Proving Liability Through Nursing Home Corporate Structures
Who’s really responsible when a nursing home fails its residents? The complex corporate structures behind many nursing homes often obscure liability, making it difficult to pinpoint who is to blame for neglect and abuse. This can leave families frustrated and victims without justice. In this week’s episode, nursing home abuse lawyer Rob Schenk welcomes guest Scott Distasio, Esq. to discuss the challenges of proving liability in the maze of nursing home corporate structures, and they explore effective strategies to hold the right parties accountable.
Schenk:
The truth behind nursing home corporate structures. Stick around.
Hey out there. Welcome back to the nursing home abuse podcast. My name is Rob. I will be your host for this episode. I feel like in a lot of my cases, there’s not just one defendant, i. e. the nursing home. There are a multitude of defendants in most of my cases. And that’s because typically there is a circle of corporate entities that may or sometimes may not have something to do with why my client was injured.
And that’s the kind of the point of the discovery process is to weed out who should be there and who should not be there. And sometimes corporate entities get added in, but at the end of the day, why is that? Why are we talking not about One entity, the nursing home licensee, but rather a whole bunch of other entities the corporate structure and why there is a corporate structure and who benefits from that.
That’s the point of today’s episode, but we’re not doing that alone. We have tremendous guests today. Trial attorney out of Florida Scott Distasio is going to talk to us about that.
As I mentioned, we are talking about corporate structure. In the operations of nursing homes. We’re not doing that alone. We have the tremendous attorney, Scott Distasio joining us.
Scott Distasio founded the Distasio Law Firm in Temple, Florida, with a commitment to ethical and outstanding legal service, a board certified civil trial lawyer, Scott has over 24 years of experience, including defending healthcare providers, and now focusing on suing nursing homes for abuse and neglect.
He is dedicated to advocating for personal injury victims. Throughout the state of Florida. And we are so happy to have him on the show. Scott, welcome to the show.
Distasio:
Thanks for having me. I’m looking forward to it.
Schenk:
I feel like I’m looking at a mirror image. This is Two ball guys and ties talking to each other over.
Distasio:
It’s funny. I used to walk around with a horseshoe and my now wife said to me, you need to shave that thing off. And at first I was a little hesitant, but now that I’ve done it, I’m, I feel liberated actually.
What advantage does a complex corporate structure provide nursing homes?
Schenk:
Yeah. I I feel like you have, sometimes you have, depending on like your head shape, you got to have something.
So I never did the horseshoe, but I’ve always had a beard. So I’m scared. I’m not man enough. I’m not much enough to do what you’re doing, which is to rock, no facial hair and no horseshoe. But anyway, we digress. I really glad that you came on the show to talk about this particular subject, because I don’t think that we’ve talked about this in depth.
Perhaps ever. Hopefully I’m not like throwing shit at anybody if I can’t remember. But anyway the, the first thing out of the gate, Scott is in your experience what is your understanding as to why the typical nursing home corporate setup has, at minimum three or four entities working in that circle?
Like what’s your understanding as to why that is?
Distasio:
Yeah, absolutely. What I can tell you is absolutely not to benefit the residents. In fact, my personal opinion is that there’s two reasons they set up these corporate structures. The first reason is to avoid accountability for wrongdoing. Which is a direct harm to the resident.
And the second reason they set them up is so that they can claim financially that they’re insolvent while at the same time, sucking profits out of the facility and as expenses to these ancillary companies, and then go to the legislature to claim that they’re poor and they need to be, have special laws put in place for protections against what they call these evil personal injury lawyers that are holding them accountable for their wrongdoing.
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Schenk:
What is that? What in a typical case, what does that look like? And what I mean by that is at least sometimes in my experience, there might be obviously there’s gonna be the company that holds the license. There’ll be a company that perhaps owns the land etc.
Kind of what’s been your experience about what we’re looking at in terms of the three or four or five, six odd companies surrounding the operations of a nursing home?
Distasio:
Yeah, so I think you have to actually go back to the 1990s, really. And in that time period, you’d see these branded nursing homes, which was a legitimate corporate structure that all companies would set up and they’d brand their names.
What they found is that they wanted to be held so that they weren’t held accountable. And they got these corporate entities law firms to do an analysis and a consulting and they came up with this. Ability to not be held accountable by breaking up the nursing home. And so it started in the 90s, what’s called a real estate investment company, a REIT, and they had these national investors come in and buy up all the property.
