Here is a brief description of dispute related to business purchase.The buyer bought a business of dental clinic which treats most patients in Medicaid program. The seller presented IRS tax return showing steady revenue/profit growth over the last three years. However, after the deal was closed. The buyer found that about half of the revenue was due to false billing to government Medicaid program. The false billing was the result of no legitimate credential of a dentist in the clinic. The seller falsely/knowingly used his own credential to bill the government Medicaid on behalf of that dentist. Furthermore, the seller also prescribed controlled substance (mostly pain medicine) on behalf of the dentist who does not have the license to prescribe. The earning figure inflated legitimate portion of the earning. The growth of the business could not have happened should the seller have done the billing legitimate way. The business sale agreement also has arbitration clause which simply states “any dispute goes to arbitration according to American Arbitration Association rule”. However in the state of Kentucky, A party can commence the dispute in court if the arbitration clause does not specify that the arbitration must be held in KY. Ally Cat, LLC v. Chauvin, 274 S.W.3d 451 (Ky. 2009). The buyer wants to go court directly instead of going arbitration. Questions:Should the buyer go ahead to report above false billing to government first? Or the buyer should file lawsuit in court to dismiss arbitration clause by citing KY arbitration law? Is it realistic for the buyer to get money back for the business he bought? What the seller expect to react?
State/Country relating to question: Kentucky
What you have is a case of fraud. The buyer can opt to either (1) sue to r escind the transaction and get his money back, or (2) sue for damages, meaning the difference between the purchase price and the real value of the business. If you want to rescind the transaction, you should move immediately to do so. File suit in court in reliance on the case you cited (I have not verified your interpreation of the case and am relying on your interpretation). You can get your money back. If you have done any incorrect billing since you bought, then you need to correct that. If there is inquiry about prior billings, you should refer the inquiry to the former owner. Let him deal with those issues.
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