How a Nursing Home Uses Shell Companies to Hide Liability

This is the Nursing Home Abuse Podcast. This show examines the latest legal topics and news facing families whose loved ones have been injured in a nursing home. It is hosted by lawyers Rob Schenk and Schenk Firm of Schenk Smith LLC, a personal injury law firm based in Atlanta, Georgia. Welcome to the show.

Schenk: Hello out there and welcome to episode 46 of the Nursing Home Abuse Podcast. My name is Rob Schenk.

Smith: And I’m Schenk Firm.

Schenk: And we are trial lawyers focused on the areas of nursing home abuse and neglect in the state of Georgia and we are your co-hosts. As this goes to air, it is November 27, 2017. Fall leaves, autumn leaves everywhere.

Smith: Well they’re starting to go away. A couple weeks ago, I think, was the peak.

Schenk: I disagree. I drove up to…

Smith: Nashville, Tennessee.

Schenk: No. I drove up to – well kind of, in a way – I drove up to Alcoa…

Smith: What are you trying to…

Schenk: There’s like a state park where you go and there’s like this huge gorge and you can see the leaves.

Smith: Amicalola?

Schenk: Not Amicalola. This was a different one.

Smith: Tallulah Gorge?

Schenk: Tallulah.

Smith: Oh, no one would have ever deciphered what made up word you just used in place of Tallulah. So you put together Amicalola and Tallulah and came up with Tallacalola?

Schenk: Correct. Which is how the Native Americans came up with the name itself.

Smith: Okay.

Schenk: So Danielle and I went up there, and I think due to global warming, this was just two weeks ago as we go to air, and probably 80 percent of the trees were still green with foliage.

Smith: Foliage.

Schenk: Foliage.

Smith: Well the problem is it happens quickly that the leaves start falling even while they’re green because it’s mid-November, and so when they start turning colors, they’re already shedding a lot of leaves. So you have to catch them right as they start turning colors because they don’t stay golden as long as they used to, Ponyboy. Stay golden, Ponyboy.

Schenk: Actually if Jean – Jean might be able to – I’m not going to promise this, but Jean might be able to show some footage of what I’m talking about where it’s like what a disappointment that it was all green. And if he does, it’ll be right here. Okay.

Smith: Interesting.

Schenk: Interesting. We haven’t done that before. Aside from that, a lot of good things going on. We have a very interesting podcast for today. This is going to be another of those podcasts where it’s just a hodgepodge of stories from around the country involving nursing home abuse and neglect. And this first one, it’s kind of like a two-parter. This is kind of like Serial – not cereal that you eat, Cinnamon Toast Crunch, but it’s going to be like the podcast that you love where it’s like one story leads into another.

Smith: Oh, okay. That Serial podcast.

Schenk: Yeah. So this is the case of abuse and neglect that comes out of a city called Greenbrier, Arkansas. There’s actually a Greenbrier, Tennessee – it’s very pretty. Greenbrier, Arkansas – in April of 2008, Martha Bull, age 76, was admitted to a Greenbrief Nursing Home and Rehab after a stroke and treatment for an abdominal abscess. Over the course of the next two to three days, Martha complained of abdomen pain and exhibited changes to her mental status, including being visibly upset, having cool and clammy skin, being nauseated such to the point where she could not participate in physical therapy.

And at that point, the nurses – and this is what’s really strange to me, and your experience as a CNA, you might be able to shed some light on this, but I haven’t seen this in any of the cases that we’ve taken since we’ve been doing nursing home and neglect for years. But the nurses to report this to the doctor, they did it via facsimile. And over the course of a few hours, the nurses faxed the doctor, “Hey, these are her signs and her symptoms,” and the doctor faxed back, “Take this woman to the hospital because she’s in dire need based on what you described to me.” But because of the location of the fax machine being in a closet and being the fact that it’s a fax machine, I can’t even get my phone to work and they’re relying on a fax machine to communicate with the doctor, no one got that fax to take the resident to the hospital, and she died that night. I mean she’s been in this nursing home for less than a week.

