Background
Klein owned multiple long-term care facilities in Missouri and operated Premier Rx pharmacy to service them. In January 2016, Klein initiated negotiations with PharMerica to sell Premier Rx. During the sale process, Klein represented in the Asset Purchase Agreement that he had no knowledge of any threat to terminate the 27 Material Contracts (pharmacy service agreements with his facilities), specifically including Gregory Ridge and Parkway Health and Rehab.
However, Klein had sold Gregory Ridge and Parkway to Reliant Care Management in March 2016—before the June 2016 purchase agreement was signed—knowing Reliant planned to use its own pharmacy and would terminate the PSAs effective October 2016. Klein failed to disclose these sales or the known termination threat to PharMerica, which valued the deal at $9.35 million based on the assumed continued PSAs. The transaction closed July 18, 2016. When Reliant terminated the PSAs in October 2016, PharMerica discovered Klein’s omissions.
PharMerica sent a Claim Notice in August 2017 and sued in June 2018. The trial court entered judgment in PharMerica’s favor in May 2025 on breach of contract, actual fraud, and piercing the corporate veil against Klein. Vipani, Klein’s CFO who held a 4% interest in Premier Rx, was also held liable under the veil-piercing theory.
The Court’s Holding
The appellate court affirmed the trial court’s judgment against Klein on all counts. On breach of contract, the court found substantial evidence that Klein’s representations in Sections 3.14 and 3.18 of the APA regarding knowledge of facility sales and termination threats were false. The credible testimony of PharMerica’s CFO Schaefer and Reliant’s counsel Craddick directly contradicted Klein’s testimony that Reliant had agreed to assume the PSAs.
The court upheld the finding of “Actual Fraud” as defined in the APA, which requires: (i) a false representation, (ii) knowledge of falsity when made, (iii) intent for reliance, and (iv) reasonable reliance to detriment. Because actual fraud applied, the $2 million damages cap in Section 7.5 did not apply. The court also affirmed the award of attorney fees under the APA’s indemnification clause requiring Klein to cover PharMerica’s reasonable attorneys’ fees resulting from his breach. The Claim Notice requirement was satisfied; Klein received proper notice describing the facts, breached provisions, damages amount, and fraud assertion.
Regarding piercing the corporate veil against Klein, the court affirmed. It found Klein exercised “complete dominion” over his nursing home enterprise—owning majority interests in Premier Rx and the facilities, sole control of Platinum management company, and using it to siphon assets through management fees paid before other vendors. However, the court reversed as to Vipani. Though he controlled the “flow of money” as CFO of Platinum, this financial control alone was insufficient. Piercing requires dominion over both finances AND business policy/practices. The record showed Klein, not Vipani, was the ultimate decision-maker on the policies and practices material to the transaction.
Key Takeaways
- Sellers in M&A transactions have affirmative disclosure duties regarding knowledge of threats to material customer contracts, even without explicit contractual inquiry
- Fraud exceptions to damages caps can eliminate contractual liability limitations when sellers knowingly misrepresent facts material to valuation
- Piercing the corporate veil requires “complete dominion” over both finances and business policy decisions; controlling cash flow alone is insufficient for personal liability
- CFOs and finance officers can escape personal liability under alter-ego theory if they lack decision-making authority over the transaction at issue
Why It Matters
This decision carries significant implications for M&A practitioners. Sellers cannot limit disclosure obligations to answers to specific due diligence requests; they bear affirmative duty to disclose known threats to material contracts—particularly when they themselves created the threat by secretly selling customer relationships. The fraud carve-out from damages caps means sellers face potentially uncapped liability when they knowingly include false representations about transaction-critical customer relationships, directly affecting deal economics.
The veil-piercing analysis also clarifies that passive financial control—even over all cash flows—does not equate to the “complete dominion” required for personal liability of corporate officers. Courts will distinguish between those who control money and those who control corporate policy and business decisions. This distinction protects CFOs and finance directors who execute financial directives from owners but do not set company policy, a significant protection for passive financial management roles even in multi-entity structures.