A Pennsylvania federal court holds that a “hospital cannot be sold ‘as is’ while simultaneously representing compliance with the rules, regulations, or requirements that govern the hospital’s physical condition.
M&A Stories
September 14, 2022
Introduction
Purchasing a business “as is” comes with inherent risks for the buyer. A recent case in Pennsylvania sheds light on the consequences of such a purchase in the context of a hospital acquisition.
The Details
In 2017, a buyer acquired five hospitals in the Philadelphia area for $418 million. Shortly after the sale, the buyer discovered fire code issues in one of the hospitals and demanded corrective action from the seller. However, the seller refused to address the concerns.
The Lawsuit
The dispute escalated and resulted in a 19-day trial in a Pennsylvania court, where the buyer ultimately lost the case. The court’s ruling was based on the fact that the purchase agreement clearly stated that the hospital was being sold in “AS IS” condition. Furthermore, all representations and warranties regarding the physical condition of the hospital were expressly excluded.
See Tower Health v. CHS Community Health Systems, Inc., Civil Action No. 19-2782, United States District Court, E.D. Pennsylvania, (September 6, 2022).
Analysis
It may seem perplexing as to why the buyer sued the seller in the first place. Even without the “as is” provision, the court found that the hospital had complied with all the necessary state and federal licensing requirements at the time of the deal. This weakened the buyer’s position significantly.
Additional Consequences: In addition to losing the case, the buyer is now obligated to cover the seller’s legal costs and fees incurred during the 19-day trial. This outcome stems from a provision in the purchase agreement that assigns the seller’s reasonable attorney fees and costs to the buyer as the losing party in any legal dispute arising from the agreement.
By purchasing the hospital “as is,” the buyer assumed the risks associated with its condition and waived any claims for damages relating to it. This case serves as a reminder for buyers to thoroughly assess the terms and conditions of an “as is” purchase and understand the implications it may have on their rights and liabilities.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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