In the still-unfolding legal drama between Community Health Systems and Tenet Healthcare, CHS is asking a federal court in Texas to dismiss Tenet’s lawsuit that seeks damages and costs related to the companies’ takeover struggle.
CHS yesterday filed a motion to dismiss the suit for lack of subject matter jurisdiction or failure to state a claim. In a 24-page memorandum of support, the Franklin-based hospital company said Tenet’s complaint is “unprecedented and does violence to the statutory framework Congress established with the federal securities laws governing proxy contests.”
“It is the height of corporate hubris that Tenet now seeks to present CHS with a bill of costs for Tenet’s scorched-earth battle tactics,” the memorandum reads.
The “battle” between these companies began late last year, when CHS made an unsolicited takeover bid to acquire Tenet. Tenet refused the offer and the ensuing back-and-forth escalated in April when Tenet filed its initial lawsuit against CHS, alleging Medicare fraud. CHS moved to dismiss the suit but in early May ended its pursuit of Tenet and withdrew its slate of directors.
On May 16, Tenet filed its amended complaint, claiming it has a right to damages under Section 14(a) of the Securities Exchange Act of 1934. In yesterday’s filings, CHS argues Tenet cannot sue under that section because it only provides voting shareholders with standing to sue. Additionally — among other arguments in the memorandum, available here — CHS asserts that Tenet cannot recover damages under Section 14(a) because the costs were not caused by a proxy contest but by Tenet’s decision to investigate CHS and pursue the litigation.
CHS contends several times in the document that the proxy contest at issue actually did not happen — neither company filed a preliminary proxy statement with the SEC, neither mailed a definitive proxy statement or proxy card to Tenet shareholders, and no votes will be cast for CHS’ nominees for the Tenet board because CHS withdrew its candidates.
From here, Tenet has 30 days to respond to the motion. If the court wants a hearing on the matter, it will be held no sooner than Sept. 15.
Shares of CHS (Ticker: CYH) are up more than 3 percent today to about $25.80. Since going public with its bid to buy Tenet, the stock is down almost 30 percent.