A shareholder lawsuit against Brookdale Senior Living alleging misconduct by company officials in trying to meet financial targets can move forward — in part, according to a district court ruling.
The suit, originally filed in 2020 by shareholder Brian Davis, claims that top executives and board members of the Brentwood, TN-based senior living provider allowed multiple violations of the company’s corporate governance policies to go unchecked, causing the company to intentionally underestimate data used for staffing algorithms.
The lawsuit sought six counts on behalf of the company, including a violation of the Securities Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets.
Brookdale and its officers and directors sought to have the case dismissed due to shareholders not following law in Delaware — where Brookdale is incorporated — in bringing the claims.
“We will not comment on pending litigation other than to state we appreciate the court dismissing the majority of the claims and will continue to respond to the lawsuit in court as appropriate,” counsel for Brookdale’s board of directors told McKnight’s Senior Living.
US District Court Judge Aleta Trauger ruled Jan. 27 that any claims based on a 2019 proxy statement can go forward. But all other claims were dismissed because investors did not ask the Brookdale board for permission to sue and did not prove that such a request would have been denied, the judge said.
The shareholders argued that eight of the nine directors who considered the litigation demand received material personal benefits in connection with the 2019 proxy statement. They alleged that that proxy statement was misleading by failing to disclose Brookdale’s misconduct, failing to disclose that Brookdale did not maintain adequate internal controls related to the company’s advertising and marketing, and failing to disclose that internal controls for protecting residents and shareholders from misconduct were inadequate.
Under Delaware law, the shareholders were permitted to assume that it would have been futile to ask the board to consider litigation that would directly challenge the process by which at least half of those directors receive material payments in excess of their ordinary director compensation.
According to the lawsuit, Brookdale officials made false or misleading statements that did not disclose that the organization’s financial performance was sustained by “the company’s purposeful understaffing of its senior living communities.” The legal action alleged that the conduct subjected Brookdale to an increased risk of litigation, as well as a material negative effect on the company’s financial results and reputation. As a result, the lawsuit alleged, the company’s public statements were “materially false and misleading at all relevant times.”
Brookdale has faced several lawsuits in recent years based on allegations related to the quality of its services and company representations of those services to the public.
The list includes a class action lawsuit filed in 2020 accusing the company of “chronically insufficient staffing” at its communities to meet financial benchmarks. The lawsuit accused Brookdale of misleading residents and families and failing to provide care and services.
Another lawsuit filed in 2017 in California claimed understaffing and violations of the Americans with Disabilities Act at former Emeritus Senior Living properties, which were rebranded under Brookdale after the companies merged in 2014.