Skilled Healthcare Loses Bid to Vacate Largest U.S. Jury Award of 2010

Skilled Healthcare Group Inc. lost its bid for a mistrial ruling to vacate $677 million in damages awarded by a California jury that found the company improperly staffed its nursing homes. Shares plunged as much as 24 percent.

Humboldt County Superior Court Judge W. Bruce Watson, in an order filed today, said Skilled Healthcare failed to meet its burden of proof to establish juror misconduct. Watson also ordered the company to comply with California’s minimum staffing requirements at its nursing homes.

“Although the three affidavits presented constitute a prima facie showing of misconduct, they are rebutted in all important aspects by counterdeclarations,” Watson said in the order obtained by Bloomberg News from the courthouse in Eureka, California. “Defendants’ motion for mistrial or new trial on grounds of juror misconduct is denied.”

The plaintiffs had accused Skilled Healthcare, based in Foothill Ranch, California, of improperly staffing 22 facilities in the state. Jurors on July 6 found the company liable for statutory damages and restitution, resulting in the largest jury award in the U.S. this year, according to data compiled by Bloomberg.

Skilled Healthcare may try to appeal Watson’s decision and delay entry of a final judgment in the case, Sheryl Skolnick, an analyst with CRT Capital Group LLC, said in a phone interview. Absent an appeal, the company might try to settle with the plaintiffs or seek Chapter 11 bankruptcy court protection for its California nursing homes, Skolnick said.

‘Fallback Option’

“I would find it troubling if they weren’t negotiating a settlement as a fallback option,” said Skolnick, who doesn’t own Skilled Healthcare stock. “There’s also an incentive for the plaintiffs to settle because if it goes into Chapter 11, the path to getting their money as an unsecured creditor will be much longer.”

Based on Skilled Healthcare’s available cash and the estimated expenses of the plaintiffs’ lawyers, a settlement in the range of $30 million to $87 million would be a possibility, Skolnick said.

Skilled Healthcare has said the July 6 award exceeds the policy limits of its insurance. The company had a net loss of $133 million last year on revenue of $759.8 million.

Shelly Hubbard, a Skilled Healthcare spokeswoman, didn’t immediately return a call to her office. Chief Executive Officer Boyd Hendrickson and Chief Financial Officer Dev Ghose also didn’t return calls. Melody Chatelle, an outside public relations person for the company, had no immediate comment.

Skilled Healthcare fell 42 cents, or 13 percent, to $2.77 in New York Stock Exchange composite trading.

Juror’s Work

In its request for a mistrial filed Aug. 6, Skilled Healthcare said a juror didn’t disclose before the trial that she had worked for the Humboldt County Coroner’s Office and had handled at least one corpse that came from one of the company’s facilities.

The juror came to know the daughter of the deceased whose body was handled at the coroner’s office, according to Skilled Healthcare. The daughter was one of the plaintiffs in the case, the company said.

Timothy Needham, a lawyer for the plaintiffs, didn’t return two calls to his office. Skippy Wroten, a lawyer representing Skilled Healthcare, also didn’t return a call. Scott Kiepen, another lawyer representing the company, didn’t immediately respond to an e-mailed request for comment.

The case is Lavender v. Skilled Healthcare Group, DR060264, Superior Court, Humboldt County, California (Eureka).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

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