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Richter v. CC-Palo Alto, Inc.

United States District Court, N.D. California, San Jose Division

November 25, 2014

BURTON RICHTER, an individual; LINDA COLLINS CORK, an individual; GEORGIA L. MAY, an individual; THOMAS MERIGAN, an individual; ALFRED SPIVACK, an individual; and JANICE R. ANDERSON, an individual; on behalf of themselves and all others similarly situated, Plaintiffs,
CC-PALO ALTO, INC., a Delaware corporation; CLASSIC RESIDENCE MANAGEMENT LIMITED PARTNERSHIP, an Illinois limited partnership; and CC-DEVELOPMENT GROUP, INC., a Delaware corporation, Defendants

For Burton Richter, Linda C Cork, Georgia L May, Thomas Merigan, Alfred Spivack, Janice R Anderson, Plaintiffs: Anne Marie Murphy, Demetrius Xavier Lambrinos, Niall Padraic McCarthy, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA.

For CC-Palo Alto, Inc., Classic Residence Management Limited Partnership, CC-Development Group, Inc., Defendants: James McManis, McManis Faulkner, LEAD ATTORNEY, A Prodfessional Corporation, San Jose, CA; Hilary Lauren Weddell, McManis Faulkner, San Jose, CA.


EDWARD J. DAVILA, United States District Judge.

Plaintiffs Burton Richter, Linda Collins Cork, Georgia L. May, Thomas Merigan, Alfred Spivack, and Janice R. Anderson (collectively, " Plaintiffs") bring this putative class action suit against Defendants CC-Palo Alto, Inc. (" CC-PA"), Classic Residence Management Limited Partnership (" CRMLP"), and CC-Development Group, Inc. (" CC-DG") (collectively, " Defendants"). Presently before the court is Defendants' Motions to Dismiss Plaintiffs' Class Action Complaint (" Complaint"). Having reviewed the parties' papers and heard oral argument, Defendants' motions are GRANTED for the reasons stated below.


Plaintiffs are senior citizens who live at the Vi at Palo Alto (" the Vi")--a retirement community in Palo Alto, California. Compl. at ¶ ¶ 1, 43. The proposed class consists of all individuals who resided at the Vi between January 1, 2005 and the present. Id. at ¶ 2. Defendant CC-PA is the entity that owns and operates the Vi, and Defendant CC-DG (or CC-Chicago) is CC-PA's corporate parent. Id. at ¶ 3. To live at the Vi, Plaintiffs enter into a Continuing Care Residency Contract (" Residency Contract") with CC-PA. Id. at ¶ ¶ 4, 45. Plaintiffs must also pay an entrance fee, ranging from $745, 500 to $4, 620, 800, and monthly fees, ranging from $4, 320 to $9, 320, depending on the type of apartment occupied. Id. at ¶ 50.

The entrance fees are loans to CC-PA, a repayable portion of which is to be repaid to Plaintiffs' heirs or estate after they pass away, or directly to Plaintiffs after the sale of their apartments at the Vi. Id. at ¶ ¶ 47-50. Since the Vi's opening in 2005, Plaintiffs have collectively loaned Defendants over $450 million in entrance fees. Id. at ¶ 5. Plaintiffs allege that, without their knowledge, CC-PA collected entrance fees and transferred over $190 million of that money to CC-DG without obtaining security or any repayment promise. Id. at ¶ 7. Consequently, CC-PA allegedly does not have enough money to refund the loans when they become due, and CC-DG disavows any obligation to do so. Id. at ¶ ¶ 7-8. Plaintiffs contend that continuing care retirement communities, such as the Vi, are required by California law to maintain reserves acting as security for the entrance fees. Id. at ¶ ¶ 6, 51. CC-PA allegedly now has a deficit of over $300 million and owes Plaintiffs over $450 million. Id. at ¶ ¶ 9, 58.

Plaintiffs also allege that the monthly fees they pay have been artificially inflated due to three improper charges levied by Defendants. Id. at ¶ 10. First, CC-PA has been assessed an increased property tax by the Santa Clara County Tax Assessor based on its " entrepreneurial profit" from the transfer of over $174 million to CC-DG, and CC-PA has stated that it will pass these taxes to Plaintiffs in the form of higher monthly fees. Id. at ¶ ¶ 11, 63-68. Prior to the assessment, CC-PA returned operating surplus to residents, but since then, no surplus has been returned. Id. at ¶ 66 n.5. Second, Defendants have allegedly improperly allocated earthquake insurance premiums to Plaintiffs, even though under the terms of the Residency Contract, Plaintiffs should not incur insurance charges attributable to anything other than furniture, fixtures, and equipment. Id. at ¶ ¶ 12, 69-73. Third, Defendants have allegedly improperly charged Plaintiffs for " marketing costs, " which were ostensibly incurred for promoting the Vi, but instead funded CC-DG's national marketing program. Id. at ¶ ¶ 13, 74-75.

Plaintiffs commenced the instant action on February 19, 2014, and allege the following claims: (1) concealment; (2) negligent misrepresentation; (3) breach of fiduciary duty and constructive trust; (4) financial abuse of elders in violation of California Welfare and Institutions Code § § 15600, et seq.; (5) violation of the California Consumer Legal Remedies Act, California Civil Code § § 1750, et seq.; (6) violation of California Business and Professions Code § § 17200, et seq.; and (7) breach of contract. See Dkt. No. 1. In March 2014, Defendants filed their Motions to Dismiss. See Dkt. Nos. 13, 20, 21. Plaintiffs filed an opposition brief, and Defendants filed a reply brief. See Dkt. Nos. 29, 31. Oral argument was held on September 9, 2014.


A. Motion to Dismiss for Failure to State a Claim

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient specificity to " give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). " Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). Moreover, the factual allegations " must be enough to raise a right to relief above the speculative level" such that the claim " is plausible on its face." Twombly, 550 U.S. at 556-57.

When deciding whether to grant a motion to dismiss, the court generally " may not consider any material beyond the pleadings." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). The court must generally accept as true all " well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 664, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1988). However, the court may consider material submitted as part of the complaint or relied upon in the complaint, and may also consider material subject to judicial notice. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). But " courts are not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555.

B. Motion to Dismiss for Lack of Subject Matter Jurisdiction

A party may file a motion to dismiss with the Court for lack of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). Federal courts are courts of limited jurisdiction, adjudicating only cases which the Constitution and Congress authorize. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). An Article III federal court must ask whether a plaintiff has suffered sufficient injury to satisfy the " case or controversy" requirement of Article III of the U.S. Constitution. To satisfy Article III standing, a plaintiff must allege: (1) an injury in fact that is concrete and particularized, as well as actual and imminent; (2) that the injury is fairly traceable to the challenged action of the defendant; and (3) that it is likely (not merely speculative) that the injury will be redressed by a favorable decision. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000); Lujan v. Defenders of Wildlife, 504 U.S. 555, 561-62, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).

At least one named plaintiff must have suffered an injury in fact. See Lierboe v. State Farm Mut. Auto. Ins. Co., 350 F.3d 1018, 1022 (9th Cir. 2003) (" if none of the named plaintiffs purporting to represent a class establishes the requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other member of the class"). The Supreme Court recently reiterated that " the threatened injury must be certainly impending to constitute injury in fact, and that allegations of possible future injury are not sufficient." Clapper ...

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