Court Opinion

ID: 1060853
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:56:09.063376+00
Date Added: 2024-06-11T15:39:13.257551
License: Public Domain

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
                                                     FILED
                          AT NASHVILLE
                                                   July 1, 1998
     APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                   AT NASHVILLE, TENNESSEE      Cecil W. Crowson
                                               Appellate Court Clerk
        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
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.       )

                                    OPINION

       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

                                              -2-
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.

                                                -3-
       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

                                             -4-
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 the Participant
       forfeit such share or units back to the
       Company upon 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.
                            ----

                             -5-
                      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 memorandum and worksheet

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.

                                               -6-
                                XXXXXXXXX.

                                          _________________________________
                                          HENRY F. TODD
                                          PRESIDING JUDGE, MIDDLE SECTION

CONCUR:

_____________________________
WILLIAM C. KOCH, JR., JUDGE

_____________________________
WILLIAM B. CAIN, JUDGE

                                    -7-