Pennsylvania Superior Court Affirms Overturned $19 Million Corporate Negligence Jury Verdict Against Nursing Home Management Entities

By way of background, in Newlin, the Patricia O’Donnell’s estate (the “Estate”) alleged that she sustained injuries (and ultimately passed away) as a result of an infected pressure ulcer which developed while she resided at Brinton Manor Nursing and Rehabilitation Center, a skilled nursing facility in Glen Mills, Pennsylvania. In addition to the two licensed operators of the facility (the “Operating Company Defendants”), the plaintiff brought claims against two entities that provided contractual management or support services to the Operating Company Defendants (the “Management Company Defendants”).¹ The Operating Company Defendants had a direct contractual relationship with the Decedent for patient care. Pursuant to management agreements with the Operating Company Defendants, the Management Company Defendants were responsible for, inter alia, preparing a budget for operating the facility and providing various services to support the operation of the facility.

At trial, the jury entered a verdict against all four defendants, awarding a total of $4 million in compensatory damages and $15 million in punitive damages: $5 million against the first licensed operator, $6.5 million against the first management company, $2 million against the second licensed operator, and $1.5 million against the second management company.

After trial, the Defendants filed post-trial motions requesting: (1) judgment notwithstanding the verdict; (2) a new trial based on evidentiary issues at trial; and (3) a remittitur of the jury’s verdict. The Delaware County Court of Common Pleas granted judgment notwithstanding the verdict to the Management Company Defendants, finding that the Estate could not establish liability under its sole theory of direct corporate negligence, based on the Scampone cases: Scampone v. Highland Park Care Ctr., LLC, 57 A.3d 582 (Pa. 2012) (Scampone II) and Scampone v. Grane Healthcare Co., 169 A.3d 600 (Pa. Super. 2017) (Scampone III). As to the Operating Company Defendants, the trial court reduced the punitive damages award against the second licensed operator from $2 million to $385,000, while denying all other aspects of the Operating Company Defendants’ motion(s).

On appeal, the Superior Court affirmed judgment notwithstanding the verdict with respect to the Estate’s corporate negligence claims against the Management Company Defendants. The Superior Court noted that the Estate conceded that it “was only pursuing a theory of corporate negligence against the Management Company Defendants and not a claim based on vicarious liability.”  The Newlin opinion reiterated the longstanding rule, under Thompson v. Nason Hosp., 591 A.2d 703 (Pa. 1991), that the scope of a healthcare facility’s nondelegable corporate duty in the context of a corporate negligence claim includes: (1) to use reasonable care in the maintenance of safe and adequate facilities and equipment; (2) to select and retain only competent staff; (3) to oversee all persons who provide patient care; and (4) to formulate, adopt and enforce adequate rules and policies to ensure quality of care.

However, Newlin emphasized Scampone’s limitation on imposing direct corporate liability on multiple entities where only one defendant has a direct contractual relationship with the plaintiff. See generally Scampone III, 169 A.3d at 600. The Superior Court clarified that “as in the instant case … Scampone [II and III] make clear that only one entity can be liable in corporate negligence for a non-delegable duty to a nursing home patient,” even if the provider contracted with a management company to perform said duties. See Newlin, 2026 Pa. Super. 175 at 20 (citing Hopkins v. Compass Point Healthcare System, LLC, 2021 WL 3465831 at *6 (Pa. Super. Aug. 6, 2021)). Indeed, Scampone “clearly and unequivocally held” that multiple “entities cannot have direct corporate liability for performance of the same non-delegable duty imposed by Thompson.” Id. at 22 (citing Scampone at 622). This logic is designed to prevent duplicative exposure (and recovery) for breach of the same legal duties and recognizes that the corporate duties under Thompson must arise from a “direct” entity-patient relationship with the plaintiff—not the relationship between a facility operator and other entities. See id. 

As applied, the Superior Court upheld judgment notwithstanding the verdict, because only the Operating Company Defendants had a direct contractual relationship with O’Donnell. The Superior Court found there was “no legal basis to impose corporate negligence” because the Management Company Defendants lacked a direct contractual relationship with the patient. Under Newlin, “once [the operational] entity assumes those duties, that entity is still liable even if it delegates the performance of those duties to a different entity.” Id. At 19-21 (citing Scampone III, 169 A.3d at 608). While Plaintiff could have potentially proceeded on a vicarious liability theory against the Management Company Defendants, the Estate’s position on the record that it was only pursuing a direct liability claim bound the Superior Court to conclude that the Management Company Defendants were entitled to judgment as a matter of law. In any case, vicarious liability would have required the Estate to establish a duty and independent liability based on the acts or omissions of employees of the Management Company Defendants. In sum, Plaintiff failed to establish any theory of liability against the Management Company Defendants because corporate negligence was legally unavailable and the Estate disclaimed its vicarious liability theory.

On separate grounds, the Superior Court vacated the compensatory and punitive damages awards against the Operating Company Defendants, and remanded for a new trial limited to the amount of compensatory damages to which the Estate is entitled from the Operating Company Defendants.

Dissent and Possibility of Further Appeal

Judge Maria McLaughlin penned an opinion concurring in part and dissenting in part. On the corporate negligence issue, Judge McLaughlin disagreed with the majority’s “bright-line rule” that only licensed providers can be liable for corporate negligence due to their contractual relationship with patients. 

First, the dissent contended that the existence of a contractual relationship with the management company was not the pertinent inquiry under Scampone, and that the inquiry should instead focus on whether the management company should have recognized that its contractual undertaking for the operator was necessary for the patient’s protection. Further, the dissent distinguished Scampone because, unlike the impermissible situation where both the operating and management company face direct corporate liability for performance of identical non-delegable duties, the Estate did not pursue a corporate negligence claim against the Operating Company Defendants. For this reason, the dissent agreed with the majority’s request of the Pennsylvania Supreme Court to “provide updated guidance to the bench and bar regarding application of [corporate liability principles] to nursing home management companies.” Given this joint request from the majority and dissent, there is a reasonable possibility that the Pennsylvania Supreme Court may grant further appellate review.

Takeaway

The Superior Court confirmed that Scampone established a bright line rule: only the licensed operator of a healthcare facility that directly contracts with a patient can be liable for direct corporate negligence if the patient lacks a direct contractual relationship with the management entity – even where the management entity is contracted to provide services that the operating company delegated away. Absent a direct contractual relationship with the patient, a management entity does not assume the facility’s nondelegable Thompson duties to a patient merely because it performs management functions on behalf of the licensed operator. Instead, those duties remain with the entity that has a contractual relationship with the patient. The Court’s decision highlights the continued importance of distinguishing between these entities (for example, a management company or “parent” from an operational entity) throughout the litigation process. The decision also highlights the significance of clarifying the theory of liability that is being pursued against each defendant throughout the litigation, and whether the theory is premised on direct or vicarious liability.