Tuesday, May 6, 2014
While in Arizona over the weekend, I had time (while hiding from the first days of this summer's 100+ degree days) to catch up on the latest news about allegations involving the Veterans Administration Health Care System in Phoenix. As reported in the Arizona Republic, key concerns focus on allegations that:
- Veterans were forced to wait unreasonable lengths of times for needed health care appointments (including allegations of waits of over 200 days);
- "Forty or more" veterans died while awaiting care;
- Records were falsified or improperly maintained regarding wait times, with allegations of a "secret list" showing more accurate information;
- Records have been or will be destroyed.
The U.S. House Committee on Veterans' Affairs has reportedly issued orders to the VA to preserve documents. The key allegations of failure to provide necessary care come from two physicians, including one who worked for the VA for 24 years before retiring in December.
I'm not seeing concrete details about the wait times or deaths, although at least one death by suicide of a 20-year veteran is described by a family member in a letter to the editor of the Arizona Republic. It seems unlikely that wait-time delays would be a facility-specific practice and would seem more likely to be a larger system issue. Some allege the problems can be tied to specific administrators. Pinning down such practices is difficult at best, but is there more bad news ahead?
Friday, April 18, 2014
Three legal advocacy organizations, Disability Rights Oregon, the Oregon Law Center and the National Senior Citizens Law Center, worked as a team to initiate a class action suit in Oregon on behalf of 700 individuals with disabilities to protect their rights to continue to receive Social Security benefits needed for basic living requirements. The individuals' access to monthly Social Security benefits was jeopardized when a non-profit organization, "Safety Net of Oregon," serving as their representative payee was disqualified following an investigation for alleged mismanagement of clients' funds. The advocates explained:
"This suit is asking that SSA follow its own regulations to make sure that benefits continue to flow to recipients in a safe and responsible manner. In early March, SSA sent a notice to approximately 1,000 SSA recipients who have Safety Net as a representative payee, advising them that their benefits would be suspended beginning April 1, 2014, and that the amount they would receive would be $0.00. While some recipients have been able to find a new payee, or to become their own payee, many clients never received the notice and have no idea that their benefits are about to be suspended. Almost 700 individuals still lack new payees as of March 21, 2014. Many are homeless, have severe and persistent mental illness, developmental disabilities, and/or alcohol or drug addictions. Many of the clients are profoundly social isolated and alienated, and totally unable to navigate the system on their own."
In response to the suit, the federal court issued a restraining order on March 26 requiring SSA to assign new payees to former Safety Net Clients, rather than delay, require new applications or other in-person requests by the disabled SSI and SSD recipients. More background here.
Tuesday, April 15, 2014
The Social Security Administration announced on Monday that it is halting its practice of "Treasury Offsets" to recover debts reported to be 10 years or older. This decision comes just three days after the Washington Post's front page account of intercepts that targeted IRS income tax refunds going to children of alleged debtors. As reported in today's Washington Post:
“"I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law,' the acting Social Security commissioner, Carolyn Colvin, said in a statement.
Colvin said anyone who has received Social Security or Supplemental Security Income benefits and 'believes they have been incorrectly assessed with an overpayment' should contact the agency and 'seek options to resolve the overpayment.'”
The Washington Post reported that after its first article, "many hundreds of taxpayers whose refunds had been intercepted came forward and complained to members of Congress that they had been given no notice of the debts and that the government had not explained why they were being held responsible for debts that their deceased parents may have incurred."
Hmm. It seems that it is the intercept notice procedures that may be the focus of reexamination by the SSA, rather than giving up on the authority granted by Congress in 2008 to recover "stale" debts. Plus, it is unclear whether SSA will explain its theory for seeking recoveries against children of debtors.
Friday, March 21, 2014
Paula Span, writing for the New York Times' column, The New Old Age, offers several perspectives on the Vi of Palo Alto lawsuit filed by residents at this high-end, California continuing care retirement community (CCRC). In her first piece, "CCRC Residents Ask, 'Where's the Money?'" she sets forth competing viewpoints of the parties:
Though their suit covers several matters, concern over eventual refunds is at heart of the battle. In their complaint, the plaintiffs call the transfer of money from the local provider to its Chicago parent company “upstreaming.”
Management calls it standard business practice. Entrance fee repayments come not from a reserve, but from the eventual resale of an apartment after a resident moves out or dies, said Paul Gordon, a lawyer for Vi. “Once I pay someone, I can’t tell them what to do with it afterwards,” he said. “It’s their money.”
