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Robert Hawley, former CEO at Slidell (La.) Memorial Hospital, sued the hospital over  his termination.
Robert Hawley, former CEO at Slidell (La.) Memorial Hospital, sued the hospital over his termination.
Photo credit: St. Tammany News

I'll see you in court

For some hospital CEOs, the end of their employment is anything but amicable

By Joe Carlson
Posted: March 17, 2012 - 12:01 am ET

The world will never know what went through Robert Hawley's mind when the hospital CEO was arrested for driving while intoxicated along the Lake Pontchartrain Causeway in southern Louisiana.

However, one thing is now clear from court records: Hawley eventually came to realize that Slidell (La.) Memorial Hospital's reaction to his July 13 arrest for his second DWI ought to trigger a severance payment for two years of work he wouldn't have to perform.

Hawley, 65, sued the hospital in the 22nd Judicial District Court for St. Tammany Parish for firing him, claiming that his arrest was not one of the seven specific grounds for termination spelled out in his employment contract. The hospital and an executive compensation firm that consulted on the agreement are fighting the lawsuit in court.

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Although insiders say such cases are uncommon, Modern Healthcare identified at least four cases filed between 2009 and 2011 in which hospital CEOs sued their former employers alleging that the not-for-profit employers likely owed them each hundreds of thousands of dollars following their departures.

Hawley's case is one. Another lawsuit involved a Vermont bureaucrat ordering a hospital to cut off severance payments to a CEO, while a third had a Florida hospital disputing a CEO's math in calculating payment amounts. A West Virginia case has the hospital making harsh, public allegations of fraud after the CEO sued for a severance payment.

Given that not-for-profit hospitals tend to be highly averse to litigation, experts urge extreme caution when advising a hospital CEO who thinks he or she may have grounds for litigation.

“It can be a career-limiting move,” says John Self, founder of executive search firm John G. Self Associates, Dallas. “If you're 40 years old and you sue the board, you may get your $250,000 or $300,000. But my question is, is that enough to fund your retirement? You have to think about these things.”

Experts say that as unwelcome as it might seem, hospital boards need to think concretely about ways to protect themselves tomorrow against the executive smiling at them across the boardroom table today. Such litigation tends to be both costly and potentially embarrassing for all involved, especially when local media get a whiff of the airing of dirty laundry about a major employer in town.

“I think there's no winner. I think both sides lose,” says Robert Wolff, a shareholder in the healthcare practice group with employment law firm Littler Mendelson in Cleveland.

In one case involving Tallahassee (Fla.) Memorial HealthCare and its former CEO, the lawsuit was considered front-page news locally for the duration of the litigation, Wolff says.

“At the end of the day, the court seemed to pick a middle ground between the two sides,” he says. “And that happened only after an airing of grievances.”

Felici v. Ohio Valley Health Services

Brian Felici, a former administrator of an eastern Ohio hospital, filed suit over his severance package.
Brian Felici, a former administrator of an eastern Ohio hospital, filed suit over his severance package.
Photo credit: The Intelligencer/Wheeling News Register
In terms of airing grievances, few CEO-vs.-hospital lawsuits are ever likely to top Brian Felici's case.

Felici worked 24 years as a healthcare executive for organizations owned by the Ohio Valley Health Services & Education Corp. in Wheeling, W.Va., first as administrator of East Ohio Regional Hospital, Martins Ferry, Ohio, starting in 1987, then as president and CEO of the corporate parent starting in 2002.

His total compensation from Ohio Valley Health Services grew from $312,000 in 2003 to $430,000 in 2009, totaling $3.3 million between 2003 and 2010, according to the hospital.

In a lawsuit filed in Ohio County (W.Va.) Circuit Court, Felici said he was “induced” by false promises to resign from the system in April 2010 after the board hired management consultants American Healthcare Solutions in Pittsburgh to assess the system's faltering finances.

Hospital officials initially said they would honor the terms of Felici's three-year employment agreement and pay him his salary of $303,000 through October 2012, which was required if the system terminated him without just cause or if he left “for good reason.” Felici said he was asked to “gracefully” resign from the system “so that the move would garner favorable public relations for all parties involved.”

“Upon the plaintiff's resignation, both Brian Felici and board members from the OVHS&E made positive comments about the other as they had previously agreed,” Felici's lawsuit says.

“Denied,” the hospital's answer responds.

Hospital officials, Felici and Felici's attorney all declined to comment or did not return calls for this story.

The lawsuit states that system executives told Felici orally and in writing that they would make severance payments, and the hospital notified him in a July 8, 2010 letter that the system's board of directors had voted to cease all payments and benefits. Felici accused the system of fraudulently breaching its contract and inducing him to end his employment.

