When Partners Disagree: A Case Study
What happens when a medical practice dispute between partners cannot be resolved internally? We explore the legal options for a physician partnership at a crossroads.
(To protect clients’ privacy, the following account is a composite of multiple business partner dispute cases. All names and identifying details have been changed.)
Dr. Bonne and Dr. Mal met while doing their residency at a local hospital, bonding over a shared passion for patient-centered urological care. When they launched their own private practice, UroClinic, they had a singular mission: provide holistic healthcare for male and female patients with urological dysfunction by offering a multi-disciplinary, full-service practice.
Their community embraced this idea, and their practice has flourished over the past 10 years. They have a thriving insurance-based practice, where their patient population consists of mostly Medicare beneficiaries with prostate health diagnoses or postpartum women with incontinence, and they also have a lucrative cash-based practice, where their patients pay out-of-pocket for treatments relating to sexual enhancement and performance concerns.
Buyout offer divides partners, sows disagreement
Lucrative buyout offer would change the practice
Twice over the past decade, Illinois Urology Conglomerate (“Conglomerate”) has offered to purchase UroClinic; both times, Dr. Bonne and Dr. Mal declined to sell. Recently, however, Conglomerate offered them $10 million for the practice and the opportunity to manage the practice as employees of Conglomerate. They could continue to treat their current patients, although Conglomerate will no longer accept Cigna insurance.
Partners’ priorities have shifted with a new baby, aging parent
Dr. Bonne is excited. He has a new baby at home and is caring for an aging parent, and he’s relieved that the influx of cash from the sale would alleviate some financial pressures.
Dr. Bonne also reviews his current patient load. Conglomerate’s insurance coverage would impact only 5% of those under his care. For patients that pay cash for elective treatments, the out-of-pocket cost of these treatments will be more affordable if UroClinic is purchased by Conglomerate.
When only one partner wants to sell
Dr. Bonne tells Dr. Mal that he’d like to sell UroClinic; he believes it’s in their and their patients’ best interests. Dr. Bonne knows that Dr. Mal is overleveraged financially, and that her Aspen and Hamptons homes are both in default. Dr. Mal has recently been complaining about Chicago winters and has expressed an interest in spending more time near her family in NYC, so Dr. Bonne suspects she’ll jump at the chance to sell her UroClinic interest, move into her Hamptons home, and start fresh.
Unfortunately, Dr. Mal responds that she doesn’t want to sell out to Conglomerate. Now that she knows that Dr. Bonne wants to sell, she also says that she no longer wants to be in business with Dr. Bonne. Dr. Bonne tries to discuss the logistics of how the purchase would impact their patients, but Dr. Mal is uninterested. Dr. Mal believes that UroClinic could’ve been even more profitable if they remained the owners — although she thinks that Dr. Bonne’s insistence at caring for his aging parent and new baby have certainly limited the practice’s growth. While Dr. Mal spent 6 months of the past year in one of her vacation homes “off the grid” from practice operations, she places UroClinic’s stagnant growth squarely at Dr. Bonne’s feet.
Dr. Bonne is frustrated and unsure of what comes next. Can he alone sell his interest to Conglomerate? Can he force Dr. Mal to sell her interest? He calls our office to discuss this partnership dispute with one of Jackson LLP’s attorneys.
How our attorneys can help
Impact of the buy-sell provision in the practice’s bylaws
We reviewed UroClinic’s bylaws and the Illinois Corporations Act, both of which govern how the doctors are allowed to act in this situation. We determine that the bylaws contain a “buy-sell” provision, whereby one of the partners can set the price of their interest and the other can choose whether to purchase it.
Dr. Bonne tells Dr. Mal that, in lieu of selling his interest to Conglomerate, he’d be willing to sell his interest Dr. Mal for $5 million. This nets him the same financial result, but it allows Dr. Mal to retain control of UroClinic, rather than selling out to Conglomerate. Dr. Mal refuses and argues that Dr. Bonne’s interest is worth no more than $1 million, given how distracted he’s been with his new baby at home.
