Once litigation begins and the attorneys, dental CPAs and any other advisors get involved to a large degree, litigants should expect to invest a lot of time and money.
Fortunately for dentists, they are one of the last of the professional service presenters who have had the misfortune to be litigants. There are many kinds of litigation lawsuits and when thinking about damage claims, most people first have thoughts of patients suing the dentist for harmful effects from a visit to the office.
However, there are many other types of disputes that look like they will be brought to trial. This article will go into detail about many of those and will offer advice about resolving the issues. The most common type of damage claim is about dentists suing dentists for various causes. A partnership agreement that is not adhered to is a major cause of an issue bringing about a dispute that may go to court. An employment contract that is not being fulfilled by the employee or the employer is another. A third type of accusation comes about when a transition occurs and the terms and conditions of it are not being followed.
Money as the precursor to litigation
As is almost always the situation, litigation is primarily about money. Whether it be a divorce, partnership dispute or other format, the amount of money involved will either be a cause for action or a reason not to pursue a particular case. The larger the amount of potential damage, the more likely a lawsuit will be started. Sometimes a divorce is not just about money but also about revenge, but other situations are primarily money issues.
Let’s look at a transition where a lot of money is involved. The buyer of the practice will typically order and pay for a dental practice valuation to get an idea of what the value is that he or she will be paying. Then there is the dental CPA to analyze the valuation and offer his or her opinion about what the value of the practice is that the potential buyer is interested in acquiring. An attorney is needed for the preparation of the transition agreement or the review of the contract that the seller’s attorney has prepared. Then there is the lender who will advance the funds for the purchase price as well as potentially the acquisition of the accounts receivable and money available for working capital. Lenders typically charge fees for background checks, credit checks and sometimes there is a charge for agreeing to loan, normally stated as “points,” or a percentage of the loan to be charged to the borrower. There is a tremendous amount of time spent preparing for and meeting with advisors and others to make sure that everything is ready to go when a date has been agreed upon for the closing of the loan and the practice transition.
Employment contract disputes
The amount of money involved with this type of issue can be high or low depending upon the cause of action that is being brought to the attention of court. Minor problems hopefully will not be brought to court but will be settled between the parties without the need for litigation. A wrongful termination case can involve large amounts of money if the term of the contract is a long one and there are renewal clauses in it.
Whatever is included in the employment agreement should be carefully thought out and drawn since this is a battle for someone’s livelihood, probably including his or her family. It is important to try to settle the employment disputes as well as any other potential litigation issue without going to court. The younger the dentist and the closer it is to his or her dental school graduation, the more likely he or she can not afford representation to assist with finalizing everything. This is where problems can occur and advice about utilizing advisory services to review documents is almost like a phrase “pay the advisor a little now or a lot later.” If litigation begins, there will be a lot to pay later as well as a lot of time involved to make sure the advisor understands the story. Sometimes a potential settlement is too far apart between the parties and then litigation proceeds.
Final thoughts on transitions
There may be an instance where the transition agreement was satisfactory and the buying and selling dentists have been consistent in resolving the issues so that the contract can be signed. For the buyer and the seller, there is almost always a provision for warranties and representations given by each party that everything is satisfactory, the financials are accurate, and every other provision of the contract is acceptable.
What happens when that clause is false and the seller or the buyer signed off on the clause anyway? This issue may affect the entire value of the dental practice and cause the guilty party to either benefit greatly or lose a large amount.
Let’s take an example of the air conditioning system. If a practice was transitioned in the south of our country, hypothetically, and the air conditioning does not work, it may not be possible to work in the office. Patients will be lost as well as employees who can not work in an office with extra high temperatures. Regardless of the practice valuation, what would the value of the practice be if this fact were known prior to the acquisition? Would the buyer still be willing to acquire the practice at any price? The practice valuation may present a high amount and the negotiations were set to begin based on that amount. If the air conditioning system did not work, would the buyer walk away from the transaction? Would the buyer ask for a credit against the purchase price for the amount needed to repair the air condition?
The probable answer is that at least the purchase price would be renegotiated to be much lower than originally listed. At this point, the litigation will have begun and the attorneys, dental CPAs and any other advisor will now be involved to a large degree. The amount of money being paid by the litigants will be high and the time invested will also be on the high side.
While no one likes to be taken to court, it’s important to note that this does happen for a variety of reasons and that’s why it’s critical to take steps to either prevent these sitautions, or at least minimize the damages.