Covenants never clear-cut, but give practice owners limited protection
Lawyers seem to get blamed for everything.
The first time I met one of the real estate brokers with whom I workon development projects in New Mexico, I was introduced as "Dr. Allenfrom New York" by a mutual acquaintance.
During the remainder of the day, I listened to dozens of insulting commentsdirected by this broker (now a great friend) toward lawyers and the legalprofession. I was told how lawyers delay deals, destroy deals, sap all theprofit from deals and how they are always tied up in shady deals. Imaginethis broker's amusement when I revealed to him at supper that I was notonly a veterinarian, but a practicing attorney. He was red-faced then, buttells the story with great enjoyment to others now.
Shred of truth
I might add that this fellow wasn't altogether wrong. Lawyers, includingthe vast majority of ethical ones do, indeed, delay and destroy deals.
The profit-sapping allegation may also have some validity. However, aswith many blanket accusations, it is necessary to look beneath the surfaceto see whether these claims are evils in and of themselves or whether theyare unfortunate consequences when lawyers behave as competent professionals.Keep in mind, for example, that veterinarians, in an absolute sense, causepain to animals, sometimes kill animals and even interfere in the profitabilityof the breeding and dairy industries. These results, though, are most oftensimply "part of the job."
I will share a story of how a lawyer was accused of "trying to ruina fledgling partnership" and "trying to soak the profit from thedeal." This story, based on actual cases, demonstrates how veterinarianscan blame their legal representatives for problems which they, themselves,actually bring on.
Doctors Smith and Jones came into a North Carolina lawyer's office oneday after meeting as associates in a large clinic in Connecticut.
They both dreamed of going to a warmer climate and told the attorneythey wanted to form a veterinary partnership. The attorney recommended thatthe two retain separate lawyers and that they meet later on to discuss details.At that meeting, he went on, they would hammer out a detailed partnershipagreement, specifying the rights and responsibilities of each partner. Theywould prepare schedules for the depreciation of the equipment each veterinarianwould be bringing to the practice and review the types of insurance neededin the event one of the partners became disabled or died. They would alsoput together employment agreements for each partner, spelling out the obligationseach partner had to the other in their respective roles as employees.
"Whoa!" said Smith. "You're just trying to generate abig fee on what should be a very simple transaction!"
"Yeah!" said Jones. "And you're trying to double thatexpense by making each of us get our own lawyer. You know that when twoof you get involved, all the arguing and disagreements get billed by thehour!"
With that, the doctors left.
The partnership went forward, however, negotiated over a sixer of MillerLight at Smith's kitchen table. There were really no big legal issues. Bothdocs would work as hard as they had in Connecticut and everything wouldbe split half way. They'd make a fortune and no darn lawyer would be sharingthe profit. Smith would buy the drugs. Jones would do the payroll. Off theywent. It was going to be marvelous.
Bambi in the headlights
Five years later, they were making great money. Clients loved them andthe clinic was thriving. But in the meantime, Jones had met Bambi Lynn,a performer at the local gentleman's club. He called Smith into his officeand let him know that he and Bambi would be moving to Fort Lauderdale tofurther her career. Therefore, it would be best if Smith would write hima check for Jones' share of the partnership.
"Oh, let's say twice last year's gross," Jones suggested.
Yes, Smith wrote out quite a few checks that year, but none were to Jones.He made payments to a relief DVM to fill in for Jones while the litigationdragged on. He made payments for employee-witholding taxes which Jones had"forgotten" to remit. He made big payments to his law firm toassist in negotiations with his partner's law firm in an effort to get outfrom under the partnership. Then he paid that firm even more to see throughthe sale of the clinic assets on the local courthouse steps. At the sale,as Smith watched his business being sold off for pennies on the dollar,he daydreamed about how cheap that original lawyer's fees seemed in retrospect.
After years of dealing with "do-it-yourself" partnerships,I am reminded of a comment which was made by one of my law school professors20 or so years ago. The professor said to our class, "The laws concerningmarriage are completely backwards. As of now, the law makes it very easyto get married and almost unbearably difficult to get out of marriage. Itwould be much better if it were simple to get divorced, but expensive anddifficult to get married.
I wish I had had that professor for my class in partnership law.