Commitments and Contingencies	6 Months Ended
Jun. 30, 2015
Commitments and Contingencies
Commitments and Contingencies	8. Commitments and Contingencies Legal Proceedings From time to time, we may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of our business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. None of our accruals for outstanding legal matters are material in the aggregate to our financial position. Our contractual relationships, including those with federal and state government entities, subject our operations, billing and business practices to scrutiny and audit, including by multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of our contractual performance. From time to time, we may have contractual disputes with our customers arising from differing interpretations of contractual provisions that define our rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that we accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could adversely affect our business, financial condition, results of operations and cash flows. Kern Health Systems: In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (“KHS” or “Plaintiff”) sought to recover in excess of $7.0 million exclusive of interest, attorneys’ fees and costs, against Allied Management Group Special Investigation Unit, Inc. (“AMG”), Dennis Demetre and Lori Lewis (collectively, “Defendants”), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code. On June 9, 2014, the jury issued its verdict in favor of all Defendants, and against KHS, on all causes of action except negligent misrepresentation. On that cause of action, the jury issued a verdict against all Defendants, jointly and severally, in the sum of $1.38 million. The negligent misrepresentation verdict was based on representations to KHS allegedly made by AMG and former owner Dennis Demetre in the spring of 2008, prior to our acquisition of AMG. We believe that the jury erroneously awarded damages based on an error inasmuch as the jury unanimously found that Defendants (through Demetre) made the negligent misrepresentation to KHS while having reasonable grounds for believing the representation to be true. Based on the jury’s verdict, we believe we are properly characterized as the prevailing party on the breach of contract claim. AMG has filed an appeal of the verdict and is seeking to recover its attorneys’ fees and costs in the sum of approximately $2.3 million. We have not recorded an obligation on this matter at this time, as we have appealed this decision and believe it is probable that we will prevail on the appeal of this matter, although there are risks and uncertainties related to any litigation, including appeals, and neither we nor our counsel can assure litigation results. Pending the appeal process, we were required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in Other current assets on our unaudited Condensed Consolidated Balance Sheet at June 30, 2015. Dennis Demetre and Lori Lewis: In July 2012, two of AMG’s former owners, Dennis Demetre and Lori Lewis (the “Plaintiffs”), filed an action in the Supreme Court of the State of New York, claiming an undetermined amount of damages alleging that various actions unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the “SPA”) and that we had breached certain contractual provisions under the SPA. The Plaintiffs filed a second amended complaint with two causes of action for breach of contract and one cause of action for breach of implied covenant of good faith and fair dealing. Although the Plaintiffs have also alleged an action based on fraud, the court dismissed that claim and further denied their subsequent appeal to resurrect the dismissed claim. We filed a counterclaim for breach of contract arising out of the Plaintiffs’ failure to indemnify us for costs, including attorneys’ fees arising out of our defense of the KHS action described above and for fraud and negligent misrepresentation arising out of the Plaintiffs’ misrepresentations concerning capabilities of their software platform. On July 13, 2015, the court granted in part and denied in part the Plaintiffs’ motion to dismiss our counterclaims, allowing our counterclaim for breach of contract to proceed but dismissing our counterclaims for fraud and negligent misrepresentation. This case continues in the discovery phase. We believe we have a meritorious defense and will continue to defend this matter vigorously, although there are risks and uncertainties related to any litigation. Restrictive Covenants, Trade Secret, Contract and other Causes of Action in Texas and New York: We are the plaintiff in lawsuits filed in August 2014, entitled HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino and Jason Ramos, in the District Court of Dallas County, Texas, Cause No. DC-14-09047 (the “Texas Action”), and HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin and Danielle Lange, in the New York State Supreme Court, Albany County, Index No. A00754/2014 (the “New York Action”). These suits allege that, in the violation of their respective contractual, statutory and common law obligations to us, defendant Public Consulting Group, Inc. (“PCG”) and defendants former HMS employees Gambino, Ramos, Arendt, Curtin and Lange unlawfully misappropriated our confidential, proprietary and trade secret information, as well as our employee and customer relationships. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. Through discovery and forensic investigation in the lawsuits, we uncovered the wrongful destruction of evidence by one or more defendants and sought judicial relief in the New York Action against those defendants. On May 19, 2015, the New York court concluded that defendants Curtin and Lange engaged in egregious misconduct and issued an order granting our motion for spoliation of evidence, which ordered that Curtin and Lange repay our associated attorneys’ fees and costs without reimbursement by defendant PCG and that Lange was reported to the New York State Bar Association for professional misconduct. We are seeking reimbursement of approximately $0.5 million from Curtin and Lange personally pursuant to the court’s sanction order. These defendants have filed an appeal of the order. We also have sought injunctions in both the Texas and New York Actions. On July 10, 2015, the court in the Texas Action issued an order granting a temporary injunction against PCG, Gambino and Ramos. The Texas court found that we had proved the existence of unlawful conduct and had demonstrated a probable right to recovery at trial regarding our claims against PCG, Gambino and Ramos, including claims involving the misappropriation of our confidential, proprietary and trade secret information and the improper solicitation of our employees in violation of our agreements with PCG. The Texas court further found that an injunction was necessary to avoid imminent and irreparable harm to us. As such, the Texas court entered a temporary injunction that enjoined, in pertinent part: (i) PCG from accessing or using any of our confidential or proprietary information, including, but not limited to, in order to solicit, divert or take away the third-party liability (“TPL”) business of any State Medicaid or other healthcare agency; (ii) PCG from using the services of Curtin or Lange (who are defendants in the New York litigation, as further discussed in detail below) to solicit, review, prepare or submit proposals for, or to in any way provide services related to TPL for PCG; (iii) PCG from using certain of its prior Request for Proposal (“RFP”) responses that contain or were prepared using our confidential information in its preparation of any future PCG TPL response; (iv) Gambino and Ramos from using any of our confidential information or from developing, assisting or advising on PCG TPL proposals for our customer RFPs; and (v) PCG from soliciting any of our employees except as may be permitted under prior agreements between us and PCG (the “Texas Injunction”). The Texas Injunction was ordered to remain in place through the time of trial in the Texas Action, which the court has initially set for March 2016. As a condition to obtaining the Texas Injunction, we were required to post a surety bond in the amount of $0.5 million. On July 14, 2015, the court in the New York Action issued its decision and order on our motion for a preliminary injunction. The New York court found that our trade secret protection had not been waived and that we were entitled to continued protection, and that we had successfully established a likelihood of prevailing on our non-solicitation claims against Curtin, Lange and Arendt and on our trade secret misappropriation claims against Curtin and Lange; however, the court held that injunctive relief in the New York Action was not necessary due to the Texas Injunction. The court’s order also preserved our right to again seek injunctive relief in the New York Action in the event of a change of status regarding the Texas Injunction. The New York court has set a tentative trial date for June 2016. Both the Texas and New York Actions continue in the discovery phase. On July 23, 2015, we filed a separate complaint in the New York State Supreme Court, Albany County against Joseph “Jeff” Flora and former HMS employee Elena Moiseekno. Flora is a former Director of the Bureau of Third-Party Liability at the Office of the New York State Medicaid Inspector General who was subsequently hired as a consultant by PCG. We are seeking damages and injunctive relief against these defendants for their alleged unlawful misappropriation of our confidential, proprietary and trade secret information and other wrongful conduct. As previously disclosed in our Current Report on Form 8-K filed with the SEC on July 20, 2015, we received notice that re-procurement of the TPL contract with the New Jersey Department of Human Services had been awarded to PCG. We intend to timely file a protest with the State of New Jersey Division of Purchase and Property challenging the contract award to PCG. On July, 31, 2015, New Jersey did, however, grant us a 60-day extension on our current contract under mutually agreeable terms through September 29, 2015. While we believe our claims are meritorious, there are inherent uncertainties in any litigation, and there can be no assurances that we will ultimately prevail at trial or with our protest, or that the rulings in these proceedings are or will be adequate to protect our confidential or trade secret information. Letter of Credit During the current quarter, the letter of credit was amended (see Note 5). The required balance was reduced from $4.6 million to $3.0 million. The expiration date is June 30, 2016.

