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Prospect Chartercare LLC v. Conklin

Superior Court of Rhode Island

January 19, 2017


         Providence County Superior Court

          For Plaintiff: William Mark Russo, Esq.

          For Defendant: V. Edward Formisano, Esq.


          LICHT, J.

         Before the Court are Plaintiff Prospect CharterCARE, LLC's (PCC) Motion to Vacate an Arbitration Award and Defendant Michael E. Conklin, Jr.'s (Conklin) Cross-Motion to Confirm the same award. Jurisdiction is pursuant to G.L. 1956 § 28-9-14.

         I Facts and Travel

         CharterCARE Health Partners (CharterCARE) owned and operated two hospitals: Roger Williams Medical Center (Roger Williams) and Our Lady of Fatima Hospital (Fatima).[1] Ken Belcher (Belcher), President and Chief Executive Officer (CEO) of CharterCARE, hired Conklin in May 2010 to serve as Vice President of Finance and Chief Financial Officer (CFO) at an annual salary of $311, 000. Pl.'s Mot., Ex. A (Award) at 8. As CFO, Conklin was part of the Senior Leadership Team at CharterCARE.

         In October 2010, the President of St. Joseph Health Services of Rhode Island resigned. Id. In response, the CharterCARE Board of Trustees (Board) asked Belcher to assume the same role. Id. at 5. Given the demands of the position he already held, Belcher agreed to do so only if the Board would allow for an on-site "head of operations" at both Roger Williams and Fatima. Id. at 5, 8. The Board obliged, approving a Revised Leadership Organizational Structure whereby Conklin became head of operations at Fatima and Kim O'Connell (O'Connell), Chief Legal Counsel for CharterCARE, became the same at Roger Williams. Id. at 5, 8.

         Importantly, Conklin and O'Connell both retained their previous positions and remained responsible for their existing duties. Id. at 5, 8. The Board assigned each of them the additional title of "Senior Vice President" to reflect their new head of operations duties. Id. at 5. Such duties were summarized in Conklin's updated job description as follows: "The position of Senior Vice President and Chief Financial Officer also serves in the capacity of head of operations for St. Joseph Health Services of Rhode Island." Id. at 5-6, 14. Conklin received a pay raise of $19, 000 to compensate him for his new responsibilities. Id. at 6, 8-9.

         Meanwhile, CharterCARE was looking to secure a capital partner. Id. at 9. In order to create a safety net for those executives who had faithfully served the company, the Board voted in November 2011 to modify all Senior Leadership Team executives' employment agreements to provide for an eighteen-month enhanced severance in the event of a "de facto termination" resulting from a "change in control." Id. at 6, 9. This added provision set forth the following terms:

"7. De Facto Termination
(b) In the event of a material reduction of the duties or authorities of Executive (or a termination without cause) without the Executive's written consent such that it can be reasonably found that he is no longer performing the material duties normally incident to the position of Sr. Vice President and Chief Financial Officer of CharterCARE resulting from and occurring within one (1) year of a Change in Control, the Executive shall have the right, in his discretion, to terminate this Agreement by written notice delivered to the President and CEO, within ten (10) days of such material reduction in duties or authority. After such termination, Executive shall be entitled to the payments and benefits described in Paragraph 6 [(CharterCARE shall continue to pay Executive his then monthly salary)] for a period of eighteen (18) months following the termination date as an enhanced severance payment (the "Extended Severance Period") subject to the requirement to execute and not revoke the Separation Agreement.
For purposes of this Section 7(b), 'Change in Control' is defined as the reorganization, merger, or consolidation of CharterCARE with one or more entities as a result of which CharterCARE is not the surviving entity, or a sale of substantially all the assets and property of CharterCARE or all the assets and property of both of its constituent hospitals, i.e. Roger Williams Medical Center, St. Joseph Health Services of Rhode Island and Elmhurst Extended Care to another entity." Pl.'s Mot., Ex. D (Employment Agreement) at 3-4 (emphasis added).

         Conklin signed a new Employment Agreement, which contained the above-cited provision, on January 1, 2012. Award 9; see Employment Agreement 3-4, § 7(b). The Employment Agreement did not contain a job description from his previous CFO contract, but it did reflect his newfound title of "Sr. Vice President and Chief Financial Officer." Award 9; see Employment Agreement 1.

         In March 2013, Prospect Medical Holdings (Prospect) and CharterCARE signed a letter of intent to enter into a joint venture. Award 9. Thomas Reardon (Reardon), President of Prospect East, held a meeting in October 2013 with executives from Prospect and CharterCARE, which Conklin attended. Id. In that meeting, Reardon indicated that he would like Conklin to remain with the company as CFO. Id. As one Prospect executive noted, the company was "in the business . . . of making money, and [Prospect] need[s] the CFO just to be the CFO." Id. Reardon again expressed his desire for Conklin to stay on as CFO at a March 2014 meeting between the two and during multiple conversations thereafter. Id. at 10.

         In April 2014, Prospect leadership offered Tom Hughes (Hughes) the position of President of Fatima. Id. Conklin learned of Hughes's hiring around the same time. Id. Hughes officially took over as President of Fatima in July 2014, at which point Conklin's responsibilities as head of operations at the hospital ceased. Id. at 10. In the meantime, the joint venture transaction between CharterCARE and Prospect had closed on June 20, 2014, giving rise to PCC as the successor corporate entity. Id. at 11. Thus, on July 10, 2014, Conklin delivered to Belcher a letter invoking the "De ...

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