“The payments are going to be made,” Mr. Gordon said. “The rest is eligible for distribution as a return on investment” — i.e., as profit.
That’s a different arrangement from what residents believe they signed up for. Because the Chicago company has not assumed the debt owed for eventual refunds, residents “lost all the security and peace of mind they had paid for,” Mr. McCarthy [the attorney for Vi plaintiffs] said.
In her second article released the next day, Ms. Span takes a broader view than the single lawsuit involving Vi of Palo Alto, noting that "In Many States, Few Legal Rights for CCRC Residents," citing some of my work with states where resident-inspired changes are under consideration, and noting the important work of the National Continuing Care Residents Association, also known as NaCCRA.
Tuesday, March 18, 2014
Find out more about this settlement agreement here.
Monday, March 17, 2014
From 3L student Katie L. Summers at my own law school, Penn State Dickinson, a recently published Penn State Law Review comment titled "Medicaid Estate Recovery: To Expand, or Not to Expand, That is the Question." Here is a taste, from the abstract:
"To recoup some of the costs of Medicaid, the states are required to implement a Medicaid estate recovery program. There are certain mandated requirements, but the reach of the recovery program is primarily left to the discretion of the states. Pennsylvania recently contemplated expanding its Medicaid estate recovery program, but the proposed changes were not enacted. This Comment provides an overview of Medicaid estate recovery in Pennsylvania by exploring the background of Medicaid, Medicaid estate planning, and Medicaid estate recovery generally. In addition, this Comment examines the arguments for and against Medicaid estate recovery. Finally, this Comment recommends the creation of a system that expands Medicaid estate recovery in Pennsylvania, while retaining certain protections for the deceased Medicaid recipient’s heirs."
Wednesday, February 26, 2014
Last week I blogged about tax questions facing some nonprofit senior living operations, especially nonprofit Continuing Care Retirement Communities (CCRCs). This week, we pass on news of a federal court suit filed by residents of a for-profit CCRC, challenging the company's accounting and allocation of fees, especially entrance fees, paid by the residents.
Residents of Vi of Palo Alto (formerly operating in Palo Alto as "Classic Residences by Hyatt") in California are challenging what could be described as "upstream" diversion of corporate assets to the parent company, CC-Palo Alto Inc. They contend the diversion includes money which should have been protected to fund local operations or to secure promised "refunds" of entrance fees. Further, the residents allege the diversion of money has triggered a higher tax burden on the local operation, a burden they allege has improperly increased the monthly maintenance fees also charged to residents. According to the February 10, 2014 complaint, Vi of Palo Alto is running a multi-million dollar deficit and the residents point to the existence of actuarial opinions that support their allegations. The complaint alleges breach of contract, common law theories of concealment, misrepresentation and breach of fiduciary duty, and statutory theories of misconduct, including alleged violation of California's Elder Abuse laws.
Representatives of the company deny the allegations, as reported in detail in Senior Housing News on February 23. A previous resident class action filed in state court against a Classic Residence of Hyatt CCRC, now called Vi of La Jolla, also in California, settled in 2008.
Thursday, February 20, 2014
In a previous post, I reported on a senior care whistleblower case, where a court ruled that a former corporate officer, who was also the in-house counsel, cannot participate in a False Claims Act suit, if the information supporting the claim comes from privileged communications received in his role as an attorney. The two other former executives of the company, non-lawyers, could have participated as qui tam plaintiffs; however the entire case was dismissed by the court as a sanction for improper disclosure of attorney-client privileged information.
Most whistleblowers are insiders, either current or former employees; however, that is not always true. The "relator" (that's False-Claim-Act-speak for whistleblower) in a suit brought against RehabCare, Rehab Systems, and Health Systems, Inc. was the CEO of a competitor, Health Dimensions Rehabilitation, Inc., who first heard about a successful use of "referral fees" during a public conference call hosted by RehabCare.
"Pride goeth before a fall," as our mothers might say. In this case, the CEO's research into the referral fees resulted in allegations the fees were intended to generate referrals of clients covered by Medicare and Medicaid, thus giving rise to alleged violations of the federal Anti-Kickback Act. The defendants denied all allegations.
