Med Tech Shareholders Challenge Done Deal

DALLAS (CN) - Former shareholders of medical software firm Vocada claim Nuance Communications fraudulently induced a merger and refused to make millions of dollars in payments after the deal was done.

Click here to read Courthouse News' Securities Law Review.

Lead plaintiff Murchison Capital Partners, of Dallas, sued Sunnyvale, Calif.-based Nuance in Dallas County Court.

They claim Nuance approached Vocada about a merger in 2007, as part of Nuance's "aggressively expanding" health-care division.

Vocada's success was due to its Veriphy software, by which hospitals report and track critical test results to referring physicians.

Plaintiffs say Vocada's revenue doubled each year from 2004 to 2006, and were projected to exceed $4 million in 2007.

At the time, Vocada's board members valued the company at no less than $40 million.

The plaintiffs say that in July 2007, Nuance proposed a merger worth $45 million, with $20 million in initial cash or stock going to Vocada shareholders, $4 million in cash and stock to employee retention and management bonuses, and $21 million in "earnout consideration," contingent on Veriphy revenue hitting targets in the 3 years after the merger closed.

The plaintiffs say the Vocada board went ahead with the merger after Nuance submitted a side letter in October 2007, promising to manage Veriphy products similarly to other Nuance products, among other things.

In the years since, however, Nuance has refused to pay any earnout consideration under the agreement, the plaintiffs claim.

They say Nuance refused to make $7 million in payments in 2009 and 2010. Plaintiff John Purtell says his requests for specific information about the sale of the software post-merger were denied, so he initiated arbitration proceedings under the merger agreement.

In October, the plaintiffs say, a three-member arbitration panel ruled unanimously that Nuance fraudulently induced Vocada's board and shareholders to enter into the merger agreement and that it lied in its side letter.

The plaintiffs seek damages for violations of the Texas Securities Act. They are represented by Peter Marketos with Reese Gordon of Dallas.

Follow @davejourno

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit