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Skilled Healthcare Falls After $671 Million Verdict

July 7 (Bloomberg) -- Skilled Healthcare Group Inc. plunged the most since its initial public offering in New York trading after a California jury returned a $671 million verdict against the nursing-home operator.

Skilled Healthcare dropped $4.70, or 76 percent, to $1.52 on the New York Stock Exchange, the largest decline since the shares went on sale in May 2007.

The plaintiffs accused Skilled Healthcare of improperly staffing 22 California facilities. A Humboldt County jury yesterday found the company liable for $613 million in statutory damages, the maximum allowed by state law, and $58 million for restitution. Skilled Healthcare, based in Foothill Ranch, California, said today that it will appeal.

“We strongly disagree with the outcome of this legal matter and we intend to vigorously challenge it,” Chief Executive Officer Boyd Hendrickson said in a statement. “Our facilities are appropriately staffed,” he said.

The verdict is the largest jury award in the U.S. this year, according to data compiled by Bloomberg. Skilled Healthcare said the award exceeds the policy limits of its insurance. The jury will return later to determine punitive damages, said the company, which posted a net loss of $133 million last year on revenue of $759.8 million.

Staffing Rates

The lawsuit was filed in 2006 on behalf of current and former residents of 22 Skilled Healthcare operations in California, plaintiffs’ attorney Tim Needham said. California law requires nursing homes to maintain staff at a rate of 3.2 nursing hours per patient per day, he said.

“That’s the minimum; they would treat it as a target,” Needham said today in a phone interview. “Using their own figures, they understaffed 30 to 40 percent of the time.”

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, Needham said.

Skilled Healthcare, which operates in seven states, said pursuing an appeal would require posting a bond for 150 percent of the verdict. There is $94 million available on revolving credit, although availability may be limited by covenants in the loan, the company said.

JMP Securities equity analyst Peter Martin cut Skilled Healthcare today to “market perform” from “market outperform.” Ralph Giacobbe of Credit Suisse downgraded the shares to “underperform” from “outperform.”

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

To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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