Competition From Within

Fiduciary Duties, Errant Partners, and Third-Party Liability.

July 20, 2020

The physician group that held the exclusive contract for a decade was out. One of its physicians, who, as a partner, owed his group a fiduciary duty, now magically sat on the management committee of the group that had displaced it; he had advocated for the new group’s RFP bid.

A seemingly unrelated Delaware case from the world of corporate mergers reminded me of that sorry story, one that’s played out several times for clients over the past decade, one that never ends well for Dr. Quisling.

In the Delaware matter, its state Supreme Court reinstated lawsuit claims against John Haley, the chairman and CEO of Towers Watson & Co.

Mr. Haley had led Towers’ negotiations in a merger with another entity, Willis Group Holdings. Although the Towers board knew, when it empowered Haley to lead the negotiations, that Haley would likely become the head of the combined company and receive a significant increase in pay, Haley neglected to inform the board that one of Willis’ directors, who was also the Chief Investment Officer of a fund that was a large Willis shareholder, had discussed with him the details of what that pay package could be: a better than 500% raise over his current Towers compensation.

Returning to the confines of medical group strategy, double dealing and breaches of fiduciary duty can be used offensively and defensively.

Offensively, errant fiduciaries can be called to task for breaching their obligations.

And, so, too, might the other side and even their advisors. In the Towers Watson & Co case, the court also reinstated aiding and abetting claims against both the Willis director and his employer.

Consider, then, whether the opposite party, whether an outside group, the hospital, or even an “RFP consultant” advising the hospital might also be liable as a co-conspirator.

Defensively, heightening the awareness of potential fiduciary liability can be used to hold quisling group members in check until they can be isolated and dealt with appropriately.

Additionally, other, more sophisticated defensive moves involve structuring group governance in a manner to create and highlight group members’ fiduciary duties. Those defensive structures are effective even in the absence of enforceable covenants not to compete. The process starts with a governance audit.

Contact me today to discuss a governance audit of your entity.

Mark F. Weiss

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