8. Commitments and Contingencies

Legal Proceedings

From time to time, we may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of our business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. None of our accruals for outstanding legal matters are material in the aggregate to our financial position.

Our contractual relationships, including those with federal and state government entities, subject our operations, billing and business practices to scrutiny and audit, including by multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of our contractual performance. From time to time, we may have contractual disputes with our customers arising from differing interpretations of contractual provisions that define our rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that we accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could adversely affect our business, financial condition, results of operations and cash flows.

Kern Health Systems: In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (“KHS” or “Plaintiff”) sought to recover in excess of $7.0 million exclusive of interest, attorneys’ fees and costs, against Allied Management Group Special Investigation Unit, Inc. (“AMG”), Dennis Demetre and Lori Lewis (collectively, “Defendants”), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code. On June 9, 2014, the jury issued its verdict in favor of all Defendants, and against KHS, on all causes of action except negligent misrepresentation. On that cause of action, the jury issued a verdict against all Defendants, jointly and severally, in the sum of $1.38 million. The negligent misrepresentation verdict was based on representations to KHS allegedly made by AMG and former owner Dennis Demetre in the spring of 2008, prior to our acquisition of AMG. We believe that the jury erroneously awarded damages based on an error inasmuch as the jury unanimously found that Defendants (through Demetre) made the negligent misrepresentation to KHS while having reasonable grounds for believing the representation to be true. Based on the jury’s verdict, we believe we are properly characterized as the prevailing party on the breach of contract claim. AMG has filed an appeal of the verdict and is seeking to recover its attorneys’ fees and costs in the sum of approximately $2.3 million. We have not recorded an obligation on this matter at this time, as we have appealed this decision and believe it is probable that we will prevail on the appeal of this matter, although there are risks and uncertainties related to any litigation, including appeals, and neither we nor our counsel can assure litigation results. Pending the appeal process, we were required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in Other current assets on our unaudited Condensed Consolidated Balance Sheet at June 30, 2015.

Dennis Demetre and Lori Lewis: In July 2012, two of AMG’s former owners, Dennis Demetre and Lori Lewis (the “Plaintiffs”), filed an action in the Supreme Court of the State of New York, claiming an undetermined amount of damages alleging that various actions unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the “SPA”) and that we had breached certain contractual provisions under the SPA. The Plaintiffs filed a second amended complaint with two causes of action for breach of contract and one cause of action for breach of implied covenant of good faith and fair dealing. Although the Plaintiffs have also alleged an action based on fraud, the court dismissed that claim and further denied their subsequent appeal to resurrect the dismissed claim. We filed a counterclaim for breach of contract arising out of the Plaintiffs’ failure to indemnify us for costs, including attorneys’ fees arising out of our defense of the KHS action described above and for fraud and negligent misrepresentation arising out of the Plaintiffs’ misrepresentations concerning capabilities of their software platform. On July 13, 2015, the court granted in part and denied in part the Plaintiffs’ motion to dismiss our counterclaims, allowing our counterclaim for breach of contract to proceed but dismissing our counterclaims for fraud and negligent misrepresentation. This case continues in the discovery phase. We believe we have a meritorious defense and will continue to defend this matter vigorously, although there are risks and uncertainties related to any litigation.

Restrictive Covenants, Trade Secret, Contract and other Causes of Action in Texas and New York: We are the plaintiff in lawsuits filed in August 2014, entitled HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino and Jason Ramos, in the District Court of Dallas County, Texas, Cause No. DC-14-09047 (the “Texas Action”), and HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin and Danielle Lange, in the New York State Supreme Court, Albany County, Index No. A00754/2014 (the “New York Action”). These suits allege that, in the violation of their respective contractual, statutory and common law obligations to us, defendant Public Consulting Group, Inc. (“PCG”) and defendants former HMS employees Gambino, Ramos, Arendt, Curtin and Lange unlawfully misappropriated our confidential, proprietary and trade secret information, as well as our employee and customer relationships. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. Through discovery and forensic investigation in the lawsuits, we uncovered the wrongful destruction of evidence by one or more defendants and sought judicial relief in the New York Action against those defendants. On May 19, 2015, the New York court concluded that defendants Curtin and Lange engaged in egregious misconduct and issued an order granting our motion for spoliation of evidence, which ordered that Curtin and Lange repay our associated attorneys’ fees and costs without reimbursement by defendant PCG and that Lange was reported to the New York State Bar Association for professional misconduct. We are seeking reimbursement of approximately $0.5 million from Curtin and Lange personally pursuant to the court’s sanction order. These defendants have filed an appeal of the order.