The property used to be owned by the nursing home. And so there was, the nineties, late nineties into the early two thousands, there were these large real estate investment companies that owned 90 percent of the property of these nursing homes. And over time, though, that structure has changed more and more.
Learn who makes up the governing body of a nursing home and their roles in our detailed podcast episode.
So each individual facility and each individual corporate structure can be set up differently, but the whole game is to. Avoid accountability. So you have the license holder. Every state requires that facility to be have a license holder. And that is one company. And traditionally, that company, as I said, on the property and did everything in it.
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But what these facilities have learned is that the more they can break up that license. Since in the separate companies, the more they can be held less accountable for wrongdoing and the more profit they can take out and call it expense. So what you have is therapy, physical therapy, speech therapy occupational therapy.
That can be a separate company. You have pharmacy. That can be a separate company. You have a management company. That can be a separate company. You have a billing company. That can be a separate company. And then the property, do you own it? If so, put it in a separate company. Is it owned by one of these real estate investment companies?
So those are the general basic ways that they break up the license holder into these separate companies that could and should be all one entity.
Understand the decision-making process behind pursuing a nursing home abuse case in our podcast, How Does an Attorney Decide to Take a Nursing Home Case?.
What are the general theories of liability for nursing home corporate defendants?
Schenk:
Understanding that every state has different laws about this. What are some of the theories of liability that you use in order to show the judge, show the jury, that this isn’t functioning as a legitimate series of companies?
This is something where, As you’ve mentioned, everything is funneling to one or a group of people. What are, like, for example, alter ego joint venture, these type of things what are some of those arguments that you’re making?
Distasio:
And as you said, each state is different, but I think you have to first start at the corporate structure and you can get a basic understanding of that by going to CMS, the Medicare Cost report. You had Ernie Tosh on before talking in detail about that, and he’s a great resource for it. But you can also go to your state Medicaid cost reports. Some states are better than others. Florida’s pretty detailed. But in Florida’s state cost report, you’ll get these ancillary companies, what they are, and what percentage, and who owns them.
So once you figure out that structure, then you have to apply various theories of liability. to that. And in Florida, what we’ve been successful on is piercing the corporate veil, alter ego. Joint venture is a lot tougher in Florida, but the one I like the most is reach of fiduciary duty and aiding and abetting fiduciary duty.
So the license holder of the facility has a fiduciary duty to its residents. And then it’s breaching that fiduciary duty because it is purposely undercapitalizing the facility. It is setting up these corporate structures in order to take what should be profits and use those Some of those profits for staffing and instead call it an expense and create these other companies that they suck out and then claim they don’t have money and that is an allegation we make as breach of that fiduciary duty.
And then we sue these ancillary companies. and say they’re aiding and abetting that breach of fiduciary duty.
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What evidence do you use to show liability of corporate defendants in a nursing home case?
Schenk:
Interesting. And so I would imagine that the cost report itself is your primary weapon in that I would imagine when and for anybody out there listening. So the cost report from a general standpoint it’s supposed to say the licensee it lists the license.
He has to list basically any related parties. So companies that have some type of common ownership, and then they have to go a little step further and say, we paid these related party companies X amount, but they also have to list what the. Essentially, and I was corrected by Ernie Tosh in this because for a long time, I thought it was fair market value, but it’s not fair market value.
It’s what that company reported it cost to provide the services. So you have what they were paid and then what that company is saying that it costs to provide those. And when it, when, at least in my experience, a lot of times that related party is getting paid a whole lot more than what it costs to provide the service.
I guess that’s the longest way to ask, other than the cost report, how are you showing the judge? How are you showing the jury that aiding and abetting?
Distasio:
So absolutely you start with a cost report and you say, if this was a whole entity and in the past they were, and if it were, I don’t know, a hospital or some other company, that would be a whole entity.
So you go to that cost and you say, that’s the cost of running it. If they did it themselves, That’s the cost. Why does there need to be this ancillary company that you’re going to be paying more than the cost? That additional payment is what should be profits of the company that could be reinvested as staffing.
And they don’t do that. And so that’s the basis of the foundation. But then what you want to do in discovery is you want to ask people for certain documents. You want to ask for all the contracts between all of these related entities and the company. And you’ve sued all these related entities. You want to, even if the realist, even if the real estate is not a related company, it is one of these REITs.
