Bette Robin, DDS, JD 877 DrRobin
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
PENNY WISE AND POUND FOOLISH
Dentists often group together and begin dental partnerships with high
hopes and dreams. Think of the money they’ll make and the money they’
ll save! Think of the fun they’ll have working together! It is true that such
associations usually save on overhead expenses such as rent and
utilities. However, most partnerships break up sooner rather than later
and it’s best to be clear about all the details in the relationship.
The case of Dr. Taranow v. Dr. Brokstein illustrates how ugly a
partnership dissolution can get. This case went all the way to California’
s Court of Appeals, despite the fact the contract contained an
arbitration clause. The litigation undoubtedly cost both parties many
thousands of dollars and countless sleepless nights. Of course, it was
certainly not in either dentist’s best financial interest to prolong this
matter, but emotions ran high.
Who needs a detailed partnership agreement between such good
friends? These guys did. Their partnership agreement contained a
brief and loosely worded clause mandating arbitration to settle any
disputes that might arise between them. When things turned
disagreeable, Dr. Brokstein demanded arbitration to settle their
dispute. Dr. Brokstein ‘won’ the arbitration and Dr. Taranow was
supposed to pay Dr. Brokstein a sum of $14,600.00. Not willing to give
in this easily, Dr. Taranow then appealed to Superior Court to ask the
court to vacate the award stating that the arbitrator exceeded his
authority in this case by including Brokstein’s attorney’s fees as part of
the judgment. The Superior Court found the arbitrator acted properly,
but Dr. Taranow still did not give up. He then appealed from the
judgment to the Court of Appeals, which ultimately found that Dr.
Taranow did indeed owe the money, attorney fees and all.
At least a hundred thousand dollars worth of litigation and headaches
all due the fact that the parties had a poor partnership agreement.
Unfortunately, it is impossible to foresee the future, but it certainly
seems prudent for all partners to clearly understand each others
expectations and to set those thoughts forth in writing. And, given the
fact that most partners do eventually part, failing to do so is penny wise
and pound foolish.
The first thing a doctor must be concerned about going into a
partnership is how to get out of that partnership. There are numerous
instances a doctor will want or need to get out, or may be forced out by
the other partners. One obvious is the failure to get along. Or, a doctor
may need to get out if he becomes disabled, either temporarily or
permanently, if dies, or if he just wants to work by himself. Then, how
much is that dentist’s share of the partnership worth? Do the other
partners have the obligation to buy the departing doctor out? At what
interest rate and under what terms? Or, can the departing doctor list his
share of the office with a practice broker and sell it? What if the
remaining partners don’t like the dentist the portion is sold to? The
agreement must be very detailed in terms of money, conditions, time
frames, covenants not to compete as to when a doctor can leave or be
made to leave and buy out terms.
The next most important consideration is to decide how problems will
be settled in the event of a dispute. Mandatory arbitration can be a very
effective means of solving a dispute, but it requires a detailed clause
settled forth who pays for what and when, who pays attorney fees, how
the arbitrator is chosen, in what time frame the arbitration must be
started in, etc. It might be more effective to have a mandatory ‘meet and
confer’, then a mandatory non-binding mediation before the parties
proceed to the expensive and formal arbitration process. Or, in some
instances it is actually better to proceed right to court.
Another substantial concern is the financial distribution of the money. In
that dentists usually ‘break up’ due to money, this area should be
explored in detail. The amount of each partner’s draw must be precisely
determined, expenses to be reimbursed and not reimbursed should be
decided, personal expenses that will be run through the partnership
should be thought out, etc. The partners must have a clear
understanding and agreement on all of these issues before they go into
business together.
Taking the time to clearly explore every occurrence that may even
possibly occur and to set forth that agreement in writing will usually
avoid the senseless expensive litigation that happened in this case. Be
penny wise and not pound foolish!
© Bette Robin, DDS, JD 10/98
hopes and dreams. Think of the money they’ll make and the money they’
ll save! Think of the fun they’ll have working together! It is true that such
associations usually save on overhead expenses such as rent and
utilities. However, most partnerships break up sooner rather than later
and it’s best to be clear about all the details in the relationship.