In the RehabCare case, which settled earlier this year for a reported $30 million, the whistleblower, Health Dimensions Rehabilitation, Inc. is in line to receive about $5.7 million from the settlement, according to the U.S. Justice Department.
Penn State Dickinson School of Law is hosting a half-day program examining "Whistleblower Laws in the 21st Century," on March 20, 2014. Speakers include both academic scholars and experienced attorneys who have advised or represented parties in False Claims Act cases in health care, including "senior care."
Thursday, February 13, 2014
Via Kaiser Health News and sources referenced therein:
After years of trying, Rep. Joe Courtney, D-Conn., says he is optimistic that Congress will change the Medicare policy that has left thousands of patients without coverage for nursing home care after leaving the hospital.
The CT Mirror: After years of trying, U.S. Rep. Joe Courtney, D-2nd District, said Tuesday he’s optimistic that Congress will take action to address a technicality that has left thousands of Medicare patients without coverage for nursing home care after leaving the hospital. At issue is how Medicare treats patients designated by hospitals as being on “observation status.” Medicare’s hospitalization benefit covers nursing home care for patients recovering from a hospital stay, if they have spent at least three consecutive days as inpatients in a hospital. But increasingly, hospitals have been designating patients as being on observation status, even if they receive inpatient care and spend several nights in the hospital (Becker, 2/11).
CQ HealthBeat: As Rep. Joe Courtney, D-Conn., sees it, more of his colleagues are becoming aware of the ill effects that can occur when hospitals tell Medicare that a person who spent days being treated within their walls was not an “inpatient.” Courtney and many advocacy groups say that when hospitals instead slot patients as receiving “observation” services, that can deprive them of needed follow-up skilled nursing care. Or, it can cost them dearly if they use these services as after a hospital stay (Young, 2/11).
For lots of great information on the observation status issue, visit the Center for Medicare Advocacy's observation status resource area.
Friday, February 7, 2014
In United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Inc., decided by the Second Circuit on October 25 2013, we see another qui tam suit, where former employees allege the company's participation in a scheme to defraud Medicare and Medicaid, this time by allegedly underpricing certain services in order to stimulate referrals of clients who qualified for higher rates under Medicare or Medicaid coverage. That allegation triggered the federal Anti-Kickback Statute that applies to federal health care programs.
If anyone is interested in -- or skeptical about -- making a whistleblower claim part of a "business plan," just read this decision. The plaintiff, Fair Laboratory Practices Associates, was formed as a partnership by three former employees, who combined their knowledge in an attempt to confront what they believed were fraudulent sales practices. The federal False Claims Act permits successful whistleblowers to share in any financial recovery for the U.S.
Just one little problem. One of the members of the partnership was a former vice president and general counsel for the defendant corporation, and he was disclosing information received in his role as the only in-house lawyer for the company. Indeed, as reported in the opinion, that is exactly why the other two whistleblowers invited him to join their partnership, because his status as a lawyer "would improve our credibility with the government."
Unfortunately for the plaintiffs' group, it also triggered Rule 1.9 of New York's ethical rules, prohibiting a lawyer from disclosing confidential information of former clients. While the 2d Circuit credited the attorney's contention that he reasonably believed his employer intended to commit a crime, the court concluded the level of disclosure was "greater than reasonably necessary to prevent any alleged ongoing fraudulent scheme." The Court rejected the argument that the policies underlying the False Claims Act trumped the state's ethical rules for legal counsel.
More importantly, the court concluded that although the other two non-lawyer partners could have filed the qui tam action based on the information they alone possessed as former executives for the company, once their knowledge became entwined with the attorney's unauthorized disclosures, the partnership as a group was disqualified. Case dismissed (although the Court does leave the door open for a new relator as plaintiff, or the U.S. on its own).
Here's more on the case by Joseph Callanan, an associate editor for the American Bar Association's Litigation News.
Here is useful background on the federal Anti-Kickback law, courtesy of the American Health Care Association.
Monday, February 3, 2014
As readers of this blog will recognize, whistleblower-triggered suits alleging fraud in Medicare and Medicaid are big business.
The February 2014 issue of The Washington Lawyer, published by the D.C. Bar, has a fascinating article written by Joshua Berman, Glen Donath, and Christopher Jackson, two of whom are former federal prosecutors. In "A Casualty of War: Reasonable Statute of Limitation Periods in Fraud Cases," they outline modern use -- perhaps misuse -- of the Wartime Suspension of Limitations Act (WSLA), originally enacted in the 1940s.
