Who should pay the $200 million for nursing home death? It's complicated

Richard Nunziata holds a portrait he painted of his mother, Elvira Nunziata. His suit unearthed intriguing shifts of money.
Richard Nunziata holds a portrait he painted of his mother, Elvira Nunziata. His suit unearthed intriguing shifts of money.
Published Feb. 5, 2012

ST. PETERSBURG — Holding nursing homes accountable for shoddy care is tougher these days.

As with other big industries, complex corporate networks insulate owners from legal claims. Money is shifted around. Private investment firms come and go.

At times, even nursing home regulators cannot tell who is raking in the profits and calling the shots.

The estate of Elvira Nunziata is putting that protective shell to the test.

Nunziata was 92 when she toppled down a nursing home stairwell to her death in 2004. Addled with dementia and strapped to a wheelchair, she passed through a door that likely was left open by employees slipping out for a smoke.

A jury awarded her son $200 million last month, an astounding amount except that the defendant — the company that operated Pinellas Park Care and Rehab Center at the time — no longer existed.

Another company had inherited the nursing home's income streams. A third company inherited its liabilities. The defendant left so few traces that it was left with no lawyer at trial, giving Nunziata's side a field day in its wrongful-death suit.

Now the real battle has begun, one that tracks money movements back through time and targets big fish like GE Capital Corp. Motions and countermotions are flying in state and federal courts in Florida, Maryland and Georgia.

A cakewalk verdict is one thing. Collection is another.

• • •

Tampa lawyers Jim Wilkes and Tim McHugh changed the face of nursing home litigation two decades ago when they figured out that even a $1 verdict could force nursing homes to pay huge costs and attorney fees.

The Wilkes & McHugh firm might front $300,000 of its own money to get one case in front of a jury. The firm would hire its own private investigators and medical experts. Within 10 years, verdicts topped $15 million and other lawyers had joined the lucrative fray.

Then litigation costs, plus cuts in Medicare rates, drove nursing home chains into bankruptcy.

Out of that morass emerged a new for-profit model that yielded tax advantages and provided protection from lawsuits. Nursing home ownership was split into layers of different companies. One might own the building. Another would lease the building, hire staffers and pay the bills. Profits might flow to other corporate parents, holding companies or private equity investors, which have jumped into the field in recent years.

If regulators yanked an operator's license for poor care, that company could dissolve and an affiliated company could take over. If a resident sued, the operating company might be liable, but not the building owner, any more than a puddle of slippery salsa puts the landlord of a taco shop in legal jeopardy.

Charlene Harrington, a professor emerita at the University of California at San Francisco, has studied the nursing home industry for 30 years. Last year, she examined the nation's 10 largest for-profit chains and found up to five layers of ownership.

"You can't tell who owns'' many nursing homes, Harrington says. "It's like tracking a problem mortgage when you don't know who owns the bank.''

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Even the federal government can't figure it out. Medicare and Medicaid pay most of the nation's nursing home bills and require homes to disclose their ownership structures. But when the General Accounting Office looked at six big chains in 2010, the information those chains had provided Washington gave no indication of which affiliated companies controlled what.

"People who put their mother in a nursing home have no idea that decisions on staff and supplies are not being made by the administrator or a local owner,'' said Isaac Ruiz-Carus, a Wilkes & McHugh lawyer who helped represent the Nunziata estate. "Instead, decisions are being made by a real estate investor in New York.''

Lack of transparency can contribute to bad care, said Evin Isaacson, a fellow at the National Senior Citizens Law Center. If regulators can't decipher who ultimately makes decisions, it's hard to levy fines and sanctions. And that removes incentive to plow money into care rather than profits.

Collecting on a $200 million damage verdict might be difficult, Isaacson said, but "the precedent would have ripple effects. You have to make the stakes really high if the likelihood of enforcement is really low.''

• • •

How does a trial proceed with one side missing? In this case, the sole remaining defendant was a shell.

Trans Health Management Inc. was once a high flier, with 200 homes in 22 states. A Chicago private equity firm and others had created it in 2002 to take over a large, bankrupt chain.

