Deal’s aftermath gets personal
Horizon alleges raid on company’s former employees
Two years after Joey Jacobs sold Psychiatric Solutions to rival Universal Health Services, the former CEO’s latest venture, Acadia Healthcare, is being sued for allegedly poaching talent from his old company.
As deal-making heats up in healthcare, largely fueled by reform and its financial incentives, the case illustrates the challenges companies face in preserving the talent they worked so hard to acquire.
“It’s not unusual in the case of a merger or acquisition for employees to be nervous about their futures and look around for alternative opportunities,” said James McElligott, a labor and employment attorney with McGuireWoods in Richmond, Va. McElligott is not involved in the case. “The acquiring entity usually wants to do due diligence to see whether key talent is contractually bound (or at least incented to stay) to the acquired organization.”
Horizon Health Corp., a subsidiary of Psychiatric Solutions, filed suit in October against Acadia and five former Horizon employees, alleging that they violated their noncompete agreements and misappropriated confidential information. Jacobs is not a named defendant in the suit. UHS and Psychiatric Solutions are not plaintiffs.
The suit charges the former employees with breaching their fiduciary duty by diverting sales leads that they would later pursue for Acadia, recruiting Horizon employees to join Acadia, setting up an Acadia subsidiary, and submitting fraudulent expenses after meeting with each other “to plan their defections.”
Acadia, based in Franklin, Tenn., did not respond to a request for comment. But Stephen Roppolo, the attorney representing the defendants, said Acadia and the employ- “UHS is disappointed at the conduct of Horizon’s former employees in collusion with Acadia Healthcare as alleged in the lawsuit to unlawfully damage one of the very entities they sold to UHS.” “These folks left the company in great shape. There’s absolutely no intention of raiding the mother-ship.” ees named in the suit deny any wrongdoing.
The employees named as defendants in the lawsuit are: Michael Saul, Horizon’s former president; Timothy Palus, former senior vice president of operations; Peter Ulasewicz, former senior vice president of development; Barbara Bayma, former senior vice president of clinical practice; and John Piechocki, former vice president of business development. They resigned from Horizon within weeks of each other in August and September to join Acadia, according to Horizon’s complaint.
Victor Vital, the lead attorney representing Horizon, described Acadia as “taking through the back door what they sold through the front.”
Psychiatric Solutions, also based in Franklin, Tenn., acquired Horizon in 2007 for $426 million. UHS, based in King of Prussia, Pa., bought Psychiatric Solutions three years later for $3.1 billion.
Horizon, a Lewisville, Texas-based provider of in-hospital mental health services, is working with an outside expert to track damages but expects them to be “in the millions,” Vital said. “Basically, we’re looking at a demonstrated loss of sales.”
He noted that the Acadia subsidiary that the former employees formed—Psychiatric Research Partners—does the same thing Horizon does: “The issue we have is them operating in the same space.”
“Typically speaking, the law disfavors restrictions on people’s employment, restrictions that prevent them from working where they want to work,” Roppolo said.
He noted that sales were actually on-track for an above-average year at Horizon. “These folks left the company in great shape,” he said. “There’s absolutely no intention of raiding the mother-ship.”
Horizon filed suit in October in the 16th Judicial District Court in Denton County, Texas, seeking a temporary injunction that would prohibit Acadia from using information alleged to be proprietary to Horizon, require the employees to return any hard copies of those materials, and prevent the former Horizon employees from recruiting anyone else to Acadia. It also requested that the defendants cease employment with Acadia.
Later that month, district judge Carmen Rivera-Worley ordered the defendants to stop using any confidential Horizon information, return copies of those materials to Horizon and preserve any networks or devices where the information might have been stored. However, it did not prohibit the defendants from working at Acadia.
“None of these individuals are prevented from doing what they were doing,” Roppolo said, describing the PRP subsidiary as essentially a five-person outfit. “There’s nothing from the court that ordered the five employees to stop working.”
Horizon is currently subpoenaing a number of hospitals that it describes as sales leads diverted to Acadia. Subpoenas have already been issued to Parkview Regional Hospital, Mexia, Texas, and Cleveland Regional Medical Center, Shelby, N.C., according to court records. A trial has been set for Sept. 17.
“UHS is disappointed at the conduct of Horizon’s former employees in collusion with Acadia Healthcare as alleged in the lawsuit to unlawfully damage one of the very entities they sold to UHS,” a company spokesperson said in an e-mail. “Notwithstanding, we’re pleased that Horizon continues to be a market leader in the management of psychiatric units and we look forward to the upcoming trial.”
McElligott noted that, generally speaking, the ability to get an injunction is often key to these sorts of cases. “More often than not, if you don’t get an injunction, you’ll settle.”