Beginning in 2008, the statute, and a more recent tweak under the Wartime Enforcement of Fraud Act (WEFA), has become a key tool of the Department of Justice in pursuing arguably "stale" claims of fraud. The original provision "tolls" the statute of limitation for such claims until three years after the termination of hostilities for "virtually any kind of fraud in which the United States has been the victim." The 2008 provision, changing the three-year extension to five-years, also "simultaneously broadened the circumstances in which the WSLA's tolling provision is triggered and narrowed the circumstances in which the 'war' can be said to have ended." The result is potentially unlimited periods within which to file suit. The authors explain:
"Now, under the post-amendment WSLA, virtually any congressional authorization for the use of military force -- such as that which was approved by Congress prior to the wars in Afghanistan and Iraq and also recently contemplated with regard to Syria -- will trigger the statute. But only a formal proclamation by the president, with notice to Congress, or a concurrent resolution of Congress will suffice to end the 'war' and resume the running of the five-year clock under the original limitations period."
The authors point out that during World War II, it was "understandable and desirable that the government be given flexibility to bring cases that would otherwise become stale." But the effect of the WLSA is not limited to fraud claims against war-related industries such as defense contractors. The authors critique application beyond the original justification of wartime, to Social Security fraud or False Claims Act violations, the latter the basis for most qui tam claims in senior care and health care industries.
Tuesday, January 28, 2014
Senior Care -- in all of its guises -- is Big Business. And much of that big business involves government contracts and government funding, and therefore the opportunity for whistleblower claims alleging mismanagement (or worse) of public dollars. For example, in recent weeks, we've reported here on Elder Law Prof on the $30 million dollar settlement of a whistleblower case arising out of nursing home referrals for therapy; a $3 million dollar settlement of a whistleblower case in hospice care; and a $2.2 billion dollar settlement of a whistleblower case for off-prescription marketing of drugs, including drugs sold to patients with dementia.
While the filing of charges in whistleblower cases often makes headlines, such as the recent front page coverage in the New York Times about the 8 separate whistleblower lawsuits against Health Management Associates in six states regarding treatment of patients covered by Medicare or Medicaid, the complexity of the issues can trigger investigations that last for years, impacting all parties regardless of the outcome, including the companies, their shareholders, their patients, and the whistleblowers, with the latter often cast into employment limbo.
Penn State Dickinson School of Law is hosting a program examining the impact of "Whistleblower Laws in the 21st Century: Greater Rewards, Heightened Risks, Increased Complexity" on March 20, 2014 in Carlisle, Pennsylvania.
The speakers include Kathleen Clark, John S. Lehman Research Professor at Washington University Law in St. Louis; Claudia Williams, Associate General Counsel, The Hershey Company; Jeb White, Esq., with Nolan Auerbach & White; Scott Amey, General Counsel for the Project on Government Oversight (POGO); and Stanley Brand, Esq., Distinguished Fellow in Law and Government, Penn State Dickinson School of Law.
Stay tuned for registration details, including availability of CLE credits.
January 28, 2014 in Crimes, Current Affairs, Ethical Issues, Federal Cases, Federal Statutes/Regulations, Health Care/Long Term Care, Medicaid, Medicare, State Cases, State Statutes/Regulations | Permalink | Comments (0) | TrackBack (0)
Friday, January 24, 2014
The Justice Department has announced the settlement of a Whistleblower case, involving allegations that RehabCare Group Inc., RehabCare Group East Inc. and Rehab Systems of Missouri, plus a management company, Health Systems Inc., violated the False Claims Act by engaging in a kickback scheme related to the referral of clients between nursing homes and therapy services.
Ho-hum. Just another settlement. No admissions of wrongdoing. Promises that they won't do in the future what they say they didn't do in the past. No reason to put another Whistleblower settlement affecting elder care services on the front page of any newspapers, or make it the lead story on the nightly news, right?
But hey, the settlement figure was $30 million dollars. Thirty ... Million ... Dollars. Are we so innured to Whistleblower cases in this country that an agreement to pay $30 million dollars is viewed merely as a cost of doing business? Do we simply accept it as an extra "tax" on the price of nursing home care -- or pharmaceutical drug sales -- or hospice care -- just to name three industries that have agreed to pay multi-millions in settlement of False Claim Act suits during the last year?