So the family sued the owner of the nursing home along with the nursing home – the owner’s name is Michael Morton – sued Michael Morton the owner along with several other facilities that he owns. And according to the lawsuit and basically to verdict, several of the entities named were basically shell entities created by Michael Morton the owner to fragment his business enterprises and create insolvency to shelter cash and hide cash.

The verdict against this nursing home and against Michael Morton was $5.2 million. This was in May of 2013 when the verdict came down. The judge that oversaw this was running for the Court of Appeals at the time. His name is Judge Michael Maggio. And so you have a verdict of $5.2 million in May of 2013 based on the facts that I just laid out for you. At some point after the $5.2 million, he reduced – Judge Maggio, reduced that to $1 million. Do we have a reason why he might have done that?

Smith: Well yeah. He got campaign contributions.

Schenk: From whom?

Smith: From whom? He got them from Morton.

Schenk: That’s correct.

Smith: Which is why I don’t understand in this article, they say – Maggio’s attorney says there’s no quid pro quo. I don’t know what the statutory definition of quid pro quo is, but it means in legal terms “this for that” – how is this not quid pro quo?

Schenk: That’s what’s funny to me in this whole thing is that this guy is not arguing that it didn’t happen. He’s basically arguing that it’s not a crime under the wording of the law, which is one of those when you hear the words, “He got off on a technicality,” this is he’s trying to do the technicality.

So in other words, this is what happened. So now this judge that’s convicted of bribery because he reduced the verdict from 5.2 million to 1 million because he was getting on the side campaign contributions from the owner of this facility, was convicted of federal bribery charges. In his plea agreement, Maggio said he lowered the judgment in exchange for thousands of dollars of contributions given indirectly by the nursing home.

So originally he pled guilty. Now Maggio is saying, “I only pled guilty because I was forced to by my terrible attorneys.” And so he has a slick attorney now that’s saying based on the wording of the statute, because there’s no quid pro quo, there can’t be a crime. So he should be allowed to take thousands of dollars in contributions because the statute wasn’t worded correctly or reduce the sentence because it wasn’t worded correctly. And then again, another argument he’s making and his attorney is making is that the federal statute does not have a sound basis under basically federal law that this is a state matter. And so federalism, the concept of the federal government being separated from the state government, should have some type of limit. So this is a couple of BS arguments that this judge is making that’s caught red-handed taking money from the owner of a nursing home to reduce a verdict.

Smith: Yeah. And I understand so it wasn’t directly to him. It’s not as though the nursing home owner went up to the judge and gave him 1,000 bucks. It’s this money – he signed off on this money being delivered to political action committees, which then gave the money to this judge’s campaign, which then happens to be the judge in this nursing home case, who just happened to reduce this $2 million verdict down to $1 million.

Schenk: 5.2 million.

Smith: Oh, 5.2 million down to 1 million. So I mean this guy doesn’t need to be a judge, clearly. And we talk about special interests all the time. The reason that certain special interests are more powerful than others is because of money. We talked about me going to the Consumer Voice conference at the beginning of November. Consumer Voice is a special interest, but it’s a special interest comprised of low wage advocates.

Schenk: Yeah, so when I was a teenager, we would volunteer for the Nashville Green Party, which is like it’s three old hippies, you know what I’m saying? A Communist who’s 23 years old, a graduate student and me sitting in a room, and we’re trying to fight some legislation that it’s being backed by the Chamber of Commerce. So the Chamber of Commerce is talking about, “Hey, how many millions of dollars are we going to write on this check to these different legislators?” while we’re talking about, “Hey, do you think you could sell your old guitar that was signed by Crosby, Stills and Nash or Janis Joplin and have a bake sale?” So you’re talking about, Will, is exactly right – where the money is generally where the bread is buttered.

