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Primary Care Providers Win Challenge of CMS Interpretation of Enhanced Payment Law

With the help and support of the Tennessee Medical Association, 21 Tennessee physicians of underserved communities joined together and retained Bass, Berry & Sims to file suit against the Centers for Medicare & Medicaid Services to stop improper collection efforts. Our team, led by David King, was successful in halting efforts to recoup TennCare payments that were used legitimately to expand services in communities that needed them. Read more

Tennessee Medical Association & Bass, Berry & Sims

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Healthcare Private Equity Compliance Checklist

The complex and ever-changing healthcare regulatory and enforcement environment, including increased focus on the role of private equity firms in their portfolio companies, make compliance a top priority for private equity firms investing in healthcare companies. The best way to limit your exposure as a private equity firm is to avoid a compliance misstep in the first place. Additionally, an effective and robust compliance program for your portfolio healthcare company makes it much more attractive to potential buyers and helps you avoid an unexpected and costly investigation or valuation hit down the road. Download the Healthcare Private Equity Compliance Checklist to assess whether your portfolio company's compliance program is up-to-date.

Click here to download the checklist.

Chris Lazarini Comments on Covenant of Good Faith and Fair Dealing

Securities Litigation Commentator


March 27, 2017

Bass, Berry & Sims attorney Chris Lazarini commented on a case in which the plaintiff claimed Merrill Lynch acted improperly in selling shares held as collateral for a loan when plaintiff had not defaulted on the loan. The court denied the charges, stating that Merrill Lynch acted within the bounds of the covenant of good faith and fair dealing and in accordance with the signed Loan Management Agreement which gave Merrill Lynch discretion to liquidate the shares if, in Merrill Lynch's "sole judgment" the collateral became insufficient.

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

Kinzel vs. Bank of America, No. 16-3355 (6th Cir., 3/2/17) 

*The covenant of good faith and fair dealing requires parties to carry out their contractual commitments in good faith, but does not establish new or independent obligations. 

**Where a contract grants one party sole discretion in making a decision related to the contract and does not provide express standards for exercising that discretion, the covenant of good faith and fair dealing imposes an objective standard of reasonableness. 

In April 2008, Plaintiff borrowed nearly $8 million from Merrill Lynch to finance the exercise of stock options in Cedar Fair Entertainment Company (NYSE: FUN) and pay the related taxes. At the time, FUN was trading at $23.19/share. As security, Plaintiff pledged the FUN stock he was acquiring and other assets and entered into a Loan Management Agreement ("LMA"). The LMA gave Merrill Lynch absolute discretion to liquidate the collateral if, in Merrill Lynch's "sole judgment," the value of the collateral became insufficient.

As the market crashed in late 2008, Plaintiff liquidated non-FUN assets to pay the loan balance down. Despite his ongoing efforts to make additional loan payments and his promises to pledge additional collateral, Merrill Lynch sold 167,900 of Plaintiff's FUN shares on March 3, 2009, at an average price of $6.83/share, and applied the roughly $1 million in proceeds to the loan balance. Plaintiff satisfied the loan before additional shares were sold.

In September 2010, with FUN trading at $12.63/share, Plaintiff sued, claiming that Merrill Lynch acted improperly in selling his FUN shares when he had not defaulted on the loan. The district court dismissed all but one of Plaintiff's claims and denied Plaintiff's motion to file an amended complaint containing a breach of contract claim. The court conducted a bench trial on the sole surviving claim – breach of the covenant of good faith and fair dealing claim – and ruled for Merrill Lynch (SLA 2016-19).

On appeal, Plaintiff sought review of the denial of his proposed amended complaint and the judgment in Merrill Lynch's favor on the good faith claim. The Court affirms the denial of the motion to amend. Even if all the facts Plaintiff alleges are true, it finds, Plaintiff cannot show that Merrill Lynch breached the LMA because Plaintiff gave "ultimate control" and "sole discretion" to Merrill Lynch to liquidate the collateral when the market crashed. Here, Plaintiff's lack of default and his ongoing efforts to pay the loan balance down are irrelevant; his good faith actions do not suspend Merrill Lynch's right to exercise its contractual rights under the LMA.

The Court also affirms the judgment for Merrill Lynch on the good faith claim. The covenant requires parties to carry out their obligations in good faith, but does not impose new or independent duties. Here, Merrill Lynch exercised its discretion reasonably, honestly, and within the range of risks the parties contemplated. 

On March 2, 2017, the day the Court issued its opinion, FUN closed at $68.17/share. If Claimant still owned the shares, as he claimed he would had they not been sold, they would be worth almost $11,500,000.

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