I suppose the Treasury is modestly pleased to be recovering payments to offset Medicare or Medicaid costs that are constantly under assault by legislators professing concern about the size of the budget devoted to elder care. The Justice Department says that in the last five years, it "has recovered more than $17.1 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs."
But what about the persons receiving the care? How do these these non-admissions of fault, combined with additional costs that surely must reappear in future billings to the public, affect the elders and disabled persons depending on these companies for care?
Monday, January 20, 2014
I've been catching up on reading of practitioners' blogs. I quickly came across interesting discussions of potentially cutting edge decisions in recent law and aging cases. Here's a selection:
- From Tucson, Arizona, Robert Fleming's Legal Issues Newsletter reports on the background of the Arizona Court of Appeals decision on January 2, 2014 in Savittieri v. Williams, affirming the post-death annulment of a woman's marriage for lack of capacity.
- From Dearborn Michigan and Pittsburgh, Pennsylvania, John Payne's Off the Top O' My Head, comments on recent decisions within the Third Circuit that address the use of spousal annuities or trusts in Medicaid planning. For example, he discusses the January 14, 2014 ruling in the United States District Court, Western District of Pennsylvania in Zahner v. Mackereth, that makes fact-specific rulings in three consolidated cases involving annuities and which also, surprising, revisits the dormant "Granny's Lawyer Goes to Jail" provision of federal Medicaid law. Fortunately for attorneys, the court agrees with former Attorney General Janet Reno that application of the law to legal advice is unconstitutional. Nonethless, I think it is safe to say that the Pennsylvania Department of Public Welfare's attempt to push the law is an indication of the battle lines being drawn over use of annuities.
- From Fairview, Oregon, Orrin R. Onkin's Oregon Elder Law, reports on an array of elder abuse cases, including a 2013 decision by the Oregon Court of Appeals affirming an award of treble damages under the state's elder abuse statute against an ambulence company, in Herring v American Medical Response Northwest, Inc.
Friday, January 17, 2014
"Missing the Forest for the Trees: Why Supplemental Needs Trusts Should be Exempt from Medicaid Determinations," written by Jeffrey R. Grimsyer as a law student for the Chicago Kent Law Review in 2014, is a thoughtful analysis of the relationship between Medicaid eligibiltiy and supplemental needs trusts, also sometimes called special needs trusts or SNTs.
"[T]he trust provisions have confused federal courts, causing a recent circuit split about whether assets contained within SNTs can be counted by state Medicaid agencies when they determine the trust beneficiaries' Medicaid eligibility and benefits. On one hand, one can read [Section] 1396p(d)(4) as being mandatory, which would require all states to exempt assets in SNTs when determining Medicaid eligibility. This would allow the beneficiaries to continue using SNTs and remain eligible for Medicaid, but would force the states, as payors, to cover more citizens under Medicaid. On the other hand, one can interpret [Section] 1396p(d)(4) as being optional, which would permit each state to enact laws that disqualify beneficiaries of SNTs from receiving Medicaid. This would enable states to save some of their limited resources, but would cause beneficiaries to lose their Medicaid benefits if they use SNTs."
Grimeyer argues the Medicaid section in question is "best read as being mandatory on the states based on the applicable statutory interpretation tools."
Wednesday, January 15, 2014
From the National Senior Citizens Law Center, here is a link to a new issue brief on problems stemming from the Social Security Administration's lack of a fair and uniform system to input and track appeals by SSI recipients.
As the good folks at NSCLC point out, "SSI recipients too often face roadblocks at reconsideration, the first stage of the appeal process.... SSA's failure to process appeal requests can leave SSI recipients without the subsitence income they rely on to pay for food, housing, and medical care."
Monday, January 13, 2014
Earlier today I posted about a new article on tightening scrutiny of investment plans and financial products marketed to seniors. On the theme of liability for those who push completely unsuitable investments, I should add that the U.S. Supreme Court recently accepted cert on Fifth Third Bancorp v. Dudenhoeffer, where employees challenged the investment practices of their 401(k) plan administrators. The issue is breach of fiduciary duties for continuing to encourage investment of employee retirement monies in the employer's securities despite the company's deepening involvement in the subprime mortgage market that drastically increased risk.
