Firm News

On June 30, 2023, Partner Kevin Smith, Counsel Laura Ann Froning, and Associate Michael Rondon secured a win for Wiggin and Dana’s client Eastern Connecticut Health Network, Inc. (“ECHN” n/k/a “Legacy”) against Prospect Medical Holdings, Inc. in a complex M&A lawsuit.

This matter concerned the disposition of nearly $10 million in charitable funds generously bequeathed to Eastern Connecticut Health Network, Inc. by real estate developer Raymond “Sonny” Damato. After Mr. Damato’s death, but before the funds were fully distributed from his estate, ECHN entered into a transaction with plaintiff Prospect Medical Holdings and affiliated entities (“Prospect”), through which Prospect purchased most of ECHN’s assets and assumed certain liabilities.  Because ECHN was a non-profit entity, and Prospect was a for-profit entity, the transaction was considered a “conversion” under Connecticut law and consequently governed not only by the parties’ asset purchase agreement, but also by certain regulatory requirements, including the review and approval of the Connecticut Attorney General. As part of the approval process, independent non-profit organization Eastern Connecticut Foundation for Health, Inc. (the “Foundation”) was created to receive whatever charitable assets remained with Legacy after it wound down.

In 2019, after Legacy had received a significant distribution of the Damato Funds, Prospect demanded them, claiming that they had been included in the deal. Legacy disagreed, and Prospect sued for breach of contract. The AG and Foundation intervened as defendants, along with Legacy, arguing that the Damato Funds were not included in the deal and should instead pass to Foundation after Legacy winds down.

During the litigation, Legacy also counterclaimed based on Prospect’s post-closing failure to turn over approximately $4.5M in other funds (unrelated to the Damato Funds) to Legacy for purposes of funding an indemnity reserve following the sale. And based on an affirmative defense asserted by the AG that any funds remaining in that indemnity reserve at the end of Legacy’s wind down should pass to Foundation, the defendants further argued that Prospect should repay an amount reflecting what should be in the indemnity reserve.

On June 30, the Court rendered a judgment completely in favor of Legacy and against Prospect as to the disposition of the Damato Funds. As for the counterclaim, the Court agreed with the defendants that Prospect had mishandled the indemnity funds it received, but did not order Prospect to repay them to Legacy ECHN (for Legacy to pass to Foundation for healthcare in the community), concluding instead that Prospect had been required under the parties’ agreement to spend such funds directly for the benefit of healthcare in the community.