Richter et al v. CC-Palo Alto, Inc. et al

Filing 299

ORDER Granting in Part and Denying in Part 282 Motions to Dismiss 283 . Signed by Judge Edward J. Davila on 4/21/2021. (ejdlc3S, COURT STAFF) (Filed on 4/21/2021)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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LINDA COLLINS CORK, et al.,

Case No. 5:14-cv-00750-EJD

Plaintiffs,
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v.

United States District Court
Northern District of California

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CC-PALO ALTO, INC., et al.,
Defendants.

ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS TO
DISMISS THIRD AMENDED
COMPLAINT
Re: Dkt. Nos. 282, 283

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Plaintiffs Linda Collins Cork, Georgia L. May, Thomas Merigan, and Janice R. Anderson

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(collectively, “Plaintiffs”) bring this suit individually, and on behalf of a proposed class, against

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CC-Palo Alto, Inc. (“CC-PA”), CC-Development Group, Inc. (“CC-DG”), and Classic Residence

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Management Limited Partnership (“CRMLP”), collectively referred to as “Defendants.” CC-PA

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filed a motion to dismiss the Third Amended Complaint (“CC-PA Mot.”) and CC-DG and

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CRMLP filed a separate motion to dismiss (“Mot.”). Dkt. Nos. 282, 283. Both motions are

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brought pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). Id. Plaintiffs filed

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oppositions (Dkt. Nos. 285, 286), and Defendants filed replies (Dkt. Nos. 289-291). The Court

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finds it appropriate to take the motions under submission for decision without oral argument

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pursuant to Civil Local Rule 7-1(b). Based on all pleadings filed to date, the Court will grant in

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part and deny in part Defendants’ motions to dismiss.

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Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
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I.

BACKGROUND1

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A.

Continuing Care Retirement Communities

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“Continuing care retirement communities,” or “CCRCs,” are a specialized kind of

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residential retirement community, offering elderly residents a flexible “continuum of care” as they

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age. TAC ¶ 4. Incoming residents typically live independently in their own apartment when they

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first enter the community. Id. Should a resident come to require a greater degree of care, CCRCs

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also provide on-site assisted living, memory support, and skilled nursing facilities. Id.

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B.

The Parties

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Plaintiffs are residents of a CCRC known as the Vi at Palo Alto (hereinafter “the Vi”). Id. ¶
2. The Vi is owned and operated by CC-PA, a Delaware corporation with its principle place of

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United States District Court
Northern District of California

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business in Palo Alto, California. Id. ¶ 26. CC-DG, a Delaware corporation with its principle place

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of business in Chicago, is CC-PA’s corporate parent. Id. ¶ 27. CC-DG operates nine other CCRCs

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throughout the United States in addition to the Vi. Id.
CC-DG is the general partner of CRMLP and allegedly “controls” CRMLP. Id. ¶ 28.

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CRMLP, which is based in Chicago, provides the day-to-day management and operation at the Vi

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and sets its budgets with input from CC-DG. Id. CRMLP acts as the agent of CC-PA and is

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responsible for the financial management of the community. Id. ¶ 29. CRMLP prepares budgets

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and financial reports. Id. CC-DG, CC-PA, and CRMLP have significant overlapping directors,

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officers, and/or partners. Id. CRMLP oversees the transfer of funds between CC-PA and CC-DG.

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Id.
Plaintiffs allege that Defendants entered into a conspiracy in furtherance of the wrongful

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acts alleged in the TAC, as well as aided and abetted each other in the commission of wrongful

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acts alleged in the TAC. Id. ¶¶ 30-31. Plaintiffs also allege that CC-PA acted as the alter ego of

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CC-DG. Id. ¶ 32.

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The Background is a brief summary of the allegations in the Third Amended Complaint
(“TAC”).
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
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C.

The Residency Contract and Entrance Fees

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To live at the Vi, residents enter into a nonnegotiable continuing care contract with CC-PA

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referred to as a “Refundable Residency Contract” (hereinafter “Residency Contract”). Id. ¶¶ 12,

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13, 53. Pursuant to the Residency Contract, residents agree to “loan” CC-PA money in the form of

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an “Entrance Fee,” the terms of which are stated in a nonnegotiable “Entrance Fee Note.” Id. ¶¶

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12-13.2 The Entrance Fees made to CC-PA can range from several hundred thousand to several

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million dollars. Id. ¶ 12.
CC-PA requires a percentage of the loan to be “forfeited” to CC-PA over the first 10

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months of the resident’s occupancy. Id. ¶ 13. The percentage to be forfeited ranges from 10% to

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40%, depending on the year the resident enters the Vi Community. Id. The remainder of the loan,

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United States District Court
Northern District of California

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which ranges from 60% to 90% of the Entrance Fee, is repayable or refundable to residents. Id.

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The Vi regularly used the term “refundable” and “refund” when explaining to prospective

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residents and residents that they would be repaid most of their Entrance Fees, and portrayed the

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Entrance Fees as secure. Id. ¶¶ 7, 59. In addition to the one-time Entrance Fee, each resident is

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required to pay monthly fees. Id. ¶ 57.
A Residency Contract terminates upon the resident’s decision to leave the Vi Community

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or at death. Id. ¶ 59. CC-PA unconditionally agreed that upon termination of the Residency

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Contract, it will repay the Entrance Fee at the earlier of (a) fourteen days after resale of the

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resident’s unit or (b) ten years after termination. Id. Plaintiffs were willing to enter into the

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Residency Contracts because they were “promised that a large percentage of the Entrance Fees

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would be unconditionally refunded to their heirs or estates after they passed away, or directly to

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them if they left the Vi at Palo Alto before they passed away.” Id. ¶ 14; see also id. ¶ 55

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(“Plaintiffs made these loans because they were promised that 70%-90% of these fees were

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Other paragraphs in the TAC refer to a “Promissory Note.” See TAC ¶¶ 38, 41, 44, 48, 55, 56,
59, 63, 65, 98, 147, 202. Plaintiffs appear to use the terms “Entrance Fee Note” and “Promissory
Note” interchangeably.
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refundable upon their departure from the Vi at Palo Alto.” (emphasis in original))
Plaintiffs allege that the Residency Contract and Entrance Fee Note together constitute a

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“refundable contract” within the meaning of California law governing CCRCs (the “CCRC Law”),

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specifically Health and Safety Code section 1771(r)(2), and therefore CC-PA, a statutorily defined

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“provider,” was required to maintain a refund reserve pursuant to sections 1792.6(a) and 1793(a).

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Id. ¶¶ 15-16, 62.3 Defendants also acknowledged a reserve requirement in their marketing

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materials. Id. ¶ 17. Plaintiff Linda Cork in particular was told by CC-PA employee Barry Johnson

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that her Entrance Fee payment “would remain locally with CC-PA, and would not be transferred

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between entities or otherwise.” Id. ¶ 64.
Nevertheless, CC-PA failed to maintain reserves and instead, transferred over $216 million

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United States District Court
Northern District of California

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“upstream” to CC-DG without ever informing Plaintiffs of its intention to do so. Id. ¶¶ 18, 20. CC-

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PA never disclosed to Plaintiffs that it did not maintain reserves in trust, and this failure to

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disclose allegedly constitutes a violation of Health & Safety Code § 1793(f). Id. ¶¶ 62, 64. As a

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result of the upstreaming, CC-PA is in a “financially precarious position, and financially incapable

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of honoring all debts to” Plaintiffs. Id. ¶18. As of December 31, 2014, CC-PA had a stockholders’

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deficit of more than $315 million and owed Plaintiffs over $462 million. Id. ¶ 20. As of December

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31, 2019, the amount owed for refunds has grown to over $476.5 million. Id. ¶ 12. CC-DG has

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disclaimed any obligation to repay Entrance Fees. Id. ¶ 20.
The CC-PA Board of Directors has failed to address the issues described above. Id. ¶ 84.

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Further, CC-PA has failed to hold formal Board Meetings. Id. ¶ 85. Instead, the CC-PA Board

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improperly acted by unanimous written consent to “legalize illegal actions.” Id. ¶¶ 85-88. CC-DG

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and CC-PA also failed to comply with a Health & Safety Code requirement to designate at least

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one resident representative to their Boards. Id. ¶¶ 90-91 (citing Cal. Health & Safety Code §

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1771.8).

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All statutory references are to California law.
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ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
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Plaintiffs’ Causes of Action

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D.

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Plaintiffs assert the following claims against all Defendants unless indicated otherwise: (1)

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financial abuse of elders in violation of Welfare and Institutions Code § 15610.30; (2)

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concealment in violation of Defendants’ fiduciary duties; (3) negligent misrepresentation; (4)

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breach of fiduciary duty and constructive trust; (5) violation of the Consumer Legal Remedies Act

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(“CLRA”), Civil Code § 1750; (6) violation of Business and Professions Code § 17200-restitution

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and disgorgement; (7) violation of Business and Professions Code §17200-injunctive relief; (8)

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breach of contract against CC-PA only; (9) breach of the implied covenant of good faith and fair

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dealing against CC-PA only; (10) declaration of the rights and responsibilities with respect to
compliance with Health and Safety Code §§ 1771(r)(2), 1792.6 and 1793(f); and (11) fraudulent

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United States District Court
Northern District of California

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transfer of assets in violation of the Uniform Fraudulent Transfer Act as codified by Delaware

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Code, Title 6, § 1304(a) and Civil Code § 3439.04 against CC-DG only.

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E.

Procedural History

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Plaintiffs initiated this suit in February of 2014, and Defendants moved to dismiss. The

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Court granted the motion because Plaintiffs failed to allege an injury in fact. Dkt. No. 55.

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Plaintiffs filed a First Amended Complaint, and again, Defendants moved to dismiss for lack of

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Article III standing and for failure to state a claim upon which relief can be granted. The Court

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dismissed the following claims for lack of Article III standing: elder abuse, breach of fiduciary

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duty and constructive trust, violations of the Business and Professions Code, breach of contract

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and breach of the implied covenant of good faith and fair dealing. See Order Granting Defendants’

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Motions to Dismiss (“Order”) filed March 31, 2016, Dkt. No. 88.

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In addition to addressing Article III standing, the Court considered Defendants’ various

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Federal Rule of Civil Procedure 12(b)(6) challenges to Plaintiffs’ claims. The Court held that the

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claim for concealment was legally deficient because Plaintiffs failed to allege (1) how they would

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have acted differently had the omitted information regarding transfer of Entrance Fees to CC-DG

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been disclosed to them and (2) a cognizable injury. Id. at 25-26. The Court held that the claim for

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negligent misrepresentation was legally deficient because Plaintiffs had not plausibly alleged

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falsity, reliance and damages. Id. at 27-28. The Court held that the claim for violations of the

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CLRA was not pled with particularity as required by Federal Rule of Civil Procedure 9(b); failed

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to allege that the quality of services rendered was materially different from what was promised;

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failed to allege that Defendants’ advertising was misleading; and failed to allege reliance and

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damages. Id. at 28-29. The Court dismissed the claim for declaratory judgment for three reasons:

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(1) because Plaintiffs lacked Article III standing, there is no controversy relating to the rights and

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duties of the respective parties; (2) the Court’s finding that the Residency Contract is a refundable

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contract under California law clarified any ambiguity as to Defendants’ statutory obligations,
rendering the declaratory relief claim unnecessary and duplicative; and (3) it would be improper

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United States District Court
Northern District of California

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for the Court to declare the parties’ respective rights and obligations because in the Court’s view,

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the California Department of Social Services (“DSS”) is best equipped to make initial assessments

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regarding Defendants’ compliance – or lack thereof – with the relevant law. Id. at 29-31. The

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Court dismissed the claims above without leave to amend and dismissed the remaining derivative

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claims with leave to amend. Id. at 34-35.