We also have sought injunctions in both the Texas and New York Actions. On July 10, 2015, the court in the Texas Action issued an order granting a temporary injunction against PCG, Gambino and Ramos. The Texas court found that we had proved the existence of unlawful conduct and had demonstrated a probable right to recovery at trial regarding our claims against PCG, Gambino and Ramos, including claims involving the misappropriation of our confidential, proprietary and trade secret information and the improper solicitation of our employees in violation of our agreements with PCG. The Texas court further found that an injunction was necessary to avoid imminent and irreparable harm to us. As such, the Texas court entered a temporary injunction that enjoined, in pertinent part: (i) PCG from accessing or using any of our confidential or proprietary information, including, but not limited to, in order to solicit, divert or take away the third-party liability (“TPL”) business of any State Medicaid or other healthcare agency; (ii) PCG from using the services of Curtin or Lange (who are defendants in the New York litigation, as further discussed in detail below) to solicit, review, prepare or submit proposals for, or to in any way provide services related to TPL for PCG; (iii) PCG from using certain of its prior Request for Proposal (“RFP”) responses that contain or were prepared using our confidential information in its preparation of any future PCG TPL response; (iv) Gambino and Ramos from using any of our confidential information or from developing, assisting or advising on PCG TPL proposals for our customer RFPs; and (v) PCG from soliciting any of our employees except as may be permitted under prior agreements between us and PCG (the “Texas Injunction”). The Texas Injunction was ordered to remain in place through the time of trial in the Texas Action, which the court has initially set for March 2016. As a condition to obtaining the Texas Injunction, we were required to post a surety bond in the amount of $0.5 million.

On July 14, 2015, the court in the New York Action issued its decision and order on our motion for a preliminary injunction. The New York court found that our trade secret protection had not been waived and that we were entitled to continued protection, and that we had successfully established a likelihood of prevailing on our non-solicitation claims against Curtin, Lange and Arendt and on our trade secret misappropriation claims against Curtin and Lange; however, the court held that injunctive relief in the New York Action was not necessary due to the Texas Injunction. The court’s order also preserved our right to again seek injunctive relief in the New York Action in the event of a change of status regarding the Texas Injunction. The New York court has set a tentative trial date for June 2016. Both the Texas and New York Actions continue in the discovery phase.

On July 23, 2015, we filed a separate complaint in the New York State Supreme Court, Albany County against Joseph “Jeff” Flora and former HMS employee Elena Moiseekno. Flora is a former Director of the Bureau of Third-Party Liability at the Office of the New York State Medicaid Inspector General who was subsequently hired as a consultant by PCG. We are seeking damages and injunctive relief against these defendants for their alleged unlawful misappropriation of our confidential, proprietary and trade secret information and other wrongful conduct.

As previously disclosed in our Current Report on Form 8-K filed with the SEC on July 20, 2015, we received notice that re-procurement of the TPL contract with the New Jersey Department of Human Services had been awarded to PCG. We intend to timely file a protest with the State of New Jersey Division of Purchase and Property challenging the contract award to PCG. On July, 31, 2015, New Jersey did, however, grant us a 60-day extension on our current contract under mutually agreeable terms through September 29, 2015.

While we believe our claims are meritorious, there are inherent uncertainties in any litigation, and there can be no assurances that we will ultimately prevail at trial or with our protest, or that the rulings in these proceedings are or will be adequate to protect our confidential or trade secret information.

Letter of Credit

During the current quarter, the letter of credit was amended (see Note 5). The required balance was reduced from $4.6 million to $3.0 million. The expiration date is June 30, 2016.