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Accelecare Wound Centers, Inc. v. Amicus Hyperbaric Group

December 15, 2009

ACCELECARE WOUND CENTERS, INC., PLAINTIFF,
v.
AMICUS HYPERBARIC GROUP, LLC, AMICUS MEDICAL GROUP, LLC, AMICUS WEST TEXAS HYPERBARIC L.P., AMICUS TEXAS HYPERBARIC, LP, AMICUS ARIZONA HYPERBARIS, L.P., AMICUS SOUTH TEXAS HYPERBARIC, LP, AMICUS VALLEY HYPERBARIC, LP, AND JOHN R. HEDRICK, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

This Opinion addresses a motion for partial judgment on the pleadings in this breach of contract action arising from a sale of health care businesses.*fn1 On October 6, 2009, plaintiff Accelecare Wound Centers, Inc. ("Accelecare") filed a motion pursuant to Fed. R. Civ. P. 12(c) to resolve the following issues: Whether any of three "Earn-Out Notices" provided by Accelecare to defendants Amicus Hyperbaric Group, LLC and related entities ("Amicus") were valid under the Asset Purchase Agreement ("APA"), and if so, whether Amicus timely objected to such valid notice. The parties agree that if a valid Earn-Out Notice was provided and if Amicus timely objected, then the disputed Earn-Out calculation should be referred to a mutually agreed accounting firm for a final determination pursuant to the APA. For the reasons that follow, only the Earn-Out Notice dated May 22, 2009 was valid, Amicus properly objected to that notice, and the Earn-Out calculation must therefore be referred to a mutually agreed accounting firm.

BACKGROUND

The following facts are taken from the parties' pleadings and the exhibits attached thereto. On May 31, 2007, Accelecare entered into the APA with Amicus.*fn2 Pursuant to the APA, Amicus was to transfer to Accelecare all of the assets of certain wound care and hyperbaric medicine management services (the "Centers") in exchange for $5,234,449 in cash, 248,528 share of Accelecare stock, and the assumption by Accelecare of certain liabilities and contracts. A portion of the purchase price totaling $2,841,400 and a portion of the shares of Accelecare stock were placed in escrow (the "Escrow Property") to secure and fund the parties' respective obligations under the APA.*fn3 On February 13, 2009, the Escrow Property was deposited in this Court's registry.*fn4

Section 14 of the APA (the "Earn-Out Provision") requires Accelecare to pay Amicus additional compensation, i.e., a bonus, if the Centers performed above a certain level following the acquisition. Section 14.1(a) provides that the amount of the bonus is determined by an "Earn-Out Formula," which is based on a multiple of the incremental "EBITDA"*fn5 achieved at certain Centers during the "Measurement Period"*fn6 less the Centers' incremental debt, $1,656,000 in deferred debt, and $1,750,00 paid to Amicus as an advance on its potential bonus (the "Earn-Out Advance"). Accelecare was entitled to offset any amount it owed to Amicus under the Earn-Out Formula against any amounts that Amicus owed Accelecare pursuant to the APA.*fn7

The notice provision on which this motion hinges is contained in § 14.1(b) of the APA. Section 14.1(b) provides:

Within thirty (30) days after the completion of Buyer's [i.e., Accelecare's] audit for fiscal year 2007 and fiscal year 2008, if applicable, Buyer shall deliver to Seller [i.e., Amicus] a statement reflecting its computation of the Bonus achieved for the Measurement Period (the "Earn-Out Notice"). (Emphasis supplied.) Section 14.1(c), in turn, allows Amicus twenty days to object to Accelecare's Earn-Out calculation. It provides:

If within twenty (20) days of delivery of Buyer's [i.e., Accelecare's] computation, Seller [i.e., Amicus] has not given Buyer notice of any objections to the computation, the computation will be final and binding. If Seller gives notice of an objection, then any disputed issues will be submitted to a mutually agreed accounting firm and such firm shall make a determination with respect to any disputed amounts in accordance with this Agreement.... The determination of the accounting firm shall be final, binding and non-appealable.

The APA specified the process by which Accelecare must provide the Earn-Out Notice, as well as all other notices and communications, to Amicus. Section 16.4 of the APA provides:

All notices and other communications hereunder shall be in writing and shall be deemed given when delivered... to the parties in the manner provided below:... If to Seller [i.e., Amicus], to Amicus Hyperbaric Group, LLC, c/o James Bullard [("Bullard")]... with a copy to David S. Piper, Esq., Boyer & Ketchand, P.C. [("Piper")].*fn8 (Emphasis supplied.) Under § 15.1 of the APA, each of the Amicus parties, "on behalf of itself and its equity holders," designated "John R. Hedrick" ("Hedrick") as their representative for the purpose of, inter alia, "receiving notices and providing objections, if any, and all other communications with respect to the Bonus [i.e., the Earn-Out]." Section 15.1 states that the purpose of appointing Hedrick as the Sellers' Representative is "to efficiently administer the rights and obligations of the Seller under the Transaction Agreements, and otherwise with respect to the transactions contemplated hereby."

Accelecare filed suit in this district on September 29, 2008.*fn9 On November 7, 2008, Accelecare delivered an Earn-Out Notice (the "November 2008 Notice") to Amicus's prior counsel in this litigation, Brian Jackson ("Jackson")*fn10, and provided a copy to, inter alia, Piper. Based on the performance of the Centers during the Measurement Period, the November 2008 Notice calculated that, instead of Accelecare owing Amicus a bonus, Amicus owed money to Accelecare. Accelecare claimed that it was therefore entitled to all Escrow Property. Amicus did not respond to the November 2008 Notice within twenty days.

On December 18, Amicus' counsel requested that Accelecare deliver the November 2008 Notice directly to Amicus' designated representative. On December 23, Accelecare sent a second copy of the November 2008 Notice to Jackson, as well as to Bullard, Piper, and Hedrick (the "December 2008 Notice"), but maintained that the November 2008 Notice was valid and binding. On January 12, 2009, Amicus' counsel sent a letter to Accelecare and its counsel stating that Amicus objected to the December 2008 Notice as untimely because Accelecare's 2008 audit had not been completed. On January 23, Amicus' counsel sent another letter to object to Accelecare's valuation of its shares.*fn11

On May 22, fifty-two days after the completion of Accelecare's 2008 audit on March 31, 2009, Accelecare delivered by courier a third Earn-Out Notice (the "May 2009 Notice") to Jackson, with copies to Amicus Hyperbaric Group, LLC, c/o James Bullard, and to Piper. It did not send this third notice to Hedrick. The Earn-Out calculation in the May 2009 Notice is identical to that in the November 2008 and December 2008 Notices. By letter dated June 11, Amicus objected to the Earn-Out calculation and valuation of Accelecare stock in the May 2009 Notice. Amicus faxed the objection to Accelecare on June 11, exactly twenty days after the third Earn-Out Notice was received on May 22, and sent another copy via certified mail.

On October 6, Accelecare filed a motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) to determine the appropriate Earn-Out calculation that should be applied. Accelecare argues that the November 2008 Notice was valid and that because Amicus failed to object to it within twenty days, the Earn-Out calculation therein is binding. In the alternative, Accelecare argues that the December 2008 and May 2009 Notices were valid, such that if the Court determines that Amicus properly objected to either notice, the Earn-Out calculation should be referred to a mutually agreed accounting firm. In its October 23 opposition, Amicus argues that none of the Earn-Out Notices were valid, and in any case, Amicus properly objected within twenty days to the May 2009 Notice, which was the only Earn-Out calculation provided after the completion of Accelecare's 2008 audit. Amicus agrees that if the May 2009 Notice was properly provided to Amicus, then the parties' dispute concerning the ...


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