by David Cosgrove
Assisted living facilities confront a broad spectrum of legal issues in the normal course of their business. These facilities are frequently one of many owned by a single corporate parent. A brief survey of some of the litigation results over the last decade demonstrates the fascinating variety of legal issues confronting the corporate parent’s legal counsel. Indeed, a mere sample of the areas of law the business of owning and/or operating such a facility includes: contract, construction, regulatory, tort/negligence, class actions, statutory wrongful death, defamation, employment, arbitration, and licensing. Taking a brisk tour through a decade of legal opinions should validate this observation.
Just last month, the United States District Court in Brooklyn granted a summary judgment motion filed by a web of assisted living facility (“ALF’s”) owners and operators. The owners and operators were fending off a class of former residents and a kitchen-sink of legal claims. The only thing surprising about the case is that it had not been booted earlier on a motion to dismiss.
That is not to suggest the defendants were deserving of praise. From 2006-2012 they “forgot” to mention that they had failed to obtain an ALF license from the New York State Department of Health. But the putative class sought damages despite failing to produce any evidence that the facility’s services were “less-than.” Regardless, class counsel gave it a go, no doubt burning the mid-night oil drafting counts for negligence, fraud, breach of contract, statutory deceptive trade practices and…RICO! It took poor Judge Weinstein dozens of pages to eloquently deliver all of the claims to the dumpster. He even had to resort to citing his own Law Review article!
In 2013, the Texas Court of Appeals made the call against the Assisted Living Facility in another case that probably shouldn’t have been brought in the first place. Another maze of facility owners and their President brought claims for defamation, disparagement and tortuous interference against the owner of a ‘local yocal’ newspaper. The paper had the audacity to run a series of articles about regulatory compliance issues and investigations against the local ALF—“The Crazy Water Retirement Hotel.” (I swear, I did not make up that name). The plaintiffs also threw in the pot of defendants the home health and hospice agency that was the purported leak of the “information.” Here is just a portion of the newspaper’s own summary of its articles, which it also published:
“Month after month in 2010 complaints from residents and employees at the Crazy Water Retirement Hotel kept city and state inspectors returning to the building, investigating complaints of unsafe conditions, building disrepair, failure to provide services and verbal abuse of residents.
After going without air conditioning, hot water and gas to cook food and dry clothes for days at a time in August, residents of the Crazy Water Retirement Hotel had significant amounts of water come through the ceilings during the first week of September after a roofing job was left incomplete for several weeks.
As the roof remained unrepaired into September, the Department of Aging and Disability Services pulled the facility’s assisted living license and attempted to close that portion of the facility.
However as residents were fed in the lobby of the building because of rainwater coming through the dining room ceiling that weekend…”
Ouch. Oh, but there is more:
“…A nurse in the assisted-living portion of the building was also accused of verbal abuse of a resident and was terminated.
State investigators cited a myriad of problems throughout the building and its management.
Though the roofing work was completed in October, the state and the city continued to respond to complaints at the facility through December.
In the first half of 2011, the Index also reported on
• Texas Department of Adult and Disabled Services’ investigations, which revealed licensing violations stemming from uncorrected problems with the physical plant; and
• the Hotel’s hiring of a management company to rehabilitate the Hotel and that company’s decision to sever its ties with the Hotel just a few months later due to delays and paperwork problems in connection with the Hotel’s state license application.”
The plaintiff’s filed suit, but the next month the state Attorney General petitioned to gain access to the hotel because the facility denied access to an investigator from the Texas Department of Aging and Disability Services. The trial court denied the newspaper’s motion to dismiss on procedural grounds.
The Court of Appeals disagreed with the trial court, however, and went on to evaluate the merits of the motion to dismiss. As to the defamation claim, the court noted that the presumption that defamatory speech is false does not apply when the plaintiff is suing the media over a matter of public concern. It also relied upon a previous ruling by another Texas court that made the dissonant observation that a statement “is substantially true even if it exaggerates plaintiff’s misconduct.” The Court of Appeals proceeded to evaluate each defamatory statement at issue, first blessing the use of the term “elder abuse” and next in turn noting that “error in details does not render…defendant liable for defamation as long as the article is substantially true.” Who knew? Unfortunately for the plaintiffs, the media can exaggerate and be inaccurate, at least in matters of “public concern.” The appellate court gave the entire case the boot, as the plaintiffs should have anticipated. Cleaning up their act and taking the reporter to lunch would have been cheaper and less public. Indeed, sometimes filing a lawsuit is simply a fool’s errand.
