Residents claim financial abuse at Vi at Palo Alto

Class action suit alleges Vi's parent company funneled millions of dollars

A class-action lawsuit filed by residents of Vi at Palo Alto, including a Nobel Laureate and a World War II journalist, alleges Vi's parent company, CC-Palo Alto, transferred millions of dollars in refundable entrance fees from the senior retirement community to its corporate parent in Chicago, jeopardizing the financial security of the residents.

The lawsuit, which was filed on Feb. 19 in the U.S. District Court, also claims that CC-Palo Alto overcharged the residents by improperly allocating tax assets, earthquake insurance and marketing costs to Vi at Palo Alto's operating expenses and representing the charges as inflated monthly fees.

The complaint, which was filed on behalf of 500 residents, is believed to be the first of its kind in the Bay Area challenging a continuing-care retirement community's (CCRC) financial practices. It is striking because of the scope of the alleged financial abuse and its prominent residents, said attorneys with Burlingame law firm Cotchett, Pitre and McCarthy, who are representing the plaintiffs.

The complaint alleges that $190 million dollars was "upstreamed" from the Palo Alto facility to the corporate parent in Chicago, leaving the residents financially vulnerable. Those funds were to be returned to the seniors when they moved out, or returned to their families when they died.

The complaint alleges that the Chicago company has refused to return the money to Palo Alto.

"The plaintiffs in this case entrusted hundreds of millions of dollars to the Vi-Palo Alto. As we stated in the complaint, residents only recently learned that the cash reserves were nonexistent," said Anne Marie Murphy, an attorney for the plaintiffs.

Of the seven named plaintiffs, the youngest is 77 years old and the eldest is 93, according to the court filing.

Prior to entering Vi, each resident is required to give CC-Palo Alto an entrance fee of several hundred thousand dollars or more. The plaintiffs claim they were promised that 75 to 90 percent of the fees would be refunded to their heirs or estates after they died, or would be returned if they left Vi.

Since 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.

Nobel Laureate Burton Richter, 82, is one of the plaintiffs. He moved into Vi at Palo Alto in July 2005 and paid a $1.59 million entrance fee for himself and his wife. Under his promissory note, 90 percent of his fee is refundable, meaning he would expect to have $1.43 million returned. But he was never informed that CC-Palo Alto intended to transfer his entrance fees to Chicago, he said. Nor was he informed that CC-Palo Alto did not intend to maintain cash reserves to cover its entrance fee obligations.

Richter said 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. "When we looked and asked, we found the provider (Vi) gave the money to its parent in Chicago. The provider did not have a single note on the books. Their attorney said they had no legal obligation to return the money. This flabbergasted everybody. It looks like (Vi at Palo Alto) just gave it all away. That seems to be unreasonable," Richter said.

The suit also claims that residents continue to pay ever-increasing monthly fees, which have been artificially inflated. CC-Palo Alto has allegedly passed on increased taxes and improperly allocated earthquake-insurance premiums to the residents. In the event of an earthquake, residents would be responsible for the deductibles as well.

But the residency contract only makes residents responsible for insurance premiums and deductibles for furniture, fixtures and equipment, according to the lawsuit. The company has also allegedly charged residents for CC-Chicago's national marketing campaign.

Murphy said that she is not aware of another case like this one.

"It's the sheer scope of the financial abuse and the hundreds and hundred of millions of dollars involved. It's a cutting-edge case. There is not a lot of litigation with CCRCs," she said.

The controversy has been ongoing for a year. About 400 residents and their attorneys have met repeatedly with corporate representatives, and residents demanded mediation. Ultimately, a lawsuit became the only remaining remedy, Murphy said.

"We've met with hundreds of residents, and the discontent is widespread. ... This entrance fee represents a very large proportion of their savings. Residents thought it would make the retirement community sound and vibrant, and ultimately, it was for their heirs. Instead, the money went in the front door and out the back door to Chicago," she said.

The complaint alleges concealment, breach of fiduciary duty, negligent misrepresentation, financial abuse of elders and violation of the Consumer Legal Remedies Act, California Business and Professions Code and breach of contract, among others.

Murphy said the lawsuit stands out because of the plaintiffs, many of whom are highly educated, wealthy and accomplished. She called the actions of CC-Palo Alto "financial elder abuse."

Sam Singer, a spokesman for Vi at Palo Alto, said Thursday the company had not yet been served with the complaint.

"The lawsuit is completely unfounded, misleading and it is wrong. Vi is going to vigorously oppose the allegations, and we believe we will be victorious in court," he said.

