SpecialtyCare Prevails over Competitor at Trial
Doing the right thing starts at the top. It's a belief held by SpecialtyCare CEO Melvin F. Hall, PhD ... and one that a Davidson County Chancery Court jury recently affirmed in awarding the Nashville-based company nearly $19 million in damages after finding competitor Medsurant Holdings, LLC and Medsurant, LLC opted to do the wrong thing from the C-suite down.
Melvin F. Hall, PhD
SpecialtyCare, an outsourced clinical services company that has a number of service lines centered around the surgical theater, bid on financially distressed ProNerve, a provider of intraoperative neurophysiologic monitoring (IONM) services, in early 2015. By late January, SpecialtyCare was named the high bidder, although the business deal wasn't finalized until April of that year.
"Once it was clear we were going to win the bid, those running ProNerve allowed us to reach out to all associates," said Hall. In purchasing the company's assets, Hall continued, "What we were wanting were all the great clinicians they had. We wanted to keep all the neurophysiologists."
While Hall said SpecialtyCare shared what employment offers would be with individuals, he noted the company couldn't do more than that before the deal was finalized. It was during this limbo period between the bidding process and approved closing that Hall said things went awry with Medsurant, a competitor who had been unsuccessful in their attempt to acquire ProNerve.
"That's when Medsurant did things the courts ultimately found inappropriate and illegal," stated Hall. "This wasn't competition," he continued. "This was corporate thievery."
Represented by Bradley Arant Boult Cummings, SpecialtyCare filed suit in June 2015 asserting Medsurant had interfered with SpecialtyCare's existing and prospective business relationships and had induced breaches of contracts, which SpecialtyCare had acquired from ProNerve. The Nashville company also alleged that by hiring nine former ProNerve employees who were subject to restrictive covenants, Medsurant "tortuously interfered with SpecialtyCare's relationships with such employees and with the health providers that those former employees serviced while at ProNerve."
"The jury heard the proof, including admissions by Medsurant's CEO, along with other leadership, that what they did was wrong," stated Thor Urness, a partner at Bradley who represented SpecialtyCare along with colleagues Brandon Bundren and Patricia Head Moskal.
The jury heard from Gina Cervantes, a former ProNerve employee who went to work for Medsurant in California. During the trial, she admitted she informed Medsurant's management that she was copying corporate information from her ProNerve computer and that she used that information to move business from ProNerve to her new employer. She also said she made sales calls for Medsurant, accompanied by a Medsurant representative, while still an employee of ProNerve.
On May 3, 2016, the court entered a default judgment for liability in favor of SpecialtyCare in light of Medsurant's failure to obey the court's order to produce information. Text messages of Cervantes and Medsurant President Daniel Lincoln were deleted, and two days after the default judgment, Cervantes destroyed the laptop she had used to copy information from ProNerve. At the trial in August, exhibits included internal Medsurant documents and communications that discussed stealing accounts and information and demonstrated knowledge of the activities by the president, CEO and CFO.
In making the determination that Medsurant was responsible for $2.8 million for SpecialtyCare's lost profits and another $16 million in punitive damages, the jury found Medsurant intentionally falsified, destroyed or concealed records to wrongfully evade liability.
"The jury's verdict and the court's default judgment were each strong messages that severe consequences for companies can result when they ignore court orders and fail to comply with the law," said Urness. He added the actions of the court were particularly significant because punitive damages of this magnitude are relatively rare in commercial cases and underscored the egregious nature of the events.
"What was unusual here, I think, is we were able to learn one of the key people involved ultimately admitted she copied information from ProNerve and used that information in her work for Medsurant," he said.
In addition to the proprietary information, there was the matter of employees with restrictive covenants in place. Urness said the broader lesson is that "appropriate prospective employee intake procedures should a) exist, and b) be followed." He added, "Find out what restrictive covenants exist, and you honor the ones you should honor ... and that is generally all of them."
During the trial, Lincoln referred to Medsurant's actions as a "tragic misjudgment" and a "tragic error," and CEO Jordan Klear admitted what was done was wrong.
While Hall agrees the actions taken to hurt his company were clearly wrong, he scoffed at the idea of it being merely a lapse in judgment. "A company's culture starts at the top," Hall stated. "People will generally behave the way it's okay to behave. Getting an employee of ProNerve to download customer files while she was still an employee of ProNerve ... that's not a bad apple, that's a rotten culture."