Dive into the intricate world of mergers and acquisitions with our latest blog post. Explore the nuances of contractual obligations beyond the dotted line, as revealed in a compelling federal district court case. Discover how buyers can find themselves bound to agreements not explicitly assumed in acquisition deals, shedding light on the complexities of post-acquisition landscapes. Gain insights into the legal ramifications and practical implications of inherited contracts, offering a cautionary tale for navigating the dynamic realm of M&A.
M&A Stories
May 17, 2018
In the dynamic realm of mergers and acquisitions, the intricacies of contractual obligations can often transcend the boundaries of a straightforward asset purchase agreement. A recent federal district court case sheds light on how a buyer of a business’s assets can find themselves tethered to agreements not explicitly assumed in the acquisition deal.
In the spotlight is a local pharmacy in Jasper, Alabama, aptly named “Buyer.” The narrative unfolds with the acquisition of the pharmacy’s assets from its previous proprietor, Richard Bowie, who operated under the banner of “Bowie’s Discount Pharmacy.” Unbeknownst to Buyer, embedded within Bowie’s operational framework was a contractual liaison with PCS Health Systems, Inc. (“PCS”) for pharmaceutical benefits management services.
This contractual entanglement, delineated in a Provider Agreement accompanied by a comprehensive Provider Manual, orchestrated the symbiotic dance between Bowie’s Discount Pharmacy and PCS. Buyer, inheriting the mantle of ownership in 2016 via an Asset Purchase Agreement, inadvertently stepped into the shoes of its predecessor, continuing the legacy under the familiar moniker of “Bowie’s Discount Pharmacy” and honoring the preexisting rapport with PCS.
However, the harmony was disrupted in September 2017 when a scrutinizing audit, orchestrated by PCS, brought to light discrepancies in Buyer’s pharmacy operations. The aftermath? A terse missive from PCS, invoking the specter of “temporary payment withholding” (TPW), effectively withholding over $300,000 in reimbursements owed to Buyer.
In response, Buyer pursued legal recourse, initiating litigation against PCS in an Alabama federal district court. The crux of the matter lay in whether Buyer, by virtue of its post-acquisition dealings with PCS, had implicitly assumed the contractual obligations, including the binding arbitration provision stipulated therein.
PCS contended that Buyer’s actions bespoke an implicit acceptance of the contract, compelling adherence to its arbitration mandate. Despite Buyer’s protestations of non-assumption, the court ruled in favor of PCS, underscoring the principle that contractual obligations can transcend the confines of a signature.
The ruling serves as a cautionary tale for buyers navigating the post-acquisition landscape. Beyond the dotted line of an asset purchase agreement lies a labyrinth of potential obligations, beckoning prudence and discernment. As the court elucidated, the hallmark of a contractual bond extends beyond mere signatures, encompassing a spectrum of external manifestations indicative of mutual assent.
In essence, the case underscores the imperative for buyers to exercise vigilance in their post-closing interactions, cognizant of the latent ramifications of inherited contracts. A signature may signify assent, but in the absence thereof, actions speak volumes, binding parties to the unseen threads of contractual obligation.
Case Reference: Bowie’s Priority Care Pharmacy, LLC v. CaremarkPCS, LLC, Dist. Court, ND Alabama 2018 No. 6:18-cv-00300-LSC.
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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