiology equipment in return for a commitment to purchase a certain dollar amount in laboratory business during a specified period of time. Each of the 21 disputed contracts was worth between $144,000 and $798,000 in revenues to the company over periods ranging from three to seven years.
The veterinarians who sought to exit the contracts early gave a variety of reasons, including poor service; chronic billing errors; a desire to accept better terms from another diagnostic laboratory; and displeasure with VCA for running a competing veterinary practice nearby.
In addition to owning Antech Diagnostics, VCA operates more than 600 animal hospitals in the United States and Canada; a medical equipment and practice-management software company; and an online marketing and client communications company. In the lawsuits, the company gives its name variously as VCA Clinipath Labs, Inc., VCA Cenvet Inc., VCA Professional Animal Laboratory, Inc., and/or Antech Diagnostics.
Raphael Moore, a lawyer with the Veterinary Information Network (VIN), an online community for the profession and parent of the VIN News Service, said the lawsuits demonstrate VCA’s resolve to collect in full the revenues promised by the contracts.
“Veterinarians tend to expect mutually respectful behavior from their colleagues,” Moore said. “But when dealing with VCA, they need to be crystal clear that VCA will, and does, aggressively enforce its contracts regardless of the consequences to the weaker party.”
Bob Antin, VCA co-founder, chief executive officer, president and chairman, said the company is not litigious by nature, and resorted to court action only because it perceived no alternative way to induce clients to honor contracts they’d signed.
“I’m not terribly happy that lawyers are between Antech and the clients,” Antin said by telephone. “… I do feel badly. I feel badly to the core of the culture of the company.”
Antin said that since VCA’s inception in 1986, he and his colleagues have worked to develop a reputation for supporting the veterinary industry and profession, and have sought to negotiate transactions without the need for court intervention.
“The idea of lawsuits in your life and in my life … is not very tasteful,” he said. “You use it only when you can’t reason, settle or come to some accommodation.”
He added: “Most people realize when you enter into a contract, there’s an obligation. My personal desire isn’t to enforce all the time by legal means, but some of the cases have been rather egregious, so we’ve pursued them.”
A federal court records online database shows the company filed at least eight breach-of-contract complaints against veterinary hospitals and/or their owners in 2011, four in 2012, six in 2013 and three in the first quarter of 2014.
Antin said most of Antech’s long-term agreements with veterinary hospitals are fulfilled harmoniously, and that the breached contracts represent a small minority. Taking those to court reflected a desire to collect money it was entitled to by contract, he said, as well as a need to reinforce the validity of all such contracts.
“In a number of contractual circumstances, in general, there’s thousands of dollars that are provided to a hospital,” he said. “Sometimes for a DR (digital radiology) system, you’re well over $100,000 that you’re giving to somebody. If you’re giving to somebody, and you’re supporting their practice and you’re investing in their practice, and there are service levels that they’re going to maintain, and your competitor comes to the door and says, ‘That service agreement may not be enforceable,’ and the hospital you gave large amounts of money to says ‘Good-bye,’ at some point, the marketplace is going to say, ‘Those contracts don’t matter’ and you’re going to lose hundreds of thousands of dollars.”
Moore, the VIN general counsel, who was not involved in any of the suits, said he believes VCA Antech is “fully in their right” to enforce their contracts. As a separate matter, though, he views the agreements as having “serious moral and ethical issues.” Some might interpret the arrangements as kickbacks, he said, or wonder whether an obligation to deliver a set amount of laboratory business might spur a clinic to call for more lab work on patients than is medically necessary.
However, none of the court rulings and memoranda on the cases delves into whether such agreements are ethically appropriate.
“These cases all come down to a simple breach-of-contract question,” Moore said “… Whether VCA owns a competing clinic across the street from you, whether they mistakenly overcharge you, whether you find a better deal elsewhere, or whether you deem them an immoral, unruly, corporate giant intent on ruling the world, is all immaterial. If you enter into contract with them, honor the contract until the bitter end or they will sue you.”
Responding to the characterization of VCA as an an uncaring corporate Goliath, Antin said, “We’ve invested years and years (in the profession) and have built an ethical, respectable culture.”
He reiterated that VCA does not relish going to court. “We apologize for it, but we lived up to the agreements that we entered into. We’re not the ones who provoked — at least we don’t believe we are — who provoked a squabble,” he said, adding: “Don’t you think it’s reasonable that if there (was another option, we’d choose) not to spend the money; not to take the hit on reputation?”
Contract signers did not foresee consequences
Veterinarian defendants who discussed their experiences with the VIN News Service said they believed after speaking with Antech representatives that exiting the contracts early was a simple matter of repaying the company for whatever incentives it had provided.
Now acutely aware of the risk of signing a long-term agreement of that nature, Dr. Stephen Zanotti said he would advise other clinic owners to approach such contracts mindfully.
