In the realm of business transactions involving doctors, the dual representation model—where one lawyer represents both sides—has become more palatable to buyers and sellers of dental and medical offices. This is surprising for many reasons, but especially considering that it is extremely rare in similar transactions.
Why is it so rare elsewhere? Because dual representation is a risky proposition for both sides. There are just too many inherent conflicts. The interests of each side are not, and rarely can be, aligned.
Even if the parties already agree to the terms and intend for a handshake or simple letter of intent to encapsulate the deal points, the devil is waiting in the details. Invariably, additional issues arise that must be negotiated by the parties, and you absolutely want an attorney advocate on your side who can educate you on the risks and help you formulate a fair arrangement that safeguards your interests.
Unfortunately, the “transition professionals” (e.g., brokers) often recommend hiring one lawyer to represent both sides. Why? Because lawyers can complicate and even kill deals. Decreasing the number of lawyers in a transaction can increase the likelihood of a successful closing. Lawyers get in the way. Use them sparingly.
The question you need to ask yourself is this: Do you want a quick and easy closing, or do you want to ensure that your financial and professional interests are protected?
In the context of a medical and dental practice acquisition, a number of material issues routinely arise that require each party to have its own advocate, such as on price, tax structure, excluded assets, treatment of receivables and patient credits, work-in-progress and reworks, assumed contracts and other liabilities, buyer’s credentialing issues (and dealing with potential gaps in coverage), treatment of deposits, treatment of prepaid expenses, terms of seller’s postclosing obligations, lease issues (especially if the real property is being leased by the seller to the buyer), scope and duration of noncompetition and nonsolicitation covenants, exclusions and remedies to the same, and paying for the seller’s “tail.” The list goes on.
It is a simple truth that what is advantageous to a buyer runs counter to the interests of a seller. Adding value on one side decreases value on the other.
Along with pricing and tax treatment, lawyers advise on a host of issues that impact the value of a deal, diminishing the interests of one and benefiting the other. It is virtually impossible for a lawyer to advocate for both the buyer and the seller. Worse, a lawyer serving as a dual representative may be incentivized to take a deal to the finish line, get paid, and thereby prove himself or herself a worthy candidate for additional deal flow from the broker.
Sometimes, a client needs to be told to walk away from a deal. The best investment may be one that is never made!
It is worth noting that a lawyer may also have serious ethical hurdles to overcome. A lawyer’s state-specific rules of professional responsibility may preclude him or her from representing parties with adverse interests, except in extreme situations, because it could undermine the obligation to provide competent and diligent representation. Lawyers are required to give their “all” for their clients.
Yes, hiring two lawyers costs more, but the expense may pay for itself if additional issues are uncovered and resolved. Furthermore, you may end up paying dearly down the road for issues not raised at the time of the transaction by a lawyer handling both sides.
Instead, seek to contain the legal costs by ensuring that both lawyers have the requisite background and specific experience, including experience with the exact kind of practice that is the subject of the transaction. Lawyers experienced in the business and operational issues of the practice “speak the same language,” and negotiations as a result are more efficient. Having a lawyer without the relevant experience can be costly in the long run.
At first blush, dual representation might seem reasonable to dentists and doctors who want to quickly nail down the pesky business details and get on with their work. But getting the legal and business framework right is essential to long-term peace of mind. Have someone at the negotiation table whose job is to advocate for your interest. Upon exploring the many issues that can and should be raised and negotiated by a party’s trusted advisor, buyers and sellers are better suited with their own independent advisors in order to ensure a fair result is obtained for all parties.
Phil Bogart, Esq., represents dentists and other medical professionals in business transactions and situations encountered during the lives of their practices. Services include structuring/documenting employee arrangements, partnerships, acquisitions, and other exit strategies. For more information, contact Mr. Bogart at [email protected] or (410) 347-8710.
