Yale wins info battle in $435M hospital sale contract fight

Law360 – Friday, January 10, 2025
By Brian Steele

Three Connecticut property owners must hand over internal analyses and communications to Yale New Haven Health Services Corp. as it seeks evidence in support of its bid to back out of a $435 million deal to purchase hospitals from Prospect Medical Holdings Inc., a state court judge ruled.

In seeking to compel production of the material, Yale told Superior Court Judge Elizabeth J. Stewart that the documents would help to reveal whether Prospect breached an October 2022 asset purchase agreement. The three Medical Properties Trust Inc. subsidiaries covered by Wednesday’s order own the land on which the facilities Yale initially sought to buy — Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital — are located.

Yale’s November 2024 motion said that Prospect was in default on $56 million in rent payments to the MPT entities and owed them $314 million in loans, but Prospect worked out a deal whereby the past due amounts would be forgiven in exchange for MPT acquiring a $103 million equity stake in a Prospect affiliate called PHP Holdings LLC. Prospect also was supposed to pay MPT $457 million to buy the land and then transfer it to Yale, but MPT agreed to lower that figure to $355 million, Yale said.

“The plaintiff argues persuasively that the MPT internal analyses and communications could shed additional light on Prospect’s ability to perform under the APA and whether it has violated covenants in the APA,” the order said. “Those covenants include requirements that Prospect meet its ordinary course obligations and comply with all applicable laws.”

Judge Stewart held that Yale’s request is “reasonably calculated to lead to admissible evidence.”

Yale, the largest hospital system in Connecticut, sued in May 2024 to escape from the agreement, alleging that the seller did not accurately describe the “dire” financial condition of its properties, and later added claims that Prospect wrongly skirted tax and vendor payment obligations and encumbered its facilities with $16 million in previously unknown pension liens.

Prospect, based in California, quickly filed its own suit accusing Yale of improperly trying to lower its purchase price and leaking the litigation to the press, and the cases were consolidated. A trial is currently scheduled to start April 22.

Prospect also operates hospitals in California, Pennsylvania and Rhode Island.

In June 2024, Yale said it served the MPT entities’ Maryland-based parent company with a subpoena seeking the same documents that were at issue in its Connecticut motion to compel.

“Despite months of back and forth with MPT Parent culminating in very limited productions, YNHH has not received any internal documents or analyses from MPT,” the motion said.

The Connecticut entities — MPT of Waterbury PMH LLC, MPT of Manchester PMH LLC and MPT of Rockville PMH LLC — informed Yale that they would not produce the material without a court order, according to the motion.

In a motion to quash the subpoenas served on them, the Connecticut entities argued that Yale was duplicating the efforts underway in Maryland and should have gone through that state’s judicial system.

“This convoluted and wasteful legal strategy appears to be without legal precedent in Connecticut, has caused significant burden and cost to non-parties, and is a transparent end-run around the Maryland courts,” the motion to quash said.

Judge Stewart’s order turned away complaints that the Connecticut subpoenas sought documents from entities without offices or records of their own, which could be obtained instead from the parent company, and that it amounted to a fishing expedition that exposed a non-party’s confidential documents.

“The MPT Connecticut entities argue that MPT’s internal analyses and communications boil down to what MPT ‘thinks’ about the financial condition of Prospect and therefore is irrelevant and hearsay. That is not the standard,” the order said. “The court is sympathetic to a non-party being required to produce proprietary information, but there is a strong protective order in place in this case that should shield those documents.”

The judge wrote that the Connecticut subsidiaries of MPT had a “practical ability to obtain” the material, but ordered Yale to pick up the tab. MPT estimated that complying would cost 1,300 attorney hours and $425,000, but although the judge found that number “excessive,” she said Yale must meet with the Connecticut entities to narrow its requests.

Counsel for the parties and the MPT Connecticut entities did not immediately respond to requests for comment Thursday.

Yale New Haven Health is represented by Daniel Slifkin, Michael A. Paskin, Lauren M. Rosenberg, Andrew Connery, Frances McDonald and Helam Gebremariam of Cravath Swaine & Moore LLP and Kim E. Rinehart of Wiggin and Dana LLP.

Prospect Medical and its related entities are represented by Robert S. Friedman, Danielle Vrabie, Joshua Schlenger, Stephanie Calnan, Juthamas J. Suwatanapongched, Jessica Meyers, Khirin Bunker and Kazim A. Naqvi of Sheppard Mullin Richter & Hampton LLP and Amy P. Blume of Bershtein Volpe & McKeon PC.

The MPT entities are represented by Edward J. Heath, Benjamin C. Jensen and Jenna M. Scoville of Robinson & Cole LLP.

The case is Yale New Haven Health Services Corp. v. Prospect Medical Holdings Inc. et al., case number HHD-CV24-6184328-S, on the Complex Litigation Docket of the Connecticut Superior Court at Hartford.

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