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Plaintiffs filed a Second Amended Complaint and Defendants moved to strike claims the

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Court previously dismissed without leave to amend and to dismiss the remaining claims. The

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Court granted the motion to strike, and denied the motion to dismiss the remaining claims, except

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for a portion of the twelfth cause of action for breach of fiduciary duties. Dkt. No. 105. The Court

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later granted summary judgment in favor of Defendants on the remaining claims and entered

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judgment accordingly (“Summary Judgment Order”). Dkt. Nos. 236-37.

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Plaintiffs appealed both the Order and the Summary Judgment Order. The Ninth Circuit

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affirmed the Summary Judgment Order on the derivative claims and vacated and remanded for

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further proceedings on the remaining claims. Cork v. CC-Palo Alto, Inc., 818 F. App’x 595 (9th

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Cir. 2020), Dkt. No. 267. On the issue of Article III standing, the Ninth Circuit held that the

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statutes at issue were established to protect Plaintiffs’ concrete interest in “contracted-for financial

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security,” and that Plaintiffs had alleged actual harm to that interest based on Defendants’ failure

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to maintain a refund reserve. Id. at 3-4. Further, the Ninth Circuit concluded that Health & Safety

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Code Section 1793.5(d) “clearly affords [Plaintiffs] a private right of action in circumstances that

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may exist in this case.” Id. at 4. The Ninth Circuit reasoned that under section 1793.5(d),

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Plaintiffs’ ability to sue depends on whether Defendants “abandoned” the contractual obligations,

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and that this assessment turned, in part, on whether the contracts are “refundable,” as defined in

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Section 1771(r)(2). Id. Because this Court had held the contracts are “refundable,” the Ninth

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Circuit reversed the dismissal of the first ten claims. Id. at 5-7. The Ninth Circuit noted that after

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the Court’s dismissal, the DSS issued an opinion letter concluding that CC-PA’s contracts are not

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“refundable contracts,” but the Ninth Circuit declined to decide in the first instance whether that

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United States District Court
Northern District of California

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opinion is correct. Id. at 5-6. Finally, the Ninth Circuit affirmed as to the derivative claims, but

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reversed as to the fraudulent transfer of assets claim. Id. at 7.
Following remand, Plaintiffs filed the TAC. Defendants seek dismissal of all but the

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fraudulent transfer of assets claim, raising many of the challenges they previously made to the

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earlier version of the complaint.

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II.

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LEGAL STANDARDS
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient

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specificity “to give the defendant fair notice of what the . . . claim is and the grounds upon which

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it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted).

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A complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim

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upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). Dismissal of a claim under Rule

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12(b)(6) may be based on a “lack of a cognizable legal theory or the absence of sufficient facts

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alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699

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(9th Cir. 1988); Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008)

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(citing Balistreri). To survive a Rule 12(b)(6) motion to dismiss, the complaint “must contain

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sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp., 550 U.S. at 570). A claim has

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facial plausibility when the plaintiff pleads factual content that allows the court to draw the

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reasonable inference that the defendant is liable for the misconduct alleged. Id.

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In evaluating the complaint, the court must generally accept as true all “well-pleaded

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factual allegations.” Iqbal, 556 U.S. at 664. The court must also construe the alleged facts in the

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light most favorable to the plaintiff. See Retail Prop. Trust v. United Bhd. Of Carpenters &

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Joiners of Am., 768 F.3d 938, 945 (9th Cir. 2014) (the court must “draw all reasonable inferences

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in favor of the nonmoving party” for a Rule 12(b)(6) motion). The court, however, “does not have

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to accept as true conclusory allegations in a complaint or legal claims asserted in the form of
factual allegations.” In re Tracht Gut, LLC, 836 F.3d 1146, 1150-51 (9th Cir. 2016) (citing Bell

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United States District Court
Northern District of California

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Atl. Corp., 550 U.S. at 555-56).

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Claims that sound in fraud are subject to a heightened pleading standard. Fed. R. Civ. Proc.

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9(b) (“In alleging fraud or mistake, a party must state with particularity the circumstances

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constituting fraud or mistake.”); Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103-1104 (9th Cir.

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2003) (recognizing that claims “grounded in fraud” or which “sound in fraud” must meet the Rule

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9(b) pleading standard, even if fraud is not an element of the claim). The allegations must be

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“specific enough to give defendants notice of the particular misconduct which is alleged to

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constitute the fraud charged so that they can defend against the charge and not just deny that they

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have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).

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When deciding whether to grant a motion to dismiss, the court generally “may not consider

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any material beyond the pleadings.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d

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1542, 1555 n.19 (9th Cir. 1990). The court may, however, consider material submitted as part of

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the complaint or relied upon in the complaint, as well as material subject to judicial notice. See

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Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). The Ninth Circuit has

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recognized that the district court “need not . . . accept as true allegations that contradict matters

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properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d

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Case No.: 5:14-cv-00750-EJD
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979, 988 (9th Cir. 2001).
In the event that a motion to dismiss is granted, “leave to amend should be granted ‘unless

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the court determines that the allegation of other facts consistent with the challenged pleading could

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not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.

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1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.

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1986)).

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III.

DISCUSSION

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A.

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Defendants request judicial notice of the opinion letter referred to in the Ninth Circuit’s

Request for Judicial Notice

decision, namely the April 23, 2016, letter from the California Department of Social Services

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United States District Court
Northern District of California

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(“DSS Letter”), to Ms. Stephanie Fields, Ms. Tara Cope, and Mr. Gary Smith, which states in

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pertinent part, “The Department does not require refund Reserves under Section 1792.6 because

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the [CC-PA] contracts are not refundable contracts.” Defs.’ Req. for Judicial Notice at 2, Dkt. No.

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282-1. Plaintiffs object to the Court taking judicial notice of the DSS Letter on three grounds:

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First, DSS is a creature of the executive branch in California. DSS’
job is not to interpret the statutes at issue in this case, but instead to
enforce the law. The letter directly contradicts the prior determination
by this Court that the contracts at issue are refundable, in a roundabout
attempt to undermine this Court’s ruling.
Second, the determination of whether the contracts at issue are
refundable is plainly disputable, as both the DSS and this Court have
come down on opposite sides of the issue. As such, it would be
inappropriate to judicially notice these documents for any purpose
other than the acknowledgement of their existence.
Third, these documents have nothing to do with Plaintiffs
complaint, and certainly do not rely on them. See Parinno 146 F.3d
at 705-06. Because Exhibit A is not a document whose authenticity is
not contested and relied upon by the third amended complaint, it is
inappropriate to judicially notice.
Pls.’ Opp’n to Defs.’ Request for Judicial Notice at 2, Dkt. No. 285-1.
Federal Rule of Evidence 201 allows a court to take judicial notice of adjudicative facts

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“not subject to reasonable dispute in that [they are] . . . capable of accurate and ready

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determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R.

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Evid. 201(b)(2). The Court will take judicial notice of the fact of the DSS Letter because it was

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issued by a government department and Plaintiffs do not dispute its authenticity. See Cal.

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Sportfishing Prot. All. v. Shiloh Grp., LLC, 268 F. Supp. 3d 1029, 1038 (N.D. Cal. 2017) (taking

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judicial notice of a letter from a public agency for the existence of that letter’s contents). The

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Ninth Circuit has cautioned, however, that “[j]ust because the document itself is susceptible to

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judicial notice does not mean that every assertion of fact within that document is judicially

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noticeable for its truth.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).

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Here, whether the CC-PA Residency Contract is a refundable contract within the meaning of the
Health & Safety Code is the core dispute. Therefore, although the Court will take judicial notice of

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United States District Court
Northern District of California

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the DSS Letter, the Court does not assume that the substance of the DSS Letter is necessarily

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correct.

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The request for judicial notice is granted.

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B.

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The first cause of action is for financial elder abuse. TAC ¶ 118. Financial elder abuse

First Cause of Action for Financial Elder Abuse

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occurs when a person or entity: “[t]akes, secretes, appropriates, obtains, or retains real or personal

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property of an elder. . . for a wrongful use or with intent to defraud, or both.” Cal. Welf. & Inst.

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Code § 15610.30(a)(1). The “wrongful use” element is satisfied “if, among other things, the

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person or entity takes, secretes, appropriates, obtains, or retains the property and the person or

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entity knew or should have known that this conduct is likely to be harmful to the elder or

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dependent adult.” Id. §15610.30(b). A person or entity “[t]akes, secretes, appropriates, obtains, or

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retains real or personal property” when an elder or dependent adult is “deprived of any property

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right, including by means of an agreement, donative transfer, or testamentary bequest, regardless

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of whether the property is held directly or by a representative of an elder or dependent adult.” Id. §

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15610.30(c).

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Defendants contend that the elder abuse claim fails as a matter of law because Plaintiffs (1)
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fail to plead a property interest and (2) fail to plead that they have been deprived of a property

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interest. CC-DG and CRMLP separately contend that Plaintiffs fail to plead sufficient facts to hold

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them liable for aiding and abetting the alleged financial elder abuse.

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1.Property Interest

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Plaintiffs allege that Defendants took, secreted, appropriated, obtained and/or retained

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“money belonging to Plaintiffs.” TAC ¶ 120. Defendants allegedly took Plaintiffs’ money by

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“improperly collecting hundreds of millions of dollars in ‘Entrance Fees’ through CC-PA and

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transferring those funds upstream to CC-PA’s corporate parent, CC-DG, thus impairing Plaintiffs’

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and the Class’ security interest in those fees and thus also removing funds from CC-PA that were
supposed to have remained at CC-PA to provide reserves held in trust and services to Plaintiffs

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United States District Court
Northern District of California

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and the Class.” Id.

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CC-PA argues that the right to repayment of the Entrance Fees has not accrued, and

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therefore Plaintiffs have not alleged a property interest for purposes of a financial elder abuse

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claim. This argument, however, is more of a challenge to the “deprivation” element than the

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“property” element of a claim for financial elder abuse. Plaintiffs have identified a form of

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property to which they are allegedly entitled. See TAC ¶ 122 (“Plaintiffs . . . were deprived of a

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property right, insofar as Plaintiffs’ . . . Entrance Fees have been placed at risk and their security

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interest has been impaired.”). The Court finds that Plaintiffs’ allegations are sufficient to plausibly

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allege “property” for purposes of the financial elder abuse statute, bearing in mind that the elder

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abuse statute is to be broadly construed to effectuate its purpose of protecting elders. See Keshish

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v. Allstate Ins. Co., 2012 WL 12887077, at *7 n.36 (C.D. Cal. July 30, 2012) (quoting Abernathy

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v. Cty. of Marin, 2006 WL 418486, at *19 (1st Cir. 2006) (elder abuse statute “should not be

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narrowly understood to limit actionable financial abuse to the consummated dispossession of a

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tangible item of property. Such a construction is contrary to California’s broad concept of property

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and the Elder Abuse Act’s goal of protecting a vulnerable class of persons.”)). Whether Plaintiff

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have plausibly alleged they have been deprived of their property is a separate issue and is

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discussed below.
2. Deprivation of Property

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A “deprivation” is a “taking away of anything enjoyed; dispossession, loss.” Mahan v.

