About Us | Chapters I Advertising
The Legal Department articles are not intended to serve as legal advice and are offered for educational purposes only. The information provided should not be used as a substitute for independent legal advice and it is not intended to address every situation that could potentially arise. Please be aware that laws, regulations and technical standards change over time. As a result, it is important to verify and update any reference or information that is provided in the article.
The profits or peril of joint advertising
by: David G. Jensen, J.D.
former Staff Attorney
Reviewed November 2017 by Ann Tran-Lein, JD
Managing Director, Legal Affairs
Assume you are a sole-practitioner in private practice and you have just leased an office, which is one of five in a suite of offices. Four other psychotherapists, who are also sole-practitioners, lease the other offices in the suite. As sole-practitioners, the therapists are in business for themselves, meaning that each practitioner is responsible for developing his or her own practice; for collecting his or her own fees from patients or insurance companies; for paying his or her own rent to the landlord; for washing his or her own dishes; and, for paying his or her own malpractice insurance premiums. Most importantly, each practitioner has legal and ethical obligations that flow to his or her own patients, but generally not to anyone else’s, unless, of course, there is a duty to protect a nonpatient under Tarasoff or a duty to report suspected child, elder, or dependent adult abuse. But, since the office is in a suite of offices, the practitioners do share a common entrance and a common waiting area. Your patients sit on the waiting room couch next to theirs, and their patients stare at the same knock-off Monet as yours.
Then, one day while talking about the latest movie, the World Series, or some other item of mutual interest, one of the practitioners suggests that the “suite-mates” pool their resources and advertise together under a common name, i.e., Elm Street Counseling. In theory, the pooling one’s resources to advertise sounds like a good idea. After all, such action could allow a practitioner to advertise in ways, i.e., website, television, newspaper, or radio, which he or she may not otherwise be able to afford. Moreover, since the therapist is now affiliated with some sort of “agency” or “group practice” the practitioner may have a greater presence in the community than he or she would have on his or her own. All this could result in the practitioner getting more patients and more people getting mental health services. It all sounds good, so nothing appears to the therapists to be wrong with advertising in such a manner. Of course, no one consulted with CAMFT or an attorney knowledgeable about the business aspects of being a psychotherapist.
So, the decision to advertise is made and all five “suite-mates” do so under the “umbrella” of Elm Street Counseling, although, at the same time, averring to their patients that they are sole practitioners in business for themselves. Does this sound inconsistent? Sound legal? Sound ethical?
There are three potential problems with the Elm Street Counseling scenario described above. One, if not done accurately, the advertising may be challenged as being false, fraudulent, misleading, or deceptive.
Two, joint advertising may increase one’s risk of liability because it creates the possibility of getting named as a defendant in a lawsuit involving one or more of the other practitioners involved in Elm Street Counseling. In other words, one practitioner can get entangled in another practitioner’s legal troubles even though the first practitioner did nothing wrong.
Three, the distribution of referrals generated by the joint advertising may, with emphasis on the word may, constitute paying, accepting, or soliciting fees for the referral of patients, which would be illegal.
Hence, although joint advertising may create profits for therapists, it may also create peril for them, all of which adds up to a situation that practitioners should analyze carefully before engaging in any joint advertising.
Joint Advertising as False, Misleading, or Deceptive Advertising
The first problem with joint advertising is that it exposes the therapists involved to an allegation that they are engaging in false, fraudulent, misleading, or deceptive advertising. Certainly, therapists may advertise, but legally and ethically they are prohibited from advertising in a manner that is false, fraudulent, misleading, or deceptive.1 False, fraudulent, misleading, or deceptive statements include statements that misrepresent facts, or that mislead or deceive because they omit important facts.2
Moreover, on the ethical side of the street, CAMFT Code of Ethics, in general, prohibits advertising that is not accurate and specifically admonish therapists to avoid using names for their practices that could mislead the public concerning the identity, responsibility, source, and status of those practicing under that name.3 So, any advertising conducted by a therapist, or a group of therapists, to be legal and ethical, must be true and accurate. Too many therapists assume, however, that advertising is an innocuous activity and that they cannot get into trouble by doing it. This is a dangerous assumption!
