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Judge throws out motion for mistrial in Skilled Healthcare case;
court also grants injunction against nursing home company

Times Standard
By Matt Drange
August 28, 2010

A Humboldt County judge threw out a motion for a mistrial in the class action lawsuit against Skilled Healthcare on Friday, signaling another wild day for the company's stock.

The motion, filed earlier this month by defense attorneys, alleged misconduct by one member of the jury that returned a $677 million verdict against the company on July 6. Defense attorneys called the amount, which remains the largest jury verdict in the United States this year, "annihilating," and immediately took action to have it overturned.

In response to the motion, plaintiffs' attorneys filed a handful of declarations from other jury members dismissing the alleged bias and serving as a basis for Judge Bruce Watson to deny the motion. In his ruling, Watson stated that he found no evidence of juror misconduct and no grounds for a mistrial, causing a flurry of events on Wall Street, with shares dropping as low as $2.46, down from $3.25 the day before.

The company -- one of the largest nursing home chains in the country with 78 facilities and some 14,000 employees -- has seen its stock decline since the lawsuit was brought to court last November after documents showed the nursing facilities to be in violation of statewide staffing requirements.

At the time, shares hovered around $7 apiece, and have since taken numerous hits, including a single-day loss of more than 75 percent the day the jury verdict was announced. SKH shares closed at $2.77 on Friday.

Health care industry analyst Sheryl Skolnick said the news should not come as a surprise when the recent declarations filed by other jurors, all of which denied any potential bias, are taken into consideration.

"Proving misconduct is a tough thing to get done in a case like this," said Skolnick, an analyst with CRT Capital Group in Connecticut, who has been following the case closely. "I'm not surprised at all."

In addition to the denial of the motion, the court issued a permanent injunction that orders all Skilled Healthcare facilities to comply with the minimum staffing requirements mandated by California statute.

Effective immediately, each of the 22 facilities implicated in the suit is to maintain 3.2 nursing hours per-patient, per-day.

A third party will be appointed to monitor that each facility complies with the law, and any costs associated with that will be paid by the defendants, according to court documents.

Plaintiffs' attorneys, based out of Eureka, would not comment on the decision, except to say that it will not effect a scheduled court date next week. Phone calls to the office of defense attorney Kippy Wroten in Southern California were not returned before deadline.

The two teams of lawyers are due back in court on Tuesday, when the court will hear additional arguments on motions filed earlier this month. Skolnick said that despite all the recent filings, which include a motion to have Watson recused from the case and a separate one seeking a new trial, the future for Skilled Healthcare does not appear to look much different than it did one month ago.

Parties in the case agreed to enter into mediation on July 15, and will not say if a settlement has been reached. Many in the investing world have predicted the company will file for bankruptcy under Title 11 of the United States Bankruptcy Code, which would leave the future of Skilled Healthcare nursing homes in California and elsewhere in question.

"At this point, the case looks like it's going forward," Skolnick said, adding that a final judgment could be looming if a settlement cannot be reached. "Once that happens, there really is no other choice than to file for bankruptcy."

Matt Drange can be reached at 441-0514 or