Fee Challenge to Bankrupt Nursing Home Sent to State Court

A lawsuit by a nursing home reform group challenging the legality of management fees charged by the owner of a chain of 19 bankrupt nursing homes barely survived this week.

Lawyers for California Advocates for Nursing Home Reform acknowledged that while they are experienced in state court, they had never pled a case in federal court and “failed to grasp” the more demanding requirements to show standing to sue in federal court.

CANHR had sued the state of California and the Country Villa Service Corp. and its owner Steven Reissman seeking a court declaration that the management fee of 5 percent of revenue from each of the 19 homes was illegal and siphoned money in excess of the actual cost of managing the properties.  The suit also sought an injunction against Country Villa and Reissman accusing the firm of unfair business practices and alleging the funds in excess of management costs should be used for resident care.

The 19 homes filed individual bankruptcies in the face of mounting class actions by employees over wage and overtime claims.  The management company, though it is the owner of the homes, did not file for bankruptcy.

U.S. District Judge Jon Tigar had previously dismissed outright the CAHNR lawsuit, but the group asked for a second try at an amended complaint pleading “mistake or inadvertence” by counsel.

And if they could not amend the complaint, they asked Tigar to remand the suit to Alameda County Superior Court, where it began.

Tigar ruled that even the second amended complaint did not repair the pleading deficiencies.

“The court concludes that plaintiffs have failed to show excusable neglect,” Tigar said.  “Their essential argument is that they were unaware of the pleading and standing requirements of federal law.  It is well settled that ignorance of the law does not constitute excusable neglect,” he said.

But Tigar did give CAHNR and its lawyers Russell S. Balisok and Silvio Nardoni a break.  He said that even though the group never sought remand to state court of either of the defendant’s two prior motions to dismiss, he would agree to the current request to remand.

He ordered the entire case remanded to state court in Alameda and said it applies equally to the debtor defendant nursing homes in bankruptcy because such a move would not interfere with the bankruptcy.

The dispute now heads for Alameda County.

Case: Calif Advocates for Nursing Home Reform v. Chapman, No. 12-cv-6408

 

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