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CHICAGO-A nursing home owned and operated by an Orthodox Jew has accepted a $250,000 offer of judgment from the state of Illinois and six public health employees who seriously criticized the facility in a report that the facility charged was motivated by anti-Semitic sentiment.

But, while the facility's owner obtained the victory-in-principle he sought, his attorney complained that the Department of Public Health employees got off too lightly, because the state will pay the full judgment.

About $150,000 of the judgment will be paid from a special pool the state funds to indemnify employees. The Department of Public Health will pay the remainder out of its operating budget, said the facility's attorney, Howard M. Hoffmann, a partner with Holleb & Coff in Chicago.

The state said it will pay the damages, approved by U.S. District Judge Ann C. Williams on Sept. 17, only because going to trial would be more costly.

Although Illinois is not insured for the judgment, other public entities might be protected against such damages under the personal injury provisions of their general liability insurance, said Joel Cavaness, president, and Dietmar Faust, product development manager, of International Special Risk Services Inc., a division of broker Arthur J. Gallagher & Co. of Itasca, Ill.

Sherwin Manor Nursing Center Inc. of Chicago said the defendants in the case trumped up numerous violations against it during a December 1991 licensing and certification survey at the facility. The cited violations seriously threatened the facility's ability to continue operating, according to court papers.

The facility bypassed the usual appeal process and, in a more costly procedure, appealed directly to Illinois Department of Public Health supervisors.

In March 1992, the supervisors rescinded all of the allegations of serious violations against the facility.

Despite the department's reversal, the facility still sued in October 1992. In its two-count complaint, it charged the defendants violated a federal law that prohibits discrimination by government employees during the course of their official duties. The facility sought $150,000 of compensatory damages and unspecified punitive damages under each count.

Sherwin Manor claimed that the public health employees made numerous derogatory remarks about Jews during their survey. The employees then fabricated many serious violations against the facility and would not consider rebuttal evidence the facility attempted to provide, the suit charged.

In March 1993, Judge Williams ruled for the defendants. She said the facility failed to state a claim, because its only tangible injury was the cost of defending itself. That cost was not a compensable injury, she ruled.

Overturning that decision, the 7th U.S. Circuit Court of Appeals in October 1994 ruled that if Sherwin Manor's claims are true, the facility's equal protection rights were violated. The 7th Circuit remanded the case to Judge Williams.

Mr. Hoffmann said the state "saw the handwriting on the wall."

A state public health department spokesman and the department's attorney disagreed.

Taking the case to trial would have cost the state $500,000, the spokesman said. The state also did not accede to other demands by the facility, including that the state implement a special sensitivity training program for its employees, the spokesman said. He pointed out, though, that employees receive cultural sensitivity training as part of their overall training.

Regardless of the judgment, the facility's case was weak, said defense attorney Brian Scher, a partner with Ross & Hardies in Chicago. Mr. Scher noted the facility accepted the offer before its major witnesses were deposed.

Mr. Hoffmann said the facility's owner, who was trained as a rabbi, pressed the case on principle and not for the money. The offer of judgment satisfied the owner, Mr. Hoffmann said.

In addition, an offer of judgment differs from a settlement offer in an important respect for plaintiffs. A plaintiff who rejects an offer of judgment risks bearing some court costs and attorney fees it would not otherwise face if it wins an award that is less than the offer.

Mr. Scher and the public health department's spokesman maintain the employees did not engage in any anti-Semitic behavior.

Mr. Scher acknowledged that the state withdrew the most serious findings against the facility because evidence did not sufficiently support them and because of pressure from the nursing home. The department spokesman said violations are added and dropped routinely during the department's review process.

Mr. Hoffmann said the lack of evidence shows that the cited violations were motivated by anti-Semitic sentiment. For example, because the facility does not serve pork, it was cited for not providing a varied diet. The facility runs a kosher kitchen for its residents, 80% of whom are Jewish and do not eat pork, he said.

Mr. Hoffmann said other public entities should take a cue from this case and implement cultural sensitivity training programs to help biased employees "leave that bias at their door" before coming to work.

Sherwin Manor Nursing Center Inc. and Abe Osina vs. Judith McAuliffe et al., U.S. District Court for the Northern District of Illinois-Eastern Division; No. 92 C 6659.