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Charles W. Chan Ins. Agency, Inc., 14 Cal. App. 5th 841, 861 (2017). According to CC-DG and

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CRMLP, there has been no “deprivation” because Plaintiffs willingly paid the Entrance Fees to

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CC-PA. Mot. at 9. This argument, however, overlooks Plaintiffs’ allegation that the deprivation

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occurred when CC-PA transferred the Entrance Fees to CC-DG and impaired Plaintiffs’ security

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interest in those Fees.
Defendants separately argue that there has been no deprivation because Plaintiffs’ Entrance

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Fees have not been taken away, dispossessed or lost. CC-PA Mot. at 5-6. In Defendants’ view,

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United States District Court
Northern District of California

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Plaintiffs allege, at most, that their “security interest” in the Entrance Fees has been “impaired” or

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placed “at risk” and that this allegation is insufficient to plead a plausible claim of elder financial

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abuse because Plaintiffs have not suffered an actual financial loss.4 CC-PA Mot. at 6; see also

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Mot. at 10. Moreover, Defendants contend that Plaintiffs fail to plead how their future repayment

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of the Entrance Fees has been impaired. In other words, Defendants contend that Plaintiffs fail to

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allege any loss in the “value of their future interest or that they have suffered any harm in

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connection with their right to partial repayment of the Entrance Fees.” Mot. at 10-11.
Plaintiffs counter that their allegations are sufficient and that what Defendants are really

18
19

raising is a factual dispute that is inappropriate at the pleading stage. See Pls.’ Opp’n to CC-PA’s

20

Mot. at 8 (“This assertion is the source of the factual dispute between the Parties, and is not a

21

justification for dismissing Plaintiffs’ claim.”). The Court agrees. Plaintiffs’ allegations support a

22

plausible inference that CC-PA took, appropriated, and retained their Entrance Fees. Plaintiffs

23

allege that the Entrance Fees were to be retained by CC-PA in a reserve fund, but that CC-PA

24
25
26
27
28

To “impair” is property is to diminish the value of property or of a property right. CC-PA Mot. at
6 (citing Black’s Law Dictionary (10th ed. 2014)).
4

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12

1

upstreamed them to CC-DG without ever informing Plaintiffs of its intention to do so. Plaintiffs

2

allege that CC-PA is in a financially precarious position and incapable of honoring all debts to

3

Plaintiffs, and that CC-DG has disclaimed any obligation to repay the Entrance Fees. Construing

4

these facts in the light most favorable to Plaintiffs, Defendants’ actions may have resulted in a

5

“taking away,” dispossession or loss.

6

Defendants contend that the financial elder abuse fails because Plaintiffs are required, but

7

have failed, to allege they suffered a financial loss. Plaintiffs implicitly argue that they are not

8

required to plead a financial loss, stating: “the idea that no deprivation or harm has befallen

9

Plaintiffs is in direct contradiction of the findings of the Ninth Circuit that held that ‘failing to
maintain a refund reserve harms Residents by putting them in the distressing position of choosing

11

United States District Court
Northern District of California

10

between vacating the Vi and potentially risking non-repayment or continuing to live at the Vi in a

12

state of perceived financial insecurity.’” Pls.’ Opp’n to C-PA’ Mot. at 6 (citing Cork, 818 F.

13

App’x. at 597). None of the parties have cited to, nor is this Court aware of, any published

14

decision that addresses this issue.

15

In the absence of a published decision on point, the Courts concludes that Plaintiffs

16

plausibly allege a deprivation of property for two reasons. First, the financial elder abuse statute

17

does not explicitly require that the deprivation of property cause financial loss. Rather, the

18

language of the statute is broad and suggests a financial loss is not required insofar as it only

19

requires that the person or entity committing the financial abuse “knew or should have known that

20

this conduct is likely to be harmful to the elder or dependent adult.” Cal. Welf. & Inst. Code §

21

5610.30(b). Conduct “likely to be harmful” may take many forms; it is not necessarily limited to

22

conduct causing financial loss. Second, on appeal, the Ninth Circuit held that the alleged failure to

23

maintain a refund reserve harms Plaintiffs, albeit in the context of analyzing Article III standing.

24

Cork, 818 F. App’x. at 597.

25
26
27
28

3. Alleged Wrongful Use
Plaintiffs also allege sufficient facts to show the requisite “wrongful use.” Rather than
Case No.: 5:14-cv-00750-EJD
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13

1

maintaining the Entrance Fees in a reserve fund, CC-PA paid “unlawful dividends” to CC-DG, an

2

entity that has represented it has no obligation to repay Entrance Fees. TAC ¶ 20. Indeed CC-PA’s

3

audited year-end financial statements do not even show CC-DG owing any financial obligations to

4

CC-PA. Id. Thus, Plaintiffs will be repaid their Entrance Fees “only if CC-DG voluntarily chooses

5

to pay the obligations of CC-PA.” Id. (emphasis in original). This has left CC-PA without

6

sufficient funds to pay its debts. Id. ¶ 9, 81-82, 120. CC-PA’s financial condition is so precarious

7

that it can pay its debts only by securing periodic, voluntary cash infusions from CC-DG. Id. ¶ 9.
In sum, Plaintiffs’ TAC plausibly alleges a claim for financial elder abuse against CC-PA.5

8
9

4. CC-DG and CRMLP
Liability for elder abuse extends to any person who “assists” in the “taking, secreting,

10

United States District Court
Northern District of California

11

appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a

12

wrongful use or with intent to defraud, or both.” Cal. Welf. & Inst. Code § 5610.30(a)(2). The

13

term “assists” in this provision has been interpreted to mean aiding and abetting. Das v. Bank of

14

America, N.A., 186 Cal. App. 4th 727, 744-745 (2010).6 Under California common law, liability

15

may be imposed for aiding and abetting a tort when the person “(a) knows the other’s conduct

16

constitutes a breach of duty and gives substantial assistance or encouragement to the other to so

17

act or (b) gives substantial assistance to the other in accomplishing a tortious result and the

18

person’s own conduct, separately considered, constitutes a breach of duty to the third person.” Id.

19

at 744 (internal quotation marks and citations omitted). The “substantial assistance” requirement

20

for aiding and abetting claims “necessarily requires a defendant to reach a conscious decision to

21

participate in tortious activity for the purpose of assisting another in performing a wrongful act.”

22

Diaz v. Intuit, Inc., 2018 WL 2215790, at *8 (N.D. Cal. May 15, 2018).

23
24
25
26
27
28

Plaintiffs’ elder abuse claim is based upon both a “wrongful use” and “intent to defraud.” TAC
¶¶120-21. Because Plaintiffs have sufficiently alleged “wrongful use,” the Court finds it
unnecessary to consider the sufficiency of the “intent to defraud” allegations at this time.
5

Plaintiffs’ more generalized aiding and abetting allegations as to other claims is discussed
separately in Section “K” of this Order.
Case No.: 5:14-cv-00750-EJD
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14
6

1

Here, Plaintiffs allege that Defendants “assisted” one another in “taking, secreting,

2

appropriating, obtaining and/or retaining money belonging to Plaintiffs . . . for a wrongful use and

3

with the intent to defraud and when they knew or should have known that this conduct is likely to

4

be harmful to Plaintiffs. TAC ¶ 121. Plaintiffs allege that “CC-DG created CC-PA for the purpose

5

of inducing Plaintiffs and the Class to loan substantial Entrance Fees to CC-PA, which it would

6

then move upstream to CC-DG.” Id. “This kept CC-PA dangerously underfunded and in a state of

7

financial distress and dependent on voluntary infusions of funds from CC-DG.” Id. Plaintiffs

8

further allege that CRMLP harmed elderly residents by assisting in the taking, hiding,

9

appropriating, obtaining, or retaining of Entrance Fees. Id. ¶ 123.
Defendants argue that mere acceptance of Plaintiffs’ Entrance Fees is insufficient to show

11

United States District Court
Northern District of California

10

assistance in the alleged elder financial abuse, citing Das v. Bank of America, N.A., 186 Cal. App.

12

4th 744-45 (concluding that a bank providing ordinary services that effectuate financial abuse by a

13

third party may be found to have “assisted” the financial abuse only if the bank knew of the third

14

party’s wrongful conduct.”). However, Plaintiffs allege more than mere acceptance of the

15

Entrance Fees. ¶ 28. Plaintiffs allege that CRMLP provides the day-to-day management and

16

operation at the Vi and sets its budgets with input from CC-DG. TAC ¶ 28. CRMLP allegedly acts

17

as the agent of CC-PA and is responsible for the financial management of the community and for

18

overseeing the transfer of funds between CC-PA and CC-DG. Id. ¶ 29. CRMLP prepares budgets

19

and financial reports. Id. Plaintiffs also allege that CC-DG, CC-PA, and CRMLP have significant

20

overlapping of directors, officers, and/or partners. Id. Plaintiffs allege that “CC-DG developed and

21

at all times has operated CC-PA under a business plan to use CC-PA as a device to return all of

22

CC-DG’s invested capital in CC-PA and to funnel the proceeds of Entrance Fees to CC-DG on a

23

non-recourse basis, for CC-DG’s and its shareholders’ benefit,” and that CRMLP assisted in

24

implementing this plan. Id. ¶ 9 (emphasis added); see also id. ¶ 221. When construed in the light

25

most favorable to Plaintiffs, these allegations plausibly allege CC-DG and CRMLP assisted CC-

26

PA in the alleged deprivation of property for a wrongful purpose and knew or should have known

27

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28

1

that their conduct was likely to be harmful to Plaintiffs.
Defendants CC-DG and CRMLP’s motion to dismiss the financial elder abuse claim is

2
3

denied.

4

C.

5

Plaintiffs’ Second Cause of Action alleges concealment based on the failure to disclose

Second Cause of Action for Concealment

facts related to CC-PA’s assessment of the monthly fees and management of the Entrance Fees.

7

To state a claim for concealment, a plaintiff must allege: (1) the concealment or

8

suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff;

9

(3) that the defendant intended to defraud the plaintiff by intentionally concealing or suppressing

10

the fact; (4) that the plaintiff was unaware of the fact and would have acted differently if he or she

11

United States District Court
Northern District of California

6

had known of the concealed or suppressed fact; and (5) that the plaintiff sustained damage as a

12

result of the concealment or suppression of the fact. Graham v. Bank of America, N.A., 226 Cal.

13

App. 4th 594, 606 (2014).

14

Defendants seek dismissal of the concealment claim on four grounds: failure to plead

15

fraud with particularity; failure to plead reliance; failure to plead loss; and failure to plead a duty

16

to disclose. Defendants’ first two arguments are compelling for the reasons discussed below, and

17

therefore the Court finds it unnecessary to address Defendants’ remaining two arguments.

18
19

1. Specificity
To plead fraud by omission with specificity, a plaintiff “must describe the content of the

20

omission and where the omitted information should or could have been revealed, as well as

21

provide representative samples of advertisements, offers, or other representations that plaintiff

22

relied on to make her purchase and that failed to include the allegedly omitted information.”