In 2012, the Wisconsin Court of Appeals ruled against an Assisted Living Facility in a construction dispute. The case is Assisted Living Concepts, Inc. v Siegel Gallagher, Inc., et al. The bad news for the facility and their breach of contract claim was that they had no contract with the defendants at issue, which, of course, is a problem. The good news for the facility was that plenty of other deep pockets stayed in the soup as deserving defendants, including the construction company and Lloyds of London.
Moving out west, the Oregon Court of Appeals delivered bad news to an Assisted Living Facility in 2011. The result in the case of Drury v. Assisted Living Concepts, Inc., et al., seems pretty unfair, but is both sound and predictable.
In Drury, the personal representative of Edie Drury brought a wrongful death action against the ALF and its executive director. Edie suffered from dementia. After about a year after moving in to the facility, she died from injuries sustained in a fall. Edie’s son was the personal representative for her Estate and he filed a claim on the Estate’s behalf in county Circuit Court. The facility responded by filing a motion to compel arbitration based upon a provision in the facility’s Residency Agreement with Edie. But there was a problem that could have been avoided with the involvement of regular competent legal counsel—Edie didn’t sign the agreement. Her son did, and he wasn’t her guardian, conservator, personal representative, or trustee. As such, the agreement was not binding on her or, in turn, her Estate. Seems unfair, but it is basic contract law. According to the Drury Court:
“Thus, under proper circumstances, an arbitration provision may be enforced against a third-party beneficiary.FN4 See, e.g., Arthur Andersen LLP v. Carlisle, 556 U.S. 624, ––––, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009) (noting that traditional principles “allow a contract to be enforced by or against nonparties to the contract through ‘assumption, *223 piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel’ ” (quoting 21 R. Lord, Williston on Contracts § 57:19, 183 (4th ed. 2001))). Consistently with general contract principles, however, “[a] third party beneficiary might in certain circumstances have the power to sue under a contract; it certainly cannot be bound to a contract it did not sign or otherwise assent to.”
FN4. “We note that, where an arbitration clause is broad enough, a nonsignatory may be able to enforce the clause against a signatory. See, e.g., Livingston v. Metropolitan Pediatrics, LLC, 234 Or.App. 137, 149–51, 227 P.3d 796 (2010) (concluding that a broad arbitration clause in an agreement between an employer and an employee entitled nonsignatory defendants to arbitration of the employee’s claims against them arising out of the agreement).”
The year before, in Virginia, the owners of multiple “senior living facilities” locked horns with the management company with whom it contracted to provide services at four of its facilities. The ALF owners asserted claims for breach of contract and breach of fiduciary duty. The management company asserted counter claims for breach of contract. Both sides subsequently filed cross-motions for summary judgment despite a slew of fact-based accusations. The federal district court in Alexandria had to plow through nine (9) issues on its Opinion in HCP Laguna Creek CA, LP, at al v. Sunrise Senior Living Management, Inc.
The dispute at issue arrived in court after a corporate merger prompted the plaintiff to initiate re-negotiations of its management contracts with the defendant. When those negotiations failed, the ALF plaintiff started auditing the defendant and issued a notice of default for breach, despite the fact that the audits did not reveal any deficiencies. Nasty hardball.
The court’s opinion provides an expose of the myriad of business and legal issues churning behind the scenes at your local ALF. And it would appear that the only ones to benefit from at least this mud fight was the lawyers. The court tossed out all sixteen (16) claims asserted by the facility and all but one of the management company’s claims. Talk about a waste of judicial resources.
Another 2012 case is another wrongful death case and the type of case that prompts nightmares for attorneys. In Bahr v. Sunrise Senior Living Center, the defendant was the parent of a wholly owned subsidiary that operated the ALF in which the plaintiff’s mom resided. Both defendants were Virginia entities. The plaintiff, executor for her mom, filed claims for negligence and violation of the Illinois Nursing Home Act against the corporate parent only.
