Residents File Class Action Against For-Profit CCRC in California

Last week I blogged about tax questions facing some nonprofit senior living operations, especially nonprofit Continuing Care Retirement Communities (CCRCs).  This week, we pass on news of a federal court suit filed by residents of a for-profit CCRC, challenging the company’s accounting and allocation of fees, especially entrance fees, paid by the residents.

Residents of Vi of Palo Alto (formerly operating in Palo Alto as “Classic Residences by Hyatt”) in California are challenging what could be described as “upstream” diversion of corporate assets to the parent company, CC-Palo Alto Inc.  They contend the diversion includes money which should have been protected to fund local operations or to secure promised “refunds” of entrance fees.  Further, the residents allege the diversion of money has triggered a higher tax burden on the local operation, a burden they allege has improperly increased the monthly maintenance fees also charged to residents.  According to the February 10, 2014 complaint, Vi of Palo Alto is running a multi-million dollar deficit and the residents point to the existence of actuarial opinions that support their allegations. The complaint alleges breach of contract, common law theories of concealment, misrepresentation and breach of fiduciary duty, and statutory theories of misconduct, including alleged violation of California’s Elder Abuse laws.   

Representatives of the company deny the allegations, as reported in detail in Senior Housing News on February 23.  A previous resident class action filed in state court against a Classic Residence of Hyatt CCRC, now called Vi of La Jolla, also in California, settled in 2008.