Smith: Yeah, absolutely. Think about it. This guy had enough money to make significant donations to the political action committee and he did that because there are certain limitations on how much an individual can give as an individual to a candidate, but it’s different for PACs or political action committees. So he donated to this political action committee, which then happened to be donating to this judge, so it could have been a lot of money. And money talks.

Schenk: And this is – if I can step on a soapbox, and actually I’m borrowing this soapbox from former Supreme Court Justice Sandra Day O’Connor. Sandra Day O’Connor is on a political advocacy mission to advocate for the abolishment of judges running for office. She does not think that judges should run for office. It should be similar to how the process works for the Supreme Court itself, because if you have judges running for office, then you have the same problems that come with the legislators. You’re susceptible to bribes, just like in this case. You’re susceptible to politics itself, because that’s basically the point of the Constitution, separating or making it where judges aren’t elected – they’re appointed and appointed for life is because they’re separated from the politics. Here, by having to run for the office, you’re in the trenches of politics, so it makes it easier for political leanings to get in the way versus what the rule of law is.

Smith: Yeah. Plus, I don’t know that I would favor appointing state court judges, state versus federal not state versus superior, but state-level judges for life necessarily.

Schenk: I’m not saying life either. I’m just saying for terms.

Smith: I’m with you, but it is absurd, and I don’t mean anything by this to all of our non-attorney friends – it is absurd that the general public who don’t deal with cases on a daily basis, who are maybe not interested in the law or don’t know what’s going on in the law cast votes for judges. Like if you’re a non-attorney, what could you possible base your decision on.

Schenk: Unless you’ve had your child run in like he was caught in a crime or something and the judge was really hard on him or something.

Smith: Or you were a victim of a crime and you thought the judge was too soft. So your opinion is going to be very biased. It should be meritorious. Judges should be appointed…

Schenk: Particularly – and we’re talking about trial judges. This is a court of appeals case, where it’s appellate court. That’s even higher. We’re talking about like you should sit in an ivory tower essentially.

Smith: Yeah absolutely. Your knowledge of the law should be expansive. Yeah, it should be a meritocracy. It should be a meritocracy.

Schenk: A meritocracy. Another kind of point I want to take away from this, Will, is the issue of this owner of this nursing home had several different shell companies and different actual corporations, LLCs, that were channeling money between the two. So one was basically leasing the grounds that the nursing home sat on. Another one owned the fixtures. And so that way, if a family was injured and they wanted to sue the guy, you can’t get blood from a turnip. So you’d have to sue the operator, which would be purposefully underfunded, so there would be no money there. And so we see that in our cases a lot of times and other nursing home neglect attorneys across the country deal with this where you basically have to shotgun blast your pleading.

Smith: Oh yeah, and by pleading, he means the actual document that is the lawsuit. So the actual piece of paper that you file with the court, the lawsuit, on the top of that first page lists who the plaintiff is, lists who the defendant is or the defendants are. And in our cases, because we only do nursing home neglect and abuse, our defendant list is always pretty long, and it gets whittled down because people will come and say, “Hey, our LLC has nothing to do with this,” or “Actually meant this LLC.”

Schenk: Right, and this is kind of my point. So if you can imagine, a lot of times how these places are set up, these nursing homes are set up, and we’ll just say this – ABC Properties LLC, ABC Rehab Center LLC, ABC Rehab Center and Friends – and they all have the same registration, you know what I’m saying? These are just purposefully confusing so that the public doesn’t know who is actually responsible for the actions of the actual facility your loved one is in.

Smith: Yeah. And they do a lot of shady stuff like that, and that’s why you have to talk with somebody who’s got experience in these because they will hide behind every possible loophole they can.

Schenk: Now look, and again, I mention the Green Party, I mention the Communist graduate student sitting in those Green Party meetings. We are not anti-capitalists. We are not anti-corporation. And we’ve addressed this a few times in this podcast. The concept of the corporation is from a 40,000-foot view is to promote…

Smith: Industry.

Schenk: Industry. It’s to promote commerce.

Smith: Yeah.