Plaintiff, as her mom’s representative, entered in to a contract with the operator—Sunrise Management—for her mom’s care. About four years later the resident died choking on her lunch. The daughter filed suit two years later. After the defendant—the parent company—filed its Answer to the suit, the plaintiff asked the court for permission to add more defendants, such as the operator Sunrise Management. The court disallowed the additions because the statute of limitations on the claims against these additional entities had expired. Ouch. The typical ALF corporate ownership maze paid off. The only defendant—the corporate parent—filed a motion for summary judgment.
The federal court applied Illinois law on the plaintiff’s negligence and, obviously, Illinois statutory claim. But, interestingly enough, it applied Virginia law to the issue of whether or not the plaintiff could pierce the corporate veil to get to the parent company defendant. Since it found against the plaintiff on that issue, the entire case was thrown out. I suspect the plaintiff’s attorney that filed the case notified his malpractice carrier on February 4, 2010—the day after Judge Dow issued his opinion.
In 2009, the Supreme Court of Alaska addressed the cross-appeals of the usual gaggle of ALF defendants and the conservator for a mentally impaired former resident of the ALF, Ruth Ayuluk. Ruth entered Red Oaks after suffering from a disabling brain injury while riding an ATV. Gary Austin was employed by Red Oaks as a CAN. Despite multiple red flag warnings of inappropriate sexual behavior by Austin, Red Oaks took no remedial action. Less than five months after being admitted to Red Oaks, Ruth disclosed that she had “consensual” vaginal, oral, and anal sex with Austin.
Ruth’s conservator subsequently brought suit against the facility, its operator, its administrator, and Austin. The trial court issued a myriad of exclusionary evidentiary orders against the plaintiff before the trial. At the end of the trial, the jury found Red Oaks not liable, and assessed only $7,500 in damages against Austin only. Ouch for the plaintiff. Based upon a very unusual pretrial order, however, RedOaks was on the hook for half of the plaintiff’s attorney fees.
After an extensive evaluation of the trial court’s evidentiary rulings and jury instructions, the appellate court remanded the matter for another trial—with Red Oaks as a defendant again under an aided-in-agency theory upon which the trial court refused to instruct the jury in the first trial. Based upon the jury instruction roughly outlined by the appellate court to be used at the second trial—Red Oaks would have been wise to settle this one.
Let’s skip a couple of years and look at a wrongful death action that actually went to trial. A Florida jury decided that an ALF owned by Marriott International was not liable even though one of its residents murdered the plaintiff’s mom while she was in their care. The gist of the plaintiff’s claims were that the facility was negligent for admitting the psychotic assailant in the first place, and then for letting him stay after he informed the staff that he could hurt himself or others. Even the assailant’s daughter reported concerns about her father’s increasing paranoia. And a psychiatrist’s order to monitor him was not followed. Not sure how trial counsel lost this one, but you never know with juries. And trial counsel did at least one thing very well—preserving issues for appeal. Plaintiff’s trial counsel requested several jury instructions involving state regulations and statutes pertaining to assisted living facilities. The trial court refused them.
The Court of Appeals noted that unlike the standard of review typically applied to the review of instructional error—abuse of discretion—the standard applicable to the refusal to instruct on a potential statutory violation is different. In that situation, the trial court’s discretion is strictly limited and narrow, rather than broad. So it reversed and gave the plaintiff a shot at a new trial and a different jury.
This survey would certainly be incomplete without at least a quick look at the employment law issues facing assisted living facilities and their legal counsel. In 2006, Penny McFarland brought a Bowman and whistleblower claim against her former employer, Virginia Retirement Services of Chesterfield. The defendants moved to dismiss two of her claims. The Federal Court, sitting in Virginia, applied federal law to her Fair Labor Standards Act (FLSA) claim, obviously, and Virginia law to her pendant state law claims.
McFarland claimed that 1) she was not compensated for all of the hours she worked, and 2) was terminated for participating truthfully in a state investigation of an abuse complaint. Applying Federal Rule 12(b)(6), the court concluded the plaintiff had sufficiently pled a Bowman claim which is when a person is wrongfully discharged in violation of public policy. On the other hand, the District Court dismissed her whistleblower claim as well as several individual defendants.
