Hospital Board Hijacks Non-Profit Hospital, Court Removes Board.

The line between governance and day to day management of a Non Profit Hospital Board can sometimes seem like a moving target and difficult to properly define. Tensions between management and the governing board can sometimes become combative if not downright hostile in undertaking their separate corporate duties in any given circumstances. The circumstances in a recent Tennessee Case may set a new mark for dysfunctional board-administration confrontation. The Tennessee Court of Appeals recently affirmed a trial court decision in Memphis Health Center, Inc., by Sadie Davis and Cornelia Berry, Directors, and Morristein J. Holman, Chief Executive Officer and Director  v. Gregory Grant, et al., in their capacity as the Board of Governors of Memphis Health Center, No W2004-02898-COA-R3-CV (July 28, 2006), to remove the defendant board of directors and return the management of the hospital to the CEO and two plaintiff board members.  This action followed a "derivative" action brought by the plaintiffs on behalf of the corporation against the rest of the Board.

It is a general proposition of law that where disinterested directors act in good faith and with an honest belief that their decisions further the corporations interests, a court will decline to substitute its judgment for that of the Board of Directors. This is called the "Business Judgment Rule."  Ordinarily only a corporation can bring an action on behalf of its self. A derivative action is limited exception to that rule where state law permits shareholders, directors or members to bring an action on behalf of the corporation where a corporate cause of action to redress an injury sustained by or to enforce a duty owed to the corporation, when the corporation for some reason has chosen not to pursue it. In most cases these types of actions are brought by minority shareholders in for profit corporations.  The use of a derivative action for a non-profit corporation is extremely rare.

The gist of the plaintiff's complaint was that the Memphis Health Center Governing Board and particularly its chairman, Mr. Grant, took over the hospital, violated a preliminary injunction entered by the court by injecting itself into the day to day operations of the hospital and  removing the CEO by putting her on leave with pay, and by failing to honor their fiduciary obligations as directors, failing to adhere to the by-laws of the hospital and failing to investigate or inquire as to complaints concerning the behavior and conduct of the Board President, Mr. Grant who violated the  federal false claims act in a federal court in submitting 3,306 false claims to the federal government. A judgment entered against him for $5929,719.21. Said the Tennessee Court of Appeals,

Certainly the remedy imposed by the trial court, wholesale removal of the entire Board except for the Plaintiffs, is breathtaking in scope. Even so, given the grave nature of the federal court's judgment against chairman Grant and the inexplicable indifference to it exhibited by the Board, the trial court's remedy is not unreasonable. clearly the Defendants were not going to protect Memphis Health Center from Grant. The trial court was left with little choice. We find no abuse of discretion in the trial court's decision to impose criminal contempt sanctions and in the remedy ordered.

The costs of the appeal and attorneys fees were assessed against the Defendants individually and as Board Members.

Comments

[Eressethy]

Nothing seems to be easier than seeing someone whom you can help but not helping.
I suggest we start giving it a try. Give love to the ones that need it.
God will appreciate it.