The Arkansas Court of Appeals
today reversed a Jefferson County circuit court judge who'd ruled a nursing home had "charitable immunity" from a damage lawsuit.
Gracie Neal sued Davis Life Care Center
on behalf of long-term resident, Johnny Newborn, who died in 2011. She raised a number of issues, including negligence and medical malpractice. The suit alleged numerous injuries, infected bedsores, improper catheter care, malnutrition, dehydration, aspiration and, finally, death.
Judge Jodi Raines Dennis
granted a summary judgment to the nursing home on its claim of charitable immunity, meaning that it was a nonprofit established for charitable purposes and its assets shouldn't be diminished by judgments for someone injured by one of its employees.
Past court rulings set out eight standards to help judge whether an organization is charitable — whether it makes a profit, for example. Davis said it had always operated at a loss. The court observed, "... we conclude that the lack of a profit in a longstanding business could cause reasonable minds to question whether an entity is truly operating at a deficit each year or manipulating its financial records to create the perception that it is operating at a deficit."
The court also said it wasn't clear that forgiving debt was the same as providing free services to someone. Davis required payment agreements up front. Plus, it has written off only small amounts to bad debt — $179,000 on $8.1 million in revenue in 2013, for example.
The three-judge panel, in a decision written by Judge Rita Gruber, also raised a question about whether Davis abused the charitable entity form of business, citing a flow of money to related parties.
Of particular interest to us is a contract between Davis and Morrison Management Specialists. Davis had a contract with Morrison Management Specialists to provide dining, housekeeping, and maintenance services. The agreement between Davis and Morrison provided these services to Davis, Hazel Street Nursing Association, Garden Point Living Center, Whispering Knoll Limited Partnership, and The Gardens Limited Partnership. Davis contends that each of these entities is separately owned.
However, Davis's contract with Morrison Management Specialists provides that each of these entities was collectively doing business as Davis Life Care Services. Reasonable minds could conclude that Davis Life Care Services was operating as a holding company. We know that at least two of these entities are for-profit ventures. This contract, at the very least, raises factual questions regarding whether Davis was abusing the charitable-entity form by utilizing Davis Life Care Services as a means to conceal profits.
The court said reasonable minds could differ on these and other points and sent the case back to circuit court for possible trial.
It will be interesting to watch this percolate in the months ahead. Could the question reach the Arkansas Supreme Court for some more definitive guidance on the ability of nursing homes to claim nonprofit status while shipping off healthy sums to those who control management corporations? And, to continue the speculation, would all those judges helped immensely by money from the nursing home industry (new Justice Rhonda Wood, for example, with about half her initial money haul
from nursing homes) feel any compunction to step down from the case or to rule on the side of a patient who suffered, before dying, from infected bedsores, erosion of the penis, malnutrition and dehydration?
Electing judges. Bad idea.