In re Lemington Home for the Aged PDF

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In re Lemington Home for the Aged Court of Appeals of New York 1966

Facts: Lemington home for the aged is a non-profit nursing home operated by Causey as the administrator/CEO and James Shealey as the CFO was facing serious financial troubles for decades. They were having to get donations to stay afloat. Eventually in 2005 the board convened and voted to close the home via Chapter 11 bankruptcy. This suit (by the Committee of Unsecured Creditors) followed against causey and the directors. Procedural History: On 1st District Court go around the plaintiffs claimed breach of fiduciary duty, breach of the duty of loyalty, and deepening insolvency. The District Court granted summary judgment in favor of defendants on all claims. On appeal, the appeal court vacated the district courts grant of summary judgment in its entirety, concluding that the record discloses genuine disputes of material fact on all claims. This brought the case back to the District Court . At the close of the committee's case, the defendants moved for judgment as a matter of law which the District Court granted worth respect to the breach of duty of loyalty claims and denied in all other respects. Compensatory damages were awarded to the tune of $2.25 million. Defendants filed a motion for judgment as a matter of law, a new trial, or remitter. District Court denied that motion in its entirety. This appeal followed. Issue: Was there evidence in the record for the jury to have found that these three people violated their fiduciary duties? Holding: Yes. Rule: Officers: shall perform their duties in good faith, in a manner he reasonably believed to be in the best interests of the corporation and with such care, including reasonable inquiry, skill, and diligence, as a person of ordinary prudence would use under similar circumstances. Must promote the common interests and not their own. BOD: shall perform in good faith, in a manner he reasonably believes to in the best interests of the corporation and with such care, including reasonable inquiry, skill, and diligence, as a person of ordinary prudence would use under similar circumstances. Reasoning: - Causey: The home was not in compliance with federal and state regulations. The home was cited repeatedly for failing to keep proper documentation of residence clinical records. This evaluation cited her inexperience and lack of qualifications, came after she

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had already been in the role for more than six years period she wasn't working full time but still collecting her full salary; Even though Pennsylvania law requires a full-time administrator. Thus, she breached her duty of loyalty by collecting her full salary will not in fact fulfilling the duties of the role for which she was being compensated. Shealey: Brown, a consultant conducting an assessment attempted to get financial records from her period she avoided him by locking herself in her office. And then admitted that there were never any books and that she keeps a little Excel spreadsheet to keep up with their bank account. Then lied to the board saying that she gave Brown everything he requested. And failed to bill Medicare since 2004 which could have added up to 500,000 dollars. Made a proposal to a Baptist Church to take over the home and appoint her as president and CEO. A person serving as chief financial officer with reasonable skill and diligence would not fail to maintain a general Ledger for over 9 months, refused to meet with a consultant hired by a major creditor of the home, and forgo collection of upwards of $500,000 due to inability to competently fulfill her duties. Additionally, their proposal of purchasing the home and elevating him to the position of president and CEO, also gave the jury a sufficient basis for concluding he acted in selfinterest thus breaching his duty of loyalty to the home. Directors: Failed to take action to remove the above 2 once results of their mismanagement became experienced. Independent review recommended that the CEO should be replaced with a seasoned nursing home administrator. They obtained a grant in order to search for a new administrator, but the funds were never used for this even though there was increasing evidence that her performance at the nursing home was poor....