Nursing home officers, board members see claims reinstated against them for bankrupt facility
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In calling for a trial, the U.S. Court of Appeals said 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. Due to duties of loyalty and healthcare, the ruling 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.
In the Lemington Home for the Aged decision, the appeals court said that the administrators pursued their own interests rather than making the nursing home a priority. Among the problems: resident deaths, a dearth of financial records and board minutes, no treasurer, and a lack of an administrator for prolonged periods of time.
“It is clear that the alleged actions of the directors and officers were not only harmful to the corporation, but also advanced their own self-interest,” the appeals court said. It added that there was sufficient evidence of fraud related to the delayed filing of bankruptcy, and fraud relating to the commingling of home assets with those of related entities.