$50M Contract-Discrimination Dispute between Minority Firm and Henry Ford Health System Leads to Filing of Third Party Lawsuit in Tennessee State Court

Chattanooga, TN January 2, 2004--World Healthcare Systems, Inc. (WHS), an African American owned medical supply firm, recently filed a third party lawsuit in a Tennessee Chancery Court against Henry Ford Health System (Henry Ford)alleging that Henry Ford received but failed to pay for certain medical and surgical equipment it received from one of WHS' supply sources as part of a multi-year, multi-million dollar medical and surgical supply agreement. The original equipment manufacturer, Guy & O'Neill, Inc. of Wisconsin, sued WHS during November 2003 alleging that it had never been paid for the goods. Guy & O'Neill, Inc. v. World Healthcare Systems, Inc., C.A. No. 03-1316 (Hamilton Chancery Ct.). WHS has denied liability in the Tennessee suit, and named Henry Ford as a third party defendant to the case.

The Tennessee state court action involving Guy & O'Neill, WHS and Henry Ford comes on the heels of the $50 million breach of contract and racial discrimination case that WHS filed against Henry Ford in a Michigan federal court during July 2003 after the five year, $10 million/year supply agreement between the parties broke down. World Healthcare Systems, Inc. v. Henry Ford Health System, C.A. No. 03-72659(E.D. Mich.).

The supply agreement is part of a five (5) year master distribution agreement between Henry Ford and Richmond, Va.-based Owens & Minor, Inc., under which Henry Ford promised to purchase 20% of its medical/surgical supplies (e.g., exam gloves, soft goods, disposable pillows, protective apparel, pouches and positioning products) from WHS in exchange for a savings of at least 10% over prices previously offered by other Henry Ford vendors. In 2001, the deal between Henry Ford and WHS was lauded by many inside and outside the health care industry as a landmark agreement between a majority healthcare system and a minority medical supply firm.

In the Michigan federal case, WHS alleges that Henry Ford misused its public bidding procedures and related buying practices to induce WHS and other minority vendors to seek business opportunities with the System as a stunt to improve public relations, without any real intent of following through on any subsequent deals with minority contractors. WHS asserts, by way of example, that after reaching these deals, Henry Ford subjected minority contractors to different treatment or standards than the majority-owned firms it did business with at the time, including the implementation of a covert minority "down-sizing" campaign; intentionally missing purchasing targets with WHS under the master distribution agreement; and excluding WHS, among other minority firms, from Henry Ford's preferred "direct buy" list program.

The Michigan lawsuit also suggests that Henry Ford's breach of the supply agreement is related in some way to the unexpected resignation or termination of Henry Ford's former Director of Purchasing & Logistics, as well as the System's former Administrator for Supplier Diversity during late 2002 or early 2003, both of whom are African American, and had responsibility for ensuring that Henry Ford honored its agreements with WHS, and other minority firms.

In the new Tennessee lawsuit, WHS alleges that it has been wrongfully subjected to legal action by a sub-supplier as a direct consequence of Henry Ford's failure to honor the supply agreement, and that WHS allegedly has been harmed by Henry Ford's deceptive trade practices and intentional interference with WHS' business and contractual relationships.

Attorneys Rawle Andrews Jr. and Curtis L. Bowe, III of Tennessee-based Andrews & Bowe, PLLP, are representing WHS in both lawsuits. Andrews is a veteran business trial lawyer and Bowe was the lead plaintiffs' attorney in the Waffle House and Days Inn racial discrimination cases. "We have said all along that broken promises have consequences. Unfortunately, my expectation is that this sub-supplier action is the first in a long line of dominoes that will continue to fall until Henry Ford takes responsibility for or otherwise is held accountable for harming WHS' business interests," Andrews said.

The Michigan federal court has set a trial date of December 7, 2004. No trial date has been set in the Tennessee state court case.




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