Hospice Titan Taken Down for Fiduciary Breaches

In December 2024, a Delaware Chancery Court judge ruled two private equity firms had aided and abetted "egregious breaches" of fiduciary duty resulting in a major loss of their fund returns moving forward. 43% to be exact. The judge’s unprecedented ruling could become a blueprint for other courts in similar cases. What started as a seemingly noble cause by Encompass, to streamline Medicare funded homecare as a more humane and cost effective alternative to nursing homes, has resulted in a breach of trust that threatens both the founder and investors’ future success and profits. 

With humble beginnings, Encompass was built on the shoulders of a $150,000 loan and pure grit and determination by Texas native April Anthony. Anthony successfully parlayed her startup into a $700 million fortune over the years, creating an empire in a notoriously challenging industry. By developing and later selling off a software that served to cut through red tape around Medicare funding and snatching up failing homecare businesses, Anthony established a homecare and hospice firm that seemed to have as much ethics as it did economic success, offering a more comfortable and cost effective solution for elders and end of life care. However, somewhere along the lines it seems Anthony lost sight of the law in an effort to buy back her company. 

In 2014, Encompass was sold to HealthSouth, who has since rebranded to Encompass Health. Initially, Anthony continued to run the homecare division after the acquisition, but eventually disagreed with the broader business’ practices. In a secret partnership with her new private equity partners, Nautic and Vistria, who shared her ambition to buy back Encompass, Anthony participated in a covert scheme to reacquire the company followed by the establishment of a competing firm when their buy out proved unsuccessful. As the court found during its seven-day trial, Anthony repeatedly breached fiduciary duties to Encompass, with the PE firms serving as "active participants."

While still employed with Encompass, Anthony shared confidential information with the PE firms to enable the attempted buyout and identified acquisition targets for their potential new company without first sharing those opportunities with Encompass. Nautic and Vistra helped her in secret, funnelling their communications to Anthony through her husband’s email and referring to her in code names such as “Voldemort” and “our Idaho friend.” When the buyout of Encompass was unsuccessful, Anthony and the PE firms teamed up and founded VitalCaring, directly recruiting senior employees from Encompass and negotiating deals that violated her non-compete clause. Additionally, as noted by the judge, both firms and the offending partners at those firms had been previously enmeshed in similar litigation.

Nautic, Vistria and Anthony have invested hundreds of millions of dollars into VitalCaring, however, hit hard by an industry downturn it has yet to turn a profit. The judge has ordered 43% of their future profits be paid to Encompass. This is known as a constrictive clause, formulated in order to continue to promote the defendants inclination for success, while guaranteeing future profits are retributed accordingly. As the judge wrote: "Equity cannot grant the defendants a pass. The private equity firms remain years away from their anticipated exit. They may do so at a considerable profit — as they have in prior investments that initially faltered."

Avoid getting involved with bad actors- past behavior is a strong indicator of current practices and should raise significant red flags. Ensure your investments are functioning on the right side of the law and schedule your free demo with Intelligo today.