The Legal Implications of Board-Driven Decision Making (Pt. 2)

In the premiere episode of The Professor’s Corner, David Pivnick, Partner at McGuireWoods, shared best board practices to mitigate risk when making challenging decisions. In this follow-up episode, David expands on a larger trend in healthcare litigation: private equity funds are finding themselves legally responsible for the activity of the companies in their portfolio.

David believes these claims are driven primarily from the whistleblower bar and not the Department of Justice. By leaning on Qui Tam laws, litigators can cast a wide net in who they name in their court filings.

Despite these cases being relatively easy to defend, they still require significant investments in time and money.

To minimize a private equity fund’s risk spectrum, investors should think proactively about board practices, ensuring that relationships are appropriately vetted, and that specific concerns are addressed and corrected. In addition, especially when making decisions that involve substantial gray areas, owners need to seek counsel to ensure the legality of their choices.

 

Featured Experts

Name: Geoffrey Cockrell

What he does: Geoff is the Chair of McGuireWood's private equity group and serves on the firm's Board of Partners; he has extensive experience in mergers and acquisitions, especially in the healthcare space.

Organization: McGuireWoods

Connect: LinkedIn

 

Name: David Pivnick

What he does: As a partner at McGuireWoods, David co-chairs the Healthcare and Life Sciences Industry Team. David primarily practices complex commercial litigation in healthcare.

Organization: McGuireWoods

Words of wisdom: “The darker the shade of the gray, the more likely that conduct ends up coming under scrutiny generally, which means it's more likely that as an owner, you could get swept up in an investigation.”

Connect: LinkedIn

 

Notes From the Professor’s Corner

Top takeaways from this episode

★ Qui tam rules make it easier for litigators to include private equity funds in their claims. The growing trend of litigating against PE funds is driven primarily from the whistleblower bar, not the Department of Justice. While these claims rarely carry much legal weight, they can lead to significant financial strain for investors who must hire a legal defense team.

★ The darker the gray, the greater the risk. Most claims against PE funds from the Department of Justice include clear misconduct by investors who serve on their portfolio company’s board. David warns that making decisions that involve a lot of gray area opens everyone involved up to a greater risk spectrum. Seeking counsel in these situations is recommended.

★ Investors have a responsibility to ensure proper conduct. Because most boards in private equity-funded healthcare companies are decision-making boards, investors would be wise to ensure that companies in their portfolio are following regulatory compliance standards.

Episode Insights

[01:33] A growing trend: David sees increasing instances of