Thursday Troubleshooter: Was it legal for dentist to take ‘his’ patient list when he left practice?
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QUESTION: An associate dentist decided to leave the practice he had been with for five years. There was no signed contract in place, so he was free to practice wherever he chose. Prior to leaving, he took pictures of patient’s names, addresses, and phone numbers whom he had treated during the five years. From those pictures he compiled a list of all the patients he thought were “his.” After he left, the owner-dentist sold the practice to another doctor who took over immediately. The former associate dentist opened a new practice with another dentist in a 50/50 partnership. His new partner had been practicing solo in his own office, so upon joining, this former associate needed to purchase 50% of his new partner’s solo practice. The former associate then presented what he called his “former patient list.” He wanted to receive compensation per patient whenever one of these patients visited the practice. I don’t think this seems right, at least from an ethical view. Is it right from a legal view? Can someone collect money on what is essentially a stolen patient list?
ANSWER FROM PHIL BOGART, Esq., Partner, Whiteford Taylor Preston Law:
Before addressing this question, I’ll simplify the question by clarifying some terms:
• The “associate” is the associate who stole the patient list.
• The “partner” is the solo dentist selling 50% of the practice to the associate.
A partner to a thief?
Before I proceed, let me share an observation: Who wants to be in business with a thief? A partnership is like a marriage. Is the associate trustworthy? And, if the partner wants to move forward, he or she will need a well-crafted partnership and operating agreement that clearly spells out how the money is split and decisions are made. The agreement should include a roadmap for the end of the partnership, such as death, disability, and retirement. If the dentists can’t get along, how will they split the practice? All of these issues should be dealt with at the outset. Lastly, don’t forget non-competition and non-solicitation provisions!
Everything is negotiable
As I understand your question, the partner owns a practice and is selling 50% of the practice to the associate. Should the associate get credit for “contributing” these patents to the practice, either as a credit against the required price or a post-closing payment for this list?
Typically, in normal buy-in situations, the associate pays the partner for 50% of the practice value. The parties then negotiate how to value that 50%, and there are a multitude of ways to value it. The value must be connected to how the partners will share profits. In other words, what is the associate really buying?
Ultimately, the associate should not have copies of the patient list. Ethically, it is wrong. Even without a signed contract, there are state laws that protect trade secrets. Under certain circumstances, a patient list is deemed to be a trade secret. As a result, the associate likely broke the law.
If the associate contributes something of value to the practice, it would be appropriate to provide the associate with some kind of credit. By making this contribution, the price would be adjusted, or the practice would pay something to the associate for this contribution.
If the associate contributes an existing “clean” patient base (one that was developed ethically), should the associate receive some type of credit? If the associate contributed a piece of equipment to the practice, he or she would receive credit for the contribution. In this case, the associate contributed goodwill to the practice. Although distasteful, this list may represent something pretty important—potential cash flow.
Then again, the associate may be putting the practice at risk if either the prior or new owner of the associate’s former practice sues the associate, the partner, and the new practice for stealing the list. If that is remotely possible, perhaps the value of the list should be discounted. In this case, the list would be more of a liability than an asset! Certainly, the associate should agree to indemnify anyone who suffers a loss as a result of the associate’s theft.
Bottom line—there are a number of items that must be negotiated, and it would not be unreasonable to assign some value to this patient list. This one item is just one of many factors to consider as the associate and partner negotiate the road map for this new practice.
Finally, did I mention I’m not crazy about going into business with a thief?
I am happy to discuss this further. My contact information is [email protected] or (410) 852-9380.
P.S. If the associate is looking to be paid a certain amount per patient, the practice could agree to pay a higher collection for each patient seen by the associate. But the practice should be careful about paying the associate for patients seen by others in the practice. Depending on the circumstances, federal or state law may view that as a payment for a referral, which could be problematic.
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