Episode 16 – Dental Contract Law with David Cohen (Part 2)

“This may shock some people, but the best partnerships are when you sign the contract and never pick it up again.” – David Cohen

Today, I’m continuing my conversation with David Cohen about Dental Contract Law. We dive into partnership contracts and how to successfully negotiate the ins and outs of these important agreements. 

What I love about David is that he brings a fresh perspective to the conversation about the often dry, boring topic of business law. Successful partnerships are key to the longevity of your business. And what most people are coming to realize is it’s really about the relationship and the shared vision, not the contract. 

The best dental partnerships then are ones that share trust, where all parties are on the same page. When that happens, partners share a mindset that they can work anything out. Unfortunately, when you get multiple partners together disagreements often arise, in which case you need to go back to the contract. 

But again, the focus in that contract is on resolution. Not trying to win. As you probably know, trying to win ruins relationships and partnerships. This is especially important in the dental industry since dentistry is very close and dependent on relationships. Therefore, in an Investment Grade Practice, a partnership is built on shared vision and respect and guided by a good partner contract that is merely a supporting document to protect and guide. 

Save yourself a lot of pain down the road and join us as we continue to demystify dental contract law so you can confidently protect your Investment Grade PracticeTM:

• Partnership agreements: how you get into them, operate within them, and review them
• Suggestions for breaking a decision stalemate in a 50/50 partnership
• Recommendations for drafting contracts that work (and are easy to understand)

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EPISODE TRANSCRIPT

David Cohen 0:00
I think that it’s important that the parties have the type of relationship and a partnership where they can talk about things and even if it’s southern time reach revolution.

Narrator 0:12
Welcome to investment grade practices podcast where we believe private practice dentists deserve to get the lifestyle today while building an asset for tomorrow. Join your host Victoria Peterson who designed the practice of your dreams and secure your financial independence. Let’s get started.

Regan 0:34
Regan, Robertson here president of productive dentist, Academy and host of everyday practices. Before we get started, I want to let you know this week only we are offering our once a year chance at getting 12 months of PDA for free. That’s right, register for a 2022 productivity workshop and you will receive 12 months of PDFs on demand and a two hour one on one business advisory session with us. Not only does this save you over $3,000, but doctors that attend and use PDF on demand report doubling productivity in mere months, you can get yours this week. If you sign up before December 3, go to www.ProductiveDentist.com/CyberMonday to access or call us directly at 1-800-757-6077. Now let’s get productive!

Victoria Peterson 1:28
I love that Well, I added equipment leases to the assignability. Oh, you’re right. I remember a partnership. We had like a three year no complete the buyout of the partnership, and everything’s on track everything set value set, everything’s done. And then the selling part of it, you know, obligated the company to $150,000 worth of new technology and training. And the and the younger partner was like, What am I going to do with that a year and a half from now now I have to go and learn that procedure? I don’t think I want to do that.

David Cohen 2:09
Yeah, it comes up far more often than you would think. I mean, I’ve probably had three or four of those in the last year that that’s happened. And granted, the others I don’t think we’re like a week before the deal like this one I’m referencing but, you know, they might have only made one payment to that point on their contracts. And, and now they’re stuck and like whatever, wherever the buyer is, particularly with the DSO, which DSOs are very particular. They may not want it. And then what are you supposed to do at that point? And really typically, there isn’t a lot of success in getting them to pay for something they don’t want?

Victoria Peterson 2:49
Absolutely. Let’s move into partnerships if we can. I know over the years you have crafted, so many associate to partial ownership 5050. Then final takeover or a partnership model where it grows much like a law firm where you have the senior partner and then the junior partners come in and maybe you have five or six doctors? And what are some of the pros and cons and pitfalls of that. I know that’s a big question. Or let me start off question. Let me start with an easier question. While you’re thinking of the pros and cons. Once you put a contract in place a partnership contract in place, how frequently should you review it?

David Cohen 3:35
I think that once a partnership agreement is put in place, you should review it 100% of the time with an attorney.

