An Arkansas nursing home operator has accused another of disguising itself as a nonprofit to dodge accountability, renewing scrutiny of a legal defense some operators have used to shield themselves from accusations of poor care.
A lawsuit by Convacare Administrative Services LLC takes aim at seven nonprofit organizations formed last year to operate nursing homes under the "Community Compassion Center" brand, as well as four other nursing homes.
Capital Funding Group, a Baltimore-based landlord that leases nursing home properties to various licensed operators, has an ownership interest in all 11 homes, the lawsuit says.
Convacare owner Joey Wiggins of Searcy is licensed to operate three for-profit nursing homes in Arkansas. None are the homes at issue in this case. Rather, his firm's suit alleges that its consulting and management contracts with the 11 Capital Funding properties were improperly terminated.
Part of the seven-page filing -- it swells to 250 pages with attachments -- addresses what it terms the "legal fiction" that the seven homes licensed to Community Compassion are truly charitable nonprofit organizations.
The petition calls the nonprofit status an "attempt to invoke 'charitable immunity' and to avoid financial obligations."
Various cases have surfaced similar arguments; one involving a separate nursing home is pending at the Arkansas Court of Appeals. But this lawsuit is notable because a fellow nursing home operator, Wiggins, raised the claim. Typically, plaintiffs' attorneys fight the defense as part of lawsuits alleging neglect of death.
For more than a century, Arkansas case law has generally protected charities' assets from lawsuit awards on the rationale that their purpose is to benefit the public. However, case law has also afforded courts the right to decide whether an organization truly qualifies as a charity and therefore is immune from paying damages.
Some of the eight factors courts consider are whether the nonprofit relies on donations, whether it provides services for free and whether directors and officers draw compensation, according to a 2016 paper by the Arkansas Association of Defense Counsel. A message left with the association was not returned.
Little Rock native Randy Wyatt has served as Community Compassion's president and chairman since the Community Compassion nonprofits were formed to acquire seven licenses from the for-profit chain Skyline Health Care, which collapsed last year amid claims of financial insolvency.
Capitol Funding had a stake in the properties before and after the licenses were transferred, the lawsuit says.
Community Compassion's nursing homes are located in Batesville, Jonesboro, Magnolia, Nashville, Searcy, West Memphis and Yellville. Each is licensed to a separate nonprofit with local boards of directors. Wyatt is chairman of each of the boards, ownership forms show.
"The nonprofit defendants are undercapitalized and are not stand-alone entities, with functioning boards," says Convacare's suit, filed Friday in White County.
"Further, none of the nonprofit defendants are engaged in a proper charitable purpose." Wyatt is "paid by and under the control of Capital Funding," the suit says.
Neither Wyatt nor a spokesman for Capital Funding returned phone messages Thursday.
Convacare's suit also notes that the properties are not "legally allowed to pay dividends or distribution."
"[H]owever, through a series of 'loans' and an elaborate financing structure, Capital Funding remains in charge of the Facility" and the Community Compassion homes, the suit says.
Bruce Tidwell of the Little Rock firm Friday, Eldredge & Clark told Convacare in an April 5 letter that the firm "represents the corporate entities" with which Convacare was contracted. He said by email that he could not comment on the lawsuit.
The Little Rock firm Mitchell, Williams, Selig, Gates & Woodyard filed the suit on Convacare's behalf. Lance Miller, the lead attorney representing Convacare, declined to comment.
"Based on my experience, I agree with the plaintiffs in this lawsuit, that these nonprofits exist as nothing more than a legal fiction," said Bob Edwards, a plaintiffs' attorney who has worked on cases challenging charitable immunity.
Edwards and others have maintained that nonprofit operators sometimes contract with for-profit companies they also own to handle a variety of the day-to-day operations, including staffing, food services and management.
Edwards called it a vehicle "for the money to flow from the state through the nonprofit and to [subsidiary] for-profit entities in an attempt to avoid accountability when they hurt people."
Martha Deaver, president of Arkansas Advocates for Nursing Home Residents, in an emailed statement called on state officials to more closely examine nursing home licensees who incorporate nonprofits.
"We will have to wait and see how this all plays out, but one thing is clear: The state of Arkansas needs to look into all of the nursing homes that hold themselves out to be nonprofit to see whether they are truly operating for the good of the people or if they are just trying to scam money out of state coffers with no means of being held accountable," Deaver said.
The Office of Long Term Care within the state Department of Human Services licenses nursing homes.
Convacare's lawsuit seeks $2.8 million in damages from the contract dispute. The case number is 73CV-19-492.
Wiggins' firm signed consulting contracts with the seven Community Compassion nursing homes on Sept. 1, the lawsuit says.
Convacare signed service agreements with the other four nursing homes on July 1 and Sept. 1 of last year, the lawsuit says. Those homes are Stonegate Villa Health and Rehabilitation and Somerset Senior Living Center, both at Crossett, Somerset Senior Living Center at McGehee and Glenwood Health and Rehabilitation.
Tidwell's April 5 letter to Convacare alleged that Wiggins' firm was in material default of its contracts. It accused the company of several problems, including failing to process invoices in a timely fashion, failing to properly communicate with the operator and failing to control spending.
Miller, the lawyer representing Wiggins' firm, responded on April 22 and said he addressed the issues in an attachment to the letter. The letter was attached to the Convacare lawsuit, but the letter's attachment was not.
Tidwell responded two days later to say Convacare's contracts would be terminated because the defaults "were not cured" within a 15-day period.
A Section on 08/02/2019