March 21, 2012 / 8:35 PM / in 6 years

UPDATE 2-US court rules for Community in suit by rival Tenet

March 21 (Reuters) - Community Health Systems Inc, which failed in attempts to acquire rival hospital operator Tenet Healthcare Corp, prevailed in getting a lawsuit brought against it by Tenet thrown out.

Judge Barbara Lynn of U.S. District Court for the Northern District of Texas dismissed the suit with prejudice on Wednesday, citing Tenet’s lack of standing to bring the action.

In an unusual move against a hostile suitor, Tenet sued Community Health, accusing it of admitting too many patients to its hospitals in order to inflate profits and overcharge Medicare.

“We believe Tenet’s board and management team initiated this litigation for the purpose of distracting shareholders from our bid to buy their company,” Community Health Chief Executive Wayne Smith said in a statement. “Today’s ruling brings a conclusion to Tenet’s unfounded lawsuit and we are pleased to put it behind us.”

The complaint by Tenet had also sought to recover costs of analyzing Community Health’s bid and slate of proposed directors.

In her ruling the judge cited prior cases, saying they do not “support the proposition that expenses such as those sought here can be recovered by the target corporation.”

Tenet said the decision to dismiss the lawsuit was not based on its claims against Community.

“It is important to remember that this was not a ruling on the substantive claims regarding Community Health’s admission policies; rather this ruling was based on the technical issue of whether Tenet had standing, following Community Health’s decision to drop its takeover attempt, to recover costs incurred during Community Health’s proxy fight,” Tenet spokesman Rick Black said in an emailed statement.

Tenet had repeatedly rebuffed Community Health’s overtures to buy the company, ultimately turning down a $4.1 billion offer that amounted to $7.25 per share, saying that it failed to recognize Tenet’s financial position and growth prospects.

Community withdrew its offer on May 9 of last year, ending the possibility of a marriage of two of the largest U.S. hospital companies.

Community Health shares closed Wednesday down 16 cents at $23.04, while Tenet shares ended up 2 cents at $5.43, both on the New York Stock Exchange.

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