The Vi at Palo Alto has filed a motion to dismiss a class-action lawsuit filed by residents of the retirement community, who are alleging that the Vi's parent company, CC-Palo Alto, transferred millions of dollars in refundable entrance fees from the community to its corporate parent in Chicago.
"We believe that the misleading and false accusations made by the plaintiffs have no merit, and we are confident that our motion will be successful and that this baseless lawsuit will be dismissed," Vi attorney James McManis stated in the release.
The Vi attorneys believe that "the complaint that was orchestrated by a small group of vocal and influential residents within the community may be an attempt by these residents to change the terms of their residency agreements," the news release stated.
The complaint was filed in U.S. District Court on Feb. 19 on behalf of a group of 500 residents, including Nobel Laureate Burton Richter and a World War II journalist.
The complaint alleges that that $190 million dollars was "upstreamed" from the Palo Alto facility to its corporate parent in Chicago, leaving the residents financially vulnerable, and that the money has not been returned to Palo Alto.
"We have every expectation that our case is going to proceed," said Anne Marie Murphy, the attorney representing the residents. "This is a group of residents that has been harmed by the corporate practices of the Vi Palo Alto and the Vi Chicago parent company. What the soup boils down to is there's been hundreds of millions of dollars upstreamed those hundreds of millions of dollars paid by residents when they came to the facility and they had no idea that it was going to go out the back door to the parent (company)."
Murphy added that the Chicago parent company told the residents in writing that "the entity has no responsibility to repay the money."
Prior to becoming a Vi resident, each person is required to pay CC-Palo Alto an entrance fee of several hundred thousand dollars or more. The 500 plaintiffs claim they were promised that 75 to 90 percent of this fee would be refunded to their heirs or estates after they died, or would be returned if they left Vi.
Richter told the Weekly in February that the channeling of money was discovered in 2012 after the Residents Advisory Council noticed an ambiguity in the contract. When a resident is moved from independent living to a care center, his or her apartment is resold, but the money is not put into escrow. Company representatives in Chicago told the residents that it is not obligated to pay the channeled money back to Vi at Palo Alto, but it has always done so.
"That's when my jaw dropped, and so did everybody else's," Richter said.
Since the Vi's opening in 2005, the plaintiffs claim they collectively paid $450 million in entrance fees. California law requires continuing-care retirement communities such as Vi to maintain reserves to act as security for the entrance fees they collect. But instead of maintaining the reserves, as of December 2012, CC-Palo Alto allegedly transferred $190 million to its corporate parent, CC-Chicago. As a result, CC-Palo Alto is financially incapable of honoring its debts to the residents when the loans become due, the lawsuit claims.
Vi's attorneys dispute that claim.
"The original complaint is based on the unfounded belief that the company may not have sufficient financial assets to repay entrance fees in accordance with the resident contracts, which provide that the repayable portion of entrance fees will be repaid after contract termination and the earlier of resale of the unit or 10 years," Wednesday's press release states. "The complaint seeks the imposition of an entrance-fee repayment reserve, which is not required by the terms of the residency contracts or existing law."
The motion states that the "plaintiffs' allegations utterly ignore applicable law and the plain wording of the residency contracts. Despite their attempt to manufacture a dispute, plaintiffs' complaint falls hopelessly short of adequately pleading any acts on which a valid claim could rest."
Murphy said that she plans to file an opposition brief this Friday, March 28. She also said motions to dismiss are not unusual, especially in complex business disputes.
A hearing on the motion is scheduled for Aug. 8 in U.S. District Court in San Jose.
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