One of America's leading physician-recruitment firms has taken computer theft and corporate espionage to new heights, a lawsuit alleges, underscoring mounting concerns about the security of confidential electronic information in the high-tech healthcare industry.
An 18-page lawsuit outlines charges of widespread computer theft and a subplot involving allegations of sexual misconduct against Merritt, Hawkins & Associates, the Irving, Texas-based search firm that specializes in physician placement across the country.
The lawsuit was filed earlier this year by Martin, Fletcher & Associates, whose similar corporate nameplate appears to be no accident-the company was formed about three years ago by two former Merritt, Hawkins executives who wanted to carve out their own slice of the lucrative healthcare-recruitment market.
It is the second legal battle in two years pitting former friends and colleagues. The trial is set for August.
Ex-colleagues take off the gloves
Merritt, Hawkins and several of its executives, the lawsuit charges, "have engaged in a deliberate scheme to damage and destroy (Martin, Fletcher's) business, reputation and its customer relations."
The lawsuit involving two of the nation's leading healthcare-recruitment firms reads like something straight off the front page of a splashy tabloid-complete with juicy allegations of corporate spying and just enough sex to satiate even the most hardcore National Enquirer reader.
"We feel good-we like the facts in the case," says John Buffa, chief executive officer of Martin, Fletcher. "We'll let a jury deal with it."
In a written statement, Merritt, Hawkins, which has been in business since 1987, says the charges are "completely groundless" and the lawsuit was filed as a way to gain a competitive edge.
"It is unfortunate that in today's business environment companies seeking to malign their competitors can attempt to do so through irresponsible allegations filed in the court," the statement reads.
In late June, Merritt, Hawkins filed a counterclaim in Dallas County court, alleging that Martin, Fletcher is guilty of the same misdeeds alleged in its own lawsuit-including the misappropriation of trade secrets and breach of contract. Among the charges: Martin, Fletcher has continued to violate the settlement terms of a 1999 lawsuit by using a name that is so similar to Merritt, Hawkins.
Merritt, Hawkins, among the biggest firms in the nation in the permanent placement of physicians, employs about 500 people in four offices and conducted more than 2,000 full-time physician-search assignments last year for more than 660 clients-about 70% of which are hospitals, the company says. Combined revenue for the company, which includes recruitment for allied healthcare professions, topped $100 million last year.
Turning up the heat
Martin, Fletcher, which focused primarily on the allied health professions in its first two years of business, has put a little more pressure on its competitor by recently creating its own physician-recruitment division, establishing a direct business clash with Merritt, Hawkins. The company, which now has about 120 employees, was formed in late 1998 by Buffa and his partner, Russell Hicks, the firm's president. Annual revenue tops $15 million, and the firm conducted about 275 permanent physician searches during the past year, Buffa says. The company has about 665 hospital clients, he says.
"Hopefully," Buffa says, "this (new competition) will affect the industry positively. When you discuss competition, first and foremost, it should better both halves-it should better the level of services provided. So it should help with candidate recruitment."
He says staffing firms such as his have "firewalls" to protect confidential client information from widespread or indiscriminate dissemination.
A spokeswoman for the Medical Group Management Association, the Englewood, Colo.-based trade group whose members represent about 176,000 physicians, says the lawsuit does not trigger any alarms over the security of confidential information about doctors involved in job searches. "It's not a problem for doctors-it's a business problem (for the companies involved)," she says.
Still, the lawsuit underscores some more general concerns about the security of sensitive, computer-based information-an issue that has occupied center stage, with the long and contentious debate over HIPAA privacy regulations now set to take effect in February 2003.
"It's much easier to put a lot of information on a disc than trying to sneak a lot of files out of an office," says Dan Rode, vice president of policy and government relations at the Chicago-based American Health Information Management Association, which represents about 40,000 health-information professionals. "So it does become an issue, and it's one that a lot of institutions haven't addressed yet."
Rode says he hasn't heard many stories about allegations of computer theft such as those involved in the Martin, Fletcher lawsuit but adds, "Obviously, it's one that we'll probably hear more of as information becomes more and more electronic."
Hicks and Buffa are both former Merritt, Hawkins vice presidents who quit to create their own company, triggering the first lawsuit in 1998. That complaint by Merritt, Hawkins charged the two men with violating a noncompete clause and using proprietary trade information.
In a settlement reached in December 1999, Martin, Fletcher paid an undisclosed sum to Merritt, Hawkins and agreed not to compete in the same geographic area for one year. (Once that prohibition ended, Hicks and Buffa moved their offices to a site just three miles from the Merritt, Hawkins headquarters, heightening the bitter feud between the two companies.)
Now, Hicks and Buffa have taken the offensive a step further with a lawsuit dripping with drama and intrigue.
The complaint alleges that former employee Jason Reinhardt, who was fired from Martin, Fletcher in February 1999 after 11 months on the job, later offered to sell confidential information about the firm to Jim Merritt, the managing partner of Merritt, Hawkins. Reinhardt is accused of stealing a wide range of trade secrets from Martin, Fletcher, including the company's customer lists, its financial information and all of the information contained on Buffa's personal computer.
During a meeting last February at a Dallas-area hotel, Reinhardt told Merritt and Joe Hawkins, another managing partner, that he had a copy of the company's network server containing every document available about Martin, Fletcher, the lawsuit alleges. Hawkins, the lawsuit charges, agreed to Reinhardt's demands for $50,000.
Later, according to the lawsuit, Reinhardt obtained the password to Buffa's personal e-mail account and provided that secret code to another Merritt, Hawkins employee, Floyd Cotham. Reinhardt was able to access Buffa's e-mail account for about 21/2 months, copying and forwarding confidential company information to executives at Merritt, Hawkins, the lawsuit says.
It was only by chance that Buffa learned the privacy of his computer had been compromised, the lawsuit says. When Reinhardt incorrectly typed Cotham's e-mail address in an attempt to forward information from Buffa's private e-mail, the message was automatically returned to Buffa, who recognized something was amiss, the lawsuit says.
An analysis of the message header revealed the account number of the individual who had actually sent the message-Reinhardt, according to the lawsuit.
Hal Walker, the lawyer for Merritt, Hawkins, characterizes Reinhardt as a liar who violated employment agreements with both companies.
"He has fabricated this," says Walker, a partner in the Dallas law firm of Rose Walker. "He has acknowledged on the record that he was untruthful on multiple occasions. All this is absolutely untrue-there's not a shred of evidence. The only evidence that would support these claims are the statements by Jason Reinhardt himself."
In another tabloid-worthy twist, the lawsuit charges that Kathleen Ford, who worked for about six months at Martin, Fletcher as an administrative assistant, was recruited by Reinhardt to file a sexual harassment charge against unnamed officials at the company.
When she couldn't find a lawyer "willing to pursue her baseless claim," according to the lawsuit, Reinhardt suggested she call Hawkins, the Merritt, Hawkins managing partner.
"Hawkins later told Reinhardt that he had arranged to pay any fees associated with the prosecution of Ms. Ford's sexual harassment claims against Martin, Fletcher," the lawsuit reads.
The lawsuit, filed earlier this year in Dallas, asks for actual and punitive damages and an injunction to prevent Merritt, Hawkins from using any of the information allegedly obtained through Reinhardt. Martin, Fletcher filed a civil lawsuit last year against Reinhardt. Settlement terms are confidential.
"Reinhardt's trying to save himself," Walker says. "He got caught by Martin, Fletcher, so, as part of his settlement with them, he agreed to fabricate this story about (Merritt, Hawkins)."