DALLAS & BIRMINGHAM, Alabama—The Delaware Court of Chancery ruled in the lawsuit against Encompass Health, a national home health and hospice provider, and Enhabit Home Health and Hospice, an owner and operator of rehabilitation hospitals. The lawsuit related to breaches of fiduciary duty by former company executives within Emcompass Health's former home health and hospice division, which is now Enhabit Home Health and Hospice. The court awarded judgment against VitalCaring Group, a home health and hospice business, as well as the private equity firms Vistria Group and Nautic Partners for aiding and abetting “the egregious breaches of the duty of loyalty” by former Encompass Health CEO April Anthony, former chief strategy officer Luke James and former chief financial officer Chris Walker.
The court found that while employed by Encompass Health, Anthony, James and Walker usurped acquisition opportunities falling within Encompass Health’s line of business, used Encompass Health’s confidential information and swayed key Encompass Health employees to join them, with the promise of equity in the home health and hospice competitor that Anthony now heads, VitalCaring Group.
According to court documents, Anthony, James, Walker and the private equity defendants took “great pains” to hide their misconduct, going so far as to secretly exchange diligence materials about acquisition targets for the new venture. Additionally, the court determined that VitalCaring Group is “the result of this deceit.”
In addition to finding breaches of fiduciary duty by Anthony and the other two former Encompass Health officers, the court found that “with full awareness that their actions were wrong,” Vistria and Nautic and two of their principals, David Schuppan and Christopher Corey, “drove the fiduciaries’ efforts to covertly siphon opportunities, information, resources and employees from Encompass.”
As a remedy for these actions, the Court of Chancery imposed a constructive trust entitling Encompass Health and Enhabit to receive 43% of VitalCaring Group’s profits—to be paid quarterly—and 43% of the exit proceeds if and when VitalCaring Group is sold. Additionally, the court awarded mitigation damages in the amount of approximately $1.62 million and awarded attorneys’ fees based on the defendants’ bad faith efforts to conceal their misdeeds, which included falsifying records, deleting evidence and “manipulating communications through lawyers.”
Encompass Health and Enhabit launched this litigation in an effort to protect the interests of their stockholders in the wake of the illegal conduct of Anthony and the other former officers. Encompass Health and Enhabit said they believe the broader public will benefit from the Delaware Court of Chancery’s message that intentional breaches of fiduciary duty and self-dealing by corporate officers will have severe consequences.