Think back to the Elm Street Counseling situation described above. On one hand, the practitioners are advertising as Elm Street Counseling, but, on the other hand, they desire to practice as sole-practitioners. These categories are mutually exclusive. You are either in business for yourself, or you are in business, in one way or another, with others, whether that is via a partnership, via a professional counseling corporation, or, as we shall see, via a joint venture. Hence, advertising in such a way that implies to the public that Elm Street Counseling exists when it does not is inconsistent with the public’s belief that it does exist. It is this inconsistency between what the practitioners claim in their advertising and what they do in their private practices that sets the stage for the allegation of false, fraudulent, misleading, or deceptive advertising.
The profit motive further pollutes the problem. One of the purposes of the advertising is to attract patients to an entity called Elm Street Counseling, but if that entity does not exist, the public is being manipulated via the advertising. The advertising is a ruse or a ploy. Elm Street Counseling is a mirage; it is not a real business; it is veneer for the economic interests of professionals. It is created by sleight of hand, not by the force of law.
Joint advertising then is risky. But, can anything be done to minimize the risk of such advertising being construed as false, fraudulent, misleading, or deceptive? Fortunately, there is something that can be done. It is called telling the truth! The problem with the Elm Street Counseling scenario is that there is a fact gap between the reality of the entity as a counseling business and the perception of the public regarding that business. This fact gap is created because the advertising states that something, i.e., Elm Street Counseling, exists when it does not. The way to minimize this risk is to bring these disparate pieces together, i.e., to accurately advertise what does exist. For instance, suppose Elm Street Counseling takes out an advertisement in the local newspaper. If that advertisement informs the public that Elm Street Counseling is not a partnership, a nonprofit organization, or a professional counseling corporation, and that it is a consortium of sole-proprietors who have bonded together for advertising purposes only, the practitioners would be informing the public that Elm Street Counseling is not a real counseling practice or agency; but, rather, just a creative way of advertising. The public should then know that Elm Street Counseling is not a real business, and that the practitioners involved are in business for themselves. Hence, the advertising should not then create a gap between the business practices of the practitioners involved in the joint venture and the expectations of their patients, at least in terms of the advertising anyway.
In fact, assuming Elm Street Counseling is a legitimate counseling business and not just an “umbrella” organization for advertising purposes, the licensees involved have a legal obligation, before any services are rendered, to inform patients of the practice of the names and license designations of the owners of the practice.4
Assuming Elm Street Counseling is an “umbrella” organization for advertising purposes, it would also be prudent for the practitioners to reiterate to those individuals who actually become patients that each practitioner is in business for himself or herself. For instance, the practitioners should include in their professional service agreements language to the effect that the practitioner is in business for himself or herself; that all other practitioner’s in the office are in business for themselves; and, the practitioners are not practicing together as a partnership, a nonprofit organization, or a professional counseling corporation. It might also be a good idea to post a sign summarizing this information in the common waiting area.
Practitioners involved in joint advertising should consult with an attorney to clarify the nature of the enterprise they desire to create. There are options. Do they want to create some sort of group practice? Do they just want to advertise together under some sort of “umbrella” organization? Or, do they want to create an MFT referral service? It is important to think about these foundational questions because the answers to them take the practitioners down separate roads, each with very different legal responsibilities and ramifications. One road leads to a formal private practice situation, probably entailing creating a partnership or a professional counseling corporation. The second leads to the creation of a joint venture. And, the third leads to the creation of an MFT referral service, which is an entity that must be registered with the BBS.5 The key for those involved is to know which road they are traveling so they are not surprised later.
Additionally, when it is determined what type of entity will be created, the owner or owners of the entity should file for a fictitious business name permit to properly acknowledge the right of the “owner” to operate a business using such a name. This also prevents others from using the name, and the “owner” from using someone else’s fictitious business name. There are some additional issues that need to be considered. Will the chosen name belong to one of the individuals engaged in the joint venture, to some of the members, or to all of them? Further, what will become of the name if all of the joint advertisers go their separate ways? To avoid complications later, these issues should be addressed at the time the entity is created.
