According to lawyers, carefully structure business agreements to prevent damage from previous operators

Careful structuring of commercial agreements can protect incoming operators who want to reduce the risks associated with distressed assets of former operators, legal experts say.

Arnall Golden Gregory LLP cited a case in JDSupra, Milmoe v. Paramount Senior LivingIncludes negligence lawsuits filed against current and former operators of West Virginia Senior Living. Finally, two courts have decided that the current operator cannot be held responsible for the wrongdoing of the previous operator.

The judgments provide some insight to other operators.

The case started in 2019

Tony Milmoy filed a negligence and wrongful death lawsuit in August 2019 against Passage Midland Meadows Senior Living in Ona, WI. The suit alleges that multiple slips and falls resulted in medical expenses, pain and suffering and ultimately the death of resident Thelma Sturgeon in November 2017.

Toledo, OH-based real estate investment trust Welltower owned the community and turned it over to Delaware-based Passage. Filed for Chapter 11 bankruptcy protection in March 2017.

Shortly after Sturgeon’s death, the bankruptcy court granted Passage’s motion to enter into a transfer of operations agreement with Paramount Senior Living Ona LLC in January 2018. Welltower will remain the owner.

According to the JDS Supra clause, the agreement “properties” in the form of community provisions to Paramount; There was no purchase agreement. Those nominal assets include linens, consumer goods, medical and office equipment, and maintenance equipment. Other assets, such as cash, accounts and stocks, are excluded from the purchase contract.

A “clearer image” result

Milmoy named both as defendants after the deal was finalized between Passage and Paramount. A Cabell County circuit court ruled in February 2021 that Paramount was “not liable as a successor corporation” for wrongful conduct by its former operator.

The West Virginia Supreme Court agreed with the lower court’s ruling, ruling on June 13 that “Paramount took over the operations of a defunct nursing home formerly operated by Passage” and that “merely hiring and serving the former operator’s employees was not sufficient to warrant a new operator to replace the former operator.”

The court ruled that Paramount acquired only nominal assets and that all or all of the prior operator’s assets must be transferred in order for the current operator to be considered a successor corporation.

“Milmo provides a clearer way for senior living facilities in West Virginia to protect their revenue operators from the liability risks of actions or losses resulting from the failure of primary operators,” the authors said. “Upcoming operators can strategically structure their business deals or minimize liability.”

The authors of the case provide legal strategies for future operators, especially if the previous operator is bankrupt.

“Under Milmoy, when assessing the risk of vicarious liability, the revenue operator must consider the structure of the transaction and the agreement that must be made to protect itself,” the authors concluded.