Scott v. Ashland Healthcare Ctr.

• Decision Date: 09 July 2001
• Docket Number: 99-00346
• Citation: 49 S.W.3d 281
• Parties: WANDA CARY SCOTT v. ASHLAND HEALTHCARE CENTER, INC., et al.IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE
• Court: Tennessee Court of Criminal Appeals

WANDA CARY SCOTT v ASHLAND HEALTHCARE CENTER, INC., et al.

No. M1999-00346-SC-R11-CV

IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE

February 7, 2001 Session

Filed July 9, 2001

Appeal by Permission from the Court of Appeals, Middle Section, Circuit Court for Cheatham County, No. 4737

Robert E. Burch, Judge

We granted review of this case to determine whether the holder of a certificate of need may be held liable for the healthcare facility operator's tortious acts. We hold that the Tennessee statutes and rules governing certificates of need impliedly impose a non-delegable duty upon the certificate of need holder to initiate operation of the healthcare facility. We therefore reverse the judgment of the Court of Appeals, reverse the trial court's judgment, and remand this case to the trial court for further proceedings.

Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals Reversed;

Case Remanded to Trial Court.

Janice M. Holder, J., delivered the opinion of the court, in which E. Riley Anderson, C.J., and Frank F. Drowota, III, Adolpho A. Birch, Jr., and William M. Barker, JJ., joined.

Steve R. Darnell, Clarksville, Tennessee, for the appellant, Wanda Cary Scott.

Peter F. Klett and Robert Larry Estes, Nashville, Tennessee, for the appellees, Ashland Healthcare Center, Inc., Medical Holdings, Ltd., and Stephen W. Creekmore.

OPINION

BACKGROUND

This appeal arises from a wrongful death action filed by Wanda Cary Scott on behalf of the beneficiaries of Flois Cary Snoddy. Mr. Snoddy was a resident at Oakmont Care Center (Oakmont), operated by Monarch Nursing Homes, Inc. (Monarch), at the time of his death on July 6, 1994. Ms. Scott filed suit against Monarch, d/b/a Oakmont; Monarch's parent corporation, Red Bird Jet Corporation, d/b/a Paragon Healthcare and/or Paragon Companies; Ashland Healthcare, Inc. (Ashland); Medical Holdings, Ltd. (Medical Holdings), and Stephen W. Creekmore, Jr. Ms. Scott alleged that Mr. Snoddy's death was the result of negligent care by the defendants in the operation of Oakmont.

Medical Holdings builds nursing homes across the United States. Ownership of each nursing home is transferred to a separate corporate entity, wholly-owned by Medical Holdings. Ashland is a wholly-owned subsidiary of Medical Holdings. Medical Holdings incorporated Ashland to build and own the Oakmont facility in Ashland City, Tennessee. Mr. Creekmore is the president and sole stockholder of both Ashland and Medical Holdings.

On November 21, 1988, Medical Holdings applied for and was issued a certificate of need¹ by the Tennessee Health Facilities Commission authorizing construction of "Ashland Healthcare Center d/b/a Ashland City Healthcare Center." During construction, Ashland entered into an agreement with Monarch under which Monarch would lease the Oakmont facility from Ashland and Monarch would operate the nursing home.

An application listing Ashland as the owner of the Oakmont facility was sent to the Tennessee Department of Health's Board of Licensing Health Care Facilities (the Licensing Board) in July of 1993 to obtain a license to operate the nursing home. The application was denied because the Licensing Board required that the business owner on the license application match the holder of the certificate of need.

In the interim, the Health Facilities Commission reissued the certificate of need in Ashland's name at the request of E. Graham Baker, counsel for Medical Holdings. The reissue was granted based upon Mr. Baker's representation that Medical Holdings, instead of Ashland, was inadvertently listed as the facility owner on the initial certificate of need application. The new certificate of need was issued on September 22, 1993, to Ashland for construction of Oakmont Care Center.²

A subsequent license application was filed with the Licensing Board in the name of "Ashland Healthcare Center, Inc., d/b/a Oakmont Care Center." The application indicated that Medical Holdings was the holding company of Ashland and that Monarch was under contract to operate the facility. The Licensing Board issued a six-month conditional license in Ashland's name on October 1, 1993.

