PE firm H.I.G. Capital (HIG) created platform prison healthcare provider Wellpath and began its roll-up strategy. It missed a $17.5MM deferred cash payment in one of its acquisitions.
In H.I.G. Capital, LLC et al. v. Kristen Allred, et al., decided on August 10, 2026, Delaware Vice Chancellor David rejected HIG’s bid to pull a separate fiduciary breach and fraud case out of California, as the case was beyond the scope of the Delaware forum selection clause embedded in all agreements between the parties.
One of Wellpath’s 2022 acquisitions was Alpine Special Treatment Center and Harborview Center Behavioral Health (Alpine). In this deal, in addition to cash at closing and rollover equity, there was a deferred $17.5MM cash payment to be made to the ownership of Alpine one year after closing.
When the one year passed, Wellpath informed the former Alpine owners that Wellpath would be further deferring the payment. When they objected, Wellpath agreed to a settlement, which included Wellpath making $250K/month progress payments until the $17.5MM balance with interest was paid off. Four months later, Wellpath filed for bankruptcy, and the former Alpine owners filed a complaint in California for breach of fiduciary duty and claim for securities fraud under California blue sky laws, alleging HIG had no intention to make its deferred cash payment and intended to make future false statements, as HIG issued rollover equity interests to the former Alpine owners in Wellpath as part of its Alpine purchase.
The court said,
“Assuming, without deciding, that the California Blue Sky Claim falls within the scope of the forum selection provisions in the [Equity Purchase Agreement] or Rollover Agreement, those provisions cannot be enforced here because they choose the ‘Federal District Court located in the District of Delaware or the Delaware Chancery Court’ as the ‘exclusive’ forum for bringing a claim…That is problematic because neither the U.S. District Court for the District of Delaware nor the Delaware Court of Chancery has subject matter jurisdiction over the California Blue Sky Claim.”
Strategics and PE that push substantial payments to the future are in a position of leverage if and when the time comes that they cannot or do not want to pay. This does happen, and settlement agreements are common. What is novel in this case is that a case was brought under state law, likely a push to get the PE firm to settle. Given the PE firm is going to be stuck with this matter being on a California state docket, there will likely be stronger and broader forum selection clauses when PE provides rollover equity, stronger reps and warranties around rollover equity, and potentially mandatory arbitration for any subject matter jurisdiction issues that fall outside the Delaware court’s scope.
Jerome Fogel is a founding partner of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies with a specialty in mergers and acquisitions.
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