But by the time Elvira Nunziata's estate sued in 2005, Florida had revoked Trans Health's corporate status for failure to file annual reports. It was unclear whether the company still ran the Pinellas Park nursing home or if it even existed.

Wilkes & McHugh proceeded with the lawsuit anyway because they could collect settlements from others who arguably bore some responsibility. By 2009, though, only the defunct Trans Health Management remained as defendant.

Chasing legal ghosts is usually pointless, but during discovery, Wilkes & McHugh had unearthed intriguing movements of money.

According to forensic accountant Brad Rush, who would testify at the Nunziata trial, Trans Health's operations were sold for $100,000 in 2006 to companies using the same office complex as Trans Health and the same phone number.

Fundamental Administrative Services LLC ended up with Trans Health's management contracts, 35,000 employees and the cash flow, Rush testified.

Fundamental Long Term Care Inc. inherited the liabilities — including potential lawsuit claims — then failed to file corporate reports and disappeared.

Who was behind these Fundamental companies? Some of the same real estate interests that had bought the nursing home buildings in 2002 when Trans Health took over operations, Rush testified.

"The only purpose of the Fundamental companies … was to strip assets away,'' he said. "No addresses or phone numbers or emails changed. Just the letterhead.''

If so, Nunziata's estate could try to collect its $200 million from Fundamental.

Trans Health Management also had a parent company — Trans Healthcare Inc. — that also might be targeted. It still enjoyed income from other subsidiaries, but had entered into receivership in Maryland, a legal status akin to bankruptcy.

After a Baltimore receivership judge banned further legal action against the parent company, its lawyers stopped defending the Nunziata case. But Wilkes & McHugh saw a possible opening. The receiver had paid GE Capital $55 million to wipe out a loan. Rush testified that loan provisions gave GE tight control over Trans Health's cash flow. If the receiver had played favorites with GE Capital, maybe Nunziata could tap into that $55 million.

• • •

Collection efforts in such complex cases can string out for years. It's too early to tell whether the Nunziata estate will ever cash in on its $200 million.

But a case in Polk County offers a strategic road map.

In 2010, a jury rendered a $114 million verdict against Trans Health companies for a death at an Auburndale nursing home. Same lawyers, same alleged money shuffling, same no-show at trial.

After the verdict, Wilkes & McHugh won court approval to depose executives and examine documents of GE Capital, Fundamental and a private equity fund that created Trans Health.

GE Capital is appealing. The company simply lent money and did not control patient care, its lawyers wrote. Wilkes & McHugh is on a wholesale "fishing expedition,'' seeking eight years of documents on "30 broad topics unrelated to any claim or defense.''

GE Capital also punched back in Maryland, asking the receivership judge to hold Wilkes & McHugh in contempt for disobeying his order to cease litigation. That action is pending.

Lawyers for Fundamental Administrative Services told the Polk court that the statute of limitations has passed on its acquisition of Trans Health assets.

After the Nunziata verdict, FAS also complained to Pinellas Circuit Judge Pam Campbell that Wilkes & McHugh had put the company on trial in absentia.

FAS did not even exist when Nunziata fell down the stairwell, yet much of the testimony centered on corporate money movements after the fall.

"Plaintiff presented evidence against FAS unrebutted by cross-examination or rules of evidence,'' the lawyer wrote. The $200 million verdict, "should shock the conscience of any court.''

• • •

Elvira Nunziata's son Richard, of St. Petersburg, will receive whatever his lawsuit eventually yields — after Wilkes & McHugh deducts its costs and standard 40 percent trial fee.

When Nunziata addressed the jury for several minutes, he made no mention of elaborate corporate networks, money movements or regulations.

Instead, he projected what plaintiffs' lawyers always want juries to see: a complicated case brought down to an emotional, human level.

She was a stay-at-home mom from Brooklyn who loved to cook and moved to Florida after Nunziata's father and brother died.

When he visited her in the nursing home, he testified, they would have lunch together, sit in the garden and hold hands. He showed the jury Plaintiff's Exhibit 6.

"It's a painting of my mother that I painted. She thought I made her nose too big.''