Felici also sued American Healthcare Solutions for allegedly committing “tortious interference” with his employment contract by causing the cessation of payments to him, and filed a claim of intentional infliction of emotional distress against the consultancy and the hospital system.

The firm is disputing the allegations in court, and its CEO, Jan Jennings, declined to comment. A trial date has been set for February 2013.

The system has reacted in kind to Felici's lawsuit, denying the allegations of fraud and then countersuing him to recoup his salary because it alleged he concealed illegalities that hurt the system financially—facts that would have caused it not to renew his contracts.

The system said Felici entered into fraudulent contracts with physicians going all the way back to his days at East Ohio Regional Hospital and going forward, including deals that resulted in millions of dollars in excess payments to physicians that eventually triggered millions in penalties to regulators.

The system agreed last September to pay $3.8 million for alleged Stark violations that were discovered by American Healthcare Solutions, George Couch, who was then the system CEO, said in a September 2011 interview with Modern Healthcare.

The system also entered a five-year corporate integrity agreement with HHS' inspector general's office related to its business arrangements with physicians.

In addition, the system alleged that Felici mismanaged a restricted charitable gift that resulted in a court-ordered repayment, and then lied about it to the board.

In response to the counterclaims, Felici said the system had not produced enough information for him to rebut the claims, adding that the system has “unclean hands” by blaming the former CEO for alleged acts of which system officials and employees knew about and/or participated in.

Hawley v. Slidell Memorial

Duncan Moore, longtime CEO at Tallahassee (Fla.) Memorial Hospital, sued over the terms of his compensation plan.
Duncan Moore, longtime CEO at Tallahassee (Fla.) Memorial Hospital, sued over the terms of his compensation plan.
Photo credit: Mike Ewen/Tallahassee Democrat
In Louisiana, Robert Hawley's lawsuit is testing the limits of what an employment contract can stipulate.

Hawley started working as CEO of St. Tammany Parish's Slidell Memorial Hospital in 2000, and in 2006 started receiving two-year, renewable employment contracts that spelled out his terms of service and severance.

What turned out to be his final contract was renewed for two years effective July 1, 2011, during a June 27, 2011 meeting of Slidell's Board of Commissioners.

The contract listed seven specific reasons for which Hawley could be terminated without severance, including felony conviction and “prohibited conduct.” Section 3.6 of the contract said that if Hawley was terminated for any other reason, the hospital district would pay him all compensation due to him through the end of the two-year contract term.

Less than two weeks into his contract, on July 13, 2011, Hawley was arrested at about 4 a.m. by a Lake Pontchartrain Causeway police officer as he was driving his BMW 81 mph with the top down on the narrow bridge, according to a narrative of the arrest released by the department to Modern Healthcare.

He showed “obvious signs of impairment,” was arrested and booked at St. Tammany Parish Jail, according to the police report.

St. Tammany Parish court records show Hawley pleaded guilty to one count of a second offense of driving while intoxicated on Dec. 6. Hawley was fined $750 and sentenced to serve 26 days of community service.

The hospital's censure, however, came faster than the judge's: the board voted to terminate Hawley on July 29.

“Mr. Hawley's recent arrest for second-offense DWI made this decision necessary,” Slidell Chairman Larry Englande said in a July 29 written statement.

That October, Hawley sued the public hospital in St. Tammany Parish District Court for wages and benefits that would have been paid through June 30, 2013, saying the district did not terminate him for a valid reason listed in his employment contract.

His salary was not disclosed in legal records or by the hospital, which declined to comment on the case. Hawley could not be reached for comment, and his attorney did not respond to requests for an interview.

In legal filings, the hospital denied Hawley's allegations, saying his “damages, if any, were caused by his own acts, omissions, and/or contributory negligence.” The hospital district also cited a state law that says a hospital district can remove a hospital director if the director “is found incompetent, inefficient or unworthy during the term of a written employment agreement.”

No trial date has been set.

Hawley's lawsuit also names executive compensation consultancy Integrated Healthcare Strategies of Minneapolis (previously known as Clark Consulting) as a defendant, saying that if his employment contract with Slidell was unenforceable by state law, then the firm should be held liable for paying his damages since it advised the hospital on his contract in 2004.

Integrated Healthcare, which did not return calls for comment, denies the allegations in court records and has urged a judge to halt discovery. The firm says Hawley was misapplying the state law and misreading two 2004 memos in which the firm concluded that a proposed employment contract at the time was valid.

Hawley “should not be permitted to conduct a fishing expedition to avoid dismissal of a claim that has no basis in fact or law,” the firm's attorneys wrote.

Moore v. Tallahassee Memorial

The board of Tallahassee Memorial Hospital always intended to enrich the compensation plan of its longtime chief executive, Duncan Moore.

But years later, board members said they found out Moore had an even richer plan in mind.

