15.

Commitments and Contingencies

(a) Lease Commitments

The Company primarily leases office space but also leases information technology equipment and software licenses under operating leases that expire on various dates through

2026.

Additionally, the Company has nominal capital leases. Total lease expense, net of office space sublease income for the years ended

December

31,

2018,

2017

and

2016

was

$3.6

million,

$5.1

million and

$5.0

million, respectively.

Minimum annual lease payments to be made under operating leases, net of

$8.3

million office space sublease payments to be received, for each of the next

five

years ending

December

and thereafter are as follows (

in thousands

	Operating Lease Payments
2019	$	5,778
2020		5,420
2021		3,742
2022		2,531
2023		2,236
Thereafter		2,947
Total	$	22,654

(b) Litigation

July 2012,

Dennis Demetre and Lori Lewis (the “Plaintiffs”), filed an action in the Supreme Court of the State of New York against HMS Holdings Corp., claiming an undetermined amount of damages alleging that various actions by HMS unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price for Allied Management Group Special Investigation Unit, Inc. (“AMG”) under the applicable Stock Purchase Agreement (the “SPA”) and that HMS 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. HMS asserted a counterclaim against Plaintiffs for breach of contract based on contractual indemnification costs, including attorneys’ fees arising out of the Company’s defense of AMG in Kern Health Systems v. AMG, Dennis Demetre and Lori Lewis (the “California Action”), which are recoverable under the SPA. In

June 2016,

Kern Health Systems and AMG entered into a settlement agreement that resolved all claims in the California Action. In

July 2017,

the Court issued a decision on the Company’s motion for partial summary judgment and granted the motion in part, dismissing

one

of Plaintiffs’ breach of contract causes of action against HMS. On

November 3, 2017,

following a jury trial, a verdict was returned in favor of the Plaintiffs on a breach of contract claim, and the jury awarded

$60

million in damages to the Plaintiffs. On

March 14, 2018,

the Court held a hearing on the Company’s post-trial motion for an order granting it judgment notwithstanding the verdict or, alternatively, setting aside the jury’s award of damages. On

June 27, 2018,

prior to the Court issuing a decision on the motion, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the Plaintiffs, John Alfred Lewis and Christopher Brandon Lewis. Pursuant to the terms of the Settlement Agreement, the Company paid

$20

million to resolve all matters in controversy pertaining to the lawsuit. On

July 5, 2018,

the Court entered an order to discontinue the lawsuit pursuant to the Stipulation of Discontinuance with Prejudice filed by the parties.

February 2018,

the Company received a Civil Investigative Demand (“CID”) from the Texas Attorney General, purporting to investigate possible unspecified violations of the Texas Medicaid Fraud Prevention Act. The Company provided certain documents and information in

March 2018

in response to the CID. HMS has

not

received any further requests for information in connection with this CID.

September 2018,

a former employee filed an action in the New York County Supreme Court entitled Christopher Frey v. Health Management Systems, Inc. alleging retaliation under New York law. The complaint seeks recovery of an unspecified amount of monetary damages, including back pay and other compensatory and equitable relief. The Company has moved to dismiss the complaint and the motion is currently under consideration by the Court. The Company continues to believe that this claim is without merit and intends to vigorously defend this matter.

From time to time, HMS

may

be subject to investigations, legal proceedings and other disputes arising in the ordinary course of the Company’s business, including but

not

limited to regulatory audits, billing and contractual disputes, employment-related matters and post-closing disputes related to acquisitions. Due to the Company’s contractual relationships, including those with federal and state government entities, HMS’s operations, billing and business practices are subject to scrutiny and audit by those entities and other multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of the Company’s contractual performance. HMS

may

have contractual disputes with its customers arising from differing interpretations of contractual provisions that define the Company’s 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 HMS accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could affect the Company’s business, financial condition, results of operations and cash flows.

HMS records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, 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, HMS does

not

establish an accrued liability.