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ARKANSAS COURT OF APPEALS
DIVISION IV
No. CV-14-985
GRACIE NEAL, AS PERSONAL Opinion Delivered September 16, 2015
REPRESENTATIVE OF THE ESTATE
OF JOHNNY NEWBORN, AND ON APPEAL FROM THE JEFFERSON
BEHALF OF THE WRONGFUL COUNTY CIRCUIT COURT
DEATH BENEFICIARIES OF JOHNNY [NO. CV 2013-217-5]
NEWBORN
APPELLANT HONORABLE JODI RAINES
DENNIS, JUDGE
V.
REVERSED AND REMANDED
DAVIS NURSING ASSOCIATION
d/b/a DAVIS LIFE CARE CENTER
APPELLEE
RITA W. GRUBER, Judge
This appeal follows an order granting summary judgment to Davis Life Care Center,
a long-term-care provider, based upon the doctrine of charitable immunity. The sole issue
on appeal is whether the trial court properly concluded that Davis was immune from suit.
After a de novo review, we conclude that the trial court erred in determining on summary
judgment that the charitable-immunity doctrine precluded Davis from suit. We reverse and
remand this case for further proceedings.
Johnny Newborn resided at Davis Life Care Center (Davis) from May 18, 2011, until
his death on December 6, 2011. Following his death, Gracie M. Neal, Mr. Newborn’s sister
and the appellant, was appointed as personal representative of his estate for the purpose of
pursuing a personal-injury, wrongful-death action.
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On April 25, 2013, Neal sued Davis on behalf of the estate of Johnny Newborn
alleging (1) negligence, (2) medical malpractice, (3) breach of the admission agreement, (4)
violations of the Long-Term Care Facility Residents’ Rights Act, and (5) breach of the
provider agreement. The essence of her case was that, while in Davis’s care, Johnny
Newborn suffered numerous injuries, including multiple infected bedsores, improper catheter
care that led to erosion of the penis, multiple urinary tract infections, malnutrition,
dehydration, aspiration, and ultimately, death. She sought compensatory and punitive
damages, attorneys’ fees, and costs.
On November 14, 2013, Davis filed a motion for summary judgment claiming
entitlement to charitable immunity. Neal opposed the motion. Ultimately, the trial court
granted summary judgment to Davis. In the order for summary judgment, the court
concluded that Neal did not provide any evidence that refuted the material facts proving that
Davis is a nonprofit organization created for charitable purposes. This timely appeal followed.
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. George v. Jefferson Hosp. Ass’n, 337 Ark. 206, 987
S.W.2d 710 (1999). Because the doctrine results in a limitation of potentially responsible
persons whom an injured party may sue, our courts give it a very narrow construction. Id.
The party seeking to benefit from the affirmative defense of charitable immunity bears the
burden of proving its entitlement to it. Carnell v. Ark. Elder Outreach of Little Rock, Inc., 2012
Ark. App. 698, 425 S.W.3d 787.
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Our courts have adopted eight factors to review when deciding whether a corporation
is entitled to charitable immunity. Masterson v. Stambuck, 321 Ark. 391, 401, 902 S.W.2d 803,
809 (1995). These factors include:
(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.
Id. These factors are illustrative, not exhaustive, and no one factor is dispositive of charitable
status. Id. at 401, 902 S.W.3d at 810. In addition to these factors, “whether the charitable
entity form has been abused” is a “pivotal issue” in determining a defendant’s entitlement to
charitable immunity. Watkins v. Ark. Elder Outreach of Little Rock, Inc., 2012 Ark. App. 301,
at 12, 420 S.W.3d 477, 484.
When addressing a question of law, we conduct a de novo review of an order granting
summary judgment. Ark. Elder Outreach of Little Rock, Inc. v. Thompson, 2012 Ark. App. 681,
425 S.W.3d 779. On review, we must determine if summary judgment was appropriate based
on whether the evidentiary items presented by the moving party left a material question of
fact unanswered. Id. Our supreme court describes the appellate court’s inquiry into
charitable-immunity status as follows:
While there may be fact issues involved, they are not matters of disputed fact.
Rather, they are differing legal interpretations of undisputed facts. In such cases, an
appellate court should grant summary judgment where reasonable persons would not
reach different conclusions based upon those undisputed facts.
George, 337 Ark. at 212–13, 987 S.W.2d at 713. We view the evidence in a light most
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favorable to the party against whom the motion was filed, resolving all doubts and inferences
against the moving party. Id. at 210, 987 S.W.2d at 712.
Our analysis begins with a consideration of the Masterson factors. It is undisputed that
Davis satisfies factors 1, 2, and 8. Davis’s charter limits its operation to charitable purposes and
contains a not-for-profit limitation. Additionally, its board members and officers serve
without compensation. The evidence as it relates to the remaining factors is not clearly in
Davis’s favor.
Whether Davis’s Goal Was to Break Even
We next consider whether Davis’s goal was to break even. Its articles of incorporation
and mission statement do not specifically address this issue, and Davis admits that it does not
strictly seek to break even. However, it presented affidavits from Kenny Bonds, a board
member since 2001, and Jay Hickey, a CPA who has consulted for Davis for seven years, that
indicate that Davis does not earn a profit. Davis uses this evidence to support its contention
that it intends to merely break even. Jay Hickey’s affidavit provided that Davis’s “charitable
business approach” resulted in it experiencing annual losses. Nowhere does Davis define how
the charitable business approach differs from a typical business approach. Furthermore, a
portion of Davis’s mission statement provides that it “must operate according to sound
economic principles.” Whether Davis’s goal was to break even is susceptible to different
interpretations by reasonable minds and is a question of fact.
