Bette Robin, DDS, JD 877 DrRobin
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
THE PITFALLS OF A PRACTICE PURCHASE
Buyer’s Beware! Thoroughly check out that practice before you sign the
purchase agreement on the dotted line! Los Angeles Superior Court
granted a defense verdict in Wallace, M.D. v. Cooperman, M.D. on
December 11, 1995 (case # BC066482) in a case involving the sale of
an opthamology practice.
Wallace purchased Cooperman’s ophthalmology practice in 1989.
Wallace sued for fraud alleging the practice had been misrepresented
and claimed he could not earn the amount of money from the practice
that Cooperman had represented. Cooperman contended that Wallace’
s lack of success was due to increased competition from HMO’s,
Wallace’s failure to promote and advertise the practice with referring
doctors and the public and that Wallace’s personality alienated
patients.
The court agreed with Cooperman after a jury trial lasting 6 months.
Cooperman was awarded the balance of the purchase price and
Wallace was additionally assessed with a $50,000 punitive damages
judgment for bringing the lawsuit.
Caveat Emptor, Let the Buyer Beware, is the controlling principle in a
contract involving a practice sale. Any type of lawsuit seeking to rescind
a sale, collect damages for fraud or misrepresentation in a practice
sale will be almost impossible. It is presumed by the court that both
parties are educated, informed individuals and adequate time and
energy was spent investigating the practice before purchase.
The decision to buy or sell a practice is an exciting but serious decision
with far-reaching financial consequences. As a buyer, it is wise to invest
time and money to assure you get what you want and pay for. As a
seller, it is prudent to ensure you have a qualified buyer and deal you
bargained for.
Some considerations if you are selling a practice:
1. Decide how future disputes will be decided; the court, arbitration or
mediation. Arbitration or mediation are probably the most realistic
choices. Negotiate and include in the contract who the arbitrators will
be, how many of them you want, who will pay their fees, whether this
decision can be appealed in any forum, etc.
2. Include a clause in the contract that releases you from any further
contractual obligation in the event your buyer files any type of suit. If you
are contractually obligated to work one day a week for the buyer, this
could be a very uncomfortable situation.
3. Negotiate a ‘buy-back’ price at a significant discount in the event all
payments should stop and you are forced to take over the practice.
Describe how and when this would happen.
4. Insist on a pre-sale confidentiality agreement with liquidated
damages in case of breach for confidences you will need to reveal in
the negotiation process. Protect yourself in the business community in
the event the sale does not go through.
5. Decide what should be done in case of death or disability of the
buyer. Define what is meant by disability and insist on insurance to
cover that event. You should be the beneficiary of a life insurance policy
for the remaining purchase price in the case of death.
If you are purchasing a practice:
1. Have your own lawyer examine, or prepare, the contract for sale. Be
sure you understand each paragraph and what your obligations are.
2. Use a knowledgeable dental practice accountant and independent
practice evaluator to review the selling doctor’s practice. Know what
you are buying!
3. Insist on a detailed list of assets and determine whether the price
includes accounts receivable. Remember, neither goodwill nor
covenants not to compete have any real value in an HMO practice.
4. Determine whether you must retain all of the seller’s old patient
charts indefinitely as this can be a significant expense and/or storage
problem in a large practice. Consider requiring the seller to remove and
maintain old charts.
4. Don’t make a hasty or emotional decision at this important time in
your life. Spend time in the practice observing how it is run, the patients
and talking to the employees.
© Bette Robin, DDS, JD 3/96
purchase agreement on the dotted line! Los Angeles Superior Court
granted a defense verdict in Wallace, M.D. v. Cooperman, M.D. on
December 11, 1995 (case # BC066482) in a case involving the sale of
an opthamology practice.
Wallace purchased Cooperman’s ophthalmology practice in 1989.
Wallace sued for fraud alleging the practice had been misrepresented
and claimed he could not earn the amount of money from the practice
that Cooperman had represented. Cooperman contended that Wallace’
s lack of success was due to increased competition from HMO’s,
Wallace’s failure to promote and advertise the practice with referring
doctors and the public and that Wallace’s personality alienated
patients.
The court agreed with Cooperman after a jury trial lasting 6 months.
Cooperman was awarded the balance of the purchase price and
Wallace was additionally assessed with a $50,000 punitive damages
judgment for bringing the lawsuit.
Caveat Emptor, Let the Buyer Beware, is the controlling principle in a
contract involving a practice sale. Any type of lawsuit seeking to rescind
a sale, collect damages for fraud or misrepresentation in a practice
sale will be almost impossible. It is presumed by the court that both
parties are educated, informed individuals and adequate time and
energy was spent investigating the practice before purchase.
The decision to buy or sell a practice is an exciting but serious decision
with far-reaching financial consequences. As a buyer, it is wise to invest
time and money to assure you get what you want and pay for. As a
seller, it is prudent to ensure you have a qualified buyer and deal you
bargained for.
Some considerations if you are selling a practice:
1. Decide how future disputes will be decided; the court, arbitration or
mediation. Arbitration or mediation are probably the most realistic
choices. Negotiate and include in the contract who the arbitrators will
be, how many of them you want, who will pay their fees, whether this
decision can be appealed in any forum, etc.
2. Include a clause in the contract that releases you from any further
contractual obligation in the event your buyer files any type of suit. If you
are contractually obligated to work one day a week for the buyer, this
could be a very uncomfortable situation.
3. Negotiate a ‘buy-back’ price at a significant discount in the event all
payments should stop and you are forced to take over the practice.
Describe how and when this would happen.
4. Insist on a pre-sale confidentiality agreement with liquidated
damages in case of breach for confidences you will need to reveal in
the negotiation process. Protect yourself in the business community in
the event the sale does not go through.
5. Decide what should be done in case of death or disability of the
buyer. Define what is meant by disability and insist on insurance to
cover that event. You should be the beneficiary of a life insurance policy
for the remaining purchase price in the case of death.
If you are purchasing a practice:
1. Have your own lawyer examine, or prepare, the contract for sale. Be
sure you understand each paragraph and what your obligations are.
2. Use a knowledgeable dental practice accountant and independent
practice evaluator to review the selling doctor’s practice. Know what
you are buying!
3. Insist on a detailed list of assets and determine whether the price
includes accounts receivable. Remember, neither goodwill nor
covenants not to compete have any real value in an HMO practice.
4. Determine whether you must retain all of the seller’s old patient
charts indefinitely as this can be a significant expense and/or storage
problem in a large practice. Consider requiring the seller to remove and
maintain old charts.
4. Don’t make a hasty or emotional decision at this important time in
your life. Spend time in the practice observing how it is run, the patients
and talking to the employees.
© Bette Robin, DDS, JD 3/96
DrRobin@BetteRobin.com
17482 Irvine Blvd., Suite E
Tustin, CA 92780
Tustin, CA 92780
Tele:
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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