Scott v. Ashland Healthcare Center

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
FILED
March 16, 2000
WANDA CARY SCOTT, )
Administrator of the Estate of ) Cecil Crowson, Jr.
Flois Cary Snoddy, ) Appellate Court Clerk
)
Plaintiff/Appellant, ) Appeal No.
) M1999-00346-COA-R3-CV
VS. )
) Cheatham Circuit
ASHLAND HEALTHCARE ) No. 4737
CENTER, INC., d/b/a OAKMONT )
CARE CENTER; MONARCH )
NURSING HOMES, INC., d/b/a )
OAKMONT CARE CENTER; )
RED BIRD JET CORPORATION, )
d/b/a PARAGON HEALTHCARE )
and/or PARAGON COMPANIES; )
STEPHEN W. CREEKMORE and )
MEDICAL HOLDINGS, LTD., )
)
Defendants/Appellees. )
APPEALED FROM THE CIRCUIT COURT OF CHEATHAM COUNTY
AT ASHLAND CITY, TENNESSEE
THE HONORABLE ROBERT BURCH, JUDGE
STEVE R. DARNELL
P. O. Box 1008
Clarksville, Tennessee 37041-1008
Attorney for Plaintiff/Appellant
ROBERT L. ESTES
PETER F. KLETT
424 Church Street, Suite 1401
Nashville, Tennessee 37219-2392
Attorneys for Defendants/Appellees Ashland Healthcare Center, Inc.,
Stephen W. Creekmore, Jr. and Medical Holdings, Ltd.
AFFIRMED AND REMANDED
BEN H. CANTRELL,
PRESIDING JUDGE, M.S.
OPINION
In this wrongful death case against a nursing home, we are asked to
decide if the holder of the certificate of need and the license to operate the
facility may be held liable even if the facility is leased to and operated by another
entity. The Circuit Court of Cheatham County granted summary judgment to the
holder of the certificate of need and the license to operate. We affirm.
I.
The administrator of the estate of Flois Cary Snoddy filed suit for
his wrongful death alleging that he died on July 6, 1994 as a result of the
treatment he received in the Oakmont Care Center in Ashland City. The
complaint contained counts of common law negligence and the violation of
certain state statutes and federal regulations. Among the defendants were
Stephen Creekmore, Ashland Healthcare, Inc., and Medical Holdings, Ltd.
Stephen Creekmore owns Medical Holdings, Ltd., which, in turn,
is the sole shareholder of Ashland Health Care, Inc., a corporation that built the
Oakmont Care Center in Ashland City. Neither Creekmore, Ashland Healthcare,
nor Medical Holdings are in the business of operating nursing homes.
In order to build a health care facility, the builder must first obtain
a “Certificate of Need” (hereafter CON). Tenn. Code Ann. § 68-11-106. In 1988
Ashland Healthcare retained a private attorney to obtain the CON for the
Ashland City facility. The application was inadvertently filed in the name of
-2-
Medical Holdings and issued in that name on November 21, 1988. The attorney
discovered the mistake and the CON was reissued to Ashland Healthcare on
September 22, 1993, as the construction neared completion.
A separate license is required to operate a health care facility. Tenn.
Code Ann. § 68-11-204. Since Ashland Healthcare was not in the business of
operating nursing homes, it leased the facility to Monarch Nursing Homes, Inc.,
an unrelated Missouri Corporation, on October 1, 1993.
Monarch applied for an operator’s license on July 6, 1993, naming
the institution Oakmont Care Center and showing Monarch Nursing Homes, Inc.
as the owner of the business. The application was signed by John M. Pugh, a
Monarch employee designated as the administrator of the facility. The licensing
board rejected that application because the applicant was not the same as the
holder of the CON. On September 28, 1993, another Monarch employee refiled
the application in the name of Ashland Healthcare, Inc., D/B/A Oakmont Care
Center. The application contained extensive accurate information about Ashland
Healthcare, even showing the parent company as Medical Holdings, Ltd. There
is a disputed question of fact, however, about whether Ashland Healthcare,
Medical Holdings, and/or Mr. Creekmore knew about and acquiesced in the use
of Ashland Healthcare’s name to obtain the license. On October 1, 1993, the
Department of Health issued a conditional six month license in the name of
Ashland Healthcare, Inc., D/B/A Oakmont Care Center.
