Federal Court in California Dismisses CCRC Residents’ Complaint re Upstreaming of Revenues

On November 25, 2014, a federal district court in California granted dimissial of a lawsuit filed by residents of a Continuing Care Retirement Community ( CCRC). The court concluded that residents failed to establish “standing” to bring a suit against the local and parent corporations operating their CCRC, known as Vi of Palo Alto.

Back in February 2014, we wrote here about the suit by residents, who initiated a federal class action against their CCRC to challenge the for-profit corporation’s alleged practices for accounting and allocation of entrance and maintenance fees paid by the residents. Vi of Palo Alto formerly operated as “Classic Residences by Hyatt,” and the lawsuit was styled as Burton Richter et al v. CC-Palo Alto, Inc., Case No. 5:14-CV-00750-EJD.

In its ruling, the court focused on a narrow question, whether the residents had a “secured interest”and if so, whether such interests could be shown to be harmed by the alleged financial practices of the corporation.  At issue was the alleged “upstreaming” of certain revenues paid by the residents.  The plaintiffs allege that shifting of large sums of money from the books of the local corporation to the parent corporation impaired the current and future operation of their facility.  In support of their argument, they alleged

Residents at Vi of Palo Alto pay entrance fees “ranging from $745,000 to $4.620,300.” A portion of these fees ……………… The court observed that there was no allegation that current or past residents of Vi at Palo Alto had been denied any promised payments on these entrance fees, which the court treated as  “loans” to be partially paid when the resident’s unit was resold.  The mere potential for failure of the loans to be repaid was not deemed by the court to be enough to show an “injury” necessary for the plainttiffs to have standing.