Court Denounces Corporate Misconduct, Awards Encompass Health Damages

Delaware Court of Chancery Ruling: A Significant Step Towards Corporate Accountability

On December 4, 2024, a pivotal legal battle concluded in the Delaware Court of Chancery, marking a significant victory for Encompass Health and its former subsidiary, Enhabit. The court found former executives April Anthony, Luke James, and Chris Walker liable for breaches of fiduciary duty while serving in senior positions at Encompass Health. This judgment comes after an exhaustive trial revealing egregious misconduct related to their roles at the company's former home health and hospice division, now known as Enhabit.

The court's decision followed a week-long trial during which a wealth of evidence was presented, detailing how these former officers undermined their fiduciary obligations to Encompass Health. The ruling also implicated private equity firms, Vistria Group and Nautic Partners, in aiding and abetting these breaches. The key details of the misconduct included the usurpation of acquisition opportunities, misuse of confidential company information, and attempts to recruit employees away under false promises of equity in Anthony's new company, VitalCaring Group.

The court characterized the actions of Anthony and her associates as deliberate and calculated. According to the ruling, they engaged in secretive exchanges of information about potential acquisition targets for their new venture, demonstrating a clear intention to misappropriate Encompass Health's business prospects for their gain. The court's findings suggest a coordinated effort to siphon off resources and valuable personnel, which severely jeopardized Encompass Health's operational integrity.

As a result of this misconduct, the Delaware Court imposed a constructive trust that mandates 43 percent of VitalCaring Group's profits to be redirected to Encompass Health and Enhabit on a quarterly basis. This ruling not only secures significant financial restitution but also aims to deter similar actions in the future by setting a precedent in corporate governance that emphasizes accountability and the protection of shareholder interests.

Furthermore, the court granted approximately $1.62 million in mitigation damages, alongside attorney fees due to the defendants' bad faith efforts to cover up their actions. These included deleting crucial evidence and manipulating communications through legal channels, further compounding the severity of their wrongdoing.

The implications of this verdict extend beyond just monetary compensation. Encompass Health and Enhabit have taken a strong stance against corporate misconduct, stating that the ruling sends a clear message: corporate officers who engage in self-dealing and betray their fiduciary duties will face serious consequences. This legal action was initiated primarily to safeguard the interests of their investors in light of the blatant misconduct exhibited by former executives.

Defendants found liable in this case include Anthony, Walker, and the involved private equity firms along with their senior partners, thereby broadening the scope of accountability within corporate structures.

About Encompass Health

Encompass Health Corporation, publicly traded under the NYSE ticker EHC, stands as the largest owner and operator of rehabilitation hospitals across the United States. The company prides itself on delivering exceptional rehabilitative care, leveraging advanced technology to assist patients recovering from critical health issues. With a presence in 38 states and Puerto Rico, Encompass Health has established itself as a leader in its field, earning accolades such as one of Fortune's World's Most Admired Companies.

About Enhabit Home Health and Hospice

Enhabit (NYSE EHAB) is recognized as a premier provider of home health and hospice services nationwide. Dedicated to enhancing patient care within the comfort of their homes, Enhabit operates 256 home health locations and 112 hospice units across the United States, emphasizing exceptional patient care through innovative practices and compassionate service.

This groundbreaking ruling serves as a wake-up call for corporate America, reaffirming that transparency, integrity, and accountability should be the cornerstones of corporate governance.