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November, 2010

Business Law Pitfalls

By Larry J. Laurent, PC

As a lawyer who, for the past 20 years, has been exclusively handling legal problems for doctors of chiropractic, I have been asked to write an article about the most common business law and related problems doctors encounter, why they face these problems and some ideas on how to best deal with them. For the past eight years, I have taught various law courses at the University of Texas McCombs College of Business, as well as a course entitled "business law for doctors" at Texas Chiropractic College in Houston. For most of these past 20 years, I have also conducted seminars on chiropractic law. Dealing with doctors on a daily basis has helped me understand the basic business law problems they encounter. In this article I am going to lay out five of the most common legal problems, in no particular order, and explain what I believe the doctor can do to avoid and correct the problem(s). Bear in mind that these are simply my opinions on the subject.

Doctors don't fully understand, the legal effect of a contract. Too many doctors sign contracts without understanding the legal implication of what they have done. Specifically, I have seen doctors enter into a contract with a consultant or vendor to buy their goods or service(s), and when the goods or service(s) are not delivered as promised, the doctor assumes that they have no further obligation owed under their contract. The other guy breached it, so the doctor decides not to pay or perform anymore.

Unfortunately, that is not how the law of contracts works. A contract is a binding agreement between two parties. Under the contract each party is obligated to perform a task (provide services, pay money for services, etc.). When a party fails to provide what they contracted, as a general rule, a breach of the contract has occurred. However that breach most often does not excuse the non-breaching party from their legal obligations. While it does afford the non-breaching party a claim for damages against the other party, they may find themselves being sued for breach by failing to perform their legal obligations. Contracts require compliance, but generally provide a valid cause of action for damages for non-compliance. If you become the victim of a breach, get a lawyer as soon as possible and put the breaching party on notice. This may afford you the legal remedy known as "anticipatory repudiation" and allow you to avoid further obligations. File a lawsuit early to get the judge on your side. The judge may order the other side to perform or excuse your continued performance because of the other party's misconduct. Either way, you want to get the breaching party into the legal system as soon as possible.

Doctors don't sufficiently check out what a vendor or consultant is selling. Along with the problems addressed previously, a corollary problem involves DCs' unwillingness, inability or sufficient lack of interest to verify the specifics of what the consultant or vendor is actually promising to do. Many consultants or vendors are prepared to say anything they know the doctor wants to hear in order to get them to buy their goods/services. Once a doctor has signed on the dotted line they becomes legally obliged to pay, often, very significant, sums of money, to that consultant/vendor.

Unfortunately, many of these "deals" turn sour and the doctor finds themselves owing a lot of money without getting what was promised in return. One twist is the relatively recent preference use of a financing/leasing company as a middle man. This approach is often used by disreputable consultants/vendors to effectuate a scam on unsuspecting buyers. Under the lease-finance transaction, the doctor usually finds themselves owing a lot of money to a finance company, despite the fact that the consultant/vendor has failed to deliver the promised goods or services. The doctor generally remains legally obligated to continue paying on the finance lease, despite the vendor's apparent breach, which may have rendered the goods or services useless. If the doctor quits paying, they face the risk of being sued by the leasing company. There are very few legal defenses available in a claim by the leasing company for non-payment. Suing vendors/consultants for non-performance is a costly process and they know it. Accordingly, they often further insulate themselves by inserting a provision in the sales agreement that requires the doctor to sue the consultant/vendor in the vendor's home state.

The best protection against this type of unscrupulous activity is for doctors to be acutely aware that any consulting or marketing "deal" that sounds too good to be true likely isn't. Doctors should always require consultants/vendors to detail in writing the specific claims/representations being made. Ask for references, ask those references for the names of other doctors who bought into the program, then ask them the same hard questions. Don't allow yourselves to get swept up in the excitement of a new money-making opportunity. Proceed with caution as if every dollar you spend is your last dollar. It often is.

Doctors don't generally understand the regulatory guidelines imposed on them by their own state chiropractic board. It's a real shame that most chiropractic colleges don't adequately teach doctors the laws and regulations governing the conduct of their profession. I used to ask my students if they had read the chiropractic act of the state in which they intended to practice. Virtually no hands went up. I ask the same question to practicing doctors who attend my chiropractic law seminars. I usually get the same response. Most doctors seem to think they are bullet-proof when it comes to regulatory compliance. This may be true until the doctor gets a letter that they is being investigated for non-compliance.

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