Nursing Home Elder Abuse Litigation – To Sue Or Not To Sue Pass Through Holding Companies

June 18, 2024

As discussed in earlier blogs, affixing liability against an elder care facility’s corporate overseers is critical in elder abuse litigation. This is important morally, as the corporate overseers are invariably responsible for neglect that occurs at the facility because they control key features of facility operations such as staffing, supplies, and staff pay. Securing corporate liability also is important to ensure that corporate defendants are held accountable for their wrongdoing. Typically, the financial benefits of nursing home operators’ ill-conceived plan to maximize profits at the expense of patient care are maintained by the corporate overseers. Thus, a judgment against solely the facility not only may be uncollectible but also will be substantially less than would be available if the corporate defendants were held liable because punitive damages are capped at 10% of the overall net worth of the defendants.

This blog addresses the all-too-common scenario in which facilities within an Enterprise are wholly owned by one or more pass through holding companies that are themselves are wholly owned by other pass through holding companies until eventually there is a corporate entity where actual ownership of the enterprise resides. There is no doubt that these holding companies often are created to create various layers of corporate protection between the facility and the ultimate beneficial owners of the enterprise. Defendants’ witnesses may argue that the different layers exist for legitimate business reasons, such as for organizational purposes or because they are required by lenders.

Whatever the case, a question arises as to whether to name all of the holding companies in the chain of ownership between the facility defendant and the beneficial owners of the overall enterprise. This question is particularly challenging if the evidence shows the holding company has no employees, no
assets, and no function whatsoever other than as a pass through holding company created for purported organizational purposes.

We generally recommend that plaintiffs’ counsel name all holding companies in the chain of ownership as soon as this information is acquired. Corporate ownership and responsibility can be a tricky and elusive target especially for the practitioner who has less experience in prosecuting the “corporate side” of the case. Until all facts are known and considered, the safer course is to name all holding companies.

This is not to say, however, that the practitioner must proceed against all of these holding companies in front of a jury. There may be strategic reasons to do so – e.g., to show what a fraud the defendants are in hiding behind their man straw entities. But, as a practical matter, cluttering verdict forms, evidence and closing arguments with discussion of these empty corporations may not be advisable. In a recent trial, we split the baby. We dismissed all of the jury theories of liability against most of the holding companies, but we kept these entities in for consideration in the alter ego trial. The trial judge found that all entities were alter egos of each other. Meanwhile, we were able to present a more streamlined case and verdict form to the jury.

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