In its decision filed on September 16, 2015, the Arkansas Court of Appeals (“Appellate Court”) overturned the trial court’s granting summary judgment to an Arkansas nursing home based on charitable immunity. The trial court had granted summary judgment to the defendant nursing home, finding that the plaintiff did not provide any evidence that refuted the material facts proving that the defendant nursing home is a nonprofit organization created for charitable purposes. The plaintiff appealed the trial court’s decision.
Arkansas’ Charitable Immunity Doctrine
The Appellate Court stated that the doctrine of charitable immunity is premised on the idea that an entity created and maintained exclusively for charity should not have its assets diminished by judgments in favor of one injured by the charity’s agent. However, because the doctrine results in a limitation of potentially responsible persons whom an injured party may sue, Arkansas courts give it a very narrow construction, and the party seeking to benefit from the affirmative defense of charitable immunity bears the burden of proving its entitlement to it.
Arkansas courts have adopted eight factors to review when deciding whether a corporation is entitled to charitable immunity: (1) whether the organization’s charter limits it to charitable or eleemosynary purposes; (2) whether the organization’s charter contains a “not-for-profit” limitation; (3) whether the organization’s goal is to break even; (4) whether the organization earned a profit; (5) whether any profit or surplus must be used for charitable or eleemosynary purposes; (6) whether the organization depends on contributions and donations for its existence; (7) whether the organization provides its services free of charge to those unable to pay; and (8) whether the directors and officers receive compensation.
The Appellate Court stated that the eight factors are illustrative but not exhaustive, and no one factor is dispositive of charitable status. The Appellate Court further stated that in addition to the eight factors, whether the charitable entity form has been abused is a pivotal issue in determining a defendant’s entitlement to charitable immunity.
With regard to the fourth factor (whether the organization earned a profit) as it is applied to the defendant nursing home, the Appellate Court concluded that the lack of a profit in a longstanding business could cause reasonable minds to question whether an entity is truly operating at a deficit each year or manipulating its financial records to create the perception that it is operating at a deficit.
With regard to the sixth and seventh factors (whether the organization depends on contributions and donations for its existence; whether the organization provides its services free of charge to those unable to pay), the Appellate Court stated that the evidence before it indicates that the defendant nursing home admits patients with the presumption that they will pay their bills: all patients admitted to the defendant nursing home are initially charged for their care, and only when they cannot or do not pay are those debts forgiven. Therefore, the defendant nursing home failed to establish that forgiving uncollectable debt is equivalent to providing free services (the amount of debt forgiven by those who do not or cannot pay is minuscule in comparison to the defendant nursing home’s overall revenue – the bad debt forgiven amounted to less than 1% of revenue in 2011, 5.76% in 2012, and 2.2% in 2013). Therefore, the Appellate Court held that reasonable minds could view this minute amount of debt forgiveness as creating a facade of charity instead of a true charity.
Furthermore, the Appellate Court noted that the defendant nursing home clearly fails to satisfy the factor regarding dependence on charitable donations: the evidence shows that it only received $100 in donations each year in 2012 and 2013, and these paltry donations could not have had any meaningful effect on the defendant nursing home’s finances.
The Appellate Court held that reasonable minds could conclude that the defendant nursing home was not truly charitable or that the defendant nursing home was merely manipulating the charitable form to avoid purchasing liability insurance and to shield itself from judgment, and therefore presents a factual issue. The Appellate Court further held that reasonable persons could reach different conclusions based upon the undisputed facts presented and could reasonably result in the conclusion that the defendant nursing home was not truly operating as a charity and, therefore, not entitled to charitable immunity.
The Appellate Court reversed the order of summary judgment and remanded the case to the trial court for further proceedings.
Source Neal v. Davis Nursing Association d/b/a Davis Life Care Center, 2015 Ark. App. 478.
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