State agency can’t take over Cardinal or fire board, lawsuit says

Former leaders of Cardinal Innovations Healthcare counter-sued North Carolina’s Department of Health and Human Services on Thursday, arguing the state lacked the authority to take over Cardinal and remove its board.

The lawsuit seeks to stop DHHS Secretary Mandy Cohen from hiring a replacement board. A new board was being selected Thursday in Alamance County.

A spokeswoman for N.C. Attorney General Josh Stein called the filing “meritless.”

Former CEO Richard Topping told the Observer that it’s important the issues raised in the lawsuit be resolved.

“We think it’s time to have the courts weigh in and provide clarity and guidance,” Topping said.

Cohen’s agency took over Cardinal on Nov. 27. The state seized control after the Cardinal board fired Topping at a Nov. 17 board meeting and paid him and other executives $3.8 million in severance.

“We are extraordinarily disappointed that Cardinal’s former leadership is focused on the past,” Cohen said in a statement. “We remain temporarily in charge of Cardinal, and are focused on rebuilding the public trust and moving the organization forward.”

The state lacks the authority to take over Cardinal’s local managed entity function because Cardinal has not committed financial mismanagement, the lawsuit says.

The lawsuit also alleges that the Cardinal board had advised Cohen and DHHS that it planned to pay severance to departing executives and repay the amount to the state. DHHS “reneged on the deal reached by the parties and attempted to dissolve the Cardinal Board,” the lawsuit says.

Laura Brewer, spokeswoman for the attorney general, dismissed the board’s filing.

“This motion is meritless,” she said. “As Mr. Topping’s counsel is aware, we continue to discuss important terms and continue to hope we’ll be able to reach agreement on a final settlement.”

Former Cardinal board member Bill Burgin said the board counter sued to “protect” itself.

“It’s not what any of us want,” he said. “I’ve got no reason to fight the state over any of this. I’m just a volunteer.”

But Republican Sen. Tommy Tucker, a frequent Cardinal critic, called the lawsuit “counter-productive.”

“It furthers their arrogance,” he said. “They still believe that they’ve done a good job. And what they’ve done is counter-productive and has resulted in eroding the public trust.”

The lawsuit was in response to a suit that DHHS filed against the former Cardinal board and Topping, shortly after taking over, alleging that they secretly worked to try to keep control of taxpayer money. A judge granted a temporary restraining order against Topping and former board members that prohibits them from interfering with the DHHS takeover or gaining access to Cardinal coffers. That restraining order was extended until Jan. 18.

The former Cardinal board said in the lawsuit that over the weekend, their attorney, Rob Wilder, and the state’s attorney, Special Deputy Attorney General Michael Wood, reached a settlement. The attorneys were supposed to finalize the settlement documents.

“However, for reasons evidently pertaining to political considerations, the parties talked but did not get the settlement papers in hand,” the lawsuit says.

The lawsuit seeks permission to release the details of the proposed settlement.

This story was originally published December 14, 2017 at 3:18 PM with the headline "State agency can’t take over Cardinal or fire board, lawsuit says."