23

Marolda v. Symantec Corp., 672 F. Supp. 2d 992, 1002 (N.D. Cal. 2009). Where the fraud was

24

allegedly perpetrated by a corporation, a plaintiff must also “allege the names of the employees or

25

agents who purportedly made the fraudulent representations or omissions, or at a minimum

26

identify them by their titles and/or job responsibilities.” UMG Recordings, Inc. v. Glob. Eagle

27

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28

1
2
3
4
5
6
7
8
9

Entm’t, Inc., 117 F. Supp. 3d 1092, 1108 (C.D. Cal. 2015).
Here, Plaintiffs identify with particularity the following “facts” that all three Defendants
allegedly failed to disclose:
a. CC-PA intended to upstream Plaintiffs’ Entrance Fees to CC-DG,
and CC-DG planned to disavow any obligation to re-pay the
upstreamed funds to Plaintiffs and Class;
b. CC-PA did not have and did not intend to maintain reserves in trust
to cover its Entrance Fee refund obligations as required by California
Health & Safety Code § 1792.6; and,
c. Defendants intended to keep CC-PA dangerously underfunded,
running a very large deficit and dependent on voluntary infusions of
funds from CC-DG.
TAC ¶ 131. Plaintiffs also adequately allege that the omitted information should have been

11

United States District Court
Northern District of California

10

disclosed in marketing materials and continuing care contracts. Id. ¶¶ 62, 66. Plaintiffs, however,

12

fail to allege with particularity who concealed the “facts” above. “Rule 9(b) ‘does not allow a

13

complaint to merely lump multiple defendants together but ‘require[s] plaintiffs to differentiate

14

their allegations when suing more than one defendant . . . and inform each defendant separately of

15

the allegations surrounding his alleged participation in the fraud.’” Swartz v. KPMG LLP, 476

16

F.3d 756, 764-65 (9th Cir. 2007) (quoting Haskin v. R.J. Reynolds Tobacco Co., 995 F. Supp.

17

1437, 1439 (M.D. Fla. 1998). Here, Plaintiffs make no effort to differentiate their allegations

18

against CC-PA, CC-DG and CRMLP. Instead all three of the Defendants are referred to

19

collectively as “Defendants.” See TAC ¶¶ 130-34. As such, the concealment claim is subject to

20

dismissal for failure to comply with Rule 9(b).

21
22

2. Actual Reliance
More substantively, Plaintiffs fail to allege how they would have behaved differently had

23

the purportedly omitted information been disclosed to them. Plaintiffs do not state they would

24

have rejected the Residency Contract or declined to reside at the Vi if the allegedly omitted

25

information had been disclosed. Rather, Plaintiffs allege in only conclusory language that they

26

“reasonably relied on Defendants actions.” Id. ¶ 132. This is insufficient for a concealment claim.

27

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28

1

In re Tracht Gut, LLC, 836 F.3d at 1150-51 (the court does not have to accept as true conclusory

2

allegations in a complaint or legal claims asserted in the form of factual allegations).

3

The concealment claim is dismissed.

4

D.

5

Plaintiffs’ third cause of action is for negligent misrepresentation. To state a claim for

6

negligent misrepresentation, a plaintiff must plead: (1) the defendant misrepresented a past or

7

existing material fact; (2) without reasonable ground for believing it to be true; (3) with intent to

8

induce the plaintiff’s reliance on the misrepresented fact; (4) the plaintiff’s actual reliance on the

9

misrepresentation; and (5) resulting damage. Apollo Capital Fund LLC v. Roth Capital Partners,

10

United States District Court
Northern District of California

11

Third Cause of Action for Negligent Misrepresentation

LLC, 158 Cal. App. 4th 226, 243 (Cal. App. 2007).
Although the third cause of action claim is asserted against all Defendants, Plaintiffs do not

12

identify a single statement made by CC-DG or CRMLP. See TAC ¶¶ 136-42 (alleging only that

13

“CC-PA negligently misrepresented important facts” and referring to Defendant in the singular,

14

not plural throughout). The third cause of action is accordingly dismissed as to CC-DG and

15

CRMLP for failure to plead fraud with particularity.

16
17
18
19

The remaining Defendant, CC-PA, argues that the claims must be dismissed because the
alleged misrepresentations amount to non-actionable “puffery” and Plaintiffs fail to plead reliance.
1. Alleged Misrepresentations
Puffery has been described as “outrageous statements, not making specific claims, that are

20

so exaggerated as to preclude reliance by consumers.” Cook, Perkiss and Liehe, Inc. v. N.

21

California Collection Serv. Inc., 911 F.2d 242, 246 (9th Cir. 1990) (quoting Metro Mobile CTS,

22

Inc. v. Newvector Commc’ns, Inc., 643 F. Supp. 1289, 1292 (D. Ariz. 1986) rev’d without opinion,

23

803 F.2d 724 (9th Cir. 1986)). Puffery has also been described as claims that are either vague or

24

highly subjective. Id. (citing Stearling Drug, Inc. v. FTC, 741 F.2d 1146, 1150 (9th Cir. 1984),

25

cert. denied, 470 U.S. 1084 (1985)).

26
27
28

Here, Plaintiffs identify two alleged misrepresentations made by CC-PA. TAC ¶¶ 137-38.
Case No.: 5:14-cv-00750-EJD
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18

1

First, Plaintiffs allege that in a letter dated October 9, 2008, CC-PA represented the following

2

facts were true:

3
4
5

[Residents experience] a sense of security, knowing they have made
a good choice. They know their entrance fee refund will not fluctuate
with changes in the market . . . Our residents enjoy a vibrant and
enriching lifestyle with the knowledge that they have planned wisely
to secure their future.

6

Id. ¶ 137 (quoting Ex. 22, Letter dated October 9, 2008 from Classic Residence by Hyatt to

7

Residents). This Letter consists entirely of puffery. Whether residents experience a sense of

8

security or enjoy a vibrant and enriching lifestyle are purely subjective. Whether residents know

9

they made a “good choice” or “planned wisely” are similarly subjective. The representation that
the entrance fee refund “will not fluctuate with changes in the market” is less subjective;

11

United States District Court
Northern District of California

10

nevertheless, it is too vague to be actionable and Plaintiffs do not plausibly allege that the

12

statement is false or misleading.

13

Second, CC-PA allegedly misrepresented that their Entrance Fees would be used to

14

provide services. Id. ¶ 138. Defendants do not contend that this statement is puffery. Instead, they

15

argue that the alleged misstatement lacks a factual basis and contradicts the express terms of the

16

Residency Contracts. The Court agrees. The circumstances of the alleged fraud are not pled with

17

particularity as required by Rule 9(b) and further, the alleged misstatement contradicts the terms of

18

the Residency Contracts. See TAC, Exs. 8, 10, 12 and 14.

19

2. Actual Reliance

20

Plaintiffs’ conclusory allegation that they “reasonably relied” on the alleged misstatements

21

lacks any factual basis. Plaintiffs do not explain how they would have acted differently but for the

22

misrepresentation. Furthermore, as Defendants point out, three of the four Plaintiffs entered the Vi

23

before the October Letter was published in 2008. See TAC ¶¶ 38, 41, 44,48. Plaintiffs contend that

24

the same language was used prior to 2008, but even if true, Plaintiffs do not plead facts suggesting

25

actual reliance.

26
27
28

The negligent misrepresentation claim is dismissed because it is based on nonactionable
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
19

1

puffery, is not pled with particularity, and the allegation of actual reliance lacks factual support.

2

E.

3

In the fourth cause of action, Plaintiffs allege that Defendants breached their fiduciary

Fourth Cause of Action for Breach of Fiduciary Duty

4

duty. More specifically, Plaintiffs allege that Defendants acted against Plaintiffs’ interest in

5

connection with their Entrance Fee loan transactions and the Promissory Notes providing for

6

refunds of the Entrance Fee.

7

Before a person can be charged with a fiduciary obligation, that person must (1) knowingly
undertake to act on behalf and for the benefit of another; or (2) enter into a relationship which

9

imposes that undertaking as a matter of law. City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 43

10

Cal.4th 375, 386 (2008). Defendants contend that Plaintiffs fail to state a cognizable claim under

11

United States District Court
Northern District of California

8

either theory.

12
13

1. Alleged Relationship
As to CC-DG and CRMLP, Plaintiffs’ allegations are entirely conclusory. Plaintiffs fail to

14

allege any facts whatsoever to show they had a fiduciary relationship with CC-DG and CRMLP.

15

See TAC ¶¶ 93-98, 144-55. As such, Plaintiffs’ conclusory allegations need not be accepted as

16

true. In re Tracht Gut, LLC, 836 F.3d at 1150-51. The breach of fiduciary duty claim is dismissed

17

as to CC-DR and CRMLP.

18

Plaintiffs’ relationship with the remaining Defendant, CC-PA, is rooted in contracts,

19

namely the Residency Contracts and Promissory Notes. Neither of these agreements expressly

20

imposes fiduciary duties concerning Entrance Fees, and Plaintiffs do not allege otherwise. Instead,

21

Plaintiffs allege that Defendants owed a fiduciary duty “by virtue of the nature of their relationship

22

whereby Plaintiffs . . . reposed confidence in the integrity of Defendants, which was voluntarily

23

accepted and/or assumed by Defendants, and by virtue of the power Defendants retained over

24

Plaintiffs and over their homes and residential environment.” TAC ¶ 144. Again, Plaintiffs’

25

allegations lack any factual basis and therefore, the Court need not accept it as true. In re Tracht

26

Gut, LLC, 836 F.3d at 1150-51.

27

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20

28

1

Moreover, even if Plaintiffs’ allegations were true, reposing confidence in Defendants is,

2

without more, insufficient to establish a fiduciary relationship. Contractual relationships require a

3

degree of trust and confidence between the contracting parties. City of Hope, 43 Cal.4th at 389.

4

Imposing a fiduciary duty any time a relationship of trust and confidence exists “would result in

5

the imposition of a fiduciary duty in nearly every contractual setting. Clearly, the law does not

6

extend this far.” In re Rexploure, Inc. Sec. Litig., 685 F. Supp. 1132, 1140 (N.D. Cal. 1988); see

7

also Simplicity Intern’l v. Genlabs Corp., 2010 WL 11508819, at *4 (C.D. Cal. April 16, 2010)

8

(“Without more, the simple fact that Plaintiff reposed confidence in Genlabs cannot create a

9

fiduciary duty.”).

10

Plaintiffs argue that courts have found fiduciary relationships exist between contracting

United States District Court
Northern District of California

11

parties where the defendant targeted senior citizens, citing Abbit v. ING USA Annuity & Life Ins.

12

Co., 999 F. Supp. 2d 1189, 1199 (S.D. Cal. 2014). In Abbit, the plaintiff purchased an annuity

13

from the defendant and alleged that the defendant (1) targeted senior citizens with products that

14

falsely promised security; (2) promised investors “continued commitment, thanking them for

15

ongoing trust and confidence in Defendant as their ‘preferred financial services provider’”; and (3)

16

drafted all contractual materials and structured pricing parameters, taking advantage of

17

Defendant’s superior knowledge and bargaining power. Id. The Abbit court held that these

18

allegations were sufficient to plausibly suggest a claim for relief. Id. Here, however, Plaintiffs’

19

TAC lacks comparable allegations. As discussed previously, Plaintiffs do not allege sufficient

20

facts to support a plausibly inference that at the time they paid their Entrance Fees, they were

21

targeted with a false promise of security. Nor do Plaintiffs allege that Defendants thanked them for

22

their trust and confidence; and that Defendants took advantage of their superior knowledge and

23

bargaining power. Rather, Plaintiffs allege:

24
25
26
27
28

The average age of these residents is nearly 85, and many of them are
over 90, and some even over 100. Over time, as their health
deteriorates, Plaintiffs become less and less physically, emotionally,
and cognitively able to move out of the Vi at Palo Alto. CC-PA was
entrusted with large sums of money that Plaintiffs set aside for their
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
21

1
2
3
4

retirement. CC-PA asserts the unilateral right to determine the cost of
residents’ homes and their living environment and denies the
residents any right to participate in CC-PA’s decisions about these
essential matters. The circumstances described herein give rise to a
fiduciary duty to the residents on the part of Defendants. CC-PA
assumed the role of caregiver and business partner to Plaintiffs and
the Class.

