A federal judge in Delaware has denied VitalCaring’s request to reconsider a ruling requiring that 43% of the company’s future profits be placed in trust for the benefit of Encompass Health (NYSE: EHC) and Enhabit (NYSE: EHAB).
The case dates back to 2022, when Encompass Health spun off its home health and hospice business, creating a standalone entity called Enhabit Inc. At that time, April Anthony served as the CEO of the Encompass home-based care segment.
Encompass Health has long alleged that Anthony and her team engaged in unethical practices during the establishment of VitalCaring while the Enhabit spinoff was in progress. In 2021, Encompass sought an injunction against Anthony, claiming she had violated her employment agreement by breaching non-competition and non-solicitation clauses and misappropriating trade secrets.
On Dec. 2, 2024, Delaware Vice Chancellor Lori W. Will ruled in favor of Encompass Health and Enhabit on their claims of breach of fiduciary duty and aiding and abetting breaches of fiduciary duty. The court ordered that 43% of VitalCaring’s future profits be placed in trust to benefit Encompass and Enhabit.
In a letter opinion issued on Feb. 18, Will denied VitalCaring’s request to reconsider that decision and provided clarification on the matter.
Specifically, the letter identified three objections raised by the defendants: the vertical structure of the constructive trust; the allocation of proceeds to account for the defendants’ cost of capital; and clarification on the potential dilutive effects of future investment.
“The first argument rehashes ones previously considered and rejected—though I offer clarification where the Opinion was unclear,” the judge wrote. “The second was never raised and, even if it had been, the defendants identify no overlooked controlling fact or principle of law. The third is premature.”
Regarding the vertical structure of the trust, the letter clarifies that the plaintiffs are to receive “first dollar” distributions, not distributions only after VitalCaring’s investors have recovered invested capital. Describing the solution as “imperfect” but “equitable,” the judge explained that plaintiffs and defendants simultaneously receiving first dollar distributions will incentivize VitalCaring to grow “while the ill-gotten gains are disgorged.”
Among other issues addressed in the letter opinion, VitalCaring requested that the court reevaluate the allocation of funds in the trust, arguing that the current approach overlooks the time value of money. Specifically, the defendants claimed it improperly compares the undiscounted future value of VitalCaring’s exit proceeds with the present value of the contributions made by private-equity investors. “This allocation was based on an assessment of expected gains, meaning ‘the amount they expect to receive above their capital contributions’,” Will wrote. “The defendants have not identified any overlooked controlling principle of the law. They cite no authority, providing that wrongdoers are entitled to reimbursement for their cost of capital in a constructive trust. It is within the court’s discretion to proceed otherwise.”
In terms of the third issue–the potential for future equity investments in VitalCaring, and the effect of such investments on the portion of the trust payable to Enhabit–the judge invited the plaintiffs and defendants to confer on a method for addressing such dilution. If unable to come to an agreement, the parties can submit competing forms of order with briefs to explain their proposals.
VitalCaring had not responded to requests for comment from Home Health Care News as of the time of publication.
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