“… You have to be absolutely clear of your rights under the contract,” said Zanotti, who with his clinic co-owner, the late Dr. Jonathan “Jed” Diehl, had committed their Massachusetts business Winchester Veterinary Group to providing Antech with $360,000 in business over five years.
“Even though Jed and I had what we believed to be a clear understanding of our contract, Antech had a vastly different interpretation of those terms,” Zanotti said in a written response to questions. “That difference ended up being extremely costly for us.”
Under the contract, Zanotti and Diehl agreed that their clinic would spend $72,000 a year for five years on Antech lab work, in exchange receiving a digital radiology X-ray unit valued at $72,000. They pulled out after two years owing to problems with the X-ray equipment and the quality of lab work, according to court documents. At that point, they had spent $81,526 on Antech services.
VCA Antech filed a legal complaint on Dec. 1, 2011, seeking at least $350,000 in damages. The case is one of the most protracted to date. The most recent of 145 entries in the docket is an order by a judge in the U.S. District Court in Boston setting a bench trial date of Sept. 15.
“We have found that the legal process works slowly,” Zanotti said. “There was an arbitration phase that took several months that unfortunately did not lead to resolution.”
Photo by Linda Sahl
Dr. Jonathan “Jed” Diehl did not live to see the resolution of a breach-of-contract lawsuit against his clinic, now in its third year. The co-owner of Winchester Veterinary Group in Massachusetts died unexpectedly last fall. In this photograph from 2011, Diehl is accompanied by Owen, a Labrador retriever whom he rescued.
The defendants twice approached Antech to discuss a settlement. The first time, he said, they “were flatly rebuffed.” The second time, the parties found they were “so far apart that any settlement is highly unlikely.”
The ordeal has exacted a toll far beyond finances. “The last three years have been the most difficult of my professional career,” Zanotti said. “… It is a constant dark cloud; there isn’t a day that goes by that this issue doesn’t run through my mind.”
The burden grew heavier still last October, when Diehl, his long-time friend and business partner, died suddenly at age 60.
“We went to veterinary school together, interned at the Angell Animal Medical Center together and opened the Winchester Veterinary Group 25 years ago,” Zanotti said. “This lawsuit caused both Jed and myself an incredible amount of stress. Was it a cause of Jed’s massive, fatal stroke? I don’t know. I just wish that Jed could have spent the last two years of his life focused on his family, his practice of veterinary medicine and on the things he loved to do in life instead of fighting Antech.”
Zanotti regrets, too, their naivete. “We never would have left (Antech) if we knew what was in store for us,” he said. “Antech sued us for a sum far greater than the remaining amount of the contract, so we felt like we had no choice but to fight this legal battle.”
In another case filed in 2011, a lower court judgment favored the defending veterinary clinic but the clinic lost on appeal.
In VCA Cenvet, Inc. vs. Chadwell Animal Hospital, LLC, et al., a U.S. District Court judge in Maryland issued a memorandum opinion in February 2013 that VCA was entitled to recover $16,100 in rebates it had paid to Chadwell but not lost profits.
That decision was reversed by a U.S. Court of Appeals for the Fourth Circuit ruling on Jan. 16 that Antech is entitled to lost profits. However, the appeals panel said, Antech has not substantiated the $273,000 damage award it seeks. The case was remanded to the lower court.
The dispute centers on a four-year, $312,000 contract that provided Chadwell with “loyalty rebates” on laboratory fees. Clinic owner Dr. Keith Gold ended the arrangement after less than one year. He told the VIN News Service in 2012 that he pulled out after realizing that Antech was owned by VCA, which operates veterinary hospitals that compete with independent practices.
His position as a defendant has attracted phone calls from fellow hospital owners asking Gold’s thoughts on ending their Antech agreements early. His advice: “Finish the contract; it’s not worth it. And then dump them.”
The legal fees alone make a compelling argument to avoid the potential for litigation, he said. “I’d rather pay a lawyer than them, but I’d rather not pay anybody.” Gold estimated his legal costs at more than $50,000 to date. He figures it could be worse. “My lawyers are clients of mine,” he said. “That helps.”
Court decisions support Antech legal stance
Two cases that concluded with court rulings validated Antech’s claims for lost profits.
In VCA Clinipath Labs, Inc. vs. The Progressive Pet Hospitals, P.C. and Jeffrey Rothstein, DVM, a U.S. District Court in the Eastern District of Michigan last November awarded VCA damages of $183,069.50.
Judge Avery Cohn calculated the award by starting with VCA’s $525,000 in anticipated revenues and subtracting 1) the $225,000 Progressive paid before pulling out of the five-year contract; 2) the $95,000 Antech saved by not having to provide services to Progressive for the last two years of the contract, denoted as “variable costs”; and 3) $22,000 in billing errors.
(The variable costs were calculated at 32 percent of Antech's revenue from the services, a proportion provided at the trial.)
