Encompass Health wins lawsuit related to breaches of fiduciary duty

Encompass Health (EHC) and Enhabit won their lawsuit in the Delaware Court of Chancery related to breaches of fiduciary duty by April Anthony, Luke James, and Chris Walker while they served as the senior officers at Encompass Health’s former home health and hospice division, which is now Enhabit. The Court awarded judgment against private equity firms Vistria Group and Nautic Partners and the home health and hospice business now known as VitalCaring Group for aiding and abetting “the egregious breaches of the duty of loyalty” by Anthony, James, and Walker. The case was the subject of a 7-day trial in December 2023. After considering “the damning record presented at trial,” the Court found that, while employed by Encompass Health, Anthony, James, and Walker usurped acquisition opportunities falling within Encompass Health’s line of business, used Encompass Health’s confidential information, and swayed key Encompass Health employees to join them with the promise of equity in the home health and hospice competitor that Anthony now heads. The Court noted that Anthony, James, Walker, and the private equity defendants took “great pains” to hide their misconduct, going so far as to secretly exchange diligence materials about acquisition targets for the new venture. The Court determined that VitalCaring Group, Anthony’s new company, is “the result of this deceit.” In addition to finding breaches of fiduciary duty by Anthony and the other two former Encompass Health officers, the Court also found that “with full awareness that their actions were wrong,” Vistria and Nautic and two of their principals, David Schuppan and Christopher Corey, “drove the fiduciaries’ efforts to covertly siphon opportunities, information, resources, and employees from Encompass.” As a remedy for these actions, the Court of Chancery imposed a constructive trust entitling Encompass Health and Enhabit to receive 43% of VitalCaring Group’s profits, to be paid quarterly, and 43% of the exit proceeds if and when VitalCaring Group is sold. The Court also awarded mitigation damages in the amount of approximately $1.62M, and awarded attorneys’ fees based on the defendants’ bad faith efforts to conceal their misdeeds, which included falsifying records, deleting evidence, and “manipulating communications through lawyers.”