Indiana court overturns $3M CBIZ award in Zotec M&A legal clash

In a ruling that draws attention to the legal intricacies of M&A transactions and the consequences of undisclosed conflicts, the Indiana Court of Appeals has partially reversed a lower court judgment in a long-running case between Zotec Partners, LLC, and CBIZ Operations, Inc. The case centers on Zotec’s 2013 acquisition of Medical Management Professionals, LLC (MMP) and the subsequent discovery of an undisclosed financial interest by MMP’s then-CEO.

At the time of the acquisition, MMP was wholly owned by CBIZ, and its CEO, G. Darrell Hulsey, held a personal ownership stake—valued at approximately $11 million—in Technology Partners, Inc. (TPI), a vendor that supplied MMP’s core radiology billing software. Hulsey did not disclose this interest to either CBIZ or Zotec during the sale process.

Following the announcement of the stock purchase agreement, TPI filed a lawsuit related to the transaction. Hulsey acted as an intermediary in resolving that litigation by negotiating an arrangement whereby Zotec would continue using TPI’s platform for 18 months following the acquisition, with the understanding that TPI would then assist in transitioning MMP’s clients to Zotec’s proprietary system. At the time, Zotec remained unaware of Hulsey’s financial relationship with TPI. The acquisition closed with Zotec paying $200 million for 100 percent of MMP’s stock.

Zotec eventually discovered Hulsey’s ownership interest in TPI in 2016 and filed a lawsuit against both Hulsey and CBIZ. The company alleged common-law fraud, deception, and breach of contract against Hulsey, and sought to hold CBIZ liable for Hulsey’s actions under an agency theory. It also brought claims against CBIZ for breaching representations and warranties in the stock purchase agreement, later amending the complaint to add a claim under the Indiana Uniform Securities Act (IUSA). CBIZ filed a counterclaim, arguing that Zotec had breached the agreement by pursuing contractual claims against CBIZ and seeking to recover its legal expenses.

At a 2021 jury trial, the panel found that Hulsey had committed fraud and breached his employment contract with Zotec, awarding the company $800,000 in damages. However, the jury returned a general verdict in favor of CBIZ, rejecting Zotec’s agency-based claims tying the firm to Hulsey’s misconduct.

Remaining claims were resolved at a bench trial. Zotec had opted to seek rescission under the IUSA—a remedy that, under Indiana law, is equitable and thus not subject to jury trial. The trial court ruled against Zotec on this claim, concluding that because the jury had already found CBIZ not liable under an agency theory, the same result applied to the securities claim. The court also sided with CBIZ on its counterclaim, finding that Zotec had breached the agreement by asserting claims that were not supported by contractual representations. The court awarded CBIZ more than $3.1 million in attorney’s fees and expenses.

On appeal, the Indiana Court of Appeals affirmed some parts of the ruling while reversing others. The court agreed that Zotec’s IUSA rescission claim was properly tried to a judge, not a jury, because rescission is an equitable remedy. It also upheld the trial court’s decision to deny Zotec’s securities claim, agreeing that the jury’s prior finding—rejecting CBIZ’s liability for Hulsey’s conduct—precluded further recovery on the same factual grounds under a different legal theory.

However, the appeals court reversed the trial court’s ruling on CBIZ’s counterclaim. The appellate panel concluded that Zotec had not breached the stock purchase agreement simply by asserting claims that were ultimately unsuccessful. Zotec’s fraud and contract claims were tied to specific provisions in the agreement, including sections related to material adverse effects and significant contracts. The fact that Zotec failed to prove a breach did not mean that it had sued over representations CBIZ never made. As a result, the Court of Appeals found the trial court’s ruling clearly erroneous and ordered judgment in Zotec’s favor on the counterclaim, eliminating the $3.1 million fee award previously granted to CBIZ.

The decision offers several takeaways for financial advisors and deal professionals. It illustrates how undisclosed personal interests by executives involved in M&A can have prolonged legal consequences. It also highlights the legal distinction between equitable and legal remedies—an important consideration when structuring claims and determining trial strategy. Finally, it clarifies that merely bringing an unproven claim, based on express terms in a contract, does not amount to a breach of the agreement itself—an important precedent for buyers asserting post-closing claims in complex deals.

Case Name: Zotec Partners, LLC, and Medical Management Professionals, LLC v. G. Darrell Hulsey and CBIZ Operations, Inc.
File Number: 24A-PL-870
Decision Date: April 8, 2025
Judge: Judge Bradford (opinion author), with Judges Pyle and Kenworthy concurring.