The case of Dr. Taranow v. Dr. Brokstein illustrates how ugly a
partnership dissolution can get. This case went all the way to California’
s Court of Appeals, despite the fact the contract contained an
arbitration clause. The litigation undoubtedly cost both parties many
thousands of dollars and countless sleepless nights. Of course, it was
certainly not in either dentist’s best financial interest to prolong this
matter, but emotions ran high.
Who needs a detailed partnership agreement between such good
friends? These guys did. Their partnership agreement contained a
brief and loosely worded clause mandating arbitration to settle any
disputes that might arise between them. When things turned
disagreeable, Dr. Brokstein demanded arbitration to settle their
dispute. Dr. Brokstein ‘won’ the arbitration and Dr. Taranow was
supposed to pay Dr. Brokstein a sum of $14,600.00. Not willing to give
in this easily, Dr. Taranow then appealed to Superior Court to ask the
court to vacate the award stating that the arbitrator exceeded his
authority in this case by including Brokstein’s attorney’s fees as part of
the judgment. The Superior Court found the arbitrator acted properly,
but Dr. Taranow still did not give up. He then appealed from the
judgment to the Court of Appeals, which ultimately found that Dr.
Taranow did indeed owe the money, attorney fees and all.
At least a hundred thousand dollars worth of litigation and headaches
all due the fact that the parties had a poor partnership agreement.
Unfortunately, it is impossible to foresee the future, but it certainly
seems prudent for all partners to clearly understand each others
expectations and to set those thoughts forth in writing. And, given the
fact that most partners do eventually part, failing to do so is penny wise
and pound foolish.
The first thing a doctor must be concerned about going into a
partnership is how to get out of that partnership. There are numerous
instances a doctor will want or need to get out, or may be forced out by
the other partners. One obvious is the failure to get along. Or, a doctor
may need to get out if he becomes disabled, either temporarily or
permanently, if dies, or if he just wants to work by himself. Then, how
much is that dentist’s share of the partnership worth? Do the other
partners have the obligation to buy the departing doctor out? At what
interest rate and under what terms? Or, can the departing doctor list his
share of the office with a practice broker and sell it? What if the
remaining partners don’t like the dentist the portion is sold to? The
agreement must be very detailed in terms of money, conditions, time
frames, covenants not to compete as to when a doctor can leave or be
made to leave and buy out terms.
The next most important consideration is to decide how problems will
be settled in the event of a dispute. Mandatory arbitration can be a very
effective means of solving a dispute, but it requires a detailed clause
settled forth who pays for what and when, who pays attorney fees, how
the arbitrator is chosen, in what time frame the arbitration must be
started in, etc. It might be more effective to have a mandatory ‘meet and
confer’, then a mandatory non-binding mediation before the parties
proceed to the expensive and formal arbitration process. Or, in some
instances it is actually better to proceed right to court.
Another substantial concern is the financial distribution of the money. In
that dentists usually ‘break up’ due to money, this area should be
explored in detail. The amount of each partner’s draw must be precisely
determined, expenses to be reimbursed and not reimbursed should be
decided, personal expenses that will be run through the partnership
should be thought out, etc. The partners must have a clear
understanding and agreement on all of these issues before they go into
business together.
Taking the time to clearly explore every occurrence that may even
possibly occur and to set forth that agreement in writing will usually
avoid the senseless expensive litigation that happened in this case. Be
penny wise and not pound foolish!
© Bette Robin, DDS, JD 10/98
DrRobin@BetteRobin.com
17482 Irvine Blvd., Suite E
Tustin, CA 92780
Tustin, CA 92780
Tele:
877 DrRobin
714.421.4407
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DrRobin@BetteRobin.com
17482 Irvine Blvd., Suite E
Tustin, CA 92780
Tustin, CA 92780
877 DrRobin
Tele:
714.421.4407
Fax:
714.398.8808