The plan administrators argue that they are entitled to a "presumption of reasonableness" for investing in employee stock ownership plans (ESOPs) under ERISA law, citing 29 USC 1104(a)(2). The workers challenge application of such a presumption at the pleading stage. They assert continued recommendations to invest, rather than divest, combined with what they believe and allege was the plan administrators' knowledge of the risk, are sufficient to frame a cause of action for violation of fundamental fiduciary obligations under ERISA protections.
I wish I could predict the Supreme Court's action means that employees and retirees will have a better chance of getting past motions to dismiss on pleadings in retirement plan cases. Afterall, even a conservative such as Chief Justice Rehnquist rejected application of heightened standards at the complaint stage as grounds to dismiss civil rights cases, in Leatherman v. Tarrant County Narcotics (1993). But, the fact that the Court accepted cert where the 6th Circuit actually ruled in favor of the employees makes me a little less than hopeful. There is a split in the circuits, with, for example, the 2d Circuit ruling in 2011 in favor of plan administrators on similar allegations in In re Citigroup ERISA Litigation.
Lots of interesting blog commentary on this topic, including SCOTUS Blog.
AARP is filing an Amicus brief for the plaintiffs in the Dudenhoeffer case, as discussed by Drexel Law Professor Lisa McElroy in AARP's Blog.
Tuesday, December 24, 2013
I've been reading discussions lately on elder law listservs, debating whether nursing homes' attempts to hold family members contractually liable to pay bills violate the Nursing Home Reform Act's bar on mandatory third-party guarantees of payment.
This issue was addressed recently by the United States District Court for the Western District of Pennsylvania in White v. Jewish Association on Aging, where a pro-se plaintiff alleged a violation of NHRA at 42 U.S.C. §§ 1395i-3(c)(5)(A)(ii) and 1396r(c)(5)(A)(ii), tied to allegations that his mother's nursing home required him to sign the admission agreement for his mother.
The U.S. District Court dismissed the suit, rejecting NHRA as permitting a private right of action, but then also addressing the specific "guarantee" issue urged by the son:
"In signing the Admissions Agreement and agreeing to become the Responsible Party... Plaintiff consented to apply Ms. White's financial resources to cover her care.... The Agreement also explicitly states that the Responsible Party's failure to apply a Resident's income and assets to pay for the care would result in the Responsible Party becoming personally liable—not for the bill itself— but 'for any misappropriation or misapplication of Resident's funds or assets.' Plaintiff makes no allegation that Defendant is doing anything other than what is expressly permitted—requiring him to apply Ms. White's finances to cover her costs. Thus, Plaintiff is not being treated as a guarantor, and his claim should be dismissed." (citations ommited)
Hat tip to Rob Clofine, Esq. of York, Pennsylvania for the White case link.
Thursday, December 12, 2013
Lemington Home for the Aged was a nonprofit nursing home in Pittsburgh with a long history, beginning, as one court described, with its "first incarnation [as] 'The Home for the Aged and Infirm Colored Women,' incorporated and dedicated on July 4 1883." The Home was founded by the daughter of an African-American abolitionist from the area, in recognition of the care needs of "Aunt Peggy," an aging friend and former slave.
Unfortunately, by the late 1980s, the Home's finances were in trouble, triggering attempts to modernize, move to a larger facility, and other steps taken in an effort to get the Home back on sound footing. Some of the Home's financial history is captured in a early dispute over Medicaid with the state department of welfare in the '90s. In 2005, however, the Home filed a "voluntary Chapter 11 petition in the United State Bankruptcy Court for the Western District of Pennsylvania." The court approved closure of the Home and transfer of its residents to other facilities.
In the ongoing bankruptcy case, unsecured creditors initiated an adversary proceeding against several of the Home's former officers and directors. In 2010, the District Court granted the defendants' motion for summary judgment, finding that the "business judgment rule" and the "doctrine of in pari delecto" precluded liability on the facts alleged. The case seemed to be over, resolved by deference often accorded to nonprofit operations, especially as to "volunteer" directors or trustees.
The Third Circuit disagreed, however, and, in a precedential ruling, remanded for trial. The Circuit found that genuine issues of material fact existed as to whether the defendants, by continuing to operate the Home once bankruptcy was recognized as inevitable, breached fiduciary duties. The appellate court focused on allegations the individuals:
- failed to exercise requisite care,
- failed to be reasonably diligent, or
- "fraudulently contributed to the deepening of the debtor's insolvency."
The application of the deepening insolvency theory was a matter of first impression for Pennsylvania.
