Michael Moore, Esq. Director McKenzie HR Solutions Printer Friendly Version

Merging The New And The Old
(Part 1)

I am currently representing a doctor who bought a thriving practice in Florida about eighteen months ago. She is an experienced practitioner, and this is the second practice she has owned. The first she started from scratch, so this is her first transition.

I am representing her in litigation against the seller. The parties agreed that the seller would stay on as a contract provider for a year with two options of one year each after that; he would be a major presence in the office following the sale. Our buyer expected that the seller would make every effort in that time to assure that the goodwill of the practice would be transferred to my client. Her expectations were founded not only on her belief that this was good business, but also upon contractual obligations the seller had assumed in the agreement.

Unfortunately, it never happened. Within a few weeks of the sale, the seller began disparaging my client to his patients. It took her several months to realize the extent of the violation of his obligations. Less than one year into the provider agreement, the client was forced to terminate the seller for cause. Shortly after that, there was an exodus of patients from the practice to another local doctor. The seller also set up a practice about forty minutes away, and started taking patients.

The double whammy for my client, though, was the situation that arose with the seller’s associate doctor. This doctor had been with the seller for several years. During the due diligence, the client asked the broker about this doctor’s interest in buying the practice himself. She was told that the associate was happy just doing dentistry and had no interest in buying, nor any interest in leaving and starting his own practice. The associate was a good producer, and my client believed that his continued presence would enhance the goodwill transfer. This belief, coupled with what she learned from the broker, lulled the client into a sense of security. She had access to the provider agreement, and saw that the territorial limit on the restrictive covenant was only five miles. The seller refused to agree to renegotiate the restrictive covenant for more protection, and the client did not insist. In fact, during the time he was supposed to be promoting our client, the seller was telling patients to go to the other local doctor if they were not happy with the practice.

My client had immediately instituted a program of full periodontal probing and treatment that the seller had neglected. She knew that this would both please the patients and increase revenue as they diagnosed conditions needing attention. The seller had never taken on this responsibility and, compounding the damage, his associate was impairing my client’s efforts to assume the operations.

Interviews with staff have shown that the associate torpedoed the client by failing to respond to the new dental hygienists’ requests that he do periodontal checks of the patients. After waiting for long periods for him to appear, the patients simply walked out of the office without the intervention of the dentist. Because of the personal situation between my client and the seller, and the need for the buyer to keep a lot to herself, she was naturally distracted. Even the new hires began to view her as distant and aloof.

The relationship with the associate was the first to disintegrate. One day, the client learned that the associate was talking about opening his own practice a few miles away. She immediately terminated his employment. Shortly thereafter, she learned that he had been propositioning the practice’s patients. We learned in interviews that the seller had also been talking up the associate’s new practice, and offering to connect the patients with the associate when he opened his practice.

Even the old staff was complicit in driving patients from the practice. Because of the tension that developed between the seller and buyer within a few weeks of the sale, staff began leaving the practice. As my client hired new staff, they were shunned by the old cadre. The new dental assistants began witnessing the seller talking down the practice to patients in the chair. Those working the front desk also began noticing the front desk staff urging patients to leave who were unhappy. The staff was providing the name of the dentist who subsequently benefited by the exodus to the patients.

When you buy a practice, well over three-fourths of the purchase price of the practice is allocated to goodwill. So, the apparently intentional failure of the seller to meet his obligations created a huge loss for my client and huge exposure for the seller in the ensuing litigation.

This remained a very dysfunctional operation as the buyer scrambled to keep the practice together and to try to heal a lot of the wounds. She had to replace two providers at short notice. Only now is the new staff learning what a good boss my client is. But many hundreds of thousands of dollars have been lost directly (from the patient exodus) and hundreds of thousands of dollars more have been lost indirectly. In the next part of this piece, we will address how the doctor could have prevented this hemorrhaging of money and saved herself from more than eighteen months of grief.

Mike Moore is ranked among the best in employment law and has been named one of the top 10 lawyers in Ohio. As Director of McKenzie's HR Solutions, Mike is the creator of the Employment Policy and Handbook, geared to providing dentists who are unsophisticated in the legal arena with a step-by-step policy manual.

Click here to hear Mike present “7 Elements of an Effective Employment Policy.” Email Mike at mike@thedentistsnetwork.net.

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