Fanning v. Brown

• Decision Date: 10 February 2004
• Docket Number: No. 97,956.,97,956.
• Parties: Lula FANNING, as Guardian of Eva Jackson, a physically and mentally incapacitated adult, Plaintiff/Appellant, v. James BROWN, Alex Dout, Grant Rhodes, Tony Wilkins, and Jeff Young, Defendants/Appellees.
• Court: Oklahoma Supreme Court

85 P.3d 841

2004 OK 7

Lula FANNING, as Guardian of Eva Jackson, a physically and mentally incapacitated adult, Plaintiff/Appellant, v. James BROWN, Alex Dout, Grant Rhodes, Tony Wilkins, and Jeff Young, Defendants/Appellees.

No. 97,956.

Supreme Court of Oklahoma.

February 10, 2004.

Nancy Lloyd, Jim Lloyd, Lloyd & Lloyd, Sand Springs, OK, for plaintiff/appellant, Lula Fanning, as Guardian of Eva Jackson.

James E. Frasier, George M. Miles, Frasier, Frasier & Hickman, LLP, Tulsa, OK, for defendants/appellees, James Brown; Alex Dout; Grant Rhodes; Tony Wilkins; and Jeff Young.

BOUDREAU, J.

¶ 1 Lula Fanning, as Guardian of Eva Jackson, a physically and mentally incapacitated adult (Fanning), filed a petition in district court against James Brown, Alex Dout, Grant Rhodes, Tony Wilkins, and Jeff Young (defendants) who are the shareholders of Sand Springs Care Center, Inc. (SSCC).¹ Fanning's petition alleged SSCC owned and operated Oak Dale Manor, a specialized long-term nursing care facility in Sand Springs, Oklahoma. Fanning asserts nursing home negligence, statutory violations of the Oklahoma Nursing Home Care Act (NHCA), 63 O.S.2001, § 1-1901 et seq.² and the Protective Services for Vulnerable Adults Act, 43A O.S. 2001, § 10-101 et seq.,³ and breach of contract for injuries Eva Jackson received while a resident at Oak Dale Manor.

¶ 2 Defendants filed a motion to dismiss on May 21, 2002, in which they asserted that Fanning failed to state a claim upon which relief could be granted. Defendants' motion provided that "[a]n individual and a corporation are two separate and distinct legal entities. An individual stockholder cannot be liable for the negligent acts of the corporation." On June 5, 2002, Fanning filed an amended petition adding a fourth cause of action to pierce the corporate veil. On June 6, 2002, Fanning filed a response to the motion to dismiss. In her response, Fanning maintained the NHCA expressly authorizes a direct action against "owners" and that there must be a factual determination as to whether defendants satisfy the definition of "owner" under the act. Fanning further argued that the equitable doctrine of piercing the corporate veil should be invoked to protect the rights of third persons and accomplish justice.

¶ 3 The trial judge granted defendants' motion to dismiss and Fanning appealed. The Court of Civil Appeals, Division I (COCA), affirmed, finding the petition failed to state a claim against the defendant shareholders. In making this determination, COCA found the NHCA contemplates that either a person or an entity will own a facility that there can be only one "owner" under the act. As a result, SSCC alone, and not its individual shareholders, own Oak Dale Manor and is subject to liability under the act. In addition, COCA held that Fanning failed to allege sufficient facts to justify the court disregarding the corporate entity and imputing liability for the acts of the corporation to the shareholders. This Court granted certiorari.

I. STANDARD FOR REVIEWING A MOTION TO DISMISS

¶ 4 The standard of review for an order dismissing a case for failure to state a claim upon which relief can be granted is de novo and involves consideration of whether a plaintiff's petition is legally sufficient. Hayes v. Eateries, Inc., 1995 OK 108, ¶ 2, 905 P.2d 778, 780. When reviewing a motion to dismiss, the court must take as true all of the challenged pleading's allegations together with all reasonable inferences which may be drawn from them. Hayes, 905 P.2d at 780. "A pleading must not be dismissed for failure to state a legally cognizable claim unless the allegations indicate beyond any doubt that the litigant can prove no set of facts which would entitle him to relief." Frazier v. Bryan Mem. Hosp., 1989 OK 73, ¶ 13, 775 P.2d 281, 287. (emphasis in original). Furthermore, the burden to show the legal insufficiency of the petition is on the party moving for dismissal and a motion made under 12 O.S.2001, § 2012(B)(6) must separately state each omission or defect in the petition; if it does not, the motion shall be denied without a hearing. Indiana Nat.'l Bank v. State of Oklahoma, Dept. of Human Serv., 1994 OK 98, ¶ 3, 880 P.2d 371, 375. Motions to dismiss are usually viewed with disfavor under this liberal standard. Id. at 375. The burden of demonstrating a petition's insufficiency is not a light one. Id. The above standards guide our review in this case.

