To win our case, organization and delegation were key
Elizabeth Balfour and Bill Mateja. (Photos courtesy of Sheppard Mullin)
Our client Falcon Healthcare Inc. is a franchised hospice and home health business that alleged that its franchisor breached franchise agreements, engaged in tortious interference with contract and retained funds to which it was not entitled. Falcon prevailed during a four-week Texas state court bench trial against Interim HealthCare Inc., one of the largest such franchisors in the country.
The bifurcated trial, which took place in Lubbock, Texas, was not only a complex business dissolution case but also a nuanced franchise dispute that involved numerous health care issues. The findings of fact and conclusions of law in Falcon Healthcare Inc. v. Interim Healthcare Inc. is 95 pages. The trial court canceled all of the franchise agreements and issued an alternative award of $30 million in lost profits due to Interim’s breaches. There are two pending appeals.
The dispute started in 2021 when Brandon Durbin, Falcon’s majority owner, notified then-CEO and minority owner James Bullard that he would be replaced, To stop his ouster, Bullard sued Durbin and unsuccessfully sought a temporary restraining order alleging, among other things, that Durbin violated franchise agreements with Interim because he had an ownership interest in a competing hospice business. Bullard then enlisted Interim’s help to keep his job, which resulted in Interim attempting to “step in” to take over Falcon’s business, and a separate lawsuit by Falcon to stop the step-in and declare that Interim’s termination of the franchise agreements violated the agreements’ terms. The case went to trial in 2022, nine months after Falcon obtained a TRO against Interim to stop the step-in.
So how did we win the case?
Right lawyer for each role
The case had commercial litigation aspects, but it also presented complex franchise, health care and business dissolution issues. We had litigators on the trial team for each of these areas, and it made all the difference. Our health care litigator wasn’t forced to research and argue laws around cancellation of franchise agreements, and our business dissolution specialist wasn’t forced to understand the anti-kickback statute elements at issue. The trial judge recognized each lawyer as somewhat of an expert in his or her respective field, which gave us a leg up litigating against an extremely talented business litigator who didn’t have a franchise or health care background.
In our experience, we see lawyers who keep the entire case to themselves in the mistaken belief that they can navigate issues, and they may get in over their heads. It’s critical to make sure to have the right lawyer for the job. We had highly effective local counsel from Lubbock who not only was the smartest lawyer in the courtroom but also actively involved in trying the case. Some legal teams just use local counsel to consult on matters of local procedure.
Our local counsel knew precisely how to try a case in the area. That included invoking Texas Rule of Civil Procedure 267. When placed under the rule, witnesses are instructed by the judge that they are not to talk with each other or with any other person about the case except with the judge’s permission. For instance, Bullard’s wife attended the entire trial, and the judge admonished her not to share any testimony she had heard with her husband.
Sweat the small stuff
Every hearing involved the preparation of a detailed PowerPoint. We did not just hope our briefing would be sufficient. While the judge was extremely well-prepared and read all of the briefs, it is effective to provide a summary in a user-friendly visual form. We prepared summaries of each of the 13 franchise agreements because understanding the nuances between them was important to the case. Graphic designers created demonstrative exhibits to summarize content from documents and highlight key points. The trial team used these skillfully to preview the case in its opening statement, to elucidate witness testimony and to reinforce points during closing argument.
Keep your opponent close
We made it a point to have as collegial a relationship with opposing counsel as possible. It was made easier because Interim’s lead attorney was a good lawyer and a good guy. We regularly communicated with opposing counsel. Believe it or not, despite the complexity of this case, we did not have to bring any discovery disputes to the judge for resolution. There were productive relationships between counsel at all levels. We actively discussed issues, met and conferred, collaborated when possible (shared trial tech resources, aligned on presentation of trial exhibits) and were civil and cordial.
And when we pushed the envelope and opposing counsel objected, there was a course correction. For example, when we called an out-of-state witness to testify at trial, we adjourned for the afternoon in order to allow that witness’s deposition to be taken because she previously had not been deposed.
Credibility is everything
The lawyering overall by both sides was exemplary. The judge complimented all counsel on their presentations of the case. That said, there was a disconnect in Interim’s themes: Falcon’s majority owner was driven by greed and had engaged in deception. When it was made clear that Interim’s takeover of Falcon, if it had been successful, would have resulted in a giant financial windfall for Interim in return for zero payment, this tanked the narrative on greed.
And when Interim’s counsel emphasized in its opening statement that our majority owner had created a “byzantine” web of companies, allegedly to hide his ownership in another hospice business, our team conducted a painstaking examination of Interim’s CEO on the 11 layers of holding companies and subsidiaries that comprised the Interim corporate structure.
Showing graciousness also builds credibility. When a former Falcon employee who had agreed to serve as the “monitor” of Falcon’s and Interim’s compliance with the agreed temporary injunction testified, our team thanked her for doing so. The judge followed our lead and also expressed appreciation for her serving in this capacity.
Gaining the client’s trust
The case involved many moving parts: over 30 different hospice and home health locations operated by Falcon under the Interim brand as well as the 13 different franchise agreements. There were also allegations involving businesses other than Falcon, including an allegedly competing hospice provider and a professional employer organization that consolidated various services for the Falcon locations.
It was critical to develop not only a strong working relationship with our client, including the ability to reach our contact at a moment’s notice and confirm even the most minute details, but also to develop an alignment on strategy with our client. This alignment was equally critical at the damages stage of the case. After Falcon prevailed on key issues, including that Interim did not properly terminate the franchise agreements, we moved to the damages phase. Here, the stark contrast between our deep understanding of our client’s perspective and the misalignment between the Interim CEO’s view of the world and her legal team’s approach was highlighted.
Both clients retained damages experts who were deposed. On the first day of the damages trial, Interim’s CEO testified that her damages expert essentially “got it all wrong” and missed key points in his analysis. Apparently, she had not discussed the expert’s analysis with either the expert or Interim’s counsel. The damages expert then made extensive revisions to his analysis, which required that the damages trial be adjourned to allow the Falcon legal team time to review the updated analysis and take a second deposition. The Interim CEO’s failure to engage with the legal team on the first go-round resulted in wasted resources, including the time of attorneys, experts and the judge. It also resulted in additional legal fees. This was not helpful to Interim’s cause.
We benefited from good facts and compelling witnesses, and we used teamwork and diligent effort to build and present a winning case.
This story was originally published in the December 2024-January 2025 issue of the ABA Journal under the headline: “Detail-Specific: In a bifurcated trial involving health care and franchise agreements, organization was key.”
How I Won the Case gives you the inside scoop on big verdicts and trial tactics.
Elizabeth Balfour and Bill Mateja are partners with Sheppard, Mullin, Richter & Hampton. Balfour, who specializes in health care and franchise law, is based in San Diego; Mateja, who does white-collar defense work, practices in Dallas.
This column reflects the opinions of the authors and not necessarily the views of the ABA Journal—or the American Bar Association.
