Horizon Health Corp. v. Acadia Healthcare Co.

• Decision Date: 26 May 2017
• Docket Number: No. 15-0819,15-0819
• Citation: 520 S.W.3d 848
• Parties: HORIZON HEALTH CORPORATION, Petitioner/Cross-Respondent v. ACADIA HEALTHCARE COMPANY, INC.; Psychiatric Resource Partners, Inc. ; Michael A. Saul; Timothy J. Palus; Peter D. Ulasewicz; Barbara H. Bayma; and John M. Piechocki, Respondents/Cross-Petitioners
• Court: Texas Supreme Court

520 S.W.3d 848

HORIZON HEALTH CORPORATION, Petitioner/Cross-Respondent

v.ACADIA HEALTHCARE COMPANY, INC.; Psychiatric Resource Partners, Inc. ; Michael A. Saul; Timothy J. Palus; Peter D. Ulasewicz; Barbara H. Bayma; and John M. Piechocki, Respondents/Cross-Petitioners

No. 15-0819

Supreme Court of Texas.

Argued March 1, 2017

OPINION DELIVERED: May 26, 2017

Darren Lee McCarty, Alston & Bird LLP, Dallas, for Amicus Curiae Balcombe, Jeff D.

Alan W. Hersh, Kendyl T. Hanks, Greenberg Traurig, LLP, Austin, Mary Olga Lovett, Greenberg Traurig LLP, Houston, Natalie D. Thompson, Greenberg Traurig, LLP, Dallas, Richard D. Hayes, Hayes, Berry, White & Vanzant, LLP, Denton, Victor D. Vital, Barnes & Thornburg LLP, Dallas, for Petitioner.

Jeffery T. Nobles, Deans & Lyons, L.L.P., Houston, Alia Susan Wynne, Stephen J. Roppolo, Fisher & Phillips LLP, Houston, Grace Ann Weatherly, R. William (Bill) Wood, Wood Thacker & Weatherly, P.C., Denton, Jesse L. Cromwell, Cobb Martinez & Woodward PLLC, Dallas, Nicholas D. Stepp, Akerman LLP, Houston, Richard D. Hayes, Hayes, Berry, White & Vanzant, LLP, Denton, for Respondents.

Justice Green delivered the opinion of the Court.

In this case, we must determine whether the court of appeals erred in concluding that the evidence of the petitioner's future lost profits was legally insufficient to support the jury's award and whether the exemplary damages award is unconstitutionally excessive despite the court of appeals' suggested remittitur. We agree that the evidence is legally insufficient to support any award of future lost profits, but we conclude that the court of appeals' remitted exemplary damages award is unconstitutionally excessive. We also agree with the court of appeals that the entity defendants cannot be held jointly and severally liable for the exemplary damages awarded against the individual defendants, that it is proper to remand the issue of attorney's fees given the insufficient evidence supporting any award of future lost profits, and that the trial court did not err in imposing discovery sanctions against one of the individual defendants. Accordingly, we reverse the judgment of the court of appeals in part and remand the case to that court so that it may reconsider its suggested remittitur of exemplary damages in light of our decision.

I. Background

Horizon Health Corporation provides contract management services to hospitals and healthcare providers to manage their psychiatric and behavioral health programs. Originally formed in 1981, Horizon was acquired by Psychiatric Solutions, Inc. (PSI) in 2007. In 2010, members of Horizon's upper-management team, who called themselves "Project Shamrock," attempted to purchase Horizon from PSI after learning that PSI was considering converting from a publicly traded company into a private entity.¹ However, PSI was ultimately acquired by Universal Health Services (UHS), a large publicly traded company. The members of Project Shamrock attempted to purchase Horizon from UHS, but UHS rejected the proposal in late 2010.

Subsequently, PSI's chief executive officer, Joey Jacobs, left PSI and became chief executive officer of Acadia Healthcare Company, which owns "freestanding psychiatric, child and adolescent, residential, chemical dependency treatment" facilities. In May 2011, Horizon's president, Michael Saul, approached Acadia about joining Acadia's team and presented a business plan to Acadia's president, Brent Turner, proposing that Acadia establish a subsidiary to manage mental-health programs for hospitals and other mental-health providers. In his presentation, Saul identified several companies that would be "competition" for the proposed subsidiary, including Horizon, which Saul indicated was "lost in UHS bureaucracy" and would lose customers "due to relationships." Acadia agreed to the proposal, and Saul sent Turner his résumé and the résumés of other members of Horizon's management who had been part of Project Shamrock (Peter Ulasewicz, Tim Palus, and Barbara Bayma) as a "proposed management team." Saul also told Turner that they "would go hard" after John Piechocki, a member of Ulasewicz's sales team, based on his successful sales record at Horizon, and Saul and Ulasewicz began to recruit Piechocki shortly thereafter.