5

TAC ¶ 93. Even accepting these allegations as true, they do not plausibly support an inference that

6

CC-PA and Plaintiffs had a fiduciary relationship at the time Plaintiffs decided to pay their

7

Entrance Fees and executed the related Promissory Notes.

8
9

The few additional cases cited by Plaintiffs are also distinguishable. Like Abbit, these cases
concern the sale of annuities to senior citizens and the court found a basis for a fiduciary
relationship. In In re Nat’l W. Life Ins. Deferred Annuities Litig., 467 F. Supp. 2d 1071, 1087

11

United States District Court
Northern District of California

10

(S.D. Cal. 2006), the senior-aged plaintiffs alleged that the defendants “expressly held itself out as

12

an objective expert acting in the insured’s best interests,” and that plaintiffs had to “depend on the

13

good faith and performance of the insurer” to understand “complex financial instruments which

14

the average person [could] not understand.” Id. The TAC in the instant case does not include

15

comparable allegations. In Estate of Migliaccio v. Midland Nat’l Life Ins. Co., 436 F. Supp. 2d

16

1095, 1108 (C.D. Cal. 2006), as amended (Aug. 21, 2006), the court held that plaintiffs stated a

17

cognizable claim for breach of fiduciary duty based on the “extensive allegations that defendants

18

trained their sales agents to lure seniors [sic] citizens into their confidence by offering assistance

19

with estate and financial planning.” Id. Again, the TAC in the instant case does not include any

20

allegations regarding training sales agents, much less extensive allegations that agents were

21

trained to “lure” seniors into CC-PA’s confidence. Instead, the TAC includes a single allegation

22

that CC-PA used marketing materials “to lure” Plaintiffs. TAC ¶ 66. In Negrete v. Fidelity and

23

Guar. Life Ins. Co., 444 F. Supp. 2d 998, 1003 (C.D. Cal. 2006), the plaintiffs alleged that the

24

defendants assumed fiduciary duties “by virtue of their purported positions as financial advisors,

25

estate planning specialists, and because of their superior knowledge and ability to manipulate and

26

control senior citizens’ finances and legal status.” Id. Once again, the TAC lacks comparable

27

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22

28

1

allegations.
Plaintiffs also allege that Defendants retained “power” over them, their homes and

3

residential environment. TAC ¶ 144. Plaintiffs do not allege, however, that Defendants had power

4

over them at the time they entered the Residency Contracts. Moreover, Plaintiffs do not allege

5

how the “power” Defendants retained is any different from power inherent in other contractual

6

relationships. In their Opposition to Defendants’ motion, Plaintiffs argue that the “caretaking

7

relationship” between Plaintiffs and CC-PA gives rise to a fiduciary duty. Pls.’ Opp’n to CC-PA’s

8

Mot. at 12. Plaintiffs do not cite to, and this Court is not aware of, any case in which a court found

9

that a contract for housing and care in a CCRC, without more, gives rise to a fiduciary duty. There

10

appears to be no published court opinion in California on this issue, and Defendants have cited to

11

United States District Court
Northern District of California

2

three opinions from other states that have found that a contract for housing and care in a CCRC

12

does not give rise to fiduciary duties. See Albaugh v. The Reserve, 930 N.W.2d 676, 685-686

13

(Iowa 2019) (affirming summary judgment in favor of defendant senior adult congregate living

14

facility because defendant and residents (who are sixty years of age or older) had engaged in arms-

15

length transaction, on equal footing, and without defendant having any form of influence over

16

plaintiff); Buck v. The Reserve, 947 N.W.2d 225 (Iowa Ct. App. 2020) (reversing judgment on

17

breach of fiduciary duty claim because of Albaugh); Roscoe v. Elim Park Baptist Home, Inc., 2015

18

WL 9871344, at *3-6 (Conn. Super. Ct. Dec. 22, 2015) (rejecting claim that a fiduciary

19

relationship existed between decedent and a Continuing Care Retirement Community because

20

there were “no allegations that the defendant had actual or constructive knowledge of the

21

decedent’s diminished capacity or incapacity, as is required to demonstrate that the transaction

22

was closer than arm’s length or characterized by a unique degree of trust and confidence.”).

23

Although the three out-of-state cases are not controlling, the Court finds their reasoning

24

persuasive. In the absence of allegations of unequal footing, undue influence, diminished capacity

25

or incapacity, or other similar allegations, Plaintiffs’ contractual relationship with CC-PA does not

26
27
28

Case No.: 5:14-cv-00750-EJD
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23

1

support a cognizable breach of fiduciary duty claim.7
2. Whether Defendants Undertook to Act on Behalf And For Plaintiffs

3

Plaintiffs’ alternative theory, that Defendants voluntarily accepted and/or assumed to act

4

on their behalf, is equally unavailing. It bears repeating that the parties’ relationship is rooted in

5

contracts. Plaintiffs contracted for certain services and a right to residency, and CC-PA obtained

6

capital in the form of Entrance Fees and monthly fees. TAC, Ex. 9. Neither the Residency

7

Contract nor Promissory Note expressly or even impliedly suggest Defendants knowingly

8

undertook a fiduciary duty to act on behalf and for the benefit of Plaintiffs. Rather, the Residency

9

Contracts expressly disclaim any non-contractual relationship or rights as to Entrance Fees. TAC,

10

Exh. 8 at section 9.5 (“Your rights under this Contract are limited to those rights expressly granted

11

United States District Court
Northern District of California

2

in it and do not include any proprietary interest in the assets of the Provider or in the Community,

12

any managerial or other interest in the Provider or any third-party contractor, or any interest in any

13

payments made under this Contract.”).
California courts have explained that “[t]he essence of a fiduciary . . . relationship is that

14
15

the parties do not deal on equal terms, because the person in whom trust and confidence is reposed

16

and who accepts that trust and confidence is in a superior position to exert unique influence over

17

the dependent party.” City Solutions, Inc. v. Clear Channel Commc’ns, Inc., 201 F. Supp. 2d 1048,

18

1050 (N.D. Cal. 2002) (quoting Barbara A. v. John G., 145 Cal. App. 3d 369, 383 (1983)). Here,

19

Plaintiffs fail to plead sufficient facts to show that Defendants held a “superior position to exert

20

unique influence” over them when they entered the relevant contracts. There are also no facts

21

alleged to support an inference that Defendants entered the contracts “with the view of acting

22

primarily for the benefit of” Plaintiffs. City of Hope, 43 Cal.4th at 386.

23
24
25
26
27
28

In their Opposition brief, Plaintiffs argue that “CC-PA exploited its superior knowledge, bargaining
power, and Plaintiffs’ vulnerable position.” Pls’ Opp’n to CC-PA’s Mot. at 16. Allegations in a brief,
however, cannot rectify insufficiencies in a complaint. Apple Inc. v. Allan & Assoc. Ltd., 445 F.
Supp. 3d 42, 59 (N.D. Cal. 2020); Siemers v. Wells Fargo, 2006 WL 2355411, at *20 (N.D. Cal.
Aug. 14, 2006).
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
24
7

1

The breach of fiduciary duty claim is accordingly dismissed. Alvarado Orthopedic

2

Research, L.P. v. Linvatec Corp., 2011 WL 3703192, at *4 (S.D. Cal. Aug. 23, 2011) (granting

3

motion to dismiss because “nothing in the contract itself suggests [defendant] intended to

4

subordinate its interests to [p]laintiffs’. [citation omitted] Rather, the agreement’s terms indicate

5

that the parties intended to establish a mutually beneficial relationship.”); TMX Funding, Inc. v.

6

Impero Techs., Inc., 2010 WL 4774791, at *6 (N.D. Cal. Nov. 16, 2010) (finding that “[plaintiff’s]

7

allegations do not support an inference that he entered the loan transaction involuntarily or under

8

some type of duress as a result of a preexisting vulnerability of which [the corporation] took

9

advantage.”).
F.

11

United States District Court
Northern District of California

10

Plaintiffs’ fifth cause of action is for violation of the CLRA, which prohibits “unfair

Fifth Cause of Action for Violation CLRA

12

methods of competition and unfair or deceptive acts or practices undertaken by any person in a

13

transaction intended to result or which results in the sale or lease of goods or services to any

14

consumer.” Cal. Civ. Code § 1770(a); Wilson v. Hewlett–Packard Co., 668 F.3d 1136, 1140 (9th

15

Cir. 2012). This prohibition bars representations that “goods . . . have characteristics which they

16

do not have” or “are of a particular standard, quality, or grade . . . if they are of another.” Cal. Civ.

17

Code §§ 1770(a)(5), (7). It likewise bars the omission of any material fact relating to those goods.

18

See LiMandri v. Judkins, 52 Cal. App. 4th 326, 337 (1997). The Ninth Circuit has held that “rule

19

9(b)’s heightened pleading standards apply to claims for violations of the CLRA” when such

20

claims are grounded in fraud. Vess, 317 F.3d at 1102-05.

21

Under Civil Code Section 1780(a), “CLRA actions may be brought by a consumer ‘who

22

suffers any damage as a result of the use or employment’ of a proscribed method, act, or practice.”

23

MacRae v. HCR Manor Care Servs., 2014 WL 3605893, at *3 (C.D. Cal. July 21, 2014) (quoting

24

Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1367 (2010)). Therefore, to state a claim

25

under the CLRA, a plaintiff must show that: (1) a consumer is exposed to an unlawful business

26

practice, and (2) the consumer is damaged by the unlawful practice. Id. at *3. Additionally, a

27

Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
25

28

1
2

CLRA claim based in fraud requires reliance. Id.
Defendants seek dismissal of the CLRA claim, asserting that Plaintiffs (1) fail to comply

3

with the venue affidavit requirement; (2) fail to comply with the pre-complaint notice requirement;

4

and (3) fail to allege sufficient facts with particularity to state a cognizable claim. Defendants also

5

argue that three of the four named Plaintiffs’ claims are barred by the statute of limitations. The

6

Court addresses each of these arguments below.

7

1.Venue Affidavit Requirement

8

The CLRA requires a plaintiff to file an affidavit “concurrently with the filing of the
complaint.” Cal. Civil Code § 1780(d). This affidavit must state facts showing that the action has

10

been commenced in a county described in the statute as a proper place for trial of the action. Id. If

11

United States District Court
Northern District of California

9

a plaintiff fails to file the required affidavit, the court “shall, upon its own motion or upon motion

12

of any party dismiss the action without prejudice.” Id.

