$60 Million Verdict Against HMS Holdings Over Withheld Earn-Out Payments

In 2010, Dennis Demetre and Lori Lewis sold their company, Allied Management Group Special Investigation Unit (AMG), to HMS Holdings Corp., a publicly traded healthcare cost-containment firm based in Irving, Texas. The deal was structured in two parts: a $13 million upfront cash payment at closing, plus two subsequent annual 'earn-out' payments tied to AMG's post-acquisition performance.

HMS made the upfront payment. The earn-out payments never came. For the payment periods ending in June 2011 and June 2012, Demetre and Lewis received zero dollars under the contingent payment formula. They filed suit in New York Supreme Court in 2012, alleging HMS had manipulated AMG's operations in ways that wiped out the performance metrics on which the earn-out was calculated, depriving the sellers of compensation they had contractually bargained for.

The case survived an early motion to dismiss. In April 2015, the Appellate Division, First Department, reinstated the breach-of-covenant claim after a lower court had dismissed it prematurely, allowing the litigation to proceed to full discovery and trial. Kenneth B. McClain of Humphrey, Farrington and McClain represented Demetre and Lewis throughout.

On November 3, 2017, a jury returned a verdict in favor of the plaintiffs on the breach of contract claim and awarded $60 million in damages. HMS disclosed the verdict in regulatory filings and publicly characterized the award as inflated.

HMS moved post-verdict, but the parties reached a resolution before any reduction was ordered. On June 27, 2018, they signed a settlement agreement under which HMS paid $20 million, with the funds transferred the following day. HMS's CFO described the payment as drawn from available cash and classified it as a non-recurring legal expense. The settlement closed out litigation that had run for more than six years from filing to resolution.