Former nursing home leaders still on the hook for $2.25 million following bankruptcy

A woman hired as an occupational therapist says Genesis used her background check improperly.
A woman hired as an occupational therapist says Genesis used her background check improperly.

On the heels of a Florida court decision that puts a nursing home unlikely to emerge unscathed from bankruptcy, a federal appeals court has ruled former officers and directors of a different nursing home are still liable for $2.25 million in compensatory damages.

Administrators at the Lemington Home for the Aged have been involved with litigation for close to a decade. After the bankrupt nursing home closed in 2005, unsecured creditors charged that the facility leaders had breached their fiduciary duty through grave mismanagement, as well as poor care allegedly connected to the deaths of two residents.

The U.S. Court of Appeals for the Third Circuit has ruled there was enough evidence that the officers and board members of the organization overseeing the Lemington Home for the Aged ignored their duty of care. However, the court said in its January 26 ruling that while there's evidence to support the $1.75 million in punitive damages against two officers, it was insufficient to support $350,000 in punitive damages against each of five director defendants since they didn't engage in “outrageous conduct.”

The battle has been considered a test case for nonprofit nursing homes and their fiduciary obligations, with the defendants' attorneys repeatedly saying the officers did not act maliciously.