Outlook for company grim after Humboldt County jury renders verdict
By Matt Drange - July 8, 2010
Skilled Healthcare Group Inc. stock crashed dramatically
Wednesday -- dropping over 75 percent -- after what may be
the largest damage award from a jury this year.
The company, which is one of the biggest nursing home chains
in the country, has been ordered to pay nearly $677 million
for failing to provide adequate staffing at 22
assisted-living facilities across California.
”This is very rare for a company in the health care
industry,” said Jason Gurda, a stock analyst for Leerink
Swann, a firm that focuses on health care services. “I have
not seen anything like this.”
Gurda said the drop is unprecedented, and added that the
verdict could push the company into bankruptcy. Skilled
Healthcare's stock closed Wednesday at $1.52 a share, down
from $6.22 the previous day.
The case represents some 32,000 patients, and spans from
2003 to 2009. Many in the investing world believe that the
verdict -- which could amount to more if additional punitive
damages are awarded -- is the largest ever in the health
care industry.
The jury assessed the maximum amount of damages allowed by
California statute, which requires nursing homes to maintain
3.2 nursing hours of direct patient care per day. According
to a verdict form signed in Humboldt County Superior Court,
the total damages were assessed at a rate of $500 per
patient per day that the 22 nursing facilities implicated in
the suit were in violation of the law.
This amounts to nearly $619 million in statutory damages
along with another $58 million in restitution, bringing the
total to almost $677 million.
A statement released by Skilled Healthcare on Wednesday left
open the possibility of an appeal once a final judgment is
issued, which is expected later this month.
“We are deeply disappointed in the verdict, and continue to
firmly believe that our facilities are appropriately
staffed,” said Boyd Hendrickson, Chairman and CEO of Skilled
Healthcare. “We strongly disagree with the outcome of this
legal matter, and we intend to vigorously challenge it.”
While it remains to be seen if an appeal is filed, many
question whether or not such a remedy is possible given the
current financial situation of the company. Skilled
Healthcare's primary insurance coverage has been exhausted,
and the excess insurance carrier will not cover the amount
of the damages, citing little allegation of injury or harm
to the plaintiffs.
In order to defer payment of the damages, the company would
need to post a bond for 150 percent of the final judgment --
upwards of $1 billion. Even if Skilled Healthcare is
successful in obtaining insurance coverage, the amount of
the jury verdict would far exceed policy limits.
Plaintiff's attorney Michael Crowley said that his office is
not going to worry about what Skilled Healthcare does next,
and that any appeal would be up to the defense.
”That is out of our control,” said Crowley, who added that
while there was talk of a possible settlement early on in
the case, neither team of lawyers could agree on anything
definitive. “We're going to move forward one step at a time
to protect the people in the class.”
The lawsuit is somewhat unique in that the amount of damages
was decided by a jury rather than a judge. The case now
moves on to the punitive damages phase, which will establish
the net worth of Skilled Healthcare and the extent of any
additional punitive damages the jury could assess.
The short trial is slated to begin next week, after which
judge Bruce Watson will determine if an injunction is
imposed by the court that would mandate Skilled Healthcare
to keep staffing levels compliant with the law.
reprinted from the The Times-Standard