A new license, therefore, had to be obtained before the six month
period expired. Despite the fact that the license could have been obtained by
-3-
Monarch by filing a change of ownership form, a new administrator of the
Oakmont Care Center filed another application in the name of Ashland
Healthcare, Inc., D/B/A Oakmont Care Center, on March 6, 1994. This
application, however, contained the additional information that the facility was
being operated by Monarch. The Department reissued the permit to Ashland
Healthcare, Inc., D/B/A Oakmont Care Center, to expire on June 30, 1994.
On or about June 7, 1994, another application was filed in the name
of Monarch Nursing Homes, Inc., D/B/A Oakmont Care Center. This application
was also rejected because the name of the applicant was different from the prior
licensee and no change of ownership form had been filed. On August 10, 1994,
another Oakmont administrator, Duane Farnham, filed an application in the name
of Ashland Healthcare, Inc., D/B/A Oakmont Care Center. The license was
reissued in that name.
On August 12, 1994, Mr. Farnham filed another application for a
license in the name of Monarch. The new license was issued to Monarch on
August 16, 1994, even though the notification of a change of ownership was not
filed until October or November. Mr. Snoddy, however, died on July 6, 1994,
while the license was in the name of Ashland Healthcare.
Ashland Healthcare moved for summary judgment on the ground
that they were never involved in the operation of the nursing home and shared
no responsibility for Mr. Snoddy’s death. The Circuit Court of Cheatham
County granted the motion. Medical Holdings and Mr. Creekmore could be held
-4-
liable only through Ashland Healthcare. Therefore, the court dismissed them
also.
II.
We think the undisputed facts show that Ashland Healthcare was
not the operator of the Oakmont Care Center. At all times the facility was under
the control of and operated by Monarch. Therefore the negligence that resulted
in the harm to Mr. Snoddy was not the negligence of Ashland Healthcare nor of
its employees. Monarch was not Ashland Healthcare’s agent; their relationship
was that of landlord and tenant.
The plaintiff insists, however, that Ashland Healthcare can be held
responsible for Mr. Snoddy’s injuries on other theories. We will discuss each
theory in turn.
A.
THE NONTRANSFERABLE CON AND
LICENSE TO OPERATE
The transfer of a CON will render it null and void. Tenn. Code Ann.
§ 66-11-120(a). But the CON applies only to the construction of a facility, not
to its operation. By the time the facility is opened, the CON has served its
purpose. Therefore, the fact that Ashland Healthcare obtained the state’s
approval to construct the nursing home does not make it liable for acts that
occurred when the facility was put into operation under other management.
-5-
A license to operate a health care facility cannot be transferred or
assigned, either. Tenn. Rules & Regs. 1200-8-6-.01(2)(c) makes that policy
explicit:
Licenses are not transferable or assignable.
Upon change of ownership the existing license is
terminated and the new owner is required to submit an
application with the licensing fee, be inspected and
meet the applicable standards and regulations, or
receive a waiver for the non-compliance from the
Board, and approved for a license as is required for
initial licensing. Any change of ownership shall be
reported to the Department and a new application for
licensure submitted at least thirty (30) days before the
change is to be implemented.
Rule 1200-8-6-.01(2)(e)(1) defines an “owner”:
For the purpose of licensing, the “owner” of a
health facility has the ultimate responsibility for the
operation of the facility, including the final authority
to make or control operational decisions and legal
responsibility for the business management. A
“change of ownership” occurs whenever this ultimate
legal authority to control the activities and policies of
the facility is transferred to another individual, group,
or legal entity.
