A U.S. district court dismissed a lawsuit filed by Tenet Healthcare Corp. (THC) against rival healthcare company Community Health Systems Inc. (CYH) with prejudice, as it lacked a proper legal standing. A lawsuit rejected with prejudice prevents the company from re-filing the case in another court.
Earlier, in April last year, Tenet filed a lawsuit against Community Health seeking damages incurred during the failed takeover attempts by Community Health. The charge also included certain expenses incurred while studying the supposedly “false and misleading proxy solicitations and statements” of Community Health.
Tenet also accused Community Health of misrepresenting its operating performance over the years by over-billing Medicare. Further, Tenet accused Community Health of increasing its inpatient admissions by admitting thousands of patients into hospitals notwithstanding their requirement for outpatient observation, thereby driving higher profitability.
However, in September 2011, Community Health appealed to the court, seeking dismissal of the lawsuit on grounds that Tenet has no legal standing in seeking the recovery of said costs. Community Health denied the allegations made by Tenet and stated that it conducts business with utmost integrity and adheres to the highest business practice standards. The company also claimed that Tenet’s action was an effort to distract shareholders from its takeover offer.
Since November 2010, Community Health has been targeting Tenet with multiple takeover bids. Tenet rejected Community Health’s third and final bid of $7.3 billion in May last year, citing undervaluation.
The adverse outcome will not only dent Tenet’s reputation, but the expenses incurred in the legal battle will also weigh on the company’s financials. Tenet currently carries a Zacks #2 Rank, which translates into a short-term Buy rating, while Community Health carries a Zacks #3 Rank (short-term Hold rating).
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