Recently, we were contacted by a dentist looking for an expert witness to assist in a legal dispute with a former partner. Several years ago, she had reached out for assistance in forming a partnership, but when confronted with having to pay for the services, chose to do it herself. She now admits that she went to the Internet, old employment contracts and dentist friends, and patched together an agreement with her partner. She sold him a portion of the practice, and they practiced for almost four years before they began to experience personal and professional disagreements. The problems escalated until the partner left the practice. He then filed a lawsuit demanding the return of his investment/purchase and additional money for damages.

The end to this sad story is that eventually both parties filed for bankruptcy, the practice closed and the litigation escalated into a very costly battle that continues to this day. The original owner estimates that over $200,000 has been spent to date, and they are just now preparing for their final arguments in court.

Unfortunately, this is not a unique or extreme case. Over the years, we have served as expert witnesses in similar partnership dissolution or other transition related litigations. In truth, there is nothing that can prevent partnerships from failing. However, anticipating the possibility of failure and building the remedies and provisions into the partnership agreements that allow for dissolution without the distress and cost of extended litigation is very doable.

Similarly, in a practice sale where the seller will be leaving, there are things to look for, representations and warranties that are important to consider, as well as steps to take during the process to minimize the possibility of future trouble.

Are your economic expectations realistic?
In any type of transition, it is important that the parties understand what they are getting into and understand the ECONOMICS of the transaction and relationship. The above relationship came apart because there was a misunderstanding of the economics. Neither party understood the impact of having two dentists in the practice, and each had greater expectations than were realistic. When their expectations were not realized, the differences grew and eventually led to the breakup of the practice and accusations against the other to the point of filing lawsuits.

In a multi-doctor practice, even if the economics are detailed, understood and accepted by all parties, additional discussions are necessary to review all the other elements of running a practice with more than one owner. This  is where a transition consultant familiar with partnership relationships can be of great assistance. Some issues that should be discussed are management of the practice, fee schedules, staffing requirements and compensation, clinical philosophy, work schedules and new patient assignments, but also many more.

Similarly, with a practice sale, if there are unrealistic expectations on the part of either the buyer or seller, a fair transaction may not be possible. If the numbers don’t really work, or are presented incorrectly, it is unrealistic to believe that a practice’s financial picture will immediately improve just
by replacing the dentist/producer. When a bank says “no” and the seller agrees to finance the transaction, similar outcomes, including bankruptcy and closing the business, have been experienced.

In a practice sale, what are the responsibilities of each party before and after the sale? What are the expectations of each party? Generally, without an experienced consultant, the important questions of how the practice operates before and after the sale may never be discussed, which can lead to costly litigation in the event of contract breach(es).

Once all of the basic issues and terms are agreeable to both parties, your transition specialist may have “standard” draft documents that can be provided as a template; or an attorney who has significant experience in drafting legal dental agreements should be engaged. In the case of a partnership, the attorney should memorialize your partnership agreement to include any and all of the above as well as dissolution provisions in the event the partnership fails.

Put it in writing 
The dissolution provisions in most partnership agreements are usually the most lacking. The provisions should include how the practice will continue in the event of a partner’s death, disability, voluntary retirement, loss of license to practice and, of course, incompatibility of the parties and a decision to dissolve the partnership. These provisions should include the financial terms of the dissolution, insurance coverage for death and/or disability, and how one or the other party is to be compensated for their interest in the practice if departing.

Without discussion and putting these provisions IN WRITING in the partnership agreement, there will be misunderstandings, misinterpretations and, very often, costly litigation to sort out a fair and reasonable solution. That fair and reasonable resolution may not be fair or reasonable in the eyes of one or the other parties, but that is what the courts are for, and that is what will ultimately cost thousands (perhaps hundreds of thousands) of dollars and untold grief to resolve.

Whether it be for a straight sale or more “complex” multi-doctor transition, engaging qualified experts who understand dentistry and the nuances of transitions is the best way to avoid the probability of finding oneself in a very costly and distressful lawsuit that ultimately will cost many times the cost of hiring qualified experts to assist in the first place.