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
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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 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.
----
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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 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.
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XXXXXXXXX.
_________________________________
HENRY F. TODD
PRESIDING JUDGE, MIDDLE SECTION
CONCUR:
_____________________________
WILLIAM C. KOCH, JR., JUDGE
_____________________________
WILLIAM B. CAIN, JUDGE
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