Whether Davis Earned a Profit
Davis utilized affidavits from Kenny Bonds and Jay Hickey to establish that it does not
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earn a profit. They each testified that Davis has operated at a loss since its inception as a
nonprofit entity in 2001.1 One might inquire as to how Davis has had the ability to remain
operational after over a decade of financial losses. When discussing a nonprofit hospital in
George, our supreme court noted that modern hospitals are “complex and expensive,
technological, economic and medical enterprises that can ill afford to come short of [breaking]
even in their financial integrity.” George, 337 Ark. at 213, 987 S.W.2d at 713. This language
regarding hospitals is equally applicable to nursing homes. While this language was used in
George to illustrate that “the existence of a profit is not determinative of charitable status,” we
conclude 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.
Whether Davis Must Use Any Profit or Surplus for Charitable Purposes
We must also consider whether Davis must use any profit or surplus for charitable
purposes. According to Davis’s financial records, it has never earned a profit, and therefore,
it has never had a surplus to use. Davis’s bylaws require that its board members and officers
serve without pay, and its articles of incorporation provide that no part of its net earnings will
inure to the benefit or be distributable to any of its directors, officers, or other private
individuals. Thus, Davis contends that any profits earned would be held and reinvested in its
continued operation. Even so, a question remains as to whether reinvesting profits is
sufficient to satisfy this factor especially if the evidence, taken as a whole, challenges the true
1
Prior to 2001, Davis operated as a for-profit entity.
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charitable nature of the facility.
Whether Davis Provides Its Services Free of Charge to Those Unable to Pay and Whether It
Depends On Contributions and Donations for Its Existence
Another consideration is whether Davis offers services free of charge to those unable
to pay. The affidavits of Kenny Bonds and Jay Hickey reflect that it gives some free care in
that it forgives bad debts of those who cannot or do not pay for its services and that it charges
its private-pay residents the lowest rate allowed, resulting in a reduction of its overall revenue.
The evidence before us indicates that Davis admits patients with the presumption that they
will pay their bills: all patients admitted to Davis are initially charged for their care, and only
when they cannot or do not pay are those debts forgiven. Davis failed to establish that
forgiving uncollectable debt is equivalent to providing free services. Moreover, the amount
of debt forgiven by those who do not or cannot pay is minuscule in comparison to Davis’s
overall revenue. The bad debt forgiven by Davis amounted to less than 1% of revenue in
2011, 5.76% in 2012, and 2.2% in 2013.2 We hold that reasonable minds could view this
minute amount of debt forgiveness as creating a facade of charity instead of a true charity.
Additionally, Davis clearly fails to satisfy the Masterson factor regarding dependence on
charitable donations. The evidence shows that it only received $100 in donations each year
in 2012 and 2013. These paltry donations could not have had any meaningful effect on
Davis’s finances. While Davis clearly fails to satisfy this factor, our supreme court has held that
2
In 2011, Davis’s total revenue was $9,389,273, and it forgave $90,000 in bad-debt
expenses. In 2012, its total revenue was $9,648,078 and $555,509 in bad-debt expenses was
forgiven. In 2013, Davis’s total revenue was $8,169,493, and it forgave $179,648 in bad-debt
expenses.
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it would be extremely difficult for a modern hospital to rely wholly or predominantly on
charitable donations for its operation. George, supra. This logic naturally extends to nursing
homes, which are similar entities providing similar services. We recognize that the failure to
satisfy this element does not necessarily negate an overall charitable purpose. However, when
this is considered in the context of Davis’s similarly meager amount of bad debt forgiven,
reasonable minds could conclude that Davis was not truly charitable or that Davis was merely
manipulating the charitable form to avoid purchasing liability insurance and to shield itself
from judgment, and therefore, presents a factual issue.
Whether Davis Has Abused the Charitable Entity Form
A final consideration is whether the evidence could cause reasonable minds to disagree
about whether Davis has abused the charitable-entity form. Watkins, supra. The flow of
money and the relationship between the facility and other service providers can be critical to
determining whether an entity is truly charitable or merely a conduit through which to funnel
money and divert profits. Of particular interest to us is a contract between Davis and
Morrison Management Specialists. Davis had a contract with Morrison Management
Specialists to provide dining, housekeeping, and maintenance services. The agreement
between Davis and Morrison provided these services to Davis, Hazel Street Nursing
Association, Garden Point Living Center, Whispering Knoll Limited Partnership, and The
Gardens Limited Partnership. Davis contends that each of these entities is separately owned.
However, Davis’s contract with Morrison Management Specialists provides that each of these
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entities was collectively doing business as Davis Life Care Services.3 Reasonable minds could
conclude that Davis Life Care Services was operating as a holding company. We know that
at least two of these entities are for-profit ventures. This contract, at the very least, raises
factual questions regarding whether Davis was abusing the charitable-entity form by utilizing
Davis Life Care Services as a means to conceal profits.
After a de novo review wherein we resolved all doubts and inferences against Davis,
we conclude that reasonable persons could reach different conclusions based upon the
undisputed facts presented. Considered together, Davis’s relationship to Davis Life Care
Services, its failure to ever earn a profit, its questionable characterization of free care and lack
of charitable donations, and its intentions as it relates to profitability could reasonably result
in the conclusion that Davis was not truly operating as a charity and, therefore, not entitled
to charitable immunity.
Accordingly, we reverse the order of summary judgment and remand this case for
further proceedings.
Reversed and remanded.
KINARD and HIXSON, JJ., agree.
Reddick Moss, PLLC, by: Brian D. Reddick, Matthew D. Swindle, and Robert W. Francis,
for appellant.
Anderson, Murphy & Hopkins, L.L.P., by: David A. Littleton and Mark D. Wankum, for
appellee.
3
Additionally, Davis shares a board of directors with at least one of the other entities
under the Davis Life Care Services umbrella.
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