Victoria Peterson 3:43
And on a day to day basis. You mentioned like there’s the getting into it. And then there’s the how you operate from it. Do you do you have that agreement there as you’re going through maybe your annual planning or quarterly or when you’re having decision making conversations? How do you use your partnership agreement as an operating tool?

David Cohen 4:05
The best this is this might shock some of the I guess it wouldn’t be listeners or viewers that can be the reader may shock some readers but the best contract the best partnership, the best partnerships are those where you sign the contract and you never picked it up again. That doesn’t mean that you don’t need a contract because unfortunately, many times you do have to pick it up again. And so I think that and what I mean by the best of the best partnerships or where you don’t have to pick the contract up again is that because all the partners have so much trust and are on the same page so much that they they feel that they can work anything out without reasonably without having to run through a contract and sort of you know hinge on their legal rights in that situation. issue is that when you get multiple parties to together, particularly some that are very successful and like things to be done their way, disagreements often arise and can’t be resolved.

And therefore, the doctors do have to go back to the contract, and they have to review it and see what the rights are. And the more partners that are involved, you mentioned, you know, the six partnership, partner partnership, the more partners are involved, the more voices need to be heard and the more issues that could arise with that, because now you’re asking multiple parties to agree, I guess what I would say is the more people that have to agree to something, the harder it’s going to be, right. And so I think that it’s important to have a really well written contract that you can refer to if you need to. But that efficiently arrives, you’re typically able to handle them by having conversations, and we’re in trust and working things out reasonably. But as far as getting through the deal, and getting out of the deal, the main items about respect to getting through the deal that need to be outlined in the partnership agreement, are how the money is split and avocado with that would be one kind of together. And the second is how management decisions are being made.

And that kind of touches back on the point I just talked about where the more people involved in, the more decisions that need to be made, the more difficult things can be. So for instance, in how management decisions are being made, you’re much more likely to reach resolution and decision on something if you base your decision making based on a majority consent, if you’ve got 567 partners, you would a unanimous consent where every single person has to agree in order for things to happen. And so that operating through the deal, I mean, it’s an operating through and then getting out of the deal is death, retirement, disability, false and disagree. So there’s really five things that need to be covered in getting out of a partnership to get that retirement, disability disagreement and default on the contract. is there’s really only one of those people, which happens in that retirement, but everything well, they’re ready to be done practicing and they want to retire from the practice. Certainly nobody wants to have a disability agreement or have been on track. So in terms of picking the agreement back up again. And why you would need to do that. Well, you could very well need to be doing that pretty quickly. If the way out is those four things I just said are ways out that people don’t typically want. So hopefully that answers your questions, but I’m happy to speak more specifically.

Victoria Peterson 8:00
No, I love all of this. When you went into as an operating agreement. You pointed out the two things that you’ve you’ve taught me well, how’s the money split? You know, what’s the formulary for that so that it drives the actions of the CPA firm? And then how are management decisions made? How do you make it if you’re 5050 partners? And you’re stalemated? What are some things that you could educate yourself towards a strategies for ending stalemates in a 5050? Partnership?

David Cohen 8:34
That’s an awesome question. I would say there’s no perfect answer for a stalemate. But there are several different paths to resolve it, all of which can be helpful. And it could be that there could be multiple ways to reach resolution. And there’s no one single right way necessarily. So the first thing that I would say is, some doctors that sucked some partnership agreements that I’ve seen, would say that the doctor who’s been there longer just to break the tie. And that’s actually one of the most heavily negotiated points in the deal that I’m involved with right now, where I’m actually representing the buying party coming in, that’s being told that if there’s a dispute, they it’s the, it’s the doctor who’s been there longer that gets to break the tie. I think that that solution promotes significant unfairness in the deal and can adversely impact the way that the partnership is going to operate because you’ve then got a 5050 partner that’s walking on eggshells, and doesn’t really want necessarily doesn’t feel incentivized, because they are, their voice doesn’t have to be heard.