The regulatory scheme requires the license to be held by the person
or entity that is operating the facility. But it does not purport to make the holder
of the license liable for the acts of the “owner” . In fact, the regulations make it
clear that the change in responsibility for the operation is what triggers the
requirement of a license change.
These statutes and regulations make it clear that neither a CON nor
a license to operate a medical facility may be transferred without the concurrence
of the health facilities commission (CON) or the board for licensing health care
-6-
facilities (the operator’s license). They stop short, however, of imposing strict
liability on the holder of either. The statutes and regulations provide the state
with the authority to regulate the delivery of health care services and with the
remedies to apply when the letter of the law has been violated, but they do not
make a license holder vicariously liable for the acts of third parties.
B.
THE NON-DELEGABLE DUTY
The appellant asserts that Ashland Health Care had a duty of care
to the Oakmont patients and that the duty could not be delegated to an
independent contractor. This assertion is based on the rule that certain duties
that are “intrinsically dangerous,” cannot be delegated. International Harvester
Co. v. Sartain, 222 S.W.2d 854 at 867 (Tenn. 1948). In Sartain the defendant
undertook to supply electric power to an area of a construction site. Since
“electricity, if not properly safeguarded, is one of the most dangerous and lethal
agencies known to man,” Tennessee Electric Power Co. v. Sims, 108 S.W.2d 801(Tenn. Ct. App. 1937), the defendant could not delegate the duty to install the
lines at a safe distance from structures on the site. Therefore, the defendant
could be held liable for an independent contractor’s negligence in the placement
of the line.
In one case the court held that the duty of a “general acute-care
hospital” to furnish non-negligent emergency room care could not be delegated
to an independent contractor. Jackson v. Power, 743 P.2d 1376 (Alaska 1987).
After reciting the instances where the courts had found duties to be non-
-7-
delegable, the Alaska Supreme Court concluded that the question came down to
whether “the responsibility is so important to the community that the employer
should not be permitted to transfer it to another.” 743 P.2d at 1384.
We know of no authority saying that the operation of a nursing
home falls into this category. Even if it does, however, the first question that has
to be answered is whether the duty has been assumed by or imposed on the
person or entity charged with violating the duty. As the Alaska Supreme court
recognized, “a party cannot be held to have delegated away a duty it never had.”
743 P.2d at 1382. As we have pointed out, neither the statutes nor the
regulations impose on Ashland Healthcare the duty to operate the nursing home,
and the uncontradicted proof in the record shows that Ashland Healthcare never
undertook the operation of the Oakmont Care Center. The facility was
constructed for the sole purpose of leasing it to someone else. Ashland
Healthcare leased the building to Monarch in October of 1993 and Monarch at
all times operated the facility. Therefore, we think the uncontradicted proof
shows that Ashland Healthcare did not have a non-delegable duty to the public.
C.
ESTOPPEL
The plaintiff asserts that by allowing the operation of the nursing
home under its license, Ashland Healthcare is now estopped to deny that it was
the operator. Estoppel, however, requires reliance on the representation that is
now denied. Lawrence Co. v. White, 288 S.W.2d 735 (Tenn. 1956). There is no
proof that the plaintiff, or Mr. Snoddy himself, had any knowledge of the fact
-8-
that the license to operate Oakmont Health Center was in the name of Ashland
Healthcare. The plaintiff discovered that fact only after the lawsuit was filed.
Therefore, Ashland Healthcare is not estopped to deny that it ever operated the
nursing home.
III.
The judgment of the court below is affirmed and the cause is
remanded to the Circuit Court of Cheatham County for any further proceedings
necessary. Tax the costs on appeal to the appellant, Wanda Cary Scott.
_______________________________
BEN H. CANTRELL,
PRESIDING JUDGE, M.S.
CONCUR:
____________________________
WILLIAM B. CAIN, JUDGE
____________________________
PATRICIA J. COTTRELL, JUDGE