A. Management Lift-Out and Direct Competition with Horizon

On two separate occasions in June 2011, Saul, Ulasewicz, Palus, and Bayma met to discuss their anticipated move to Acadia and their plans for the Acadia subsidiary. In August and September 2011, Saul, Ulasewicz, Bayma, Palus, and Piechocki resigned from Horizon and joined Acadia's recently formed subsidiary based on Saul's proposal, Psychiatric Resource Partners (PRP).

After losing multiple members of its upper-management team in a two-month period, Horizon conducted a forensic investigation of its computer system. Horizon discovered that Saul, Ulasewicz, Bayma, and Palus had coordinated their departures from Horizon to join the newly formed Acadia subsidiary. Horizon also learned that some of the Horizon defectors had made copies of several Horizon documents preceding their move to PRP. For example, Saul purchased an external hard drive in late 2010 and, after having Horizon's internal encryption system disabled, copied what Jack DeVaney, Horizon's president, described as "a massive, massive amount" of Horizon documents on it, such as policies and procedures, "non-standard" contract language, financial models, monthly account listings, sales presentations, orientation materials, and legal files. Similarly, Piechocki copied Horizon contracts, financial models, and lists of Horizon's sales leads, marking some of the leads "DEAD" before resigning from his position at Horizon and adding those leads to PRP's "master contact list" after joining PRP.

In September 2011, Horizon notified Saul, Ulasewicz, Bayma, Palus, and Piechocki that their resignations and subsequent employment with Acadia were in violation of their employment agreements, the restrictive covenants entered into "at the inception of [their] employment," and of their common-law duties of good faith and loyalty.² Horizon demanded that they end their employment with Acadia and return all documents to Horizon.

Upon their resignations from Horizon, and after receiving Horizon's notice, the new members of PRP began competing with Horizon, soliciting business from Horizon's prospective and existing client base—though it is undisputed that Horizon did not lose any existing customers to PRP. For example, Piechocki secured a consulting contract for PRP with Southwest Regional Medical Center, which was an active Horizon sales lead that Piechocki had emailed to his personal email address before his departure. In January 2012, Piechocki signed Westlake Regional Hospital (Westlake) to a contract with PRP in "direct competition" with Horizon, using Horizon's financial models to "crunch [ ] numbers" to win the contract. Similarly, Ulasewicz scheduled a meeting with Cottage Hospital, a potential client with which he had met while employed by Horizon. Ulasewicz had learned while working at Horizon that Cottage Hospital's barrier to using contract-management services might be removed; however, Ulasewicz did not share this information with anyone at Horizon.

B. Procedural History

In October 2011, Horizon filed suit against Saul, Ulasewicz, Bayma, Palus, and Piechocki (the individual defendants) for breach of fiduciary duty, misappropriation of trade secrets, conversion, liability under the Harmful Access by Computer Act, liability under the Theft Liability Act, tortious interference with existing contracts, tortious interference with prospective business relationships, and conspiracy. Horizon also brought claims against Saul, Palus, Ulasewicz, and Bayma for breach of the restrictive covenants not to compete, fraud, and breach of contract. Horizon alleged that Acadia and PRP (the entity defendants) were liable for essentially all of these acts and omissions either because they were directly involved or under the doctrines of ratification and vicarious liability and because they aided and abetted the individual defendants in committing the underlying misconduct.

At the ensuing trial, the jury entered a unanimous verdict in Horizon's favor on many of its claims. The jury found that Saul, Ulasewicz, Bayma, and Palus breached the terms of their non-compete agreements (NCAs); Saul and Ulasewicz breached the terms of their covenants not to solicit with respect to their efforts to ensure Piechocki's move to PRP; and all of the individual defendants failed to comply with their fiduciary duties to Horizon. Furthermore, the jury found that Acadia and PRP ratified this conduct and will earn future profits as a result. Additionally, the jury found that the individual defendants, while acting in the scope of their employment with Acadia and PRP, intentionally interfered with the NCAs; misappropriated Horizon's trade secrets; converted Horizon's proprietary information; intentionally committed theft of Horizon's property and trade secrets; and knowingly accessed Horizon's computers, computer network, or computer system without consent and with intent to harm Horizon. The jury also found that Acadia and PRP ratified this conduct. The jury further found that Saul, Ulasewicz, Bayma, and Palus committed fraud and fraud by nondisclosure by submitting expense reports for trips taken in June 2011. Moreover, the jury found that all of the defendants participated in a conspiracy that damaged Horizon and that Acadia and PRP intentionally aided and abetted the individual defendants in breaching some of their fiduciary duties, intentionally interfering with the NCAs, misappropriating trade secrets, and converting Horizon's proprietary information, but only PRP aided and abetted the theft of Horizon's property or trade secrets and the harmful computer access. Finally, the jury found that the damage sustained by Horizon as a result of the individual defendan...