Spokane Journal of Business

Suit by former Rockwood Clinic CFO gets green light

Exec claims he was let go for not understating losses

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A former chief financial officer for Rockwood Clinic PS who claims he essentially was fired for refusing to doctor an earnings projection for the big health provider network here can proceed to trial with his lawsuit for wrongful discharge, an appellate court panel here ruled earlier this month.

The case involves a lawsuit brought by Gregg Becker in February 2012 against Rockwood Clinic and Community Health Systems Inc. Rockwood Clinic is part of Spokane-based Rockwood Health System, which also includes Deaconess Hospital and Valley Hospital here. Rockwood Health System is a unit of Community Health Systems, based in Franklin, Tenn.

In issuing its published opinion, the three-judge panel of Washington state Court of Appeals Division III, based in Spokane, affirmed Spokane County Superior Court Judge Kathleen M. O’Connor’s denial of a motion by Rockwood Clinic and Community Health Systems to dismiss the suit.

Becker, who Rockwood Clinic hired in February 2011, says in his suit that CHS had acquired Rockwood with a business strategy to improve profitability. The suit alleges he was pressured late that year to project a $4 million operating loss for Rockwood Clinic for 2012, rather than the $12 million operating loss—later proven accurate—that he believed he legally was required to report. 

Court documents, in a recitation of the facts of the case as presented by Becker’s attorneys, say the projection “was significantly important to investors and creditors as a measure of Rockwood’s and, by relation, CHS’s financial health.” In addition, they say, CHS was required to report the projection to the U.S. Securities and Exchange Commission.

Rockwood and CHS demanded that Becker recalculate his EBITDA (earnings before interest, taxes, depreciation and amortization) projection to show a target $4 million operating loss, but Becker refused, the documents say. Becker believed that to do so would require overstating income and understating expenses, fraudulently misleading investors and creditors, in violation of criminal laws, they say.

Rockwood and CHS then rated his job performance as “unacceptable,” placed him on a probationary “performance improvement plan,” and gave him an ultimatum to either submit the $4 million figure or lose his job, the court documents say.

They say Becker hypothesized that CHS procured investments and credits using the false $4 million figure. He made Rockwood and CHS aware of his concerns, the documents say, but didn’t report the alleged misconduct to law enforcement agencies.

Becker soon saw signs that Rockwood and CHS were preparing to use a subordinate of his to submit the $4 million figure under the auspices of his department, after which he expressed his concerns to them in writing, saying he would have no choice but to resign unless they stopped, court documents say. They sent him a one-line email the next day accepting his resignation.

Becker then filed a lawsuit in Superior Court for what’s called wrongful discharge in violation of public policy. He also filed a whistleblower retaliation complaint with the U.S. Occupational Safety and Health Administration, and that complaint apparently remains unresolved, court document say. They say Rockwood and CHS removed his civil suit to U.S. District Court, but after Becker amended his lawsuit to remove references to federal law, the federal court remanded the case back to the state court system.

In seeking to have Becker’s suit dismissed, Rockwood Clinic and CHS argued that for him to prevail in the specific type of wrongful discharge complaint he had filed, he had to show that the actions he took were the only adequate means available to him to promote the public policy of honesty in corporate financial reporting, and that he had failed to do so. A myriad of statutes and regulations provided an appropriate alternative remedy, rendering the lawsuit superfluous, they asserted.

The appeals court disagreed, saying, “Accepting all factual allegations as true, the threat of constructive discharge would jeopardize the public policy of honesty in corporate reporting by discouraging a CFO like Mr. Becker from refusing to submit a false or misleading EBITDA projection.”

It said Becker’s refusal “was the only available adequate means for promoting public policy, given the uncertainty of other enforcement mechanisms and their dependence on his individual pro-compliance efforts.”

Kim Crompton
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