FILED

July 1, 1998

Cecil W. Crowson

Appellate Court Clerk

W. HUDSON CONNERY, JR., ET. AL., )

) Davidson Chancery

Plaintiffs/Appellants, ) No. 95-3865-I

)

VS. )

)

COLUMBIA/HCA HEALTHCARE ) Appeal No.

CORPORATION, ET. AL., ) 01A01-9709-CH-00529

)

Defendants/Appellees. )

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY

AT NASHVILLE, TENNESSEE

HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR

Robert S. Patterson, #6189

Patricia Head Moskal, #11621

BOULT, CUMMINGS, CONNERS & BERRY, PLC

414 Union Street, Suite 1600

P.O. Box 198063

Nashville Tennessee 37219

ATTORNEYS FOR PLAINTIFFS/APPELLANTS

Paul S. Davidson, #11789 

Charles W. Cook, III, #14274

STOKES & BARTHOLOMEW, P.A.

2800 SunTrust Center

424 Church Street

Nashville Tennessee 37219

ATTORNEYS FOR DEFENDANTS/APPELLEES

XXXXXXX.

HENRY F. TODD

PRESIDING JUDGE, MIDDLE SECTION

CONCURS:

WILLIAM C. KOCH, JR., JUDGE

WIILLIAM B. CAIN, JUDGE
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W. HUDSON CONNERY, JR., ET. AL., )

) Davidson Chancery

Plaintiffs/Appellants, ) No. 95-3865-I

)

VS. )

)

COLUMBIA/HCA HEALTHCARE ) Appeal No.

CORPORATION, ET. AL., ) 01A01-9709-CH-00529

)

Defendants/Appellees. )

O P I N I O N

Twenty former employees of “HealthTrust,” a ____________ sued HealthTrust and its

“successor in interest,” Columbia Health Care Corporation, to recover share of stock (or the

value thereof) which they had purchased with earned bonuses and for the value of shares of stock

due some of the plaintiffs due them upon discharge. Two of the plaintiffs nonsuited, leaving

eighteen.

Fourteen of the plaintiffs also sued on the theory that their rights were based upon their

“discharge with cause.”

The plaintiffs sought a declaration of their rights and damages for breach of contract,

breach of fiduciary duty and conversion. 

All plaintiffs moved for summary judgment in regard to their claims for declaratory

relief, for breach of contract, and for the vesting of stock upon “change of control.” The

defendants moved for summary judgment upon the same issues. The Trial Court overruled

plaintiffs’ motion and sustained defendants’ motion.

The defendants moved for summary judgment upon the remaining claims, i.e., the

termination without cause basis of the suits of fourteen of the plaintiffs. The Trial Court
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sustained the motion and dismissed the suits of all eighteen plaintiffs who have appealed and

presented the following issues:

I. Whether the plaintiffs’ rights to the restricted stock at

issue vested upon the occurrence of the merger between

HealthTrust notwithstanding the fact that HealthTrust’s

Compensation Committee determined that the stock would

not best upon the occurrence of the merger and the plaintiffs

were so notified orally and in writing. Also, in this regard:

(a) Whether HealthTrust negated the automatic

vesting provision in the 1990 Plan, which provided that a

participant’s right to restricted stock vests automatically

unless HealthTrust provides otherwise in an “Award

agreement,” when on October 31, 1994, Health Trust’s

Compensation Committee met and awarded the restricted

stock subject to the condition that the plaintiffs’ rights would

not best upon the merger, and HealthTrust sent memoranda,

worksheets, and held meetings with the plaintiffs wherein it

informed them that the restricted stock would not best upon

the occurrence of the merger.

(b) Whether the Compensation Committee’s

December 21, 1993, award of (i) the plaintiffs’ targeted bonus

amounts (the amount of bonus they could earn at the end of

the following fiscal year) and (ii) the plaintiffs’ right to elect

a percentage of the actual bonus awarded at year end to

purchase restricted stock constituted an award of restricted

stock so as to prevent the Compensation Committee from

being able to override the automatic vesting provision

notwithstanding the fact that the bonuses and awards of

restricted stock were not actually made until October 31,

1994, and the operative plan allows the Compensation

Committee the right to override and/or amend vesting

provisions.

II. Whether plaintiffs Connery, Francis, Hobbs, Hough,

Kennedy, Lambert, Martin, McCain, Moore, Price, Slusser

and Wallace were terminated without cause so as to trigger

their besting in the restricted stock at issue notwithstanding

the fact that they admit that they were offered positions with

Columbia, and they chose to resign rather than accept such

positions.

III. Whether, to the extent that plaintiffs Connery, Francis,

Hobbs, Hough, Kennedy, Lambert, Martin, McCain, Moore,

Price, Slusser and Wallace seek to recover the restricted stock

and/or its appreciated value based on the circumstances of

their termination, they waived their right the restricted stock

when they executed Severance Protection Agreements which

provided that the benefits granted thereunder were in lieu of

any other severance or termination pay.
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It is undisputed that the plaintiffs were employees of HealthTrust during its 1994 fiscal

year which ended August 31, 1994, and were participants in a restricted stock purchase plans

called the “Total Direct Compensation Plan,” the “Amended and Restated HealthTrust, Inc.,”

and the “Hospital Company 1990 Stock Compensation Plan.”