As reported by TribLive, in March 2013 an 8-person jury awarded the Home's unsecured creditors a total of $5.75 million in damages. The award included compensatory damages in the amount of $2.25 million against 15 of the 17 defendants, plus individual allocations of punitive damages against 2 former officers and 5 of the 13 individual former directors.
In May 2013, the District Court denied the defendants' post-trial motions for judgment as a matter of law, new trial or remittitur. In concluding there was sufficient evidence to support punitive damages against the Board members, the District Court observed in part:
"As to the five Director Defendants against whom punitive damages were levied, all of them were responsible for the Home's oversight. Evidence was presented that they were aware that Defendant Causey [a corporate officer] was not sufficiently performing her job as nursing home administrator but none of the Directors took any action to remove her from that position.... The jury heard testimony that the Board never chose to seek bids on the Home from organizations that specialized in nursing home turnaround and that no due diligence book was ever created for potential buyers.... The Home continued to accrue debts after these actions were taken, which Defendants reasonably should have known would damage the Home's prognosis."
The defendants' latest appeal to the Third Circuit is now pending (Docket No. 13-2707).
The outcome of In Re Unsecured Creditors of the Lemington Home for the Aged would appear to have potentially interesting implications for other sectors of the long-term care industry. For example, elderly residents of CCRCs, who have often paid large fees to cover future care or have paid "refundable" entrance fees, are usually unsecured creditors. The question of "deepening insolvency" and fiduciary duties to creditors might, therefore, affect the interests of a group that could appear particularly sympathetic to a jury.
This is an interesting case that bears watching for the outcome on appeal.
Monday, December 9, 2013
As readers of this blog will be aware from previous posts, Pennsylvania courts are willing to enforce the Commonwealth's filial support law. The law, at 23 Pa. C.S.A. Section 4603, makes spouses, parents or adult children potentially liable to "care for and maintain or financially assist" each other where the care-needing family member is "indigent." Pennsylvania's law has been interpreted as giving nursing homes or other third-party caregivers standing to sue.
The suits can cross state lines, usually because the target defendant is an out-of-state son or daughter of a nursing home resident in Pennsylvania, thus creating potentially interesting questions of personal jurisdiction. But the latest suit I've seen is an interesting twist on that fact pattern.
In Eades v. Kennedy, P.C. Law Offices, filed in United States District Court for the Western District of New York, a New York husband and daughter are the plaintiffs, suing a Pennsylvania law firm that attempted to collect a nursing home debt "by means of at least one item of correspondence and at least one telephone call." The plaintiffs in the New York suit are also apparently defendants in a Pennsylvania lawsuit filed by the nursing home. At issue is a bill for $8,000. The nursing home in question, located in Corry, Pennsylvania, is just a few miles south of the New York state line.
In the New York suit, Eades asserts that the collection attempts violated the Fair Debt Collection Practices Act (FDCPA) and further that the law firm's allegations of their liability under Pennsylvania's filial support law is "preempted" by federal Medicare/Medicaid law, under a provision of the Nursing Home Reform Act (NHRA) that bars a nursing home from requiring "a third party guarantee of payment to the facility as a condition of admission."
The New York federal district court dismisses the suit, concluding that there is no "jurisdiction," apparently both on subject matter jurisdiction and personal jurisdiction grounds. But then the ruling gets more interesting. The court proceeds to address the substantive claims by the family members, and seems to conclude that a cause of action under the FDCPA is not triggered by a "support" claim, including a filial support claim. Further, the court suggests there is no preemption under federal law for the following reasons:
"The NHRA holds that nursing homes may not require an individual's relatives to assume personal liability for the individual's care as a condition of admission or continued residence in the facility. The Pennsylvania indigent statute cannot be said to cover the same territory: it merely holds that where a resident is or becomes indigent, a nursing home may seek payment or reimbursement for the resident's care from their spouse, children or parents. It does not bypass the NHRA by permitting or excusing the assumption of personal liability by a relative for a nursing home resident's care as a consideration of admission or continued residence -- the sole evil that the NHRA ... appears to have been intended to prevent."
On December 3, 2013, the New York court dismissed the father/daughter's amended complaint for failure to "state a claim." The case is Eades v. Kennedy, P.C. Law Offices, No. 12-CV-66801, 2013 WL 6241272 (W.D. N.Y. 2013).