And I don’t think that that meets for a recipe for a successful partnership, because all voices should typically be heard. I think another way that I’ve seen resolution be made is an independent third party and help make a binding decision if the parties disagree. Now, depending on what the disagreement is based on, that obviously would decide which independent third party with or what type that would be, or if an independent third party would, would be a, given a valid solution or in the current situation, but sometimes an independent third party, that objective can help the parties make resolve resolution. So if it’s like a financial related decision, oftentimes, maybe a third party independent accountant can come in and help the parties make a binding decision. But you again, I mean, if there if there is not if the parties are deadlocked, again, this is where you hope that the parties will not even have to have picked up the contract because you want it the parties. The best partnerships are those where if there is a deadlock, the parties can talk to each other about it and find a way to reach a resolution, you know, stick them in a room and let them figure it out. Because the alternative is not good. And that’s 1000s of dollars in legal fees, or hundreds of 1000s of dollars in lawsuits. And that doesn’t work for anybody that’s not and usually in the lawsuits where the parties are spending that kind of money, nobody comes out of it better than they would if they just sat down in a room and came to an agreement.

So except that now their pocket, they’ve got less money in their pocket. So I think that it’s important that the parties have the type of relationship in a partnership where they can talk about things and even if it’s a time reach resolution. But the default in a partnership would be that if both parties can’t agree, then whatever was proposed does not happen. And that’s where you have to really work out the magic of the dynamics of personalities, and what the vision is of a partnership. And getting out in front from a contract drafting standpoint. or whichever side you’re on, to anticipate issues that may arise later on. Now, more specifically, an example of that would be, let’s say you’ve got a partner that’s going to retire in two years, and a partner that is going to work for 20 more years, the partner that works for 20 more years wants to get a new piece of equipment, a new machine, because it’s going to significantly increase the value of the practice, the partner who is retiring in two years, doesn’t want the partnership to take on that debt, because they’re not going to really benefit from the fruits of that machine. And from all its benefits in such a short period of time. And then obviously now they’re taking on more debt for an asset that’s going to depreciate. So at that point, if the parties can’t come to an agreement as to whether or not get the machine to default will be what we can’t get the machine because we both don’t agree on getting the machine if it’s unanimous consent, there’s no sort of tiebreaker so to speak.

But I think it’s really important from a drafting standpoint, as you’re going in, and you see, you know, a doctor retire on the other side to be able to draft language in that situation that gets out in front of it that talks about the establishment of purchasing new equipment that find resolutions of, hey, let’s sit in a room, maybe I as the doctor is going to be here for 20 years owns that machine. And I take on that debt and you don’t and but I own that machine, that value is mine. And the production that comes from that machine his mind. And I’ll lease it back to the practice for a fee, right? I mean, there’s, there’s all these different ways that you can handle it if you just get in the room with your team, your advisors and talk about it. But I guess to answer your question more bluntly, I don’t really think there’s a perfect tie breaking solution. I think there’s the solution where you can have one partner have like the supermajority where they get to, they get to break the tie, which I don’t think ever ends well. Or you can have an independent third party, which I think is a really liberal, nice way to do things. If but it’s not always the solution in every type of situation like an independent third parties probably not going to be able to help make a binding decision on whether a piece of equipment gets purchased or not. That’s really a business decision. That’s not really anything other than that. And so if the doctors typically need to get in the room and work it out, because again, the alternative is lawsuits and a lot of legal views in the attorneys when in that sense. That’s kind of like what everyone says about attorneys is only the attorney ever when the long answer but hopefully that helps.

Victoria Peterson 14:40
I learned something fabulous from you. Once again, I love the idea of having like maybe you just work this out in your MOU, your mutual understanding, you know, upfront and it could be in the contract that says When it comes to purchase of equipment above certain amount, if there’s no agreement, then we must fill out this usage utilization form like I had one of those that neighborhood smile so they could buy anything they wanted. However, they needed to show me the ROI first. So there was a way of proving that you needed it. And then you bring in your maybe your CPA to say yes, if you bought it, and you depreciated it, bla bla, bla, bla, bla, you could make that work. So I love the concept of bringing in the professionals. Yeah, I love all of that. I want to speak to this other piece of like you and I went through a deal recently, where the exit clause for retirement came into question. And one doctor read it, as you’re retiring, you get your retirement, the other one read it as I’m ready to sell you the other half. Now, I know that’s not a typical scenario. However, that’s that’s what I mean by how often should I look at it, if I have an agreement? And you know, I stick it in a drawer and 20 years later, I open it up and go surprise, that doesn’t say what I thought it was gonna say. So is there like an annual attorney review or something like that that would be helpful in longer term partnerships?