So, joint advertising has many components to it, and although the risk of creating false, misleading, or deceptive advertising can be minimized by language that clarifies the true nature of the enterprise, such action does not erase all the risks involved with joint advertising, which leads us to the second problem created by it.
Joint Advertising as Increasing One’s Risk of Liability
The second problem with joint advertising is that it arguably creates a joint venture, which is a way of doing business. Joint ventures are not, in and of themselves, illegal, but they do increase one’s risk of liability because an individual participant in the joint venture can be held legally responsible for the actions of one or more of the other participants in the joint venture. In this regard, a joint venture is very much like a partnership. Of course, just because there is a risk of something occurring, does not mean that it will occur. However, the prudent practitioner identifies as many risks as possible for decision-making purposes in an effort to determine whether the risks are ones that the practitioner can live with in his or her practice. To properly assess risks within the confines of joint advertising, however, each practitioner must understand what a joint venture is and the ramifications of engaging in such an enterprise.
Legal Definition of a Joint Venture
A joint venture exists when two or more persons combine their property, skill, or knowledge to carry out a single business undertaking and agree to share the control, profits, and losses of such enterprise.6
Based on this definition, engaging in joint advertising probably creates a joint venture. Here is how an attorney representing an aggrieved ex-client would argue the facts from the Elm Street Counseling scenario. Since more than one practitioner is involved, in fact there are five, the “two or more” requirement of a joint venture is met. The “combining” element is met because the practitioners would be commingling their property, most likely their money to pay for the advertising, and their ideas for such advertising. The “single business undertaking” element is met because advertising is a purposeful activity and one of the purposes for advertising is to attract new patients, which will hopefully generate revenue for the practitioners involved in the joint venture, so we have both an “undertaking” and a “business or profit” component. And, the “control, profits, and losses” elements are met because the practitioners will decide who gets to participate in the joint venture; how much each practitioner must contribute to the enterprise; when the advertisements will be run; where the advertising will be conducted; and, how any referrals generated by the advertising will be doled out to the participating practitioners.
Joint Ventures: The Downside
Remember, joint advertising is not necessarily “legal” or “illegal.” Depending on how carefully or carelessly the advertising is conducted, it could be either legal or illegal. But, regardless of how the advertising is conducted, there is another separate issue with regard to joint advertising that must be understood, namely that joint advertising is probably going to create a joint venture. Concomitant with the creation of a joint venture are risks that creep in like the cold from outside on a wintry night. There are two significant aspects of joint ventures that must be understood.
One, a joint venture can be formed by a written or oral agreement, or by an agreement implied by the parties’ conduct.7 What is troubling about the italicized language is: it is possible for practitioners to create a joint venture without being aware of what they are creating. In fact, based on my interactions with therapists from all over California, this is the way many joint ventures are created, which is scary because many therapists do not understand the implications and ramifications of what they are doing. They just do it because they heard about someone else doing it, or because it seemed like a good idea at the time.
Two, a joint venture and each of its members are responsible for the wrongful conduct of a member acting within the scope of his or her authority.8 Assuming a joint venture has been created, the real risk that must be appreciated and considered is that you may be legally responsible for the actions of one of the other participants in the joint venture. For instance, Tom is an MFT and he is one of the practitioners advertising with you under the name of Elm Street Counseling. Tom meets with Jill, a very depressed young woman; in fact her depression is so severe that she needs to be hospitalized, whether voluntarily or involuntarily. However, Tom fails to detect the severity of her condition and to formulate a treatment plan in light of her extreme situation. Jill then commits suicide, and her family brings a wrongful death action against Tom.
Although Tom is named as a defendant in the lawsuit, will anyone else be named as defendants in that lawsuit? Absolutely! An aggressive and creative plaintiff’s attorney is going to name anyone and everyone the lawyer can in such a lawsuit, which would include Elm Street Counseling Center and the practitioners who created it. The attorney’s legal theory is going to be all the practitioners doing business as Elm Street Counseling have joint and several liabilities for the actions of the others because they are engaging in a joint venture. That means Tom’s problem just became your problem if you are conducting a joint venture with him, even though you did not do anything wrong.
