Avoiding Litigation in Dental Practice Transactions Lawsuits involving dental practice transactions are more common than many expect. Beyond the financial and reputational impact, litigation can also take a significant mental, and even physical, toll. Given what’s at stake, this article highlights ways dentists and dental specialists can avoid common litigation pitfalls when buying, selling, or partnering with a dental service organization (DSO). A 2023 appellate case helps illustrate several key points. The Case Study: Selective Insurance Co. of Am. v. Singer In Selective Insurance Co. of Am. v. Singer, the court held that three insurers did not owe coverage to a group of dental practices. The claims arose from lawsuits brought by a management services company related to intellectual property rights that had been purchased in a prior asset sale.
1. Identify what is being sold. Dentists must clearly understand what assets are included in the transaction, especially given restrictions on clinical assets. In this case, the practices sold their intellectual property, including trademarks and domain names, to the DSO. 2. Understand the MSA. It is essential to understand what services the DSO provides under the MSA and what limitations apply. Here, the MSA likely granted the practices a license to use the DSO-owned intellectual property. Once the MSA was terminated, that license expired, eliminating their right to continue using those assets. 3. Establish a clear future plan. Dentists should not enter into a transaction without a clear, compliant plan for future operations. One brother opened new practices using intellectual property that had already been sold, likely violating both the MSA and noncompete provisions. Future plans should always align with contractual obligations. 4. Analyze insurance coverage carefully. Insurance policies should be reviewed in detail, including exclusions, limits, and deductibles. A closer review in this case may have revealed that intellectual property- related claims were excluded from coverage. Here’s your takeaway. Dental practice transactions are significant milestones and can be highly rewarding. However, when details are overlooked, they can quickly lead to costly and complex litigation. The good news is that many of these issues are preventable. A thorough understanding of transaction terms and how they affect future operations is critical for maximizing value and avoiding unnecessary risk. Our National Dental Law Group has assisted thousands of dentists and dental specialists with these transactions. Contact us today to learn more.
The factual background of the original transaction is especially important.
Transaction Details Between 2002 and 2011, two brothers, one a dentist and the other a non-dentist, formed seven dental practices and a company called BDC Management LLC (BDC). They later partnered with a private equity firm to expand and formed BDC Management Services LLC (DSO). The DSO then entered into an acquisition agreement with BDC, the brothers, and their practices. Through this agreement, the DSO acquired nearly all non-clinical assets, including intellectual property such as trademarks and domain names. At the same time, the selling practices entered into a Management Services Agreement (MSA) with the DSO. Unforeseen Consequences After the transaction closed, one of the brothers opened eight additional dental practices using the same intellectual property as the original practices but did not enter into MSAs for these new locations. In 2015, both brothers terminated their agreements with the DSO but continued using the DSO’s trademarks and domain names. As a result, the DSO filed lawsuits in New York and New Jersey for breach of contract, trademark infringement, conversion, bad faith, and unjust enrichment, among other claims. The brothers sought coverage from their general liability insurers, but the insurers denied the claims. One case was settled, and in the other, the court ruled that coverage did not apply. The decision was based on policy exclusions related to intellectual property infringement and claims involving owners with certain ownership percentages. Key Takeaways for Dentists This case highlights several important considerations for dentists seeking to avoid litigation in DSO transactions.
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