Promise Healthcare accuses former CEO of interfering in hospital deal

Promise Healthcare Group, a hospital and nursing home chain based in Boca Raton, Fla., is accusing its former CEO and a unit of Santa Ana, Calif.-based KPC Group of engaging in a "campaign of misinformation" that forced Promise to reduce the price of two hospitals by nearly $10 million, according to The Wall Street Journal.

Promise, which filed for Chapter 11 bankruptcy in 2018, claims former CEO Peter Baronoff and KPC interfered with a deal to sell the hospitals to Lexmark Holdings. Mr. Baronoff was named CEO of KPC Health System in  2018 after serving as co-founder, chairman and CEO of Promise Healthcare from 2001 to 2017.

Promise entered into an agreement to sell two hospitals in Louisiana to Lexmark Holdings on Feb. 4, about three months after Promise entered bankruptcy. At an auction held Feb. 21-22, KPC was the winning bidder for nine other Promise Healthcare facilities. Mr. Baronoff allegedly tried to secure the Louisiana hospitals for KPC by spreading misinformation to "undermine Lexmark's confidence" in buying the facilities. He allegedly told a managing member of Lexmark the company made a "grave mistake" by entering a "horrible deal" to acquire the facilities and offered to help Lexmark sue Promise to recover its deposit or drive down the sale price, according to court documents.

"Influenced by Mr. Baronoff's actions and statements, Lexmark breached the [asset purchase agreement] by, among other things, refusing to close the sale and demanded that the debtors reduce the price of the Louisiana facilities by over $10 million," reads the complaint.

Promise entered into an amended asset purchase agreement with Lexmark for a reduced purchase price of $23.5 million. However, the deal didn't close in June 2019, as required under the amended agreement. KPC then offered to buy the facilities for $22 million. When Promise sought court approval of a new asset purchase agreement with KPC, it learned of KPC's alleged campaign to undermine the agreements with Lexmark.

Promise subsequently entered into a revised agreement with Lexmark, and sold the Louisiana facilities for $24.5 million in August. Promise alleges KPC's interference was a significant factor in driving down the purchase price. "KPC's tortious conduct caused the debtors to suffer losses exceeding $9 million," according to the complaint.

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