Professional partnerships are frequently entered into without a great deal of thought or consideration,
much less a written agreement. New professionals often see a partnership as less expensive way to set
up their own business, as well as provide needed office coverage and allow for professional
camaraderie. However, statistics show that most partnerships fail and, like a bad marriage, fail
miserably with the expenditure of great sums of money and many nights of lost sleep and huge amounts
Drs. Rafati, Salinas and Salazar were engaged in a radiology partnership in Laredo, Texas that enjoyed
considerable financial and professional success for a number of years. However, almost inevitably the
doctors began fighting, and the fighting became so intense that their disagreements ended up being
decided by the Supreme Court of Texas on June 27, 1997.
These doctors had a written agreement that addressed many relevant issues, but significantly did not
address termination of the partnership. The doctors were able to amicably divide up the cash on hand
and the accounts receivables but came to an impasse when attempting to place value on the intangible
aspects of the partnership. The problem came to a head when Dr. Salinas and Salazar decided to form
a new partnership by themselves and exclude Dr. Rafati and they continued to enjoy some of the benefits
and contracts of the old partnership. Dr. Rafati then sued Salinas and Salazar alleging breach of
fiduciary duty and wrongful dissolution additionally alleging that he had not been paid for the goodwill and
the good name of the business.
In that these physicians’ partnership agreement did not cover termination or include associated
dissolution formulas, the Supreme Court was forced to turn to the State’s Partnership Act. The Court was
clear that the Partnership Act was only used to decide this case because the partners themselves did
not contemplate the issues in advance in a written partnership agreement. The Court stated that partners
may by agreement provide for any sort of distribution upon dissolution, but lacking a statement the Act
must be utilized. The Court found that the dissolution was not wrongful and there was no “evidence that
the name of the former partnership had goodwill separate and apart from the personal talents and
abilities of each of the partners or that any partner had the right . . . to form a new partnership using the
name of the dissolved partnership.” The case was ultimately remanded to the trial court to determine the
proper split of the office furniture (which had the value of a grand estimated sum of $7,500), and the
value of the leased office space. I dare say their combined legal bills greatly exceeded the amounts in
dispute, but at least they each got their ‘day in court’! (Is this any solace?!)
California has enacted the Revised Uniform Partnership Act (RUPA) which generally governs all
partnerships formed on and after January 1, 1997 and conclusively will govern all partnerships after
December 31, 1998, irrespective of when formed. RUPA dramatically changes some aspects of
partnership law, especially since RUPA considers partnerships as an ‘entity,’ more like a corporation
than as individuals engaged in business together. However, RUPA has no effect if a written partnership
agreement speaks to the relevant issue in question. RUPA only steps in and governs when the partners
themselves have neglected to explore, or adequately explore, an issue facing litigation. Therefore,
before entering into a partnership, carefully and thoroughly examine termination of that partnership. In
1. First, decide what can or may cause termination of the partnership, and what the procedure for that
termination is. For example, when can a partner voluntary leave, what can cause forced expulsion of a
partner, and when does the entire partnership end? What happens in the event of partial or total disability
of a partner, and what exactly is meant by these terms? What happens in the event of death of a partner?
2. Determine a formula or procedure for valuation of the practice in the event of dissolution, breach of the
partnership agreement, forced or voluntary buy-out, death, disability, etc. These formulas may each be
different or one in the same.
3. Decide who gets to stay in the office space and be certain your lease allows a partner to leave and the
other partner(s) to take over the lease and release the other from financial obligations under the lease.
4. Figure out what happens to the patient charts should a partner leave or the entire
partnership dissolve. Who has the legal responsibility for their maintenance and storage? Who has the
legal notification requirements to comply with the State Board regulations?
5. Who gets the benefit of the partnership name, telephone numbers, referral sources, and other goodwill
upon dissolution? Do you want a covenant not to compete included in the agreement, and for how long
and how many miles?
In other words, partnerships - like marriages - are one of the most risky and potentially financially and
emotionally devastating arrangements professionals can enter into. Think twice, and then commit all your
thoughts to writing!
© Bette Robin, DDS, JD 10/97
|Bette Robin 714-421-4407
Dentist, Attorney, Real Estate Broker
17482 Irvine Blvd., Ste. E
Tustin, CA 92780
SELECT PRACTICE SERVICES, INC.