Ask for the contract with the REIT. And the, in these contracts, you will find all kinds of things, not all the time, but you will see different things in there about who’s controlling what. And often when you get the contract of the real estate investment company, that’s properties, not even owned by a related company, you’ll find that real estate investment company has the right to hire and fire the management company. They have the right to say that you can’t sue the sell the facility to anybody who we tell you they have the right to make sometimes operational decisions. And once you get that contract, if you can, because there’s a lot of Judges that just won’t let you.
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There are times when you can bring that real estate investment company in or I’ve done that with investment bankers before and gotten the related contracts and then put people under oath. and walked up the chain and have had people in deposition admit that the investment bankers are making the day to day decisions.
It is a long detailed process that is going to get a huge fight and it’s not for every case but in the right cases you want to take that extra step get all that documentation and then start taking depositions to see if you can get the evidence that you need.
Gain insights into legal strategies for taking on nursing homes in court with our in-depth discussion.
How does bankruptcy help/hurt the corporate defendants in a nursing home case?
Schenk:
You, you hit on a really important point that I want everybody out there to understand, particularly if you’re listening to this and you’re on the defense side, and I don’t want to speak for Scott.
However, no one that I know in the plaintiff’s bar is saying that you cannot own a nursing home, that you cannot have a series of companies, okay, or be a part of a series of companies. The issue is Scott has highlighted is that, that you don’t have the right to only have shell companies that, okay, this is the real, this is this company up here, which is the owner of everything is calling all the shots.
That’s no longer, that’s not a legitimate thing anymore. We’re not talking about two different companies with two different interests that are bargaining with each other that are. That, there’s consideration on both sides of these agreements. So I’m not, I haven’t drank the Kool Aid. Like I think that we need nursing homes in society and it, there’s no problem with that.
The issue is hiding liability, hiding the money for the purposes of making certain people rich. Speaking of hiding money and getting rich, what about Have you dealt with any, I’m having, this is like a a brain fart day, bankruptcy. What about when in your experience, have you dealt with these companies that come in a couple of years, pull out a lot of money and then just go bankrupt when, there’s a lot of claims against them and how do you handle that?
Distasio:
Absolutely. And I want to start where you were ending. I’m a capitalist, right? I believe in the capitalist system. I believe that profit is something that is good as long as it is managed ethically and properly. It is not about all nursing homes, and it is not about all nursing home chains. It is about those nursing home chains that create a structure for the purpose of under capitalizing and purposely not providing enough staff.
to provide care for these people, which causes injury. And when you identify those facilities, you use these tools to hold them accountable. But what happens getting to your question is when you do that, they can and will over time, try to stockpile these lawsuits. They try to get you to take payment over time because in Florida there’s no real legitimate insurance.
Explore the legal responsibilities of nursing homes in employee-related negligence in this episode, Can a Nursing Home Be Held Liable for Employee Negligence?.
And so what happens is often these facilities have a 50, 000, 100, 000 insurance policy, but it’s not a real policy. They either own it or more likely it is if we agree to settle, We can use this money to pay the settlement and pay our costs and attorney’s fees. And so there’s no incentive for them to take that policy and use it towards settling the case.
They just eat it up in attorney’s fees. And then at the end, they want to settle. They want to pay you on a payment stream. And then what happens is when they get a bunch of these payment streams and they’re making payments, they’ve stockpiled this debt and then they put the facilities into bankruptcy or they sell the facilities to unrelated and to related entities and claim they’re unrelated.
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So to me, in certain circumstances, this is just a furtherance of the fraudulent process of Purposely understaffing the facility, not providing care and then building up a bunch of debt and then using that debt to get into bankruptcy to wipe it out. And it can be a very difficult process. It’s, there’s 1 going on right now live the nursing centers in which they owned a majority of the nursing homes in the state of Florida.
And they put. A certain number of them into bankruptcy after creating this debt and we’re in the process of trying to work through the bankruptcy to hold them accountable for what’s happened.
Schenk:
Yeah I know many lawyers were just like if they’re even pump faking that they’re going to go bankrupt, then I’m not even taking the case.
And it’s just, that’s a shame. Then it’s the, they’re never held accountable. Like they have a get out of jail free card.
Distasio:
Yeah, I’m not one of those lawyers. I have when it’s clear, but in general. When because there’s very little insurance in the state of Florida, my position is your corporate assets are my clients because you harmed them.
