United States

Expert witness testimony assists client in gaining a favorable verdict

CASE STUDY

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A for-profit hospital entity (the Defendant), acquired certain hospitals and other assets from a former nonprofit hospital system. The asset purchase agreement contained several post-closing covenants, which included capital improvements to the former hospitals purchased and charity care obligations. A suit was filed in 2009 by a community foundation (the Plaintiff) that was created when the for-profit hospital entity acquired the nonprofit hospitals. Among other things, the foundation was responsible for ensuring the for-profit health care entity met the obligations outlined in the deal.

RSM was engaged to serve as a financial expert to the Plaintiff. We were referred to the foundation through an attorney relationship and were selected based upon our extensive technical knowledge and our experienced litigation support team.

RSM's approach
A RSM partner testified on behalf of the Plaintiff in a lawsuit involving post-closing covenants contained in the asset purchase agreement. The testimony provided clarity around erroneous accounting on the part of the Defendant.

Specifically:

  • The annual reports produced by the Defendant included a number of errors and inconsistencies related to capital improvements.
  • The reports also did not include sufficient accounting documentation for the Defendant's claimed expenditures.
  • The reports did not comply with the Defendant's own accounting policies and procedures, nor did they comply with generally accepted accounting principles (GAAP).

Outcomes
The Court ordered that GAAP should apply in analyzing the Defendant's compliance with the post-closing covenants regarding capital improvements and charity care obligations. As a result, the Court ordered a court-supervised accountant to determine whether the Defendant complied with its post-covenant obligations.

The Court also ruled that the Defendant was to pay the Plaintiff the minimum shortfall related to the Defendant's attempt to take credit in the year two report for new construction and commitments that failed to meet the definition set forth by GAAP. The Defendant was ordered, by the court, to pay $161.9 million to the Plaintiff for failing to make improvements to the acquired hospitals and meeting the charity care obligations.

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