13

Although Plaintiffs did not file an affidavit concurrent with their original complaint, they

14

have done so now in response to the pending motions to dismiss. Plaintiffs filed an affidavit

15

signed by Burton Richter on March 28, 2014. See Dkt. No. 286-1. “A court need not dismiss a

16

CLRA claim based on the fact that the venue affidavit was not filed concurrently with the

17

complaint if an affidavit has been filed that satisfies the purpose of the rule—ensuring that the

18

action has been commenced in a proper venue.” Seifi v. Mercedes-Benz USA, LLC, 2013 WL

19

2285339, at *8 (N.D. Cal. May 23, 2013). Because Plaintiffs are now in compliance with Civil

20

Code § 1780(d), and Defendants do not contest venue in this Court, the Court finds that any

21

technical violation of § 1780(d) does not warrant dismissal of the CLRA claim.

22

2. Precomplaint Notice and Demand Requirement of Civil Code § 1782(a)

23

Defendants next contend that the CLRA claim is procedurally defective because Plaintiffs

24

failed to provide the statutorily required 30 days’ pre-suit notice of the alleged violation. Cal. Civ.

25

Code § 1782(a). Plaintiffs accuse Defendants of putting form over substance, and further assert

26

that they were not required to send a demand letter because their CLRA claim seeks injunctive

27

Case No.: 5:14-cv-00750-EJD
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26

28

1

relief, not damages, and in any event, they sent a demand letter on March 27, 2014.
The Court agrees with Plaintiffs. Section 1782(d) provides that “[a]n action for injunctive

2
3

relief brought under the specific provisions of Section 1770 may be commenced without

4

compliance with subdivision (a).” Cal. Civ. Code § 1782(d). Plaintiffs’ CLRA claim is limited to

5

injunctive relief. See TAC ¶ 163 (“Defendants are continuing to engage in the practices alleged

6

herein, and will not cease until an injunction is issued by this Court.”). Therefore, the purported

7

failure to comply with § 1782(a) is not a basis for dismissing Plaintiffs’ CLRA claim.

8

3. Statute of Limitations
The statute of limitations for CLRA claims is three years from the date of the commission

10

of the alleged violation. Cal. Civ. Code § 1783. Here, the alleged CLRA violation occurred when

11

United States District Court
Northern District of California

9

Defendants marketed and sold the CCRA residential and financial management services. TAC ¶

12

161. Three of the four Plaintiffs, Linda Collins Cork, Georgia Lee May and Janice Robb

13

Anderson, moved to the Vi in 2005. TAC ¶¶ 38, 41, 48. This suit was filed in February of 2014,

14

well after three years from the date of the alleged CLRA violation.
The three Plaintiffs counter that their CLRA claim is not time-barred because Defendants’

15
16

fraudulent concealment tolls the statute of limitations, and alternatively, the discovery rule

17

postpones accrual of their CLRA claim. The TAC includes an allegation suggesting that Plaintiffs

18

did not learn of Defendants’ failure to maintain Entrance Fee reserves until March of 2012, when

19

Defendants stated in writing that “there is no entrance fee repayment reserve.” TAC ¶ 63, Ex. 7.

20

This allegation might be sufficient to show the time and manner of the discovery of their cause of

21

action; however, Plaintiffs fail to allege facts to show their inability to make the discovery earlier

22

despite reasonable diligence. Therefore, the CLRA claim asserted by the three Plaintiffs must be

23

dismissed as time-barred. See Plumlee v. Pfizer, Inc., 2014 WL 695024, at *10 (N.D. Cal. Feb. 21,

24

2014) (dismissing CLRA claim because plaintiff failed to allege factual basis for tolling the statute

25

of limitations).

26

//

27

Case No.: 5:14-cv-00750-EJD
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27

28

4. Whether Plaintiffs Allege Legally Cognizable Claim

1

Defendants do not dispute the timeliness of the CLRA claim brought by the remaining

2
3

Plaintiff, Thomas Merigan. Accordingly, the Court considers below Defendants’ challenges to the

4

substance of the CLRA claim and concludes that they have merit.

5

First, Defendants contend that Plaintiffs fail to identify with particularity any actionable

6

misrepresentation. The Court agrees. Plaintiffs allege only in general and conclusory terms that

7

“Defendants practices in connection with the marketing and sale of CCRC residential and

8

financial management services related to Entrance Fees and allocated expenses violated the CLRA

9

insofar as Defendants (1) misrepresented the “character, uses and benefits of the services they
provided”; (2) misrepresented the “standard and quality of the services they provided”; (3)

11

United States District Court
Northern District of California

10

knowingly advertised services with the intent not to sell them as advertised; and (4) “knowingly

12

mispresented the legal rights, obligations and/or remedies associated with their services.” TAC ¶

13

161. This paragraph merely parrots the language of the CLRA and does not pass muster on a

14

motion to dismiss. Ashcroft, 556 U.S. at 678 (“‘[A] formulaic recitation of the elements of a cause

15

of action will not do.’”) (quoting Bell Atlantic, 550 U.S. at 557)). The CLRA claim incorporates

16

by reference all the other allegations in the TAC, but Defendants should not have to scour the

17

TAC for every possible allegation that suggests fraud. In response to the motions to dismiss,

18

Plaintiffs argue that they were “lured into the Vi at Palo Alto by Defendant’s assurances of

19

financial security.” Pls.’ Opp’n to CC-PA’s Mot. at 19. This allegation does not appear in the

20

TAC8, and even if had been included, it would be insufficient, without more, to give Defendants

21

fair notice of the basis of the CLRA claim.
Second, Defendants contend that Plaintiffs fail to allege facts to show reliance. Where

22
23

claims under the CLRA relate to an alleged misrepresentation, plaintiffs must allege detrimental

24
25
26
27
28

“[I]t is ‘axiomatic that the complaint may not be amended by the briefs in opposition to a motion
to dismiss.’” Apple Inc. v. Allan & Assoc. Ltd., 445 F. Supp. 3d 42, 59 (N.D. Cal. 2020) (quoting
Frenzel v. AliphCom, 76 F. Supp. 3d 999, 1009 (N.D. Cal. 2014)).
8

Case No.: 5:14-cv-00750-EJD
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28

1

reliance, i.e., that they would have made a different consumer decision but for the alleged

2

misstatements at issue. See Faigman v. Cingular Wireless, LLC, 2007 WL 708554, at *5 (N.D.

3

Cal. Mar. 2, 2007) (explaining that “plaintiffs must allege that they would have acted differently—

4

i.e., not purchased phones or services from Cingular, or opted for different Cingular products or

5

services—had plaintiffs known” the undisclosed facts); see also Cattie v. Wal-Mart Stores, Inc.,

6

504 F. Supp. 2d 939, 947 (S.D. Cal. 2007) (requiring plaintiff to allege reliance on false

7

representations in advertisements in a false advertising case); Anunziato v. eMachines, Inc., 402 F.

8

Supp. 2d 1133, 1138 (C.D. Cal. 2005) (acknowledging the reliance element of a CLRA claim).
Plaintiffs do not dispute that they are required to allege actual reliance and insist that they

9

have done so. Plaintiffs’ allegations, however, are entirely conclusory. See TAC ¶ 132 (“Plaintiffs

11

United States District Court
Northern District of California

10

. . . reasonably relied on Defendants’ actions.”), 142 (same). Conclusory allegations need not be

12

accepted as true. In re Tracht Gut, LLC, 836 F.3d at 1150-51.

13

Accordingly, Plaintiffs fail to state a claim under the CLRA.9

14

G.

15

The sixth and seventh claims for violations of the UCL are based on allegations that

Sixth and Seventh Causes of Action for Violation of Section 17200

16

Defendants committed financial elder abuse in violation of the Welfare and Institutions Code;

17

failed to maintain a reserve fund in violation of the Health & Safety Code §§ 1792.6 and 1793

18

(“Refundable contracts; refund reserve funds; exemption; unsecured refundable entrance fees;

19

disclosure’”), 1793.5 (“Acceptance of deposits and proposals to promise to provide care without

20

authorization, failure to place deposits into escrow accounts, execution of continuing care

21

contracts without authorization and abandonment of continuing care retirement community

22

obligations; violations; offense and penalties”); abandoned their obligations under the Residency

23

Contracts in violation of Health & Safety Code § 1793.5(d); failed to make disclosures required by

24
25
26
27
28

9

Because Plaintiffs fail to allege any misrepresentation with particularity and fail to allege
reliance, the Court finds it unnecessary to discuss Defendant’s third challenge to the CLRA claim,
namely whether Plaintiffs allege lost money or property.
Case No.: 5:14-cv-00750-EJD
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29

1

Health and Safety Code § 1793(f); 1771.8 (“meetings with residents of continuing care retirement

2

communities; financial statements; resident representative on provider's governing body”); and

3

engaged in deceptive practices. TAC ¶¶ 167-72, 178-83.
Business & Professions Code § 17200 defines unfair competition as any “unlawful, unfair

5

or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. “Unlawful” practices are

6

practices forbidden by law. Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163

7

(1999). For purposes of a consumer suits, “unfair” practices are conduct that is “immoral,

8

unethical, oppressive, unscrupulous or substantially injurious to consumers.” McKell v. Wash.

9

Mut., Inc., 142 Cal. App. 4th 1457, 1473 (2006). Alternatively, a violation of public policy may

10

provide the predicate for an unfair business practices claim when the public policy is “tethered to

11

United States District Court
Northern District of California

4

specific constitutional, statutory, or regulatory provisions.” Bardin v. Daimlerchrysler Corp., 136

12

Cal. App. 4th 1255, 1260-61 (2006). The “fraudulent” prong requires a showing of actual or

13

potential deception to some members of the public, or harm to the public interest. See id. at 180.

14

Defendants asserts four grounds for dismissal of the UCL claims: (1) failure to plead loss

15

of money or property; (2) failure to allege an unlawful act; (3) failure to allege a fraudulent act;

16

and (4) failure to allege an unfair act.

17
18

1. Economic Injury
With the passage of Proposition 64, private standing for a UCL claim is limited to any

19

person who has lost money or property as a result of unfair competition. Kwikset Corp. v. Superior

20

Court, 51 Cal.4th 310, 321-22 (2011). “The plain import of this is that a plaintiff now must

21

demonstrate some form of economic injury.” Id. The California Supreme Court has instructed that

22

“[t]here are innumerable ways in which economic injury from unfair competition may be shown.

23

A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she

24

otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of

25

money or property to which he or she has a cognizable claim; or (4) be required to enter into a

26

transaction, costing money or property, that would otherwise have been unnecessary.” Id. at 323.

27

Case No.: 5:14-cv-00750-EJD
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30

28

1

“[T]he Proposition 64 requirement that injury be economic renders standing under section 17204

2

substantially narrower than federal standing under article III, section 2 of the United States

3

Constitution, which may be predicated on a broader range of injuries.” Id. at 324; see also Ehret v.

4

Uber Technologies, 68 F. Supp. 3d 1121, 1132 (N.D. Cal. 2014) (“Whereas a federal plaintiff’s

5

injury in fact may be intangible . . . a UCL plaintiff’s injury in fact [must] specifically involve lost

6

money or property.” (internal quotation marks omitted)).
Here, Plaintiffs attempt to meet the economic injury requirement by alleging that “their

7

security interest has been impaired.” TAC ¶ 97; see also id. ¶¶ 6, 18, 65, 74, 97, 19, 97, 98, 120,

9

122, 152, 167, 178 (demonstrating that their security interest has been impaired). Plaintiffs explain

10

in their Opposition brief that by “impaired,” they mean that their present or future property interest

11

United States District Court
Northern District of California

8

in their Entrance Fees has been diminished. Pls.’ Opp’n to CC-PA’s Mot. at 20. Because this

12

economic injury theory is recognized in Kwikset, the Court concludes that Plaintiffs’ allegations

13

are sufficient. Although Plaintiffs do not quantify their economic loss in monetary terms, Kwikset

14

does not require them to do so at the pleading stage. Levitt v. Yelp! Inc., 2011 WL 13153230, at *7

15

(N.D. Cal. Mar. 22, 2011) (stating that all that is needed to be alleged is “an identifiable trifle” of

16

economic injury).10

17

2. Unlawful Business Practices

18

“By proscribing unlawful business practices, the UCL borrows violations of other laws and

19

treats them as independently actionable.” Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App.

20

4th 824, 837 (2006). Here, Plaintiffs base their UCL on alleged violations of the elder abuse

21

statute and the Health & Safety Code provisions governing refundable residency contracts. TAC

22

¶¶ 166-85.11

23
24
25
26
27
28

10

Whether Plaintiffs will ultimately be able to present sufficient evidence of economic injury to
warrant restitution or disgorgement is a separate issue that will undoubtedly be the subject of later
proceedings.
11

The alleged CLRA violation is not pleaded as a basis for the UCL claim. Id.
Case No.: 5:14-cv-00750-EJD
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31

a.

1
2

Elder Abuse Statute

As discussed previously, the claim for financial elder abuse is adequately pled. It follows

3

that the UCL claims under the unlawful prong may proceed based on the alleged financial elder

4

abuse violation.

5

b.

Health & Safety Code § 1771.8

6

CC-PA also challenges the unlawful business practices claim to the extent it is based on a

7

Health & Safety Code § 1771.8, which requires in pertinent part that CCRC providers “hold, at a

8

minimum, semiannual meetings with the residents of the . . . community, or the resident

9

association or its governing body, for the purpose of the free discussion of subjects . . . and issues
as they apply to the continuing care retirement community and proposed changes in policies,

11

United States District Court
Northern District of California

10

programs, and services.” Health & Safety Code § 1771.8(c). Plaintiffs allege that CC-PA and CC-

12

DG violated § 1771.8(c) insofar as they “never permitted a representative of the residents to

13

participate in CC-DG’s or CC-PA’s Board Meetings.” TAC ¶ 91. However, § 1771.8(c) does not

14

require resident to participate in board meetings; it requires a CCRC provider to hold residential

15

meetings. Plaintiffs’ TAC does not allege that CC-PA failed to hold residential meetings. See

16

TAC, ¶¶ 85, 90. Therefore, the purported violation of section 1771.8 does not support Plaintiffs’

17

unlawful business practices claims.

18
19

c.

CC-DG and CRMLP’s Allegedly Unlawful Business Practices

CC-DG and CRMLP separately argue that the alleged violations of the Health & Safety

20

Code do not provide a basis for a UCL claim directly against them. Their argument is persuasive.

21

The Health & Safety Code provisions Plaintiffs rely upon apply to a “provider offering a

22

refundable contract.” Health Safety Code § 1792. A “provider” means an entity that provides

23

continuing care, makes a continuing care promise, or proposes to promise to provide continuing

24

care,” and includes “any entity that controls an entity that provides continuing care, makes a

25

continuing care promise, or proposes to promise to provide continuing care.” Id. § 1771(p)(10).

26
27
28

The TAC alleges that CC-PA is a provider, whereas there is no mention of CC-DG and
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
32

1

CRMLP acting as providers. See TAC ¶¶ 62 (“California law requires that CC-PA retain sufficient

2

reserves to cover its refund obligations.”), 63 (“CC-PA’s failure to maintain sufficient reserves in

3

trust to refund the Entrance Fees, and non-disclosure of this fact, is a direct and ongoing violation

4

of Health & Safety Code §§ 1972.6 and 1973.”). Plaintiffs rely on allegations that “CC-DG

5

controls CRMLP and CRMLP ‘oversees the transfer of funds between CC-PA and CC-DG.’” Pls.’

6

Opp’n to CRMLP and CC-DG’s Mot. at 21, Dkt. No. 285 (citing TAC ¶¶ 28-29). However,

7

Plaintiffs do not allege that CC-DG controls CC-PA’s continuing care operations and services.

8

That CRMLP “oversees” the transfer of funds from CC-PA to CC-DG is insufficient, without

9

more, to establish that CRMLP and CC-DG control CC-PA such that CRMLP and CC-DG should

10

United States District Court
Northern District of California

11
12

be held directly liable as providers of continuing care.
The unlawful business practices claims against CC-DG and CRMLP are dismissed.
3. Allegedly Unfair Business Practices

13

CC-PA contends that (1) Plaintiffs cannot maintain an action under the unfair prong as to

14

any law that CC-PA did not violate; (2) an unfair prong claim cannot stand when the challenged

15

practice is accepted by the relevant regulatory agency as appropriate; and (3) the TAC lacks the

16

specific, factual allegations required to substantiate Plaintiffs’ claims or its purported unfair

17

business practices.

18

The Court rejects CC-PA’s first and third arguments because the alleged violations of the

19

financial elder abuse statute and the Health and Safety Code (other than section 1771.8) provide a

20

sufficient basis for a UCL claim under the unfair prong. CC-PA’s second argument has some

21

merit. A trier of fact may ultimately conclude that CC-PA’s conduct was not immoral, unethical,

22

oppressive, unscrupulous or substantially injurious because the DSS concluded that CC-PA’s

23

contracts are not “refundable contracts.” However, the Ninth Circuit explained that “[a] contract

24

that would otherwise be classified as repayable will be classified as refundable if the applicant or

25

provider refers to the repayment as a refund.” Cork v. CC-PA, 818 Fed. Appx. at 598 n.4 (citing

26

Health & Safety Code § 1771(r)(3)). Plaintiffs allege that CC-PA regularly used the term

27

Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
33

28

1

“refundable” and “refund” to explain to residents that they would be repaid most of their Entrance

2

Fees. TAC ¶ 7; see also ¶ 59. A CC-PA employee allegedly told a Plaintiff that the Entrance Fee

3

payment “would remain locally with CC-PA, and would not be transferred between entities or

4

otherwise.” Id. ¶ 64. Plaintiffs’ allegations supply a plausible basis for classifying the Residency

5

Contracts as refundable under section 1771(r)(3), even if the DSS concluded that they were not.

6

Plaintiffs have sufficiently alleged UCL claims under the unfair prong.

7
8

4. Fraud Prong
A plaintiff may base a UCL claim on an alleged omission, “[but] to be actionable the
omission must be contrary to a representation actually made by the defendant, or an omission of a

10

fact that the defendant was obliged to disclose.” Sud v. Costco Wholesale Corp., 229 F. Supp. 3d

11

United States District Court
Northern District of California

9

1075, 1085 (N.D. Cal. 2017) (quoting Daugherty v. Am. Honda Motor Co., 144 Cal. App. 4th 824,

12

835 (2006)).

13

Here, the UCL fraud-based claim is based on the same three omissions that form the basis

14

for the concealment claim. Compare TAC ¶ 131 with TAC ¶ 172. As discussed previously,

15

Plaintiffs fail to allege fraud with particularity. It follows that the UCL claim is also subject to

16

dismissal to the extent it is predicated on fraud.

17

H.

18

Plaintiffs allege that CC-PA breached its contractual obligations by upstreaming funds to

19

CC-DG and failing to maintain financial reserves in trust as required by Health & Safety Code §

20

1792.6. TAC ¶ 190. The Residency Contracts do not contain any express provisions requiring CC-

21

PA to refrain from “upstreaming” funds to CC-DG and to maintain financial reserves in trust.

22

Plaintiffs do not contend otherwise. Instead, Plaintiffs allege that Health & Safety Code § 1792.6

23

“is incorporated into the contract by operation of law.” TAC ¶ 190. The Court previous rejected

24

this argument because Plaintiffs cited no authority in support of such a proposition. Order at 24.

25

Plaintiffs still have not done so.

26
27
28

Eighth Cause of Action for Breach of Contract

Moreover, reading additional terms into the Residency Contracts would violate the
Case No.: 5:14-cv-00750-EJD
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS
34

1

integration clause stated therein. See id., Ex. 8 at section 10.10 (“[t]his Contract, including all

2

attached Appendices and documents incorporated by reference, constitutes the entire Contract

3

between [each Plaintiff] and [CC-PA]….”) and 9.5 (“[each Plaintiff’s] rights under this Contract

4

are limited to those rights expressly granted in it and do not include … any interest in any

5

payments made under this Contract.”). The Health & Safety Code also forecloses Plaintiffs’

6

incorporation theory. Specifically, section 1787(d) provides that “[a] continuing care contract

7

approved by the department shall constitute the full and complete agreement between the parties.”

8

Cal. Health & Safety Code § 1787(d). The contracts at issue in this case were indisputably

9

approved by the DSS. TAC, Ex. 8, p. 35 (“This continuing care contract form has been approved

10

United States District Court
Northern District of California

11
12

by the [DDS] . . . .”).
Because Plaintiffs fail to allege that CC-PA breached any provision of the Residency
Contracts, the breach of contract claim is dismissed.

13

I.

14

The ninth cause of action is based on allegations that CC-PA (a) denied that the Residency

Ninth Cause of Action for Breach of Implied Covenant

15

Contracts are “refundable contracts”; (b) failed to maintain prudent cash reserves; (c) failed to

16

maintain statutorily required reserves in trust; (d) upstreamed hundreds of million dollars of

17

Entrance Fees to CC-DG; and (e) failing to use Entrance Fees for the benefit of CC-PA and its

18

residents. TAC ¶ 196.

19

Defendants contend that this claim should be dismissed for three reasons: an implied

20

covenant of good faith and fair dealing is not a vehicle for adding additional contractual terms; the

21

TAC fails to allege that CC-PA’s treatment of Entrance Fees is inconsistent with the purpose of

22

the Residency Contracts; and Plaintiffs have not alleged facts sufficient to establish that CC-PA

23

acted in bad faith in connection with its treatment of Entrance Fees.

24

As to CC-PA’s first argument, the law is well established that“[t]he implied covenant will

25

not apply where no express term exists on which to hinge an implied duty, and where there has

26

been compliance with the contract’s express terms.” Young v. Facebook, Inc., 790 F. Supp. 2d

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1

1110, 1117 (N.D. Cal. 2011) (citation omitted); see also, e.g., Racine & Laramie, Ltd. v. Cal.

2

Dep’t of Parks & Recreation, 11 Cal. App. 4th 1026, 1032 (1992) (“[T]he implied covenant is

3

limited to ensuring compliance with the express terms of the contract, and cannot be extended to

4

create obligations not contemplated in the contract.”) (Emphasis added)). The Residence Contracts

5

do not include express provisions forbidding CC-PA from transferring Entrance Fees to CC-DG or

6

requiring CC-PA to establish and maintain reserves in trust. Therefore, Plaintiffs’ breach of

7

implied covenant fails on this basis alone.

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The breach of implied covenant claims is dismissed.

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J.

