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Did you know that just a couple of weeks ago, the largest jury-granted award for damages in America took place, right here in California?  The award was for $613 million in statutory damages, and $58 million in restitutionary damages (so this award doesn’t even include any punitive damages, though as you will read on, that would be a moot point).

The case was a class-action lawsuit filed by trial lawyers on behalf of wronged nursing home residents against Orange County based Skilled Healthcare, which operates nursing homes right here in the Golden State.

As a columnist who writes on a myriad of California’s public policy and political issues, I am hardly an expert when it comes to the specific issues of nursing homes and the regulations that govern their activities.   I will say that like in just about every legal case I know, the plaintiff’s made accusations of wrong-doing, and the defendants staked out their ground, that they did nothing wrong.  After a lengthy trial, a jury found for the plaintiffs.

My issue is not with the finding of the jury, I admit that I have not delved into enough of the details of this particular case to be able to credibly assess that.  The lawsuit claimed that 22 nursing homes failed to provide 3.2 actual nursing hours per patient day at various times over six years – the jury agreed. They fined the defendant facilities $500 for each patient in the facility on each day they fell below, even if only for a few seconds. The total statutory damage award multiplied into $613 million, the maximum allowed by law, and then $58 million for restitution.  (My friend Warner Todd Huston, in whom I hold in high regard, does have a lot of opinion on the verdict itself, so you may want to read his perspective.)

What I want to do is throw out there the $671 million question – did the violations by Skilled Healthcare warrant such a massive financial penalty? Why would a state have a law that could create such a huge damage award when no patient harm is required to sue? Why wouldn’t a more appropriate statutory fine be an aggregate $500 facility fine with injunctive relief to stop ongoing violation?  And is it really helpful to anyone when a verdict is so monumental in its size that it will actually cause the affected company to close its doors and file for bankruptcy?

First and foremost, I spent quite a bit of time online reviewing documents and news articles, to find out if there were any findings that Skilled Healthcare caused someone personal injury.  There were not. In fact, the lawsuit did not seek recovery for personal injuries or other resident-specific harm that may have been caused by inadequate staffing at defendants’ facilities. This is a case where the jury found that patients simply were not getting 100% of the required time with professional nurses.  Is that bad?  Yes.  Should there be consequences that go beyond simply correcting the deficiency?  Yes.  Should this be an “extinction event” for Skilled Healthcare?  ABSOLUTELY NOT.

This is a textbook example of how California is in serious need of tort reform, and how the current legal system is completely upside down.  Recently scholars Lawrence McQuillan and Hovannes Abramya of the Pacific Research Institute wrote about (here on the FlashReport) the challenges facing California because of the poor quality of our civil-justice tort climate:
“California ranks a dismal 41st out of all 50 states in the quality of its civil-justice tort climate, according to the newly-released U.S. Tort Liability Index: 2010 Report. The ranking is based on each state’s tort losses, numbers of tort lawsuits and lawyers, number of huge jury awards, and presence of plaintiff-friendly “judicial hellholes.” The data were adjusted for the size of each state’s economy and population.

California fell seven places since the previous 2008 edition, when it was 34th. It has the highest tort losses of any state, more than $16 billion in 2008 (the most-recent year for which complete data are available). Astoundingly, California exceeds the second-highest state, New York, by more than $2 billion.

California also had 16 of the nation’s 101 largest jury-verdict awards in 2008-more than any other state. These exorbitant costs are passed on to consumers through higher prices, fewer jobs, and lower wages and benefits for working people. The state is now on the “judicial hellholes” watch list of the American Tort Reform Foundation.”

This verdict may very well force Skilled Healthcare into bankruptcy.  Apparently they are only capable of borrowing $94 million based on their current financials, and just because they could borrow that amount doesn’t mean they could do so, and still operate profitably.  The parties in the lawsuit have announced an attempt to find a way to deal with this verdict through mediation, but who knows if they will be successful?

I really could not summarize the egregiousness of this verdict better than James Gomez of the California Association of Health Facilities (all of the members of which have to wonder if they will be the next victim of the trial lawyers)…

“If this verdict is allowed to stand, it will likely result in bankruptcy to a company that is widely regarded as a good provider of skilled nursing care in California and elsewhere. Facility closures, the loss of thousands of local jobs and ultimately the denial of care to thousands of individuals who are chronically ill will inevitably occur.”

Of course the ultimate losers here will be the tens of thousands of patients of Skilled Healthcare, and frankly anyone living in a similar nursing facility.  If this verdict is allowed to stand, the effects on Skilled Healthcare could be to drive them out of business.  But the ripple effect through the entire industry, in terms of ability of these nursing home providers to cope financially as creditors seek to protect themselves against the potential of other similarly egregious verdicts, might very well eliminate the viability of private sector provided care.

While groups like the California Chamber of Commerce, Californian Citizens Against Lawsuit Abuse and the Civil Justice Association of California have been fighting hard for tort reform, the pervasive influence of the California Trial Lawyers Association (which calls itself the “Consumer Attorneys of California these days) has been successful at stopping meaningful changes to reform this dysfunctional system.

Perhaps it will take a terrible example such as this verdict with Skilled Healthcare to promulgate change in the system.  I read where some feel that if Skilled Healthcare goes out of business, that their nursing homes (and their occupants) will simply end up with another provider.  What if the real tragedy, and legacy of this verdict is that it ends up that no private company can, or will take them at all?  That would be a real tragedy.

And I will end on this chilling note.  We already are seeing where state government, as well as almost every county and city are suffering financially, for a whole lot of reasons.  This is hardly the ideal time to expect these entities to get into the business of operating nursing homes, which is where we may be headed it we maintain the status quo.