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
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
714-398-8808
714-333-4394
SELECT PRACTICE SERVICES, INC.