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Primcogent Solutions v Santa Barbara Medical Innovations

Jan 14, 2019

When a Dallas company was tricked into buying another that wasn’t as financially sound as its owners claimed, Chris Hamilton was able to get to the bottom of the fraud and recover the company’s loss.

A Good Deal

In 2011, Primcogent Solutions purchased Santa Barbara Medical Innovations (SBMI). Primcogent was a distributor of health and wellness products, and SBMI owned the exclusive distribution rights to the Zerona Diamond 2400, a medical laser which was being advertised as a non-invasive alternative to liposuction.

In its sales pitch, SBMI claimed revenue from the Zerona, manufactured by McKinney-based Erchonia Corp., was strong and only expected to go up. Sales were being given a boost by a contract with Groupon that was helping to market the product. Primcogent liked what it heard, and the two companies quickly closed the deal.

Clouds on the Horizon

As it turns out, Primcogent wasn’t told the entire story. After purchasing SBMI, it learned that many customers were unhappy with the Zerona and were returning it at an alarming rate. A short time later, Groupon canceled its contract with SBMI, which only added to its troubles. The financial burden brought about by these problems proved too much for Primcogent to bear, and the company filed for Chapter 11 in May of 2013. Months later, it filed for Chapter 7.

Getting to the Bottom of It

Chris Hamilton was selected by the bankruptcy court along with two other attorneys to handle Primcogent’s claim against SBMI and Erchonia. Through his investigation, Hamilton uncovered information showing SBMI knew before being acquired by Primcogent that customers were unhappy with the Zerona and that Groupon planned to terminate its contract.

The case was scheduled to be heard before a three-judge panel in a binding arbitration hearing. Erchonia chose to settle mere minutes before the hearing took place. Santa Barbara Medical Innovations chose not to. Although, after the six-day hearing ended and the judges handed down their verdict, it might have wished it had.

Hamilton didn’t stop there. Days later, he filed a breach of contract claim against Carolina Casualty, which provides SBMI with business insurance, for refusing to pay a settlement that was clearly spelled out under its policy. Through Hamilton’s efforts, Primcogent was able a recover a substantial amount of the money it had lost.

“We are grateful that the entire panel of arbitrators paid such serious and close attention to the law and the evidence, in finding that Primcogent would not have entered into the deal if the true legal and financial picture had been properly disclosed,” attorney Chris Hamilton said in prepared remarks. “This was a classic case of negligent misrepresentation to induce a transaction. This award will provide a strong measure of justice to the financial victims and creditors.”

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