In 1998, the board decided to give Moore a “generous benefit” by establishing a type of pension plan for executives called a supplemental employee retirement plan, or SERP, under which the board would pay Moore a post-retirement salary equal to 65% of the average of his top five years of compensation, according to a judge's findings of fact in the case. The board said the agreement was in line with what other hospital CEOs received.

When Moore left the hospital under mutual agreement in 2003, the hospital concluded his five-year average salary was $424,800, and that his annual executive pension payments should be $219,400.

Moore, on the other hand, eventually said his calculations showed that the amount should be $614,067 per year, because a large deferred-compensation payment in his final year, among other factors, bumped up his overall average.

Both Moore and hospital officials declined to comment.

Moore sued the hospital in U.S. District Court in Tallahassee. During the bench trial, the hospital accused Moore of breaching his fiduciary duty by slipping fine-print provisions into a marked-up copy of his SERP plan without specifically drawing enough attention to changes that increased his payout. Moore's SERP contract, with the changes he added increasing his payout, was signed by the board chairman on Oct. 22, 1998, without any discussion of the amendments.

U.S. District Judge Robert Hinkle ruled that regardless of what happened in 1998, the board should have noticed the structure of the payments when it reincorporated the same language in its updated 2003 agreement with Moore. “The (hospital board) knew what it was agreeing to,” he wrote.

Hinkle did interpret a few ambiguous aspects of the SERP plan, involving the definition of “year” and the question of whether sick time and severance payments themselves should be included in the 65% calculation, before setting Moore's annual SERP payments at $365,119 in his July 2, 2010 order.

However, Hinkle disregarded Moore's argument that severance and deferred-compensation should be included in the calculation: “Nobody reasonably could have thought that the SERP calculation—65% of the plaintiff's average compensation, including salary and benefits, for his best five years—would actually be more than 100% of the plaintiff's best year of compensation,” Hinkle wrote, closing the case.

Yorke v. Southwestern Vermont

Harvey Yorke, longtime CEO of a single-hospital system in Vermont, filed suit over post-employment payments.
Harvey Yorke, longtime CEO of a single-hospital system in Vermont, filed suit over post-employment payments.
Photo credit: Peter Crabtree
Harvey Yorke's case involves a conflict between a hospital's right to sign contracts with executives versus a state's right to oversee not-for-profit healthcare finance.

Yorke had served 18 years as CEO of a single-hospital system, Southwestern Vermont Health Care Corp. in Bennington, when he left his job at age 62. But after he left in 2009, he accused the hospital of breaking his contract by cutting off post-employment payments he was owed.

Both sides agreed that finances were in a tailspin at the healthcare provider, as projections of patient revenue from Medicare were found to be too high while estimates of bad debt, health insurance and pension expenses had come in too low. Yorke said in court records that he informed the hospital's board, executives and lenders of an $8 million negative budget variance in early 2009.

Board members terminated his employment following the March 17, 2009 meeting at which he formally informed the full board of the budget variance and “accepted overall responsibility as CEO,” according to Yorke's lawsuit.

However, Yorke requested that the board publicly say that he was retiring from the hospital, “in order to lend some dignity to an otherwise abrupt and humiliating end” to his employment at the hospital. At attorney for the hospital later said the hospital had accepted Yorke's decision to retire and that the hospital would pay the severance and benefits outlined in his employment contract.

The contract entitled Yorke to 22 months of pay, which turned out to be $27,700 per month, plus $50,000 for outplacement services to help him find a new job if it terminated Yorke “for any or no reason,” according to the lawsuit.

The hospital made payments under the agreement for April, May and June 2009, but then stopped payments beginning in July 2009 because of an order to stop issued by Paulette Thabault, commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, which has broad regulatory powers over not-for-profit healthcare providers in the state.

Yorke filed a lawsuit against the hospital and the state commissioner in U.S. District Court for Vermont seeking reinstatement of his payments. Yorke did not return calls, but his attorney declined to comment on the lawsuit.

State officials noted in a motion to dismiss the case that the order to stop payments was made only “after the hospital was found to be operating deeply in a deficit.” Attorneys for the state later wrote: “Such an action by a regulating authority, rather than shocking the conscience, is reasonable.”

The hospital subsequently appealed the state order, and received permission to pay Yorke the full compensation due under his contract. The lawsuit remained open for several months on claims of interfering with the contract, until it was dismissed in July 2010 following a settlement.

Eileen Druckenmiller, spokeswoman for Southwestern Vermont Health Care, says the hospital had agreed to pay Yorke $20,000 to settle the lawsuit in July 2010, while the state paid another $10,000. The judge dismissed the lawsuit.

“The reaction we got from the community at the time was that people were very supportive of us and wanting us to succeed and stay here,” Druckenmiller says. “We were honest. We tried to fulfill our obligations on all sides and tried to move on.”

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