"Vi at Palo Alto is extremely successful and has no bank debt, so the very premise of this lawsuit is false. Vi has always met its obligations. Since the inception of Vi, it has made $121 million in entrance fee repayments," he said.

The lawsuit is not the first brought against Vi, which operates 10 communities across the United States. In 2006, residents in La Jolla filed a class-action lawsuit alleging that residents had "deposited a collective $85 million that was supposed to go into a trust fund to provide them with prepaid long-term health care, but the ... operation squirreled the money out in the form of a secret 50-year, zero percent interest loan to themselves," according to the newspaper The San Diego Reader.

The residents and company reached a settlement agreement in that case.

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Like this comment
Posted by jared bernstein
a resident of Professorville
on Feb 20, 2014 at 10:44 am

Have these litigants asked Stanford for help with this?

Like this comment
Posted by Wondering?
a resident of Another Palo Alto neighborhood
on Feb 20, 2014 at 10:45 am

When this venture opened, it seemed like something that might not be on the up-and-up. Take the following two key points in this article—

> But instead of maintaining the reserves, as of December 2012,
> CC-Palo Alto allegedly transferred $190 million upstream
> to its corporate parent, CC-Chicago.

OK .. why did Vi transfer these funds to the parent company CC-Chicago?

> CC-Chicago has taken the position that CC-Palo Alto is solely
> responsible for the repayments of the refundable portion of
> the entrance fees, and CC-Chicago has no responsibility to
> return that money, according to the lawsuit.

And again, why were these funds transferred? And what gives the CC-Chicago the right to refuse to return the funds?

This pattern of a holding company buying up small companies, or creating a smaller company (as in this case) and then gutting them happens far too many time in the US.

Let’s hope that this case gets to court, and that the records are not sealed. Sadly, too many of these cases ending up being settled behind closed doors and the public never learns about how dirty these holding companies can be.

Like this comment
Posted by neighbor
a resident of Adobe-Meadow
on Feb 20, 2014 at 1:10 pm

In the meantime, check out Palo Also Commons new development, The Avant, where 44 beautiful new independent units will be available in April to rent on a monthly basis with no entrance fee!

Like this comment
Posted by musical
a resident of Palo Verde
on Feb 20, 2014 at 3:09 pm

Vi looked like a great investment opportunity, but I learned it's privately held.

Like this comment
Posted by Parent of 3
a resident of Midtown
on Feb 20, 2014 at 4:17 pm

To: Neighbor, a resident of Adobe-Meadows: The monthly fee for the Avant is approx 2 times the monthly for the average retirement community in the area that has an entrance fee model. If you plan on living there 5-10 years, you would end up paying more at the Avant in rent than if you paid a 90% returnable entry fee and a monthly fee at one of the other communities. The Avant's monthly rent is not returnable.

Like this comment
Posted by neighbor
a resident of Adobe-Meadow
on Feb 20, 2014 at 5:15 pm

To: Parent of 3,
Correct that the monthly fee at the Avant is not returnable and is higher than the monthly fee at the Vi. However, it is not double, maybe 125%. More importantly, the earnings given up by handing over $2,000,000 is easily $150,00 per year not to mention eliminating that liquidity. And, if I ever choose to move it's a 30 day notice at the Avant, no fee, as opposed to the $500,000 the CCRC keeps - likely the only ones getting 90% back from the Vi were the early entrants. The Vi is nice but there are significant differences.

Like this comment
Posted by Richard
a resident of Barron Park
on Feb 20, 2014 at 5:38 pm

When did the term embezzlement get replaced with “upstreaming”? The word seems more appropriate for a story about the lack of fish in San Francisquito creek running behind the Vi rather than what is happening here.

Like this comment
Posted by Parent of 3
a resident of Midtown
on Feb 20, 2014 at 6:35 pm

To: neighbor, a resident of Adobe-Meadows
You are correct - compared to the Vi, a place like the Avant would be a better deal. I wasn't thinking of the Vi in my cost comparison since their pricing is so much higher to start with, plus they may be off the table at the moment as a place someone might want to move into until things get straightened out. There are other CCRCs around that cost a lot less than the Vi and those were the ones I was thinking of. And their monthly fees are roughly half of what the Avant is charging. To be fair, the Vi is a lifecare community, and what you are doing there, besides moving into something akin to a 4 or 5 star hotel, is pre-paying for multiple levels of health care, whether you ever need them or not. The Avant, though located next door and associated with Palo Alto Commons (as I understand), does not provide any levels of care beyond independent living for the monthly rent.

Like this comment
Posted by The Fixer
a resident of Downtown North
on Feb 20, 2014 at 8:41 pm

Sam Singer, aka "the Fixer", a spokesman for the Vi!!!

