Sale of assets of five San Antonio-area dental clinics prompts fraud lawsuit against Dallas buyer

The owners of five dental clinics in San Antonio and Schertz sold the business assets to a Dallas company in 2016 for $3.5 million.

But charging buyer KP-SA Management and principal Thang “Kido” V. Pham was like pulling teeth, say the sellers – companies owned by San Antonio dentists Scott and Diana Malone.

The Malone Companies this week sued KP-SA Management and Pham for fraud, conversion — the unauthorized taking of ownership — and breach of contract in San Antonio State District Court.

The clinics operate under the name Smiley Dental & Orthodontics.

Under the terms of the agreement, KP-SA paid $300,000 up front and funded the remaining $3.2 million with the Malones. The purchase price included nearly $3.2 million in goodwill, $160,000 in accounts receivable, $100,000 in inventory and $80,000 in fixtures and equipment.

KP-SA should have paid nearly $3 million to date, but only paid $781,140, ​​according to the lawsuit. The plaintiffs seek more than $3.8 million in damages.

The parties’ agreement grants the Malone Companies an immediate right to seize and take possession of the security in the event of default without going to court, the suit says.

In response to the demand letters and foreclosure notices, however, Pham “threatened to abscond and hide all warranties” so the plaintiffs would never find them, the suit adds.

“Mr. Pham has consistently made these threats and recently reiterated that he has no problem emptying all accounts and hiding all warranties and equipment from dental practices,” Scott Malone said in a statement attached to the trial.

To prevent this from happening, the Malone Companies obtained a temporary restraining order that prevents the defendants from distributing profits or removing furniture and equipment from the practices.

It could not be determined whether Pham or its representatives objected to the order request. He could not be reached for comment Thursday. Austin attorney John P. Ferguson, who represents the Malone Companies, said he could not comment without his clients’ permission.

A hearing to extend the order until a trial is set for January 24

The clinics, four in San Antonio and one in Schertz, operated either as M&M Orthodontics or as U Too Dental & Orthodontics before the assets were sold to KP-SA.

A partnership Malone continued to own the clinics’ real estate, so he was the owner of KP-SA.

The clinics were renamed Smiley Dental & Orthodontics after the closing of the asset sale. Another Dallas company, Smiley Dental Management Co., managed the practices and receives 15% of the profits, while KP-SA receives 85% of the profits, the lawsuit says. Smiley Dental has 31 locations in Texas, its website says.

Smiley Dental Management is owned by Pham’s ex-wife, dentist Lynh Thy Pham, the lawsuit says. He is also a defendant in the lawsuit, accused of taking possession of the Malone Companies’ security and using the security while it remains unpaid. She did not immediately respond to a request for comment.

In his statement, Scott Malone said Thang Pham threatened bankruptcy when he was pressured to repay the loan. KP-SA actually filed for Chapter 11 in November 2017. The petition listed the Malone Partnership as the largest unsecured creditor, owed $3.2 million.

Two months after filing, KP-SA voluntarily rejected its bankruptcy filing. He didn’t want to pursue the case because he said all issues with the landlord had been resolved. In his statement, Scott Malone said the bankruptcy was dismissed after reaching an agreement with KP-SA to defer payments.

Meanwhile, KP-SA held an “exclusive first option” to buy the clinics’ office buildings, according to documents filed with the lawsuit.

At one point, Smiley Dental wanted to buy all five office buildings and another that was not part of the 2016 deal, Malone explains in his statement. After Smiley Dental was unable to line up the money for the purchase, Malone decided to sell the real estate to another investor.

“When Kido found out I was selling the real estate to someone else, he threatened to sue me and tie everything up, and move all collateral and patients to Smiley’s office on Fredericksburg Road. .. where I couldn’t get it.”, says Malone.

The Malone Partnership sold its Schertz office building last month, the Guadalupe County Assessment District website reports.

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Larry A. Schroeder