Our attorneys help Dr. Bonne secure an appraisal of UroClinic, and the appraisal comes back at $12 million — valuing each partner’s ownership interest at $6 million. Dr. Mal continues to be unwilling to either (1) purchase Dr. Bonne’s share at its fair market value, or (2) sell her interest to Conglomerate.
Conglomerate is becoming increasingly impatient, and it puts a 90-day expiration on its offer to purchase UroClinic. Immediately thereafter, Dr. Mal receives a letter from the Illinois Department of Financial and Professional Regulation stating that her medical license is suspended due to her failure to make her child support and state income tax payments. This license revocation triggers her removal from the patient care schedule and also from management decisions at the practice. She retains a financial ownership interest in the practice, however.
Last-ditch efforts to avoid business partner litigation
With Dr. Mal refusing to budge in the negotiations and now unable to participate in the day-to-day operations at UroClinic, we counsel Dr. Bonne on the benefits and risks of filing a lawsuit against Dr. Mal. But first, we made two preliminary recommendations: (1) seek the services of a workplace counselor, and (2) try to mediate the disagreement.
Workplace counselors can help support the business’ staff
There are therapists who specialize in “business divorces” — that is, helping to mitigate the damage of a business partnership breakup on the business’s day-to-day operations. We recommended that UroClinic hire such a therapist to offer on-site counseling services to UroClinic’s owners and its staff. The dispute between Dr. Bonne and Dr. Mal is weighing heavily on their nurses and administrative staff, and the employees are feeling pressured to “take sides.” To ensure that the stress of the dispute doesn’t negatively impact the practice’s patients or the practice’s monetary value to Conglomerate, we recommended that they use a neutral third party for this purpose.
Unfortunately, while Dr. Bonne was enthusiastic about the idea, Dr. Mal rejected it, arguing that they were beyond the point that counseling could be useful. As a half-measure, Dr. Bonne decided to hire the workplace counselor to attend and participate in the practice’s weekly staff meetings, and to be available for support if needed by individuals or small groups of employees.
Mediation can resolve disputes without litigation
Our second recommendation was to attend a non-binding mediation. The hope with mediation is that it avoids the financial and emotional costs of litigation, while allowing the parties to present their dispute to a neutral third party. The mediator assesses the merits of each party’s position and helps to find middle ground. Dr. Bonne was doubtful that mediation could help negotiate this dispute, but he was willing to try. Unfortunately, Dr. Mal refused to participate and said she couldn’t see it accomplishing anything. While mediation is an incredibly effective (and cost-effective!) way of resolving disputes, we couldn’t force her to the table.
So… where does that leave us?
With workplace counseling and mediation being rejected by Dr. Mal, that left Dr. Bonne just two options: (1) continue on with the status quo, or (2) sue Dr. Mal. The decision whether to sue your business partner is a weighty one, so we reviewed these pros and cons in detail.
Weighing the litigation decision
The ‘pros’ of filing suit
The potential benefits of filing suit that we review with Dr. Bonne include:
- Bring both parties to the table and force them to resolve the matter.
- Filing suit can encourage meaningful negotiation between the parties, whether with a therapist or a mediator.
- Allows Dr. Bonne the opportunity to move forward with selling UroClinic to Conglomerate.
- Be on the offensive. If Dr. Mal sues first, it can put Dr. Bonne on the defensive with some of his claims, which can allow us less flexibility in the terms of how the claims are argued.
The ‘cons’ of filing suit
There are also some potential downsides to filing suit, which include:
- Cash-flow problems for Dr. Bonne individually and potentially for the practice, as a lawsuit can put a strain on the practice’s books. Litigation can be very expensive and include: court costs, attorney’s fees, expert witness fees, and more.
- Drags UroClinic’s staff into the dispute, as they will likely be deposed, subpoenaed, or otherwise involved
- It is not possible to ascertain our chances of success
- Lawsuits are emotionally draining and stressful.
- May make UroClinic less appealing to Conglomerate, as companies don’t like to purchase businesses that are contested or involved with litigation.
- Potential reputational damages, as litigation can drag both partners through the mud. Long-forgotten grievances tend to get aired in court and publicly-available pleadings.
