Encompass Health prevails in lawsuit against former executives

Encompass Health and its spinoff Enhabit Home Health and Hospice will be entitled to more than 40% of the profits from home care company VitalCaring Group following a Delaware court order.

VitalCaring Group must also pay the two companies $1.62 million in mitigation damages and attorneys' fees.

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In a Monday opinion, Vice Chancellor Lori Will of the Delaware Court of Chancery ordered VitalCaring Group and its private equity partners to furnish 43% of the home care group's future profits to Encompass Health and Enhabit Home Health and Hospice, paid on a quarterly basis for an unspecified period. Will did not stipulate how the money should be divided between the two companies.

The court found that VitalCaring Group CEO April Anthony, President Luke James and Chief Operating Officer Chris Walker conspired to create a competing company while executives at the company then known as Encompass Home Health and Hospice, a unit of Encompass Health. Anthony was the former CEO of the division, while James and Walker were president and chief financial officer, respectively.

"Delaware law demands that corporate officers act with the utmost loyalty to the entity they serve. They must avoid advantaging themselves at the corporation’s expense. They cannot compete with the corporation or divert corporate opportunities from it without its consent. And they must undertake good faith efforts to advance the corporation’s best interests. The former officers at issue here lost sight of this enduring duty," Will wrote in her opinion handed down Monday.

Will's opinion found the three executives deliberately hid their actions and recruited former Encompass Home Health and Hospice employees to work at their new company, doing business as VitalCaring Goup.

“The evidence establishes that Anthony and James strove to benefit themselves at Encompass’s expense. ... Walker’s actions are less striking than those taken by Anthony and James. But he was disloyal just the same," Will wrote in the decision.

The court also ruled that VitalCaring Group’s private equity partners, Vistria Group and Nautic Partners, aided and abetted in the scheme.

Anthony founded Encompass Home Health and Hospice in 1998 and left the division in March 2021, following a failed attempt to buy the business from Encompass Health. Encompass spun off the unit as Enhabit Home Health and Hospice in July 2022.

VitalCaring Group was founded in Dallas approximately one month later. Its private equity partners Nautic Partners and Vistria Group said in a joint email they are considering an appeal of the ruling.

VitalCaring Group operates home health and hospice locations in Texas, Oklahoma, Louisiana, Mississippi, Alabama and Florida. In July, VitalCaring Group signed a purchase agreement with Amedisys to acquire 100 of home health and hospice locations for an undisclosed sum. The deal is contingent on UnitedHealth Group’s acquisition of Amedisys.

Encompass and Enhabit said in a joint statement published on their websites that the court's decision sent a message that intentional breaches of fiduciary duty have severe consequences. Encompass declined to comment further.