If you want to learn about the Certificate of Need (“CON”) process, review In the Matter of The Certificate of Need Application for Parkside Villa. In that case, the Director of the Ohio Department of Health granted Parkside Villa’s application to transfer numerous nursing home beds to its assisted living facility. A competitor, Century Oak Care Center, appealed the Director’s decision on statutory and procedural grounds. One such ground was that Parkside Villa’s had been subjected to a civil monetary penalty (“CMP”) for a regulatory citation related to a “deficiency” in patient care. In response to that deficiency, the facility conducted an internal investigation, terminated the subject employee, and paid a relatively small fine. But Parkside Villa “forgot” to disclose that CMP on its CON application. And the Director disallowed the appellant from supplementing the evidentiary record after Parkside Villas was issued another deficiency just 9 days after the completion of the hearing.
The appellant court concluded that the Director did not act “arbitrarily or unconsciously” in excluding the results of the post-hearing regulatory survey results. In doing so, it noted that the Ohio Code does not require the Director to deny a CON even if a survey reflects “serious deficiencies that jeopardize the life, health, safety, or welfare of the residents.” Wow—what genius wrote that regulation? With that standard of review and those kinds of regs, you can guess the outcome of the appeal. But I will tell you anyway—the granting of the CON was upheld.
Finally, in 2004, the Texas Court of Appeals took away a jury verdict garnered by an Estate against an ALF stemming from the death of one of the facility’s residents. This case is of interest because the magnitude of the jury’s award and its somewhat subtle distinction from Bahr.
The urban jury awarded Don Maker’s estate over $1,600,000 after he died of a stroke in the Ridgecrest Retirement Center. But, the Court of Appeals snatched this huge award out of the hands of the Estate because of an instructional error. In this instance, the trial court instructed the jury on the meaning and implication of “negligence per se.” Specifically, the trial court instructed the jury on a wide variety of Texas Administrative Code sections, noting that “a failure to comply with these regulations may be negligence in itself.” The Court of Appeals noted that “negligence per se is a common law doctrine in which a duty is imposed based on a standard of conduct created by a penal statute rather than on the reasonably prudent test used in pure negligence claims.” A violation of a non-penal administrative statute does not, however, establish a claim of negligence per se and, as such, does not justify a jury instruction.
Since the appellate court could not determine if the jury relied upon the negligence per se instruction in finding liability, the instructional error could not be deemed harmless and the verdict had to be reversed. What a monumental waste of time and energy over a mistake that really should have been avoided. Sadly, trial attorneys know that the jury instruction conference is usually rushed by the court because the jury is waiting, or it comes at the end of the day in the middle of an exhausting jury trial. Mistakes are prone to happen in that situation.
I hope that this “mini-survey” of a decade of legal opinions is of some benefit to attorneys addressing ALF matters implicating legal, appellate, and trial issues. Whether you are a general counsel for a national ALF parent, an attorney negotiating with one, or an attorney brining a claim against an ALF, there are a myriad of both common and unique legal issues and angles that require you and perhaps your client’s very close attention.
 Boykin, et al v. 1 Prospect Park, et al., 2014 WL 265764 (E.D.NY) at 9.
 Pretty brutal media exposure. No doubt reporters can ruin your business reputation if they so wish.
 2012 WL 787496 (Wis.App.)
 262 P. 3d 1162 (Org.App. 2011)
 Id. at 1165. Also see http://www.pbs.org/wgbh/pages/frontline/life-and-death-in-assisted-living/ and Giordano v. Atria Assisted Living, LLC., 429 F.Supp.2d 732 (E.D. Va. 2006).
 737 F.Supp. 2d 533 (E.D. va 2010).
 2010 WL 432273 (N.D. Ill.)
 Ayuluk v. Red Oaks Assisted Living, Inc., et al., 201 P.3rd 1183 (Ak. 2009).
 Id. at 1190-91.
 Id. at 1200-01.
 Pollack v. CCC Investments I, LLC, 933 So.2d 572 (FL.App.2006).
 McFarland v. Virginia Retirement Services of Chesterfield, LLC, et al., 477 F.Supp 2d 727 (E.D. Va. 2007).
 Id. at 730.
 Id. at 732-35
 2005 WL 2787638 (Ohio App.)
 Id. at 5.
 Id. at 6.
 Id. at 13.
 Ridgecrest Retirement and Healthcare v. Urban, 135 S.W.2d 757 (Tex.App. 2004).
 Id. at 760.
 Id. at 760-62.
 Id. at 762.