- Requires Dr. Bonne to cover the up-front costs of litigation. If he instead waits for Dr. Mal to sue him, then he can file a counterclaim. (This isn’t a huge “con,” as the upfront costs aren’t significantly higher than the cost of filing a counterclaim.)
There may be other last-ditch efforts we could take to avoid suit, which include:
- Sending Dr. Mal a demand letter. This would demand that Dr. Mal exit the practice and hand over all management responsibility to Dr. Bonne. It could also demand that Dr. Mal consent to a sale to Conglomerate. A demand letter is a relatively inexpensive way of making a final effort to avoid litigation. However, it is likely that Dr. Mal will ignore it, which leaves Dr. Bonne faced with the same dilemma of deciding whether to sue. It thus leaves Dr. Bonne in limbo in the interim, and it potentially tips our hand to Dr. Mal, demonstrating how desperate we are to resolve this dispute. It also gives Dr. Mal more time to tinker in UroClinic’s bank account, to spread gossip about Dr. Mal to their staff, or to otherwise commit malfeasance while Dr. Bonne punts the decision over filing suit.
Ultimately, Dr. Bonne decides to sue Dr. Mal. He felt that it was the best way to bring Dr. Mal to the table and to create some certainty in the path forward. While litigation will be expensive, Dr. Bonne thinks that the potential reward of securing permission for a sale to Conglomerate makes it worthwhile.
“We’ll see you in court.” What really happens now?
The document which initiates a lawsuit is called a Complaint, and it outlines both Dr. Bonne’s claims (also called “causes of action”) and his “prayers for relief.” Essentially, it sets forth what Dr. Mal did wrong, and how it can be remedied. Through working with his attorneys, Dr. Bonne better understands how legal claims need to be framed, and that injustices don’t necessarily translate into legal causes of action. The Complaint ultimately includes the following claims:
- Breach of Fiduciary Duty: This cause of action argues that Dr. Mal breached her fiduciary duties to the practice by leaving town frequently and by losing her medical license.
- Breach of Contract: This cause of action argues that Dr. Mal breached her contract with Dr. Bonne, whereby she agreed to maintain an active medical license and actively participate in running the practice.
Dr. Bonne requests that the court either force Dr. Mal to sell her share of UroClinic to Dr. Bonne, or that the court force both Dr. Mal and Dr. Bonne to sell their interests in the practice to the highest corporate buyer (either Conglomerate or a competitor).
In addition to the Complaint, we file a motion for a Temporary Restraining Order (TRO). We tell the court that UroClinic will suffer irreparable harm if Dr.Mal is allowed to remain involved in its ownership and management. The pleading standard for a TRO is high; this means we need to bring evidence to convince the court that Dr. Mal will actually damage the practice if she isn’t expelled from its management. TROs are inherently difficult to win.
The court responds as follows:
- Grants our TRO. The court acknowledges that Dr. Mal cannot continue to own a medical practice without a medical license, so it grants part of our TRO. It puts Dr. Bonne in charge of UroClinic’s management and operations, but it requires that Dr. Bonne continue paying Dr. Mal her base salary until the dispute is resolved. The judge also tells Dr. Mal that, if she regains her medical license, the court will reconsider this decision.
- Tells both parties to begin the discovery process, which includes written discovery, depositions, subpoenas, and hiring expert witnesses.
We plan out our next steps with Dr. Bonne:
- Hire an expert witness who can attest to Dr. Mal’s mismanagement and malfeasance.
- Hire an independent appraiser to appraise UroClinic, which we will use to determine whether Conglomerate is offering a good price for the practice.
- Notify Dr. Mal that we will be deposing her.
- Continue to remind Dr. Mal’s attorney of Dr. Bonne’s interest in mediation.
The outcome of litigation is inherently uncertain, but Dr. Bonne finally feels like he is on the path to obtaining some resolution to this situation. We remain optimistic that either Dr. Mal will allow the buyout of her interest by Dr. Bonne, or that Dr. Mal will consent to both partners selling their interest to Conglomerate.
Attorneys for healthcare business partner disputes
Jackson LLP’s experienced attorneys understand the complexities of healthcare business partner disputes. To discuss how we can help guide you through a potential disagreement, a dissolution of your practice, or other challenges, schedule a complimentary consultation with a member of our team.