Avoiding nasty lawyer tricks in your veterinary business deal
On almost any top 10 list of the most trusted professionals, veterinarians are at or near number one. When it comes to lists of the least trusted professions—well, as an attorney, let’s just say I’m very happy that politicians and used-car salesmen exist.
For a long time I couldn’t quite understand this abysmal ranking for lawyers. But in the last few years I’ve begun to understand some of the public’s cynicism and distrust. Of course there are the usual complaints—long delays, high fees, overly bombastic advertising—but I’m more disturbed by a veterinary-specific issue I see in my law and consulting practice.
This is what bothers me: Some of my colleagues overlook the reality that they can (and should) carry out a two-pronged approach to their counsel. The first prong is to protect the client against errors and oversights in paperwork. But just as important is the second prong: getting the deal to close or terminate.
Overlooking the objective
When a veterinarian goes to a lawyer for help negotiating a practice buy-in, establishing a partnership, or even just reviewing an employment contract, the objective should be clear. The attorney’s job, besides dotting i’s and crossing t’s, is to bring the transaction to a speedy, reasonable and practical conclusion.
There’s more to concluding one of these business arrangements than making sure every conceivable contingency is addressed. There’s more to good lawyering than behaving like the other side is trying to force terms down the client’s throat. And there’s no reason to cause angst and dismay on both sides by taking an eternity to prepare and review documents.
Here’s the thing: Business transactions are not criminal cases. In the criminal and civil litigation worlds, which are adversarial virtually by definition, one wrong concession can be fatal. Hypertechnicality may well mean the difference between the admission or exclusion of essential evidence or testimony. The same is true with large-capitalization mergers and acquisitions. Corporate law is highly technical and a small misstep can represent millions of dollars in lost or gained revenue.
But in the veterinary deal world, the parties are not ordinarily criminals, titans of industry or personal injury plaintiffs. They are ordinary people trying to do business with each other and fashion a mutually suitable outcome in a reasonable time frame within a realistic budget. And often they’ve never done anything like it before.
Dead deals and other disappointments
So why is this on my mind? Because recently I watched three separate practice sales collapse for no good reason. As a result, half a dozen veterinarians had to pay substantial legal bills with no closed transaction to show for it. Could better lawyering, with clearer focus on the objective of getting the deal to close or terminate, have saved either the deal or the clients’ money? Let’s take a look at one of the transactions.
Dr. Cleveland and Dr. Columbus had been discussing the sale of the Ohio Vet Clinic for more than a year and finally settled on what both considered to be a reasonable price. Each had had a preliminary valuation done and they had worked out most of the detail. Full third-party financing had even been preapproved.
Then their respective attorneys got involved. (My role was simply as consultant.) The seller’s lawyer insisted that a detailed and exquisitely drafted letter of intent be prepared and signed before the buyer would be allowed access to the building, the inventory, the equipment or any information about staff compensation and earned-yet-unpaid benefits—all critical to closing the sale.
A letter of intent is simply a written general understanding of what the deal is to be, including the approximate price, and often contains promises not to disclose the deal to anybody and to keep the financial information private. It’s a page or two; it’s not a contract of sale. It’s more or less an agreement that the buyer won’t use disclosed business information to his or her unfair advantage while the final details of the deal are worked out. And plenty of practice sales close with no such letter.
Well, let me tell you: Until Ohio Vet Clinic crossed my path, I’d never seen a letter of intent gobble up so muc time and so many thousands of dollars in legal fees. The seller’s lawyer was so preoccupied with having a “perfectly crafted” letter of intent that he wouldn’t even permit his client to begin discussing key details of the sale with the buyer or his attorney. It took from July until mid-winter to satisfy the seller’s lawyer.
I continually and perpetually encouraged the attorneys to schedule an environmental review of the property, to order a recertification of the survey, to perform a zoning review and to authorize disclosure of tax returns to bear out the profit-and-loss statements (which had already been shared between the parties). I wanted them to carry out these tasks simultaneously with the drafting and redrafting and redrafting of the letter of intent. That way the sale could close immediately after the letter was satisfactory to the seller’s counsel. More importantly, it would not waste yet more time should one of those steps turn up a deal-breaking problem that would terminate the transaction—and avoid superfluous paperwork and legal fees.
But alas, the seller’s lawyer refused. He insisted that nothing move forward until the letter of intent was complete and correct in every detail.
Finally the fateful day arrived and the letter of intent was done. The prospective buyer, whose finance company had already required him to recommit to the purchase loan at a higher interest rate as a result of all the delay, was allowed to have his phase one environmental study carried out. (The legal fee meter was continuing to spin this entire time.)
The following week the environmental report arrived. The clinic building’s interior was found to contain rooms fully painted with chipping and scaling lead paint. The cost of mitigation would be high and presented a fundamental deal-endangering obstacle. Naturally the buyer was mortified and, probably, (due to the wacky letter-of-intent delay) suspicious that the seller was trying to pull a fast one.
Both veterinarians were filled with disappointment, mistrust and frustration. They and their lawyers made a futile attempt to negotiate who would bear the cost of abatement, but finally both parties just walked away in disgust.
What would have worked better?
My take? If the attorneys had been genuinely interested in accomplishing the best result for their clients, they would have looked at the deal more holistically—as a package rather than a string of events that could occur only in an established order. Since the fundamentals of the deal were already in place, why not make an immediate effort to research and resolve any outstanding potential dealbreakers before subjecting these docs to needless delay and drafting expenses?
The other two practice sales I was working on last week also died mainly as a result of distinct but similar overlawyering and underfacilitating by counsel. It is my contention that a business attorney should go a step beyond identifying legal obstacles. He or she should help brainstorm solutions when a deal is salvageable. And the lawyer should give honest appraisals of the seriousness of any potential or identified dispute between the parties. If a business deal needs to be euthanized, why prolong the clients’ emotional and economic suffering?