Vi at Palo Alto files motion to dismiss lawsuit

Retirement community attorneys call residents' claims "misleading and inflammatory"

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.

According to a March 25 press release, the Vi is claiming the lawsuit is without merit and that the company has made every repayment when due since its opening in 2005, more than $121 million.

"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.

Elena Kadvany

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Like this comment
Posted by resident
a resident of Crescent Park
on Mar 26, 2014 at 10:39 am

Does anyone know if it's true that the new Avant at Palo Alto Commons is purely a rental with no entrance fee? I think it is opening next month.

Like this comment
Posted by blatt
a resident of Menlo Park
on Mar 26, 2014 at 11:00 am

The entire lawsuit seems like a waste of time and money. My mother was a Vi resident and after she passed away, the proper deposit money was refunded to her estate in a very timely manner with no complications or delay.

Like this comment
Posted by neighbor
a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 11:07 am

I do not know much about The Vi but I have learned that The Avant will rent their apartments on a month to month basis.

Like this comment
Posted by canela62
a resident of College Terrace
on Mar 26, 2014 at 11:47 am

Am glad to hear that at least one local resident (blatt) received the return of his/her mother's deposit money from Vi. My parents currently reside at Vi and I have been very concerned ever since learning about this issue. Time will tell how it will work out for them or me.

Like this comment
Posted by Steve
a resident of Portola Valley
on Mar 26, 2014 at 12:20 pm

When entire cities renege on promised pension benefits, and companies go bankrupt to avoid various financial obligations, it is not unreasonable for people to want more than a company assurance that it will be financially healthy enough in the future to honor these obligations. If the money is not sitting in a reserve or escrow fund, then the residents must depend on others to monitor the fiscal responsibility of Vi. Who is doing that? How is it being done? Having the company claim that they have no legal responsibility to maintain a reserve fund is not the same as providing concrete evidence that they will be able to honor these promises over the long term.

Like this comment
Posted by Gunn grad
a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 1:47 pm

[Post removed.]

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Posted by Father of 3
a resident of Midtown
on Mar 26, 2014 at 3:41 pm

The Avant is a rental only community. Rent, depending on apt size and whether single or married goes up to about 7K per month.

CCRC's, a type of retirement community of which the Vi is an example, basically repay the entry fee due to the person moving out from the entry fee the new resident has just paid to move in. The best assurance that this will happen in a timely manner is how long the waiting list is for apts. The Vi's waiting list I've heard is 3 years long. On the other hand the Vi, as opposed to non-profit communities, exists to make a profit, so it would be prudent to keep an eye on their and their parent company's financial stability and future plans. It seems reasonable to require all communities to have a cash reserve, maybe 15 or 20% earmarked for repaying entry fees in case there is a rash of moveouts or people's tastes for these kinds of communities sours and the waiting list vanishes. I would say that if you are living at the Vi now and you are in your 80's or older you should be fine.

Like this comment
Posted by Phil
a resident of Barron Park
on Mar 26, 2014 at 4:34 pm

Whether the money's in PA or Chicago -- doesn't seem to make much difference in my eyes. Either way, the money could be mishandled, lost, stolen, imprudently invested, or whatever. Just gotta hope the company is reliable and fulfills its promises ....

Like this comment
Posted by resident3
a resident of Crescent Park
on Mar 26, 2014 at 5:09 pm

Phil says Just gotta hope the company is reliable and fulfills its promises ....
Gee, not a day goes by that a major corporation isn't brought up on charges. And banks. That's why god invented escrow.
Lots of luck Phil. I have a bridge you may be interested in buying.

Like this comment
Posted by Anonymous
a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 5:36 pm

Bait and switch but the Vi resident took the bait.

Like this comment
Posted by To blatt
a resident of Another Palo Alto neighborhood
on Mar 26, 2014 at 6:52 pm

In Ponzi schemes, the early investors are paid back early and in full; it's the later investors who are not compensated.

1 person likes this
Posted by Anna
a resident of Midtown
on Mar 27, 2014 at 11:43 am

I'm pretty sure that California law requires the continuing care communities to have enough funds in reserves or escrows or whatever. It seems as if Vi and its parent are violating this law, which was set up for obvious reasons.

Like this comment
Posted by Sparty
a resident of another community
on Mar 28, 2014 at 1:12 pm

The litigants must be emboldened by their recent lawsuit against the banking industry for not having 100% of deposited assets on hand at all times.

1 person likes this
Posted by anonymous
a resident of another community
on Apr 23, 2014 at 9:08 pm

During my first week as an employee at a different Vi location, I raised my hand and asked what would happen if Vi went bankrupt. Would the residents still get the 50 - 90% back? Everyone shuffled in their seat uncomfortably. The answer that I got focused on the company's financial security and its record of following through with promised returns. I asked how Vi invested the residents' entrance fees but never received a solid answer.

I don't think the sales pitch explains that moving into Vi requires a huge leap of faith into the Vi brand. The company has no guarantee that it will continue to be profitable yet tells senior citizens that the entrance fee is refundable.

1 person likes this
Posted by Sparty
a resident of another community
on Sep 6, 2014 at 3:23 am

Sparty is a registered user.

motion to dismiss hearing on Tuesday

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