Scott v. Ashland Healthcare Center

• Court: Court of Appeals of Tennessee
• Decided: March 16, 2000
• Docket: M1999-00346-COA-R3-CV
• Status: Published

Opinion

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