Yikes, they must be scared; expensive dude.

Crisis Communications Consultant; below, from his website:

"Sam Singer has more than 20 years experience working with corporations, government agencies, non-profits, and trade associations in developing their public affairs, public relations, communications strategies. One of the nation’s leading corporate reputation and communications strategists, Mr. Singer is a former journalist and political campaign manager.

In 2008, Sam Singer has been dubbed "The Fixer" by the San Jose Mercury News, a "Top Gun for Hire" by the San Francisco Chronicle, and one of the most powerful people in San Francisco by 7X7 Magazine for his ability to turn the news around when things look dire for his clients.

Mr. Singer is nationally known for handling some of most significant public affairs and crisis communications issues of the day. His clients include Fortune 500 companies and other well-regarded corporations, including Chevron Corporation, the San Francisco 49ers, AIMCO, Lennar Corporation, Stanford University, Levi Strauss & Co., Ford Motor Co., the State of Nevada, Pabst Blue Ribbon Beer, the Anschutz Investment Corp., The San Francisco Examiner, Bay Area Rapid Transit District, Transbay Joint Powers Authority, and other prominent corporations, non-profits, political issues and candidates.

Most recently, his agency helped the San Francisco Zoo tell its story to the world and represented the Bar Pilots Association after the Cosco Busan struck the Bay Bridge."

Like this comment
Posted by Dennis
a resident of Downtown North
on Feb 20, 2014 at 9:10 pm

Upstreaming is often simple asset stripping as was the case with PG&E's bankruptcy where $10 Billion was upstreamed to the parent (aka holding company) company making it untouchable by creditors.

Like this comment
Posted by Nora Charles
a resident of Stanford
on Feb 21, 2014 at 12:05 am

Nora Charles is a registered user.

Yes, "upstreaming" seems a curious choice of words.

Best of luck to the residents.

Like this comment
Posted by Good Luck to the residents
a resident of Adobe-Meadow
on Feb 21, 2014 at 1:07 am

I recall reading about Vi back when we considered it for my mother-in-law (it had a different name at the time) that it was a brain child of Penny Pritzker Web Link, and she is worth billions, not a penny. It is her family multi-billion dollar Chicago based company that is in charge of these parent and subsidiary companies that manage Vi. I recall feeling comfortable about the scenario specifically because this company was involved and not a flight by night operation --- I was very wrong as it appears now. I thought that as a Castilleja alum and a Stanford graduate and someone working for the Obama administration, Pritzker would care about the honor of this project and that this would be a safe funds holding place for my mother-in-law. My m-i-l chose to stay in LA. If my memory does not serve me right about Pritzker's involvement, then please remove my post.

Like this comment
Posted by businessdecision
a resident of Menlo Park
on Feb 21, 2014 at 7:04 am

Correct me if I'm wrong. Stanford had a committee charged with recommending a place. Vi wasn't at all what they went for.

Like this comment
Posted by anonymous
a resident of Duveneck/St. Francis
on Feb 21, 2014 at 9:05 am

Weekly, pls keep us posted on the developments in this case. I assume it will be stretched out as long as possible by lawyers and "fixers" (from above post).
All I know is this is a pretty costly, significant senior living establishment, apparently on Stanford land, and it will be informative for us all to understand their financial dealings. This seems like a confusing case and quite high stakes in terms of the $$$ involved!
Can any of the Vi residents comment?

Like this comment
Posted by Lauren
a resident of Crescent Park
on Feb 21, 2014 at 12:33 pm

Wow! This thing is designed like a pyramid scheme. Total Bullshit!

Like this comment
Posted by neighbor
a resident of another community
on Feb 21, 2014 at 12:44 pm

Very strange phrases used --- "Upstreaming" Sounds like a euphemism. "Financial Abuse" Really....Abuse? What's next -- "Financial Rape?"

How about just plain old "Fraud?" "Theft" is good too. These charges are pretty darn clear and are incendiary enough.
And, this case seems to show that victims of fraud can be smart and still be swindled.

(p.s. Note to "Business decision" -- VI, and its predecessor Hyatt Classic Retirement Communites, have had no affiliation whatsoever with Stanford

Like this comment
Posted by businessdecision
a resident of Menlo Park
on Feb 21, 2014 at 2:54 pm

neighbor, are you sure? I think the person I know who claimed to be on a committee making suggestions to Stanford [that Stanford set aside] is a completely honest person.

