Irving-based HMS Settles $60 Million Breach of Contract Verdict for $20 Million

Irving-based HMS Healthcare has settled litigation with the founders of a business it bought in 2010, agreeing to pay plaintiffs Dennis Demetre and Lori Lewis $20 million.

In November, a New York jury ruled in favor of Demetre and Lewis’ breach of contract claim, awarding the two $60 million in damages. HMS had filed a post-trial motion for an order granting it judgment notwithstanding the verdict or to set aside the award of damages, according to the most recent quarterly report of HMS-parent HMS Holdings.

The two sides signed the settlement on June 27, and HMS—which surpassed $500 million in revenue last year—paid it from available cash on June 28. HMS Healthcare is a healthcare IT company that helps payers with cost-containment through tech and analytics.

“The settlement payment does not meaningfully change our overall liquidity profile, which remains very strong, and the charge will be treated as a non-recurring legal expense when we report second quarter results, so will not impact our adjusted EPS,” CFO Jeff Sherman says in a statement.

The case, which was pending in the Supreme Court of New York, related to the acquisition earn out portion of the purchase price for Allied Management Group Special Investigation Unit Inc., which it bought in 2010 for a baseline price of $13 million, according to Allied’s Management Group’s lawyers. The group says earn out payments contingent on profits never came.

HMS said it believed—as of its most recent quarterly earnings report, released prior to the settlement—that “strong grounds exist to overturn or greatly reduce the damages awarded by the jury.”

In a separate issue, that report also mentions another potential risk to the company. In February, the Texas Attorney General sent HMS a civil investigative demand stating that the agency is investigating “possible unspecified violations of the Texas Medicaid Fraud Prevention Act,” according to the quarterly report. HMS said in the report that it has been cooperating and providing documents and information to the agency, a process that a spokesperson said this week is ongoing.