At the end of the six-month conditional period, the license was reissued in Ashland's name. The following year's renewal application, filed in June of 1994, listed Monarch as the owner of the facility. The application was rejected based upon lack of proof that Monarch owned the facility. A subsequent renewal application in Ashland's name was granted on July 1, 1994. Monarch then filed a change-of-ownership application and was issued a license in Monarch's name on August 16, 1994. At the time of Mr. Snoddy's death, however, the license was still in Ashland's name.³

Mr. Creekmore testified in his deposition that the administrators who filed the license applications were not employees of Ashland⁴ and had no authority to act on behalf of Ashland. Mr. Creekmore stated that he was unaware until litigation began that the certificate of need holder had to be the same entity as the license holder or that the license applications were filed in Ashland's name. Mr. Creekmore did, however, acknowledge that Mr. Baker and Lem Jones, general counsel for Medical Holdings, would have handled the certificate of need and licensing application process.

Don Brewer, president of Monarch, testified in his deposition that nothing was done without Mr. Creekmore's authorization. Mr. Brewer himself had at least one conversation with Mr. Creekmore during the licensing process regarding the problem with the name on the certificate of need. Mr. Brewer indicated that he had been advised that Mr. Creekmore was aware that the license could only be issued to Ashland. Moreover, the initial licensing application contained Mr. Creekmore's personal information, including banking references, members of his board of directors, and a list of other health care facilities owned by Mr. Creekmore. Mr. Brewer testified that Mr. Creekmore's personal information on the license application was most likely obtained from Mr. Creekmore or one of his representatives.

From the summary judgment record, it is undisputed that Monarch actually operated the nursing home at all times pertinent to this case. Neither Medical Holdings nor Ashland was ever involved in the day-to-day operations of the nursing home. In fact, the defendants, Medical Holdings, Ashland, and Mr. Creekmore, candidly admit in various documents filed in this litigation that they never intended to operate the nursing home.

Medical Holdings, Ashland, and Mr. Creekmore filed a joint motion for summary judgment, maintaining that they could not be held liable because they did not provide any nursing care to Mr. Snoddy. Ms. Scott also filed a motion for summary judgment. A hearing on the summary judgment motions was held on May 29, 1997. Relying on the Court of Appeals' unpublished opinion in Southern Rehabilitation Specialists, Inc. v. Ashland Healthcare Center, Inc.,⁵ the trial court granted the defendants' motion for summary judgment and denied Ms. Scott's motion for summary judgment. A default judgment was entered against the remaining defendants, Monarch and Red Bird Jet Corporation.

Ms. Scott filed the current appeal challenging the award of summary judgment in favor of Medical Holdings, Ashland, and Mr. Creekmore. The Court of Appeals affirmed the trial court's award of summary judgment. The intermediate court held that neither the statutes nor the regulations governing issuance of a certificate of need or license to operate a nursing home impose a duty on the certificate of need holder to operate the facility. We granted review. Our review of a trial court's award of summary judgment is de novo with no presumption of correctness, the trial court's decision being purely a question of law. Mooney v. Sneed, 30 S.W.3d 304, 306 (Tenn. 2000).

ANALYSIS

Ms. Scott's position is that the Tennessee health care facility regulatory scheme imposes a non-delegable duty on the owner of the facility and certificate of need holder to initiate operation of the facility. After carefully reviewing the applicable statutes and rules, we agree.

I. Implied Duty

To legally construct and open a nursing home for operation in Tennessee, it is necessary to obtain both a certificate of need and a license. Tenn. Code Ann. §§ 68-11-106(a)(1) and 68-11-204(a). Section 68-11-106(a)(1) specifically requires issuance of a certificate of need for "[t]he construction, development, or other establishment of any type of health care institution." "Health care institution" is defined to include a nursing home. Tenn. Code Ann. § 68-11-102(4)(A). In 1988, when Medical Holdings applied for and was granted its certificate of need for the Oakland facility, § 68-11-106(d)(2) addressed the criteria for certification as follows:

No certificate of need shall be granted unless the action proposed in the application for such certificate is necessary to provide needed health care in the area to be served, can be economically accomplished and maintained, and will contribute to the orderly development of adequate and effective health care facilities and/or services. Specific criteria for certification of need shall be prescribed by rules of the commission.

Tenn. Code Ann. § 68-11-106(d)(2) (1988). Commission Rule 0720-4-.01 further defined the three criteria: 1) need, 2) economic feasibility, and 3) contribution to the orderly development of healthcare. In its certificate of need application, Medical Holdings had to answer questions related to these three criteria, including staffing, projected charge schedules, and revenues for the Oakland facility. Review of the criteria advances the Health Facilities Commission's public policy outlined in § 68-11-103:

It is hereby declared to be the public policy of this state that the establishment and modification of health care institutions, facilities and services shall be accomplished in a...