David Cohen 16:29
Yeah, I think that I think that the basis of that, really, and what attorneys don’t often do very well, is really the foundation is to draft a contract that’s worded in a way that’s appropriate legally, but also is clearly understandable to a dentist, whose profession is to do dentistry and not to be a lawyer. And so I think that it’s really important to draft contracts that the dentist can actually understand. And I found that that is far more important to do. Then drafting contracts that are very difficult, and nobody can understand. And so I think that if a contract, if your teammate is a lawyer, and you hire a lawyer to draft the contract, you’re the doctor, you really want to hire a lawyer that’s going to help you draft the contract that you can easily understand. And I think that if the contract is easily understandable, a lot of the concepts including the retirement clause, for instance, that you just mentioned, are stick a little more in the mind without having to do your overviews, or your quarterly reviews, or whatever they are.

And it’s not that those reviews are bad, but sometimes it cost them money, and etc. But I think that really the contract should be understandable enough to the extent that it’s either a quick look, or you remember off the top of your head, no, of course, not every doctor has to remember everything off the top of their head. So it’s always I think, a good idea to sit down, I would say yearly, it’s probably a good time time period, I think quarterly maybe too quick, I think yearly is a good time period to sit down and evaluate the contract and not in there, but to evaluate it and see what’s working, what’s not working. And like you men, and if you’re in a situation, or your interests retired, based on the tangible app as well, that might be okay, for me later. But I mean, first of all, it’s probably never okay. But I mean, you’re gonna get a lot better ones later than you want to hear them. Talk back through, factor it in. And you haven’t looked at it for 10 years that was in there. I think that if that was one and a part of this, then I think both parties would be on board to adjust that because it’s in the best interest for everybody, even 20 years down the road and you’re out to retire. Well, if there’s nothing Davor at that point, the cats out of the bag, he knows retired, and they’re going to do an agreement. I think it’s important to do this. Not just for understanding, but also just to see if there’s anything that’s working or not working, that needs to be changed.

Victoria Peterson 19:16
I love that you put it in that frame. It’s not. It’s been my experience in business that it really isn’t about right or wrong. Mine or yours. Like if you’re in that kind of contract and that type of relationship, you’re in the wrong relationship to begin with. So I love that you bring fresh eyes to the legal perspective that number one, it’s about relationships and having a shared vision. With that in place. The contract really is only there as a supportive agreement. And I love this element that you brought in about an annual review of it simply as a housekeeping mechanism so that you could just avoid a lot of pain down the road. and whether whether you agree or don’t agree, you know, and what’s in the contract, and if you don’t look at it year to year, then you’re stuck with it. And then you spend a lot of money on attorneys as well. I loved also that you said it’s, it must be written in plain English that people can understand I have so appreciated that about you that all the contracts you write there in plain English, I can explain them. And you never let me sign anything that’s not in planning.

David Cohen 20:30
Yeah, for sure. I mean, I do a lecture that’s literally called legalese in plain English. So I I’m a firm believer of that.

Victoria Peterson 20:38
So is there anything from legalese in plain English that we haven’t covered? Well,

David Cohen 20:43
I think there’s one thing in particular that I do want to bring up. And I think that if it should have probably gone in, when you said, What is the key thing that dentists need to know about contracts, right, so I kind of went into the foundations of what the true legal elements of a contract are. But I think there’s a component to it, that, if I can say this is maybe the most important thing I say, in this interview, and I think it’d be extraordinarily helpful for for doctors is the negotiation elements of a contract. And I can’t say this, enough. Negotiation is not about winning and losing. And it’s not a sports game. Negotiation is about getting more of what you want, without the other side being below the status quo. Negotiations is about growing the pie, and not taking more of the pie. And I think that that gets lost all the time. And lawyers are the biggest culprit of that.

