A manager at what was once the nation's largest employee-owned hospital company testified last week that she felt "betrayed" when the Dallas-based system was sold without consultation with its employees.
More than two years after Epic Healthcare Group was sold for $1 billion to Healthtrust, a lawsuit challenging the valuation and executive severance packages went to court last week. The jury trial in State District Court in Dallas is expected to last four weeks.
Vicki Anderson, a registered nurse who worked in Epic's corporate offices helping rural hospitals with reimbursement and quality-assurance issues, tried to block the acquisition of Epic by Healthtrust in 1994. At the time, Epic was the nation's ninth-largest hospital system with 42 hospitals. It also was the nation's third-largest employee-owned corporation.
Filing a derivative action on behalf of Epic's 10,000 employee-owners, Anderson succeeded in getting a temporary restraining order to delay the merger in early 1994. However, the deal went forward after Anderson was assigned by Healthtrust the rights to sue Epic's officers later.
Anderson is suing Epic's board as well as Healthtrust for $44 million, claiming Epic's executives received extravagant severance benefits that should have been distributed among the company's employee owners. One board member, Alan Chamison, was dropped as a defendant earlier this year.
Defense lawyers are calling the lawsuit a mockery, contending Columbia/HCA Healthcare Corp., which subsequently acquired Healthtrust, is paying for the expensive litigation and will receive the recovery of any funds.
No doubt the litigation will be costly. Last week, about a dozen lawyers and two dozen boxes of documents filled the courtroom. Six video monitors were set up so jurors could examine the language of proxy statements, management memos and financial data in what Judge John Marshall acknowledged would be a "document-intensive case."
"It's a sham proceeding," said Bill Sims, a partner in the Dallas office of Vinson & Elkins, which is representing Healthtrust. "This suit is about lawyers' fees; that's all it's about."
The mergers and acquisitions that have enveloped the industry since Epic's sale complicate who the winners and losers would be. When Epic was sold to Healthtrust, Healthtrust acquired liability for this suit against Epic's officers.
Then, in 1995, Healthtrust was sold to Columbia. Columbia, in turn, inherited liability for Epic's former officers. That means Columbia is funding the defense costs of Epic's officers and Healthtrust in the case.
However, if Anderson wins the proceedings, the court has said the recovery from the officers would go to Epic, which became Healthtrust, which became Columbia. " All the money goes to Columbia," Sims said.
However, he contends that Anderson's lawyers also would benefit, and that prospect is fueling the lawsuit. Sources said Anderson's attorneys, who are working on a contingency basis, would receive 40% of any recovery.
In spite of financial implications, Anderson seems intent in showing the difference in how Epic portrayed itself and how it truly operated.
Anderson said she joined Epic because "if you own something you definitely have an incentive to make it do well."
However, when it came to Epic's most important decisions, such as electing the board or selling to Healthtrust, those employee-owners had little or no say, she testified. Despite company manuals that promised "open communication," the company's proxy statement describing the sale was "very confusing," Anderson said. "I didn't understand it at all."
However, she said she did understand that when Epic was founded in 1988, it was valued at $10 a share, and when Healthtrust bought it, the value was $7 per share. "I had a problem with it being too low," Anderson said.
Kenn George, Epic's chairman and chief executive officer at the time the company was acquired, was expected to take the witness stand this week.