Schenk: And how you do that is somebody whose house, whose car, whose assets, whose family heirlooms are on the line is less likely to go out and do commerce. So what we do is the state says, “Okay, you’re allowed to organize a fictitious entity in which to put the good and the bad of this company, so that if something happens, the creditors can only come after this company. We get that. We both get that. That’s fantastic.

Smith: We actually own an LLC.

Schenk: That’s right.

Smith: Schenk Smith is an LLC. It’s a limited liability company. We support that 100 percent.

Schenk: So the concept of limiting the liability of the owners from the creditors of the company is a privilege that is bestowed by the state. So that’s a privilege. And privileges can be abused, and in these instances, and a lot of times and a lot of our experiences, the owners of this are trying to basically get the run-around on this privilege. So they’re going to underfund one corporation and keep all the money that should go to that corporation into another one so that you can only sue the one that has no money. It’s these types of things. You’re putting a stress on the whole concept of it to begin with.

Smith: And understand that making a profit is not a problem with us either, and I think I’ve said this numerous times. It’s a phrase my dad used to use and I love to use with juries, that “Pigs are cute, hogs get slaughtered.” There’s nothing wrong with making a profit. There’s nothing wrong with having a business where you make money. Make a lot of money. Go ahead. But if you’re a hog and you’re just thinking about yourself and you’re not giving your consumers adequate care, if you’re not taking care of these patients and these residents – at the conference I went to, I had an ombudsman tell me that the nursing home industry is seeing record profits in the past year and that they heard from one nursing home insider who was saying that 30 percent of their profit margins go to staffing – 30 percent. So where are the other 70 percent going? You know, I mean if you’re not spending that much money on staffing and things like this happen to this woman, you’re being a hog. You’re not just being a capitalist. So that’s what our problem is.

Schenk: Yeah.

Smith: Do we have time to go to this other Arkansas case?

Schenk: I believe that we do. So you’re talking about the case from Little Rock? You go ahead. This is too gross for me.

Smith: Okay. This case really, really upsets me and I definitely want to read the name of this place, so if you hear of the name of this place, just let it remind you of this scenario. Capital Health and Rehabilitation Center in Little Rock, Arkansas, so another Arkansas case, it says that on the outside of this facility, it looks okay. It doesn’t look that bad. But their Department of Health and Human Services, Arkansas’s, did an investigation and their report centers around two different residents, but the first one that they talk about is absolutely disturbing.

And instead of building up the suspense, the survey found the nursing home failed to ensure necessary care and services by failing to provide for hygiene and urinary catheter maintenance for one resident who had an indwelling catheter. According to the document, nurses said, “They, maggots, were like growing inside of his penis. It’s just gross, nasty. I’m not going to say it was a handful, but it was a lot. They were little.” That is a nurse giving a report to the state.

Schenk: Quote verbatim.

Smith: And I want to point out two disturbing things. The first one is really obvious, that the state found that there were maggots going inside of a man’s penis in a nursing home. The second one is that this nurse is talking about this incident as though she’s not a nurse who’s in charge of the care for this man. The first time that somebody even remotely suspected this, something should have been done to completely curtail this from happening.

And they go onto say that one of the nurses, another nurse said, “Yeah, the flies were real bad down there. We had fly swatters. I have killed a couple of flies in his room, and one was under the covers, but I didn’t think anything about that.” There is just absolutely no excuse for that nonsense. First of all, there should never, ever be a scenario where an individual is allowed to develop an infection in their penis with a Foley catheter, with an indwelling catheter. The nursing staff should have noticed this long before, and they damn sure should have noticed it before a fly laid eggs in that infection and they could see maggots going inside of his penis. I mean the level of neglect in that situation is astounding. It’s astounding. But the second individual…

Schenk: This is the same facility.

