Lack of oversight may make operators liable, court rules
MN nursing home defended rapist on staff, legal documents charge
In calling for a trial, the U.S. Court of Appeals for the Third Circuit said in a Sept. 21 decision that a federal trial court should not have given summary judgment in favor of officers and board members at Lemington Home for the Aged, which filed for bankruptcy in April 2005. The appeals court said evidence suggests that the Lemington leaders may have allowed the organization's finances to go into deeper insolvency while under their control. The court reinstated claims pushed by an unsecured creditors committee against individual officers and board members.
The decision should draw widespread interest of those who run nonprofit healthcare facilities — officers and board members alike. It indicates leaders of such organizations might not be able to use a best-business-judgment defense when it comes to breach of fiduciary duty claims.
While Lemington had struggled since the early 1980s, in the decision the court said that Administrator Melody L. Causey and CFO James Shealey bore responsibility for mismanagement that led the home to close. A series of recording, quality and financial problems predated two resident deaths.
“The evidence of the numerous deficiencies, the death of a resident in the summer of 2004 that resulted in the placement of the Home's license on probationary status, the staff and operational deficiencies noted in the PrimusCare report, the fact that members of the Board knew that Causey was not working full time, and Shealey's failure to maintain even rudimentary but essential accounting records would enable a fact-finder to conclude that the directors had breached their fiduciary duty of care,” the court stated.