Cohn was not sympathetic to Rothstein’s reasons for exiting the contract early, noting that the veterinarian was motivated by a more lucrative offer from VCA’s primary competitor. He wrote: “Rothstein was not particularly credible as a witness. His ‘loss of confidence’ in VCA after discovery of the calculation (billing) error was an afterthought used to justify termination because of a better deal offered by Idexx.”
Joseph Yamin, attorney for Rothstein and Progressive Pet, said he was not dissatisfied with the outcome because the award was substantially lower than what VCA sought during settlement talks. At one point, Yamin said, “The court ordered us into facilitation. They came in with very, very, very high figures. They said they weren’t going to budge a penny.”
Yamin said his client opted not to appeal the lower court ruling because the award was close to what he would have been willing to pay in a settlement.
In Antech Diagnostics, Inc. vs. Downers Grove Animal Hospital & Bird Clinic, P.C., a U.S. District Court judge for the Northern District of Illinois likewise found Antech to be due its lost profits, but by her calculation, the amount was about $63,000, less than half of what Antech sought.
The company argued that it was due about $134,000, essentially the balance of the $240,000 it would have collected had Downers Grove completed its 5-year contract. In a memorandum opinion and order issued in February 2013, Judge Suzanne B. Conlon subtracted from that sum the money Antech saved by not having to provide services for the full duration of the contract — similar to what was done in The Progressive Pet Hospitals case.
Conlon also subtracted $28,000 that Downers Grove had paid to Antech upon terminating the contract early, an amount constituting the balance of a loan Antech had given the clinic with the intent of forgiving the loan when the contract expired.
Downers Grove co-owner Dr. Graham Merkin declined to comment about the case on the advice of his lawyer.
Most of the suits have settled out of court; the terms are not part of the public record. The defendant in one such case, Dr. Sherry Weaver, owner of Animal Hospital of Towne Lake in Woodstock, Georgia, acknowledged that she continues to use Antech for laboratory services — a fact demonstrated by the biological samples pickup box labeled with Antech’s name, located outside a clinic door.
Contacted by telephone, Weaver said the settlement details are confidential. “The only thing I’m allowed to say is that the matter has been amicably resolved,” she stated.
Her clinic’s contract, begun in 2010, committed it to doing $300,000 in business with Antech over five years. The hospital was sued for contract breach in 2012. The case ended last May.
Asked for her general thoughts today about long-term contracts, Weaver said she’s leery of them in any form. “Honestly, I’m ready to stop doing contracts on my cellphone,” she said. “I don’t want a mortgage on my house!”
Unusual instance ends cooperatively
In a twist on the theme, Dr. Susan Parry thought for a few uneasy weeks that she, too, would be sued by Antech when she sold her practice in Salinas, California, halfway through her contract with the laboratory.
Motivated by health reasons to give up her two-doctor clinic, Parry didn’t think about the laboratory agreement until after she had signed a sales contract with a buyer. She realized she might be in trouble when the prospective buyer declined to assume the Antech contract, choosing instead to sign on with Idexx, Antech’s chief rival.
Girded for a letter from VCA’s legal department, Parry learned to her relief last week that because she will continue to practice as a mobile veterinarian, the company is willing to renegotiate the terms of the contract.
“My representative at Antech has really gone to bat for me,” Parry said. “I have no complaints.”
Parry noted that the representative consented to her speaking with the VIN News Service about the experience.
She surmised that the company approached the issue cooperatively partly because she wasn’t trying to break the contract out of dissatisfaction with its services or to patronize a competitor; and partly because she made a conscious effort to keep the relationship from becoming antagonistic.
“When I first realized the actual terms (of the contract), there was a chance for me to get really mad,” Parry said. “And I did get mad, but not at them.”
Like veterinarians who ended up in litigation over the contracts, Parry said she entered into the agreement casually. “They came to me (with the offer), and it seemed like a no-brainer: Hey, I do business with them anyway,” she recalled.
She didn’t think to have a lawyer review the terms. “It seemed so straightforward,” Parry said. “It never occurred to me that having someone assume the contract … would be a big deal.”
As a veterinarian for nearly 30 years who has bought and sold a few practices in that time, Parry said the experience was a new lesson in being more thoughtful about signing contracts. “That was really my take-home,” she said: “Be sure an attorney views this, and be sure to think of all the ways that your luck could change in the future.”
Company chief: Contracts still popular
VCA Antech chief Antin declined to disclose how many veterinary hospitals enter into long-term laboratory service contracts, but said the litigation has not deterred business, as the proportion of those accepting contracts has grown since the company began suing contractees who tried to back out.
At the same time, instances of contract breach have diminished, he said.
Asked whether prospective contractees are more likely to seek explicitly stated exit clauses now, Antin replied: “When you say ‘more,’ it means they were less before. I think it’s not more. I think most people understand it and have understood it. … Most people, the overwhelming majority, 99 percent, do respect the concept that when you enter into a contract, you do it with your eyes open.”
VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email email@example.com.
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