Smith: Same facility. The second report from this state agency is that there was an individual who escaped the facility and that they failed to give him adequate supervision. They failed to give him adequate monitoring and that he got out more than once, and that his son is the one who found him at a nearby restaurant and that the nursing home didn’t even know he was gone. And this is – again, this is the kind of situation where I point out the unforgivable statements that these nurses are making about this man’s catheter, and I’ll point out now that the staff failed to notice that this nursing resident was gone, the second one.

Schenk: Yeah.

Smith: It’s still not the staff that I blame. It’s these individuals who own these places or the corporations, which are individuals according to Citizens United. So these corporations and the owners of them who own these places that are not spending money on adequate staffing or training for their staff that allow these things to happen. And these are, oddly enough, a state, Arkansas, that has attempted numerous times, and even last year they had tried this, to pass legislation that put a cap on non-economic damages, so pain and suffering.

Schenk: And that’s what the interesting part of this article brings up is it’s talking about this company, this facility is owned by Skyline Highline Holdings, and they have several corporations in Arkansas that own and manage nursing facilities with a total of 21 across the country. So again, we know whose bread is buttered with legislators in Arkansas. It says lawmakers, attorneys and others were also hesitant to voice their opinion on Thursday against the nursing home, mostly because of the looming tort reform issue in 2018. Business leaders across Arkansas are pushing for limits to payouts in certain lawsuits. They want voters to pass a constitutional amendment in next year’s midterm elections that would cap non-economic compensatory damages and lawsuits. A similar push centered just around medical lawsuits was thrown off of last year’s ballots.

So something that’s important – when you hear constitutional amendment, what that means is that there will be little to no ability for the judiciary to strike down a law because that’s in the Constitution. It’s a function of our democracy in how the Arkansas government is set up.

Smith: Yeah, the judicial branch’s job, they certainly go outside of the scope sometimes it seems for both sides, whether conservative or liberal. Anytime a judge doesn’t do exactly what you want, you consider them an activist judge. But the judicial branch’s job is to correspond laws with either the federal constitution or the state constitution. So if you pass an amendment to a state constitution or a federal Constitution and it’s now in the constitution, it’s in the constitution. The only thing they can do at that point is I guess judicial review still applies to see if that constitutional amendment in and of itself is unconstitutional.

Schenk: I mean yeah, but that’s like Defcon-5. That’s like impossible.

Smith: No, it’s merely impossible. It’d have to be a constitutional amendment that said, “Women are no longer considered human,” if you somehow managed to get Congress to pass that. But passing a cap on non-economic damages, that’s never going to be overturned if it gets into the Constitution. And think about this. These lawmakers are willing to push legislation that puts a cap on pain and suffering, but where are they in saying, “Hey guys, you can make all the money that you want, but you better have an adequate staffing number?” They’re silent on that because they’re getting money from these special interests. And remember, this is something that’s bipartisan, because whether you’re a Democrat or a Republican, you have loved ones who are elderly, and you, unless you are a vampire, are going to get old one day and face the possibility of being one of these residents in a nursing home. So it affects all of us.

Schenk: That’s right. Unless you’re a vampire.

Smith: Unless you’re a vampire.

Schenk: Speaking of vampires, Will, as a teenager and in early adulthood, loved the author Anne Rice. He loved the book “The Vampire Lestat.” He actually boycotted the movie when it came out, “Interview with a Vampire,” because he says that it wasn’t true to the novel. He celebrates Anne Rice’s birthday every year. These are all things that he’s told me. It’s not like I’m making these things up.

Smith: Of course not. Why would Rob ever make up anything about my back story?

Schenk: So the only thing he loves more than Anne Rice is slam poetry, so just letting everybody out there know that. But anyways, with that, we have reached the conclusion of this particular episode. So if you can, get out there and enjoy the fall, the autumn foliage – foil-age.

Smith: Foliage.

Schenk: Foil-age.

Smith: It’s foliage.

Schenk: Foliage. This is going to be another one for Dennis Ting, our transcriber, to worry about.

Smith: Yeah.

Schenk: But anyways, we’ve enjoyed having you. Thanks for listening, and with that, we will see you next time.

Smith: See you next time.

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