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Departing Physician Entitled to Accounts Receivable and Not Liable for Future Rent

In a recent breach of contract case involving a physician’s claim for accounts receivable after he left the partnership in which he was a partner (the ”Partnership”), the physician prevailed on his claims.  The physician (the “Plaintiff”) also prevailed as to the counterclaim of his former partners who counter-sued him claiming that he was liable for future rent due under a lease entered into by the Partnership.  The case, Pendola M.D., P.C. v. Assoc. Neurologists of Kingsport (Tenn. Ct. App. 2016), involved the following facts:

  • The Plaintiff joined a Partnership of other neurologists in 1996
  • The Plaintiff became a partner one year later
  • At the time Plaintiff became a partner, he signed a Partnership Agreement
  • In 2008, after Plaintiff became a partner, the Partnership signed a ten year lease for a building with an annual rental rate of $216,000
  • Plaintiff claimed that he was not informed of the signing of the lease until more than one year after it was signed
  • In 2011, Plaintiff gave his 180 day notice that he was leaving the Partnership

The Plaintiff filed a breach of contract lawsuit after the Partnership refused to pay him the accounts receivable to which he claimed that he was due. The Partnership counter-sued alleging that the Plaintiff was liable for his pro rata portion of rent due for another eight years after Plaintiff’s departure.

The Partnership Agreement clearly provided that the Plaintiff was entitled to receive his accounts receivable after he left the Partnership.  The Partnership based its argument that Plaintiff was liable for future rent on a “hold harmless” provision in the Partnership Agreement.

As explained by both the trial court and the Court of Appeals of Tennessee, which affirmed the trial court, the hold harmless provision in the Partnership Agreement did not support the argument of the Partnership.  In fact, it supported the argument of the Plaintiff.

The outcome of the case turned, as many breach of contract cases do, on the language in the parties’ written agreement — in this case, the Partnership Agreement.  As the trial court aptly pointed out, if the Partnership wanted the Plaintiff to be responsible for rent payments after he left the Partnership, it could have made that clear in the Partnership Agreement.

Even if the Partnership Agreement had expressly provided that a physician partner who left the Partnership was responsible for pro rata rent for whatever term remained on the lease when the physician departed, under the facts of this case, a very good argument could be made that the Plaintiff would still not have been liable to the Partnership. That is so because the Plaintiff was not made aware of the Lease until over one year after it was signed. That is also so because there was proof in the case that other physicians who had left the partnership before Plaintiff were not required to pay their pro rata portion of the rent for the remainder of the term of the lease.

This case is a good example of how breach of contract cases are frequently won or lost years before a lawsuit is filed.  If the Partnership truly intended for departing physicians to be responsible for future rent, it should have paid more attention to the language in its Partnership Agreement when that agreement was being drafted.