Skilled Healthcare Group Inc. jumped as much as 31 percent in New York trading after announcing a $50 million lawsuit settlement over staffing in its California nursing homes, helping it avoid a $677 million damage verdict.
Skilled Healthcare, which operates 79 facilities in 7 states, rose 81 cents, or 23 percent, to $4.31 at 9:56 a.m. in composite New York Stock Exchange trading, after earlier climbing to $4.59. The Foothill Ranch, California-based company announced the settlement in a statement yesterday.
The settlement, which still needs a judge’s approval, would let Skilled Healthcare avoid what would have been the biggest jury award in the U.S. this year, according to data compiled by Bloomberg. The agreement removes a “major overhang” for the company, said Ralph Giacobbe, a Credit Suisse analyst in New York, in a note to clients today. He more than doubled his target price for the stock, to $5 from $2.
“We expect shares to be up significantly at the open before settling into a trading range given potential concerns around additional suits,” Giacobbe said in his note.
Skilled Healthcare plunged 76 percent after the verdict was announced July 6. The Humboldt County jury found the company liable for improperly staffing 22 facilities. The verdict included $619 million for Health Code violations and $58 million in restitution.
The settlement will be put into escrow accounts to cover payments to members in the class action lawsuit, Skilled Healthcare said. The accounts will be funded by a revolving credit facility, the company said.
California law mandates 3.2 nursing hours of direct patient care per day of skilled nursing care. The jury found that Skilled Healthcare failed to meet that standard.
As part of the settlement, the 22 facilities that operate the nursing homes will be required to provide specified nurse staffing levels, comply with state and federal laws on staffing and provide reports to a monitor, the company said.
Skilled Healthcare sought a mistrial after the verdict, on its claim of juror misconduct. Humboldt County Superior Court Judge W. Bruce Watson, in an Aug. 27 order, rejected Skilled Healthcare’s request, finding the company failed to establish the claim.
The lawsuit was filed in 2006 on behalf of current and former residents of 22 Skilled Healthcare operations in California. The lawsuit was certified as a class action in June 2008, allowing the plaintiffs to pursue their claims as a group. About 32,000 people, including families of residents who died, are in the class, according to plaintiffs’ attorney Tim Needham.
The case is Lavender v. Skilled Healthcare Group, DR060264, Superior Court, Humboldt County, California (Eureka).