Like this comment
Posted by neighbor
a resident of another community
on Feb 21, 2014 at 4:12 pm

business decision: Vi's website says it is not affiliated with Stanford....
Web Link

Like this comment
Posted by old guy
a resident of Charleston Gardens
on Feb 21, 2014 at 10:35 pm

VI did the same thing in La Jolla a few years ago Web Link A quote from the article allegedly from VI Living "Vi said that under California law, it couldn't return the entrance fee for 10 years or until the unit was reoccupied. The company said that because of California's economic woes it was having a difficult time refilling units. "

I feel for the residents of Vi Palo Alto. Any new resident who does their due diligence will find this abuse on the part of Vi and live somewhere else.

Like this comment
Posted by Kate
a resident of Duveneck/St. Francis
on Feb 22, 2014 at 2:08 pm

Penny Pritzger lived here once, Atherton I think, and big in civic, social, business, and $$$$$ circles then moved to Chicago. The following is from Wikpedia and there is more there.
From Wikipedia, the free encyclopedia Penny Pritzker

38th United States Secretary of Commerce
Assumed office June 26, 2013
President Barack Obama
Preceded by Cameron Kerry (Acting)
Personal details
Born May 2, 1959 (age 54)
Chicago, Illinois, U.S.
Political party Democratic
Spouse(s) Bryan Traubert
Children 2 Alma mater Harvard University Stanford University
Penny Sue Pritzker (born May 2, 1959) is an American business executive, entrepreneur, civic leader, and philanthropist who is currently serving as the 38th United States Secretary of Commerce. She is the founder of PSP Capital Partners and Pritzker Realty Group.[1] She is also co-founder of Artemis Real Estate Partners.[2] She is a member of the Pritzker family.
In 2012, Chicago magazine named her one of the 100 most powerful Chicagoans.[3] In 2011 the Forbes 400 list of America's wealthiest showed her as the 263rd richest person in the U.S., estimated net worth of US $1.8511 billion,[4] and the world's 651st richest person. In 2009 Forbes named Pritzker as one of the 100 most powerful women in the world.

Like this comment
Posted by lindaloo
a resident of Mountain View
on Feb 23, 2014 at 12:19 pm

My parents moved into Classic Residence by Hyatt (now Vi)in 2005 with the full understanding that 90% of their entrance fee -- as I recall ca. $1M, would be returned to their heirs upon their deaths, i.e., when their apartment was vacated and resold. My parents are no fools; father is Stanford Professor Emeritus, mother holds advanced degrees from Columbia U., etc. Their attorney, I am sure, reviewed the Hyatt contract.

A couple of years ago I recall seeing the letter sent to all the Vi residents from a man in La Jolla whose aunt was a resident of Vi there. When she passed, as his sole heir, he tried to recover the 90% entry fee to which he knew he was entitled. When he got the run around and was told there were no funds available, he put all residents on alert. Good for him!

I dearly hope this class action suit is successful. The sad thing is, even if we win (residents/heirs) it will be the attorneys who will really be the winners. Yes, on behalf of my parents and myself, I certainly feel violated.

Like this comment
Posted by businessdecision
a resident of Menlo Park
on Feb 24, 2014 at 6:56 am

neighbor, Vi may say it's not affiliated with Stanford, but anything on Stanford's land...

Like this comment
Posted by neighbor
a resident of another community
on Feb 24, 2014 at 8:22 am

Anything on Stanford's Land? Like the Sheraton, Max's or Crate and Barrel, the Apple Store, or Hewlett-Packard, Varian.....or the City of Palo Alto? They are also tenants on Stanford land.

Is the University liable for their business practices? e.g., if one of Macy's policies turns out to be questionable, does Stanford get sued?

VI doesn't "just say" it is not affiliated with Stanford, it isn't. Not organizationally, and not through it's lease on the land. Their legal problems are their own mess.

Like this comment
Posted by businessdecision
a resident of Menlo Park
on Feb 24, 2014 at 8:58 am

wow, neighbor, wow

Like this comment
Posted by musical
a resident of Palo Verde
on Feb 24, 2014 at 1:24 pm

On that note, where is the divide between campus and just Stanford land? Curious how far they will go in banning the sale of tobacco products. Can Palo Alto be far behind?

Like this comment
Posted by Go Stanford
a resident of Downtown North
on Feb 24, 2014 at 11:57 pm

Fyi, Paly and Gunn are on Stanford land; why do you think they closed Cubberly? Not on Stanford land; if I remember right, $1 a year to lease the land for 99 years; don't quote me on it, somebody must know. So much of Pa and MP is Stanford land (leased); you just don't realize it.

Sorry, but further commenting on this topic has been closed.

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