Tenth Cause of Action for Declaratory Relief

Plaintiffs also request “a declaration of the rights and responsibilities of the parties with

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Northern District of California

10

respect to compliance with California law.” TAC ¶ 200. Specifically, Plaintiffs seek declaratory

12

relief in a form of a judicial declaration that (1) the Residency Contracts qualify as “refundable

13

contracts” under Health & Safety Code §1771(r)(2); CC-PA breached its obligations to maintain

14

sufficient reserves in trust pursuant to Health & Safety Code §1792.6; and CC-PA breached its

15

obligations under § 1793(f) to disclose the lack of proper reserves in all marketing materials and

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continuing care contracts. TAC ¶ 199.

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CC-PA seek dismissal of the declaratory relief claim, asserting that there is no actual

18

controversy, the claim is duplicative of other claims, and that the DSS is the agency best equipped

19

to address the issues raised in this claim. The Court disagrees. Even though DSS concluded that

20

the Residency Contracts not “refundable contracts,” an actual controversy still exists because, as

21

discussed above, “[a] contract that would otherwise be classified as repayable will be classified as

22

refundable if the applicant or provider refers to the repayment as a refund.” Cork v. CC-PA, 818

23

Fed. Appx. at 598 n.4 (citing Health & Safety Code § 1771(r)(3)). Plaintiffs are entitled to seek a

24

declaration regarding the applicability of section 1771(r)(3) and its impact on the parties’ rights

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and responsibilities. The declaratory relief claim is not duplicative of any other claim insofar as it

26

is based on section 1771(r)(3).

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CC-DG and CRMLP argue separately that there is no judicial controversy as to them.

1
2

Plaintiffs allege however, that CC-DG and CRMLP committed the very actions Plaintiffs seek to

3

enjoin through the declaratory relief claim, namely the transfer of Entrance Fees from CC-PA to

4

CC-DG. If Plaintiffs ultimately prove facts to show the applicability of section 1771(r)(3), only an

5

order of declaratory relief against all three Defendants will prevent further transfers of Entrance

6

Fees to CC-DG.
Accordingly, Defendants’ motions to dismiss the claim for declaratory judgment are

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8
9
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denied.
K.

Conspiracy

The TAC includes an allegation that Defendants entered into a conspiracy in furtherance of

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Northern District of California

11

the acts alleged in therein. TAC ¶ 30. CC-DG and CRMLP argue that this theory of liability is

12

insufficiently pled.

13

“The elements of a civil conspiracy are (1) the formation and operation of a conspiracy, (2)

14

wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful

15

conduct.” Mintel Learning Tech., Inc. v. Beijing Kaidi Educ., 2007 WL 2288329 (N.D. Cal. Aug.

16

9, 2007) (citing Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 511 (1994)). The

17

elements of the underlying tort must also be alleged. Id. Further, a plaintiff “must allege that each

18

individual defendant joined the conspiracy and played some role in it because, at the heart of an

19

antitrust conspiracy is an agreement and a conscious decision by each defendant to join it.” In re

20

TFT–LCD (Flat Panel) Antitrust Litig., 586 F. Supp. 2d 1109, 1117 (N.D. Cal. 2008) (quoting In

21

re Elec. Carbon Prods. Antitrust Litig., 333 F. Supp. 2d 303, 311–12 (D.N.J. 2004)).

22

To the extent the financial elder abuse and UCL claims remain viable, the Court concludes

23

that the conspiracy allegations are sufficient to potentially extend liability to CC-DG and CRMLP.

24

Plaintiffs allege that that CC-DG “developed” and “operated CC-PA under a business plan to use

25

CC-PA as a device to return all of CC-DG’s invested capital in CC-PA and to funnel the proceeds

26

of Entrance Fees to CC-DG on a non-recourse basis, for CC-DG’s and its shareholders’ benefit.”

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Id. ¶ 9. Plaintiffs allege that CRMLP assisted in implementing this business plan; was responsible

2

for the financial management of the community; prepared budgets and financial reports; and

3

oversaw transfer of funds between CC-PA and CC-DG. Id. ¶¶ 9, 29. Plaintiffs allege that as a

4

result of this upstreaming, CC-PA is in a financially precarious position, and can pay its debts only

5

by securing periodic, voluntary cash infusions from CC-DG. Id. ¶ 121.

6

Plaintiffs allege that CC-DG and CC-PA conspired to conceal their business plan from

7

prospective residents. Id. ¶ 82. Plaintiffs also allege that: “Defendants entered into a conspiracy in

8

furtherance of the wrongful acts alleged in this Complaint. Each Defendant was aware that the

9

other Defendants planned to commit these wrongful acts. Each Defendant agreed with the other

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Defendants and intended that these acts be committed.” Id. ¶ 30.
Plaintiffs’ allegations, when construed in the light most favorable to Plaintiffs, support a

12

plausible inference that Defendants agreed to “take[], secrete[], appropriate[], obtain[], or retain[]

13

real or personal property of an elder . . . for a wrongful use” in violation of the financial elder

14

abuse statute. Cal. Welf. & Inst. Code § 15610.30(a)(1) and to violate the Health & Safety Code.

15

The allegations of CC-DG’s knowledge and agreement are thin. However, CC-DG’s alleged

16

control over CRMLP, control over the upstreaming, acceptance of the Entrance Fees and

17

disclaimer of any obligation to repay them support a plausible inference that CC-DG was aware of

18

and agreed to the alleged wrongful acts.

19

L.

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Plaintiffs also seek to hold each Defendant liable for aiding and abetting the other

21

Defendants in the acts alleged in the TAC. CC-DG and CRMLP contends that Plaintiffs have not

22

pleaded a basis for aiding and abetting.

23

Aiding and Abetting

Liability may be imposed for aiding and abetting a tort when the person “(a) knows the

24

other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to

25

the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result

26

and the person’s own conduct, separately considered, constitutes a breach of duty to the third

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person.” Das, 186 Cal. App. 4th at 744-45; see also York v. Bank of America, 2016 WL 392928, at

2

*4 (N.D. Cal. Feb. 2, 2016) (applying this standard to a claim for aiding and abetting financial

3

elder abuse). “This standard requires that the defendant have actual knowledge of the specific

4

primary wrong the defendant substantially assisted.” Simi Mgmt. Corp. v. Bank of America Corp.,

5

2012 WL 259865 (N.D. Cal. Jan. 27, 2012) (emphasis in original).

6

Viewing the allegations in the light most favorable to Plaintiffs, the Court concludes that

7

the TAC alleges sufficient facts to plausibly support a claim for aiding and abetting financial elder

8

abuse for the same reasons stated above in the discussion of the financial elder abuse claim and

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conspiracy liability.
M.

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Northern District of California

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Lastly, Plaintiffs’ TAC includes alter ego allegations and again, Defendants contend that

12

Alter Ego Doctrine

the allegations are insufficient as a matter of law.

13

“Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its

14

stockholders, officers and directors, with separate and distinct liabilities and obligations.” Sonora

15

Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000). Under California law, “[a]

16

corporate identity may be disregarded—the ‘corporate veil’ pierced—where an abuse of the

17

corporate privilege justifies holding the equitable ownership of a corporation liable for the actions

18

of the corporation.” Id. (citing Roman Catholic Archbishop v. Superior Court, 15 Cal. App. 3d 405

19

(1971)). “Under the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud,

20

circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will

21

ignore the corporate entity and deem the corporation’s acts to be those of the persons or

22

organizations actually controlling the corporation, in most instances the equitable owners.” Id.

23

(citing Robbins v. Blecher, 52 Cal. App. 4th 886 (1997)).

24

“To invoke the alter ego doctrine, [a plaintiff] must allege: (1) that there is such a unity of

25

interest and ownership that the separate personalities of the two corporations no longer exist; and

26

(2) that if the acts are treated as those of only one of the corporations, an inequitable result will

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follow.” Walsh v. Kindred Healthcare, 798 F. Supp. 2d 1073, 1082 (N.D. Cal. 2011) (citing Wady

2

v. Provident Life and Accident Ins. Co. of America, 216 F. Supp. 2d 1060, 1066 (C.D. Cal. 2002)

3

and Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th at 538 (2000). “Among the factors

4

to be considered in applying the doctrine are commingling of funds and other assets of the two

5

entities, the holding out by one entity that it is liable for the debts of the other, identical equitable

6

ownership in the two entities, use of the same offices and employees, and use of one as a mere

7

shell or conduit for the affairs of the other.” Roman Catholic Archbishop v. Superior Court, 15

8

Cal. App. 3d at 411. “Conclusory allegations of alter ego status are insufficient.” Walsh, 798 F.

9

Supp. 2d at 1082 (citing Hokama v. E.F. Hutton & Co., Inc., 566 F. Supp. 636, 647 (C.D. Cal.
1983)). “The alter ego doctrine may apply between a parent and a subsidiary or, ‘under the single

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Northern District of California

10

enterprise rule, ... between sister or affiliated companies.’” Wehlage v. EmpRes Healthcare, Inc.,

12

791 F. Supp. 2d 774, 782 (N.D. Cal. 2011) (quoting Troyk v. Farmers Group, Inc., 171 Cal. App.

13

4th 1305, 1341 (2009)).
Here, Plaintiffs’ alter ego allegations consist of two sentences: “CC-PA acted as the alter

14
15

ego of CC-DG. CC-PA was so utterly controlled by CC-DG, directly and through CRMLP, that it

16

effectively ceased to exist as a separate entity.” TAC ¶ 32. These are the type of conclusory

17

allegations that will not suffice. Plaintiffs have not made any attempt to plead the elements of alter

18

ego liability, much less facts supporting each element.

19

IV.

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CONCLUSION
For the reasons discussed above, Defendants’ motions to dismiss are GRANTED IN PART

AND DENIED IN PART as follows:
1.

Defendants’ motions are DENIED as to the first claim for financial elder abuse and

the tenth claim for declaratory relief.
2.

Defendants’ motions to dismiss are GRANTED as to the second claim for

25

concealment, third claim for negligent misrepresentation, fourth claim for breach of fiduciary

26

duties, the fifth claim for violation of the CLRA, eighth claim for breach of contract and ninth

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1
2

claim for breach of the implied covenant.
3.

To the extent the sixth and seventh claims are based on fraudulent business

3

practices under the UCL, the claims are DISMISSED as to all Defendants. To the extent these

4

claims are based on violations of the Health & Safety Code, they are DISMISSED as to CC-DG

5

and CRMLP, but not as to CC-PA. To the extent these claims are based on a violation of the

6

financial elder abuse statute, Defendants’ motions to dismiss are DENIED.

7

4.

Defendants’ motions to dismiss the tenth claim for declaratory relief is DENIED.

8

5.

The alter ego allegations are ordered stricken without leave to amend; the aiding

9
10

and abetting and conspiracy liability theories are sufficiently pled.
6.

All of the dismissed claims are dismissed without leave to amend. Plaintiffs have

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Northern District of California

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been on notice since March 2016 of the pleading deficiencies raised in Defendants’ instant

12

motions. See Order. Despite the benefit of discovery and approximately five years to shore up

13

their allegations while the case was on appeal, Plaintiffs added very few, if any, substantive

14

allegations to the TAC to cure those deficiencies. Given this history, the Court declines to grant

15

leave to amend because further amendments are likely to be futile. Fidelity Fin. Corp. v. Fed.

16

Home Loan Bank of San Francisco, 792 F.2d 1432, (9th Cir. 1986) (affirming district court’s

17

denial of leave to amend).

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19
20
21

IT IS SO ORDERED.
Dated: April 21, 2021
______________________________________
EDWARD J. DAVILA
United States District Judge

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