I mean, lawyers all the time lose sight of that. And lawyers are competitive, and lawyers like to win and feel like they got to win. And a lot of doctors feel that way too. And that is not, that’s not a true solution. So it’s about getting more, but you want the other side of being below the status quo. I don’t really like calling it a win win. I like calling it getting more of what you want, and growing the pie. There’s more room of the pie. So I do. I think if there’s anything I say, I think that is critically important. And it helps doctors sort of focus more in on resolving and solutions then just trying to win and what winning what trying to win. Does it ruin deals, relationships, and lose opportunities? And I know that sounds really strange. But I think that the focus on one winner, one loser? Well, I will result in that, particularly in the dental industry, which is a very close knit community. And it’s very relationship driven.

Victoria Peterson 23:12
Wow. I stand in awe of you, Billy, you get it. And I tell people all the time when I refer them to you, that you literally broke the mold on what you might preconceive as an attorney, what their role is, that you are a real human being that understands true human dynamics, always working towards the greater good of CMD. Negotiations I get to pay for your light really get you. You, you pull back both buyer and seller into what is good for you what allows them to maintain position and move forward. In that strategy,

David Cohen 24:02
yeah, I’m happy, I’m really happy or helpful. And I think that it’s, I think it’s really important to focus on that, you know, I mean, it’s hard to it’s hard all the time to do that. You know, like I before we got on the phone, I was talking to another client that in really given them and they feel like in the cellar working. This is a buyer and the seller working back for them really wants to get in health insurance, the way the practice and my clients, the buyer really is not wanting to do that because they feel like they’ve kind of bent over backwards in all these different ways to make this work. And so and they feel like they’re sort of like losing if they if they you know, given and allowed the doctor to have health insurance and I really had explained well, no, you’re not losing jobs actually growing the pie because health insurance is cheap and nothing in comparison to the goodwill that you’re going to get from keeping that doctor half He’s working back for you, they’re gonna want to bend over backwards to help you because you’ve given them more of what they want. And now you get more of what you want, which is a big picture of making way more money than you would make up and not paying doctors health insurance. So that’s kind of like a example of like what I was just talking about, but I think it happens all the time.

Victoria Peterson 25:21
Yeah, I love it so much, David, thank you. If I’m if our listeners and readers want to learn more about you, and the services you provide, where would I send them?

David Cohen 25:33
So my website is www.CohenLawfirmPLLC.com. And that’s C O H E N. For the Cohen part, and my email is David@CohenLawfirmpllc.com. And I’m also one of the very few people to do this. And I find but I have no problem giving my cell phone number out, people don’t typically abuse it. And I’m happy to always be a resource, and my cell phone number is 206-919-9060. And that’s the best ways to get a hold of me.

Victoria Peterson 26:16
I think you also know have a Facebook group, what is that called?

David Cohen 26:20
That’s, that’s a great point. I have a Facebook group called practice transitions revolution. And it’s really intended to revolutionize transitions and get people talking openly about them in a safe forum. So it’s called the practice transmissions revolution. It’s a big book group. And we’ve had a pretty good group, the young, a young group, I mean, young in terms of it, haven’t. I just, I just started it not too long ago. And it’s starting to pick up some traction, and I’m kind of excited about it. People can express themselves there.

Victoria Peterson 26:53
Well, I’m a big fan. Thank you so much for your time today, David, I will get you a transcript and, and edits for the book.

David Cohen 27:04
Yeah, again, I’m just honored to be a part of it. Really appreciate it. And I’m excited for you. I think you have so much to offer and so much to give. And I think a book like that is going to be major as far as that’s concerned.

Victoria Peterson 27:20
Thank you very much. Have a wonderful day.

Narrator 27:26
Thank you for tuning in to this episode of Investment Grade Practices Podcast. If you find value in this episode, help us spread the word by passing it along to a dental friend, subscribe and give us a Like on iTunes or Spotify. Learn more about building your Investment Grade Practice at ProductiveDentist.com Today