Tenet Co-Founders Sue Firm Claiming Breach of Contract. (Law).

THE co-founders of Tenet Healthcare Corp. have sued the Santa Barbara hospital operator for more than $30 million, claiming breach of an employment contract and fraud.

Former chairman and chief executive Richard Earner and former president and chief operating officer Leonard Cohen filed the lawsuit Dec. 7 in Los Angeles Superior Court. The two held various management positions within the company, then called National Medical Enterprises Inc., after founding it in 1969. They left in 1993; and the company became Tenet in 1995.

Tenet spokesman Harry Anderson said the case is without merit.

The case hinges on when options expired on 880,000 Tenet shares, collectively held by Earner and Cohen. The options, which carried an exercise price of $22.43 a share, were awarded to the co-founders in 1991. The two left in 1993.

"When they left, they were notified, as part of their severance package, that their options would expire in three years," Anderson said.

Between their 1993 departure and the purported 1996 expiration of the options, the highest price Tenet stock traded at was $23.37, barely above the $22.43 exercise price.

Eamer and Cohen claim they had "anti-forfeiture provisions" in their employment agreements setting the options' expiration date at 10 years after the ir 1991 award. That would put the expiration date in August of this year, by which time its shares had risen way above the exercise price. (Last week, the stock was trading at $59.)

Eamer and Cohen claim they tried to exercise the options earlier this year, but were told they had expired.

Allan Browne of Browne & Woods LLP in Los Angeles, who represents the two, said the suit is based on the $32.2 million the co-founders would have realized in profit, given today's share price. But it could end up being more than $100 million with punitive damages.