When an elder is admitted into a nursing home, it’s not uncommon that a trusted loved one will sign the admission contract on the elder’s behalf. By signing the contract, the trusted loved one is exposed to some personal liability – but the extent of that exposure may not be entirely clear by only looking at the contract.
As a NAELA attorney, you should know how Minn. Stat. § 144.6501 (the “Statute”) offers some protections for people who sign nursing home admission contracts on someone else’s behalf. This article discusses how these protections lead to a complete defense verdict for a woman who had signed a nursing home contract on her father’s behalf, despite her own negligence and breach of that admission contract.
The Statute’s protection
First and most importantly, the Statute prohibits a nursing home from requiring a person, except a “financially responsible spouse,” to personally guarantee a resident’s debt. Minn. Stat. § 144.6501, subd. 4(d). It’s an either/or situation: either a person is personally responsible on the admission contract (either voluntarily as a guarantor or as a financially responsible spouse), or the person is a “responsible party.” Id.
To be a “responsible party,” a person must either 1) have access to the resident’s income and agree to apply the Resident’s income and assets to pay for the resident’s care, or 2) agree to complete an application for Medical Assistance (“MA”) on behalf of the Resident. Minn. Stat. § 144.6501, subd. 1(e). Based on these agreements, the responsible party is liable to the nursing home when the responsible party “fails to make timely payment of the facility obligation, or knowingly fails to spend down the resident’s assets appropriately for the purpose of obtaining medical assistance ….” Minn. Stat. § 144.6501, subd. 4(d). But, the Statute limits this potential liability:
A responsible party shall be personally liable only to the extent the resident’s income or assets were misapplied.
Id. (emphasis added). This provision was key to a recent decision from the Ramsey District Court, discussed below.
The Statute’s protection applied in Sholom Community Alliance v. Chadwell
Patricia Chadwell signed a nursing home admission contract with Sholom Community Alliance on behalf of her father. Sholom Community Alliance v. Chadwell, Court File No. 62-cv-20-2146 (Ramsey County Dist. Ct. July 16, 2021). She signed as a responsible party. The nursing home admission contract purported to obligate Chadwell to the same responsibilities that her father would have had if he had signed the contract, including responsibility to pay all outstanding debt and to pay for any collection fees. The contract also obligated Chadwell to apply for and “maintain[] eligibility” for MA. (Findings of Fact, ¶ 8(b).) Chadwell did not do so – she was confused by the MA requirements and assumed, incorrectly, that Sholom would handle the MA paperwork. Significantly, Chadwell failed to spenddown her father’s assets in a way that would have kept him eligible to receive MA. Ultimately, her father had unpaid debt to Sholom of $14,443.79.
The Court found that Chadwell was negligent “with regard to her financial obligations as a Responsible Party” and for failing to “take timely steps necessary to qualify Resident for and/or maintain Resident’s eligibility for MA.” (Id., ¶ 26.) The Court also found that Chadwell breached the contract as it was written. (Id.) However, this was not enough to trigger personal liability.
The Court explained,
Without question, absent the statute, [Chadwell] would have personal liability for Sholom’s claim pursuant to the Agreement. However, section 144.6501, subd. 4 limits Sholom’s ability to use the Agreement as a vehicle for the Responsible Party’s personal liability. It is telling that even if the responsible party “knowingly” fails to spend down assets to trigger medical assistance eligibility, there is nevertheless no personal liability unless the responsible party “misapplied” income or assets.
…
Thus, regardless of any language in the Agreement to the contrary, Chadwell has no personal liability to Sholom unless the court rules as a matter of fact and law that Chadwell “misapplied” [her father’s] “income or assets.”
(Conclusion of Law, ¶¶ 5, 7.) In other words, Chadwell’s breach of contract and negligence were beside the point. Sholom had to show that Chadwell misapplied her father’s funds.
The Court concluded that (beyond mere negligence) Chadwell did nothing “wrong with her father’s money,” and “her failure to take the necessary steps to qualify [her father for MA] was not even done ‘knowingly.’” (Id. ¶ 13.) The Court rejected Sholom’s argument that “funds are ‘misapplied’ if they are not spent to pay nursing home bills because the contract says so.” (Id. ¶ 15.) The Court concluded that this argument is “wholly at odds with the legislature’s decision to limit personal liability to scenarios in which funds are misapplied regardless of what the contract says.” (Id. (emphasis added).)
So with no evidence that she had misapplied her father’s income or assets, the Court dismissed with prejudice any and all of Sholom’s claims against Chadwell, and went on to award Chadwell her costs. (Id. ¶¶ 24-25.)
Conclusion
You may have clients who find themselves purportedly on the hook for someone else’s nursing home debt. As the Chadwell case shows, you would do well to take a close look at not only the nursing home admission contract but also Minn. Stat. § 144.6501.
Evan A. Nelson is an associate at Maslon LLP and a member of the firm’s Trust and Estate Litigation Group. In addition to trust and estate litigation, he represents clients in real estate litigation and complex commercial disputes. He has been named a 2021 Up & Coming Attorney by Minnesota Lawyer, and was selected for inclusion on the 2021 Minnesota Rising Stars list, a designation given to only 2.5 percent of Minnesota attorneys