The attorney will adopt this “scorched earth” policy of naming anyone and everyone in the lawsuit because the attorney is duty-bound to do what is in the best interests of the attorney’s clients. In fact, the attorney could be sued for legal malpractice for failing to name all potential defendants.
Moreover, assume Tom does not have malpractice insurance, whether by choice or by failure to pay his malpractice insurance premium. In a joint venture situation, this is not a problem for the attorney because, based on the law pertaining to joint ventures, he now has five other malpractice polices to go after. Or, the lawyer may choose to name the joint venture and its members because it is probably easier to get $100,000 from five practitioners than $500,000 from one practitioner.
This does not mean, however, that all the individuals involved in the joint venture are legally responsible for all the errors or omissions of one or more of the other participants in the joint venture. Any so-called “wrongful conduct” must have occurred within the scope of the practitioner’s authority with regard to the joint venture. With regard to Elm Street Counseling, the scope of authority would seem to be the lawful rendering of counseling services, but nothing more. Hence, if the wrongful conduct is sexual misconduct with a patient, a defense that the other members of the joint venture would have is that such conduct, which is specifically prohibited by law, is certainly not within the authority of the enterprise because it is outside the boundaries of lawful counseling services. Note, however, that as a defense this is an idea that would extricate a practitioner from a lawsuit, but not necessarily insulate someone from one.
Doling Out Referrals
Joint advertising is similar to an onion in that they both have many layers of complexity. Buried within the joint advertising that creates a joint venture scenario is a subtle risk with potentially major ramifications. That risk is that the arrangement may be challenged as paying, accepting, or soliciting fees for the referral of clients, which would be illegal. California law prohibits practitioners from paying, accepting, or soliciting any compensation, consideration, or remuneration, whether monetary or otherwise, for the referral of clients.9 Hence, the decision to advertise with other practitioners must also account for how referrals generated by the advertising will be doled out to the practitioners participating in the joint venture. Practitioners should avoid any arrangement that distributes referrals on a fee for referral basis. Rather, the joint venture should use some sort of random, non-monetary, means of distributing the referrals. Distribute them alphabetically or according to license number, whether from lowest to highest number or vice versa. Or, dole out patients according to particular areas of emphasis of those within the group, i.e., child therapist, couple’s therapist, etc. But, do not assess, require, or solicit any sort of charge for the referral of clients, or for altering the arrangement for making the referrals. Simply adopt some sort of random, or not so random, nonmonetary policy and stick to it!
But, We Want to Advertise Together!
Again, advertising together is not necessarily illegal; it simply sets the stage for getting dragged into someone else’s legal problems because of the legal liabilities attendant to joint ventures. Consequently, if colleagues desire to advertise together and to create a joint venture, there is nothing inherently wrong with doing so, assuming they understand the risks involved and keep their conduct within the confines of the law. At a minimum, however, they should consult with an attorney because, given the scale of the venture, it may be best to create a partnership, with a written partnership agreement, or a professional counseling corporation as opposed to a joint venture. Alternatively, as a way to further dilute liability concerns, it may be best to create a separate and distinct MFT referral service.
Although not necessarily illegal, joint advertising does complicate a therapist’s life, but then again so do children and pets. Care must be exercised to ensure that any advertising is true and accurate and not false, fraudulent, misleading, or deceptive. Moreover, one must understand that engaging in joint advertising creates the possibility of getting dragged into someone else’s legal problems via the joint venture theory. The lesson here seems pretty clear: know with whom you are engaging in a joint venture and select only those practitioners that you know are competent, ethical professionals. Additionally, make it a requirement for participation in the joint venture that malpractice insurance be obtained and in force for all the time that the practitioners participate in the joint venture. Although the measures suggested in this article will not completely insulate one from trouble, they will go a long way towards minimizing risk in the area of joint advertising.
1See California Business & Professions Code § 651 and CAMFT Code of Ethics 10.1 through 10.12
2California Business & Professions Code § 651(b)
3CAMFT Code of Ethics 10.3
4California Business & Professions Code § 4980.46
516 CCR § 1889, et seq.
6California Approved Civil Instructions, 3712: Joint Ventures
9California Business & Professions Code § 4982(o)