On October 15, 1991, the board of directors of Health Care created a “Compensation

Committee of its members. According to the Compensation Plan:

The purpose of the [1990 Plan] is to advance

the interests of [HealthTrust] and its

shareholders by providing incentives to

officers and other key employees or

individuals who contribute significantly to the

strategic and long-term performance

objectives and growth of [HealthTrust] by

their invention, ability, industry, loyalty or

exceptional service. The [1990] Plan is

intended not only as a means of attracting and

retaining outstanding management but also of

promoting a close identity of interests between

[HealthTrust’s] management and its

stockholders.

The 1990 Plan defines an “Award” of restricted stock

as “An award or grant of . . . Restricted Stock . . . by the

Committee to a participant under the Plan.” 1990 Plan, § 2

(App.I, 18). 

Notwithstanding the existence of the 1990 Plan, the

1990 Plan states that, “No person shall have any claim or right

to be granted an Award under the Plan, and no Participant

shall have any right under the Plan to be retained in the

employ of the Company.” 1990 Plan, § 18(a) (App.I, 39).

The 1990 Plan also provides that the Plan “shall be

administered by the Committee, which shall have the power

to interpret the Plan and, subject to its provisions, to

prescribe, amend, waive and rescind rules and regulations, to

determine the terms of Awards and to make all other

determinations necessary or desirable for the Plan’s

administration.” 1990 Plan, § 3 (App.I, 22-23) (emphasis

added). Moreover, “all action taken by the Committee in the

administration and interpretation of the Plan . . . shall be final

and binding on all concerned.” 1990 Plan, § 3 (App.I, 22-23)

(emphasis added). The Committee is also entitled to select

the Participants to be granted Awards, determine the amounts

and type or types of Awards to be made, set forth the terms,

conditions and limitations applicable to each Award, and

prescribe the form of the instruments embodying Awards
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made under the plan. 1990 Plan, § 4 (App.I, 237) (emphasis

added).

With regard to Awards of restricted stock, such as the

restricted stock at issue in this case, Section 8 of the 1990

Plan provides specifically as follows:

(a) Awards of Restricted Shares

or Restricted Units. Awards of Restricted

Stock or Restricted Units may be granted

under the Plan in such form and on such terms

and conditions as the Committee may from

time to time approve, including, without

limitation, restrictions on the sale, assignment,

transfer or other disposition or encumbrance

of such shares or units during the Restricted

Period and the requirement that theParticipant

forfeit such share or units back to the

Companyupon termination of employment for

specified reasons within the Restricted Period.

Restricted Awards may be granted alone, in

addition to or in tandem with other Awards

under the Plan.

(b) Restricted Period. At the time

an Award of Restricted Stock or Restricted

Units is made, the Committee shall establish

the Restricted Period applicable to such

Restricted Stock or Restricted Units during

which period of time such Restricted Stock or

Restricted Units are subject to a substantial

risk of forfeiture in accordance with this

Section and Section 13 hereof. During the

Restricted Period, such Restricted Stock or

Restricted Units may not be sold, assigned,

transferred, made subject to gift, or otherwise

disposed of, mortgaged, pledged or

encumbered. Each Restricted Award may

have a different Restricted Period. The

Committee may, in its sole discretion, at the

time a Restricted Award is made prescribe

conditions for the incremental lapse of

restrictions during the Restricted period and

for the lapse or termination of restrictions

upon the satisfaction of other condition than

the expiration of the Restricted Period with

respect to all or any portion of the Restricted

Stock or Restricted Units. The Committee

may also, in its sole discretion, shorten or

terminate the Restricted Period or waive any

conditions for the lapse or Period or waive any

conditions for the lapse or termination of

restrictions with respect to all or any portion

of the Restricted Stock or Restricted Units.

- - - -
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As is stated in the TDC Plan, the actual bonus

awarded to each employee at the end of the fiscal year was

contingent upon the satisfaction of the objectives established

by the Compensation Committee and the plan participants.

 . . . . the actual bonus would not be determined until the end

of the fiscal year, and that the bonus could be above or below

the target incentive opportunity amount, and HealthTrust

would now know how much stock to award until year end.

On October 4, 1994, HealthTrust decided to merge with Columbia HCA and announced

this decision to its employees.

On October 31, 1994, the Compensation Committee agreed to award plaintiffs their 1994

cash incentive bonuses under the 1990 plan under the following restrictions:

(i) for vesting on August 31, 1996,(ii)that

vesting of awards will not accelerate pursuant

to Section 18 (h) of such Stock Compensation

Plan in the event of a “change in control” and,

(iii) for such further terms and conditions as

shall be set forth in an award agreement as

executed by the Committee Chairman or his

designee on behalf of the Committee; and

RESOLVED, that the proper officers of the

Corporation be and they hereby are authorized

to take all such actions and execute all such

agreements or other documents as they deem

necessary or advisable or convenient or proper

to carry out the intent of the foregoing

resolution.

In January, 1994, HealthTrust distributed to its employees a memorandumandworksheet

with “Election Forms.”

On February 28, the board of directors of HealthTrust adopted and approved the plan of

its Compensation Committee.

On April 24, 1994, Health Care merged with Columbia HCA.
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XXXXXXXXX.

_________________________________

HENRY F. TODD

PRESIDINGJUDGE,MIDDLE SECTION

CONCUR:

_____________________________

WILLIAM C. KOCH, JR., JUDGE

_____________________________

WILLIAM B. CAIN, JUDGE