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Tenet Healthcare Suit Over Community Health Buyout Dismissed

A federal judge dismissed Tenet Healthcare Corp. (THC)’s lawsuit against Community Health Systems Inc. seeking to recover costs incurred rebuffing a takeover bid.

U.S. District Judge Barbara M.G. Lynn in Dallas ruled today that Congress didn’t intend for target companies to recover damages such as those Tenet sought. The case was dismissed with prejudice, meaning Tenet can’t refile.

Community Health, the second-largest U.S. hospital company, dropped its $7.3 billion bid in May after the board of Dallas- based Tenet rejected the all-cash takeover offer as “grossly inadequate.” A month earlier, Tenet sued Community Health, accusing it of defrauding Medicare, the federal health insurance program. Community Health called the suit “baseless.”

Tenet later modified its lawsuit to seek damages for unspecified but “significant” costs it said it incurred in analyzing Community Health (CYH)’s offer. Tenet argued that Community Health gave it cause to hire consultants and begin an investigation because Community Health made misleading statements about “synergies” that a combination would produce.

“We’re disappointed in the ruling, but it’s important to remember it wasn’t a ruling on the substance of our claims against Community Health,” Rob Walters, a lawyer for Tenet, said. “It was a ruling on the technical issue of whether Tenet could have standing to recover the costs it incurred.”

Lawyers for Franklin, Tennessee-based Community Health argued that there was no legal basis for Tenet to recover costs and damages. They said that companies in takeover battles pay their own expenses.

“Today’s ruling brings a conclusion to Tenet’s unfounded lawsuit and we are pleased to put it behind us,” Community Health Chief Executive Officer Wayne Smith said in a statement.

The case is Tenet Healthcare Corp. v. Community Health Systems Inc., 3:11-00732, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporter on this story: Tom Korosec in Dallas at tkorosec@sbcglobal.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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