April 28, 2016
Three doctors are suing Kendall Regional Medical Center for allegedly squeezing them out of a limited partnership at a discount during a merger.
Drs. Rafael Madrigal, Juan Suarez and Jorge Suarez-Menendez allege the suburban Miami hospital offered them less than half of what their shares were worth in the December 2014 merger. They believe the shares are now worth at least $2.5 million each and are asking the court for an appraisal.
The Miami-Dade Circuit Court complaint alleges the hospital breached its fiduciary duty to the doctors, who bought Class A ownership interests at $15,000 apiece in 1991.
“You cannot squeeze out or freeze out shareholders — in this case, limited partners — for the sole purpose of removing them and without a legitimate business reason, and that’s what happened here,” said their attorney, Michael Pineiro of Marcus Neiman & Rashbaum in Miami.
The deal was a “paper merger” in which the general partner of the limited partnership created a shell company with no assets or business, Pineiro said. The shell company merged with Kendall Healthcare Group Ltd., which changed nothing about the company except removing the doctors as limited partners.
The lawsuit names Kendall Healthcare Group and the general partner, Columbia Hospital Corp. of Kendall, as defendants.
The plaintiffs were three of four doctors who refused buyout offers over the years as the hospital saw explosive growth. They weren’t always sure the investment would be worthwhile: When more than 100 doctors were asked to join the limited partnership in the 1990s, it was considered a risky investment, Pineiro said.
The limited partnership was formed by Hospital Corp. of America Inc., then a new company without a track record for turning around struggling hospitals, he said. The company wanted investments for operations and to build relationships with prominent physicians. Madrigal was an internal medicine and cardiology specialist until his retirement, Suarez is a practicing urologist, and Suarez-Menendez retired after serving as chief of plastic surgery and other leadership positions at the hospital.
But the hospital grew steadily under now-Gov. Rick Scott’s leadership as CEO of HCA. In the past decade, Kendall Regional has increased emergency services and added a Level II trauma center, one of two in Miami-Dade County and one of the most profitable hospitals in the state, Pineiro said.
The lawsuit includes a presentation created by an associate chief operating officer at Kendall Regional showing HCA’s expansion plans for the coming year. The plans allegedly include expanding the operating room, obtaining Level I trauma center status, and establishing emergency medicine and anesthesia medicine residency programs.
The 2014 merger notices mailed to physicians included offers of $1.11 million for each doctor’s abolished shares, which they rejected. Their counteroffer of $2.5 million per person was not accepted.
“We believe the methodology we used to determine the value of the physicians’ interests was fair,” Kendall Regional spokesman Peter Jude said in a statement. “We await the court’s decision and look forward to a resolution.”
Pineiro differs on the offer.
“Almost invariably when a company squeezes out shareholders or partners through what is effectively a one-sided transaction, such as the one at issue in this lawsuit, the so-called ‘merger consideration’ they offer the squeezed-out shareholders is below the fair market value of the shares,” Pineiro said.
The defendants have filed a motion to dismiss the lawsuit, which will likely be heard next month by Judge Jorge Cueto.
Defense counsel is Walter Tache and Yolanda Strader of Carlton Fields in Miami.