Coastal Physician Group has filed counterclaims against its founder, Steven Scott, M.D., claiming he breached fiduciary duties and engaged in a scheme to damage the company's business.
The action was in response to a lawsuit filed by Scott and fellow board member Bertram E. Walls, M.D., in Durham County, N.C., Superior Court alleging certain company directors and officials breached fiduciary duty and wasted corporate assets (July 15, p. 24).
Scott said he would solicit proxies to elect two new directors, which Coastal said could give him and his allies control of the company's nine-member board.
Board Chairman Jacques Sokolov, M.D., said Scott rejected an offer to expand the board by adding two mutually agreed upon and truly independent directors. He called Scott's threat to wage a proxy fight costly and distracting.
"Nevertheless, we have absolutely no intention of letting Dr. Scott's actions impede our progress in successfully executing the comprehensive business plan and achieving our objectives of continuing to deliver superior service for our customers and enhancing shareholder value," Sokolov said.
Last week, a spokesman for Scott said Scott was awaiting Securities and Exchange Commission approval of proxy materials he would send to shareholders.
Scott was Coastal's chief executive officer and president before the board put him on sabbatical in May.
Coastal has scheduled its annual shareholders meeting for Sept. 27 in Durham. The counterclaims allege that Scott caused Coastal to pursue a series of acquisitions then failed to integrate them and to control pre-existing operations, leading to an 80% drop in the company's stock price. Coastal shares peaked at $40.25 on Feb. 1, 1994, and traded around $8 when the board relieved Scott of his duties in May.
Last week, Coastal shares were trading at about $4.25 on the New York Stock Exchange.
The counterclaims also allege that Scott sought to undermine a management action plan designed to improve the company's operations. Further, officials contend that Scott profited from Coastal through his ownership of Century American Insurance Co., which has received more than $19 million a year in premiums from Coastal-related business, and through his interests in real estate leased to Coastal.
A spokesman for Scott, Arthur B. Crozier, denied the allegations. "The response is essentially that this is just an exercise in finger-pointing by the board. Dr. Scott's position is that (Coastal) needs to move forward as a company. As a 30% shareholder, he has a great interest in seeing the company prosper and return to the highest value possible," Crozier said.
Coastal asked the court to prevent Scott from interfering with the management action plan. It intends to seek damages in excess of $25 million.
Last month, Coastal announced a plan to divest some of its operations and refocus on its hospital-based contract services and billing businesses.