TRANSITION TERRORS... The Ultimate Nightmare
Dr. Hartleip probably thought he was easing towards retirement when he sold his urology practice to Dr.
Gernert. In fact, Dr. Hartleip may have imagined he made a mutually good deal with a trusted colleague.
The case of James E. Gernert, M.D., et al. v. Duane Hartleip, M.D., et al. (L.A. Superior Central, BC
126513) proved nothing could have been further from the truth.
The transition was consummated in August 1990. However, as time went on, the deal turned ugly. Dr.
Gernert sued claiming Dr. Hartleip breached the covenant not to compete, stole patients, defamed him,
and unfairly competed in the practice of urology. Dr. Gernert further contended the names and addresses
of the patients were ‘trade secrets, that Dr. Hartleib made a ‘promise to retire’ from the practice of
medicine in the Los Angeles area as part of the sales agreement. However, the written contract did not
state or make any reference to these points.
The terms of these doctors’ written agreement was silent on too many issues to successfully handle
adversity. The contract did include a three year covenant not to compete; but ignored differences in
treatment modalities between the doctors, ignored patient record issues, and in general was limited in
scope and nature. Initially this was not a problem in that the terms of the agreement included an provision
for Dr. Hartleip to stay on with the practice and work for Dr. Gernert for the entire period of the non-
On the face of the contract, Dr. Hartleip honored the written terms and conditions of the sale. The problem
came when Dr. Hartleip decided to leave the employ of Dr. Gernert after the covenant had expired and
‘set up a new practice in the immediate vicinity of the old office.’ Dr. Hartleip notified the patients he had
been treating of this change of address. Allegedly, 400 patients followed Dr. Hartleip to his new location.
The court came down with a defense verdict in favor of Dr. Hartleip with an allowance for attorney’s fees.
The court found that a ‘deal is a deal’, especially between doctors with like bargaining power, education
and access to professionals for advice. This case makes many points as to a practice sale, some of the
major ones I will discuss briefly below:
1. Covenants not to compete are almost always legally upheld during the stated term in the contract .
Assuming, that is, the covenant is reasonable in scope, distance and nature. In California, distance and
scope are very limited due to the large number of practicing professionals in the same geographic area.
Do not confuse a covenant not to compete in a practice sale document with the same clause in an
employment agreement. A covenant not to compete in an employment agreement is valid only during the
term of the employment and not after. Such a clause is viewed by the courts as a restriction on trade and
are specifically non-enforceable in the state of California.
2. ‘Bad-mouthing’ your seller or your buyer can cause you a multitude of legal problems. Not only do you
expose yourself to a defamation lawsuit, but sellers can enforce various remedies and provisions to
accelerate payments, to force a sell-back at a greatly reduced price, and can sue various torts including
interference with prospective economic advantage, etc. Your sales contract should provide for diagnostic
and treatment differences between doctors. Specifically address and agree in advance what to do in the
event ‘re-makes’ of crowns or bridges are deemed necessary by the purchasing doctor. Who pays the
lab bill?, Who does the labor?, Who makes the decision as to the necessity of the re-make???
3. Patients are not legally ‘owned’ by a doctor. Patients are not owned by a doctor, and patients legally
have a right to access and copies of their patient records. A doctor changing practice location has the
right and even the responsibility to notify patients of his or her new location in order to avoid claims of
patient abandonment. Records must be transferred to a patient, regardless of whether a balance is owed
or not. Health and Safety Code sec. 1795.12. You may charge a maximum 25 copying fee per page and
the actual cost of a duplicate radiograph; however you may not withhold records should a patient inform
you he or she is unable to pay for whatever reason. I believe it is good practice to transfer the original
records and maintain a copy for yourself to ensure the records are indeed useable by the new treating
4. Be careful about your contract!
a. If it’s ‘no big deal’, a ‘gentleman’s agreement’ and you completely trust your buying or selling doctor,
then put it in writing. That will be no big deal either!
b. Each party should have their own attorney. Attorneys can legally act as a mediator and put the whole
transition together, but in that event the attorney has a legal responsibility to disclose the pros and cons of
each point of the transaction to both parties. This may be of benefit if the buyer and seller plan are
continuing to practice together, but is almost never a good strategy when the agreement involves a
complete break of the seller from the practice.
c. Realize that management consultants and companies are not usually lawyers and do not create
adequate legal documents. Such professionals can provide a valuable service by negotiating terms of a
transaction that the attorney(s) has previously set forth to be negotiated. But I believe management
consultants are effectively and best used only in that capacity. When it comes to putting the agreement in
writing, use an attorney. For example, I just reviewed an extensive management consultant ‘deal’ that had
as part of the terms of the agreement : ‘We agree to have clean and happy teeth in this office.’ Oh yeah?
Can you imagine a judge or jury reading that one? Or how about the agreement that sold the accounts
receivable in one section and expressly did not sell the accounts in another section? So, if you do decide
on that course of action for your transition - against my unrequested advice - read the contract, read the
contract and read it again to be sure what your obligations and responsibilities are.
© Bette Robin, DDS, JD 11/96
|Bette Robin 714-421-4407
Dentist, Attorney, Real Estate Broker
17482 Irvine Blvd., Ste. E
Tustin, CA 92780
SELECT PRACTICE SERVICES, INC.