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
Bette Robin                                                                                      714-421-4407
Dentist, Attorney, Real Estate Broker                                                                                                                                      
DrRobin@BetteRobin.com
17482 Irvine Blvd., Ste. E
Tustin, CA  92780
Call:

Fax:
:
877-DrRobin
714-421-4407
714-333-4394
:
SELECT PRACTICE SERVICES, INC.