A federal judge in Delaware has ordered home health and hospice provider Vital Caring and its private equity backers to share future profits with Encompass Health (NYSE: EHC) and Enhabit Inc. (NYSE: EHAB). ordered to be distributed.
The court ordered that 43% of Vital Caring's future profits be held in trust for the benefit of Encompass and Enhabit. The remaining 57% will go to VitalCaring's private equity backers, Vistria Group and Nautic Partners.
“Encompass is entitled to one recall,” the court's opinion states. “That recovery will be in the form of an equitable payment stream of Vital Caring's future profits, administered through a constructive trust, certain mitigating damages, and attorney's fees.”
The case dates back to 2022, when Encompass Health spun off its home health and hospice business as an independent company, now known as Enhave Inc. At the time, VitalCaring CEO April Anthony was the CEO of Encompass' home health division.
Enhabit and Encompass are co-plaintiffs in this lawsuit, and Nautique and Vistria are co-defendants.
“A 57% stake would allow Nautique and Vistoria to recoup their capital contributions and maintain incentives for business growth,” the court's 116-page opinion said. “The willful misconduct that created VitalCaring resulted in a significant portion of the proceeds going to Encompass.”
The court appoints a trustee to oversee the trust and related capital allocation.
Anthony founded Encompass Home Health & Hospice in 1998 as his second home health venture and has led the company from a single startup to an industry leader with a national presence. She was previously the owner and CEO of Liberty Health Services and before that, the founder and CEO of Homecare Homebase.
Texas-based Vital Caring has been years in the making, but it built its clinical foundation around July 2021. At that time, the company's three principal owners, Anthony and private equity firms Vistoria Group and Nautique Partners, acquired a privately held home health agency in Louisiana. More deals followed and the company expanded its footprint.
Encompass Health has long argued that Anthony and his colleagues allegedly engaged in unethical conduct to establish Vital Caring when the Enhabit spinoff began. In 2021, Encompass sought an injunction against Anthony for allegedly violating the terms of his employment agreement, including noncompete and nonsolicitation violations, and misappropriation of trade secrets.
Encompass Health touted the victory in a statement Wednesday morning.
“Encompass Health and EnHavit filed this lawsuit to protect the interests of our shareholders in response to the illegal and outrageous conduct of Anthony and other former executives,” the statement said. “Encompass Health and Enhabit believe that the broader public investor community will also benefit from the Delaware Court of Chancery's clear message that willful breaches of fiduciary duty and self-dealing by corporate officers have serious consequences. ”
The court's ruling could impact UnitedHealth Group's (NYSE: UNH) planned acquisition of home health care giant Amedisys (NASDAQ: AMED). Amedisys is selling certain stores to Vital Caring to pave the way for that deal. Amedisys stock fell sharply on news of the VitalCaring legal ruling, falling from $91 per share on the night of December 2nd to $86.27 per share as of market close on December 3rd.
Encompass Health and EnHavit touted the victory in similar statements Wednesday morning.
“Encompass Health and EnHavit filed this lawsuit to protect the interests of our shareholders in response to the illegal and outrageous conduct of Anthony and other former executives,” the statement said. “Encompass Health and Enhabit believe that the broader public investor community will also benefit from the Delaware Court of Chancery's clear message that intentional breaches of fiduciary duty and self-dealing by corporate officers have serious consequences. ”