II. DISCUSSION

A. The Petition Fails to State a Claim Under the Oklahoma Nursing Home Care Act, 63 O.S.2001, § 1-1901 et seq.

¶ 5 The NHCA provides a private right of action for nursing home residents to redress a violation of rights conferred by the act. Morgan v. Galilean Health Enter., Inc., 1998 OK 130, ¶ 8, 977 P.2d 357, 361. Every nursing home resident has "the right to receive adequate and appropriate medical care consistent with established and recognized medical practice standards within the community." 63 O.S.Supp.2003, § 1-1918. This right is enforceable against "[t]he owner and licensee [who] are liable to a resident for any intentional or negligent act or omission of their agents or employees which injures the resident." 63 O.S.Supp.2003, § 1-1939(A).⁴

¶ 6 The NHCA defines "owner" as "[a] person, corporation, partnership, association, or other entity which owns a facility or leases a facility." 63 O.S.2001, § 1-1902(16). It also provides that "[t]he person or entity that stands to profit or lose as a result of the financial success or failure of the operation shall be presumed to be the owner of the facility." Id.⁵ Fanning maintains the NHCA authorizes her to bring an action against the shareholders as "owners" because they stand to profit or lose as a result of the financial success or failure of the operations of Oak Dale Manor.

¶ 7 Defendants filed a motion to dismiss asserting that the corporation was an entity distinct from its individual members or shareholders. The trial court granted defendants' motion to dismiss without comment. On appeal, COCA rejected Fanning's argument that the shareholders were "owners" under the NHCA. COCA interpreted "owner" as either the person or entity that stands to profit or lose—that there can be only one "owner" under the act. As a result, COCA found that SSCC alone, and not its individual shareholders, is subject to liability within the meaning of the act.

¶ 8 At issue is the interpretation or construction of the definition of "owner". 63 O.S.2001, § 1-1902(16). Statutory construction presents a question of law. Arrow Tool & Gauge v. Mead, 2000 OK 86, ¶ 20, 16 P.3d 1120, 1122-23. Questions of law are reviewed by a de novo standard. Neil Acquisition v. Wingrod Investment Corp., 1996 OK 125, ¶ 5, 932 P.2d 1100, 1103. Under this standard, we have plenary, independent and nondeferential authority to determine whether the trial court erred in its legal ruling. Id.

¶ 9 This Court has stated that the language of the NHCA "is not a model of clarity and precision". Morgan, 977 P.2d at 361. The definition of "owner" exemplifies this statement. The first sentence which defines "owner" as the person or entity which owns or leases a facility is relatively unambiguous.⁶ The second sentence, however, is ambiguous as it could include other persons or entities which profit incidentally from the facility's operation.

¶ 10 Rules of statutory construction are employed when legislative intent cannot be ascertained from the language of a statute, as in cases of ambiguity. Johnson v. City of Woodward, 2001 OK 85, ¶ 6, 38 P.3d 218, 222. The fundamental rule of statutory construction is to ascertain and give effect to the legislative intent, and that intent is first sought in the language of a statute. The Pentagon Academy v. Independent Sch. Dist. No. 1 of Tulsa County, 2003 OK 98, ¶ 19, 82 P.3d 587. Courts will give the words of a statute a plain and ordinary meaning, unless it is clear from the statute that a different meaning was intended by the Legislature. Id.

¶ 11 Guided by these rules of construction, we look to the language of a statute to ascertain legislative intent. The NHCA defines "owner" as a person or entity which owns or leases a facility. 63 O.S.2001, § 1-1902(16). Since the Legislature tied the definition of "owner" to "facility", we must examine other provisions of the NHCA more closely. "Facility" is defined as a nursing facility and a specialized home. 63 O.S.2001, § 1-1902(9). "Nursing Facility" means a home or institution which is primarily engaged in providing nursing care, rehabilitation services or health-related care and "specialized home" means any home or institution which provides inpatient long-term care services. 63 O.S.2001, § 1-1902(10 & 11).

¶ 12 Upon reviewing these provisions it is clear that the NHCA defines "facility" by reference to the nature and extent of services it provides to residents. Accordingly, as the definition of "owner" is defined by reference to "facility", the "owner" of a "facility" is a person or entity that has responsibility for providing the relevant services to residents.⁷

¶ 13 In our view, the "profit or lose" language in the second sentence does not extend liability beyond the specific person or entity which has responsibility for providing the relevant services. We believe the Legislature intended the language to be construed narrowly so that it would not extend liability to other persons and entities which have some sort of legal interest in the facility but are not the "owner". These other persons or entities, like shareholders of a corporation, remain entitled to the protections otherwise available to the particular business form they have chosen.

¶ 14 A broad interpretation of the "profit or lose" language in the definition of "owner" would allow the joinder of defendants clearly never intended by the Legislature. We can imagine a variety of persons or entities that would "stand to profit or lose as a result of the financial success...