And when we take a case, we know there’s the possibility of bankruptcy. When they start threatening, my response is absolutely show me your audited financial statements, demonstrate your, that you’re insolvency, and then we can compromise this claim. And on in the 34 years I’ve been doing this 10 as a defense lawyer and 24 as a plaintiff’s lawyer.
I’ve not once had them agree to that . And the reason is because it is generally a lie. They are not going bankrupt. They are purposely trying to get you to take. a lower settlement. And if you hold out 90 percent of the time, they’ll pay you a fair settlement if you have a legitimate case. But you have to fight.
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You have to get it ready for trial and be on the verge of trial, and they will provide a fair settlement. The problem is, there is that 10 to 20 percent chance that you’re wrong, and they just are too proud to give you your financial statements, their financial statements, and they do go into bankruptcy or it’s like some of them are have this strategy that they’re going to build up this debt and then go into bankruptcy.
And then you could be the one holding the cards at the end of the game and lose. There’s risk. This is a high risk, high reward business. And if you don’t have. Your your strength and ability to endure that risk. And you’re, then don’t get into this business because it’s trying to hold nursing homes accountable is a difficult thing.
I say, I don’t go to Las Vegas and gamble. I don’t play cards because I’m doing it every day with my business with, 25 do a couple hundred thousand dollars in costs and years of fighting on a bet that I’m going to win against the company that might go into bankruptcy.
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Schenk:
That’s a very, that’s
Distasio:
my thrill.
Any advice to families of nursing home residents regarding selecting a nursing home?
Schenk:
That’s that is an excellent analogy. You’re right. You’ve got a certain amount of money on the line. You could win or you could lose. If you win, you can win big. If you lose your shirt. Any, in the last couple of minutes here, Scott, any understanding all this, do you have any advice for any family members who are thinking about putting a loved one in a nursing home or have a loved one in a nursing home and understanding all this, like what would you tell them?
Distasio:
Yeah. As far as thinking about putting so home and where to go. I m
You often have to end up going where there’s something open, but if that’s not the case, do your research, get on the internet, find out what their reviews are, go to the Medicare Compare website, identify what their ratings are, go to the state’s agency that regulates them, they’ll have survey reports of wrongdoing, and then make an educated decision.
Unfortunately, these things are waves. Their pendulums when nursing home can be great. They lose a certain staff members and they become bad and then they swing back. So it becomes very difficult. I think the real issue is how, as a family member, when your person is in there, do you make sure you have the best possibility of them getting good care?
And the way you do that, in my opinion, is number one, be friend, the staff. Befriend the nursing home administrator and the nursing home director of nursing. You get much more with honey than you do with with what’s that old vinegar. Yeah. And you, so you befriend those befriend, those people you politely and politically demonstrate that you’re going that these things are going wrong and how can you help you show up and you be there for your loved one as much as you can.
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And then. You do that at different times of the day, and you then get an understanding of what care needs to be done. Know that if your resident is bed bound, they need to be turned and repositioned and monitor it. And then when they’re not doing it, come in and have conversations with them. Know that if your resident has a difficulty walking and and they’re gonna get up out of bed in the middle of the night, know that they should have a turtle toileting plan and advocate for that to be put in place.
And then check and ask them to show that somebody came and toileted them in the middle of the night and they have documentation of all these things. Now, is that foolproof? No, because some facilities will put you off, but it’s going to put you in the best possible light and the best possible way to make sure that the care happens.
It’s not foolproof, but it’s going to make your odds of getting better care in these facilities.
Listen to our podcast discussing how nursing homes use shell companies to hide liability.
Schenk:
I couldn’t have said it better myself, Scott. I really appreciate that. And I appreciate you coming on the show and sharing your knowledge with us.
Distasio:
Absolutely. I enjoyed it. And anytime,
Schenk:
Well, folks, I hope that you enjoyed this episode of the nursing home abuse podcast.
If you have any suggestions for topics that you would like for me to talk about, please let me know. If you have any ideas for guests, please let me know that as well. New episodes of the nursing home abuse podcast are out every single week, except for, I think the week between Christmas and new year’s, I might not have a episode.
I don’t have a, I don’t know. Maybe stick around. Maybe that’ll be something special, a holiday special. I don’t know, but otherwise every single week and they drop on Mondays. And with that folks, we’ll see you next time.
Guest Info: