Investor Sues Allscripts to Stop Revamped Board

HealthCor Management L.P., a private equity firm with more than 5 percent ownership in Allscripts, is suing the company while it attempts to gain seats on the vendor’s reconfigured board of directors.


HealthCor Management L.P., a private equity firm with more than 5 percent ownership in Allscripts, is suing the company while it attempts to gain seats on the vendor’s reconfigured board of directors.

The lawsuit names all seven current board members, including CEO Glen Tullman, as defendants.

The legal action comes after Allscripts in April announced poor first quarter financial results and the departure of four board members representing the former Eclipsys Corp. side of the company, which stoked a stock sell-off on April 27. Since then, Allscripts has announced a new chairman of the board, appointments by the board of two new independent board members, and approval of a stockholder rights plan to make it tougher for an entity to attempt a hostile takeover. The board also announced an annual meeting on June 15 during which shareholders would vote on continuation of service of the existing board members.

HealthCor in the lawsuit, obtained by Health Data Management, contends it attempted to engage Allscripts to reopen the time period in which stockholders could submit nominees for election to serve on the board, but was rebuffed. The deadline had passed in January. “Under the circumstances, principles of equity mandate that the company re-open its nomination period for a short period of time so that HealthCor (and any other stockholder) may submit its own candidates to stand for nomination to the board,” according to the lawsuit. “The individual defendants’ refusal to recognize the fundamental change at the board and waive the advance notice bylaw is a breach of fiduciary duty.”

The board, the suit alleges, further breached its duties by declining to disclose all materials related to the dispute that led to the departure of the board members who came from Eclipsys.

HealthCor in the lawsuit seeks court orders to reopen the time period for nominating persons to the board, require Allscripts to disclose all material information about the abrupt departure of board members and the dispute that led to the departures, and prohibit the annual meeting from being held until stockholders have adequately considered a new slate of nominees and the additional disclosures.

For your consideration: Other lawsuits facing Allscripts.

There is no love-lost between Tullman and HealthCor, which recently called for the CEO to be fired, and the lawsuit makes the animosity clear. After discussing the board departures and first quarter results, the suit notes, “The result of this sea change is that defendant Glen Tullman, whose 13-year tenure as Allscripts CEO has been widely profitable for himself and remarkably expensive for Allscripts’ stockholders, has solidified his control over the company and its board and removed an important counterbalance to his power that had (up to that point) worked to minimize the harm caused by Tullman’s misrule.”

Allscripts released to HDM the following statement in response to the HealthCor lawsuit:

“HealthCor’s complaint is without merit. Allscripts’ strategy for driving growth remains consistent, and if HealthCor was dissatisfied with the company’s strategic direction over the past several years as they have claimed, they--like all other shareholders--had a fair opportunity to nominate directors under the procedures outlined in our by-laws. The company intends to defend itself vigorously.”

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