13 19 16 17 12 18 1 2 3 4 5 MICHAEL A. CONGER, ESQUIRE (State Bar #147882) LAW OFFICE OF MICHAEL A. CONGER 16236 San Dieguito Road, Suite 4-14 Mailing: P.O. Box 9374 Rancho Santa Fe, California 92067 Telephone: (858) 759-0200 Facsimile: (858) 759-1906 Attorney for all Plaintiffs, individually, and on behalf of all others similarly situated 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO 9 10 DONALD R. SHORT, JAMES F. GLEASON, CASEY MEEHAN, MARILYN SHORT, PATTY 11 WESTERVELT, AND DOTTIE YELLE, individually, and on behalf of all others similarly situated, Plaintiffs, ) ) ) ) ) ) ) ) ) ) CASE NO: GIC877707 Date: August 8, 2008 Time: 10:30 a.m. Judge: Hon. Yuri Hofmann Dept: 60 Action Filed: December 29, 2006 Trial Date: September 5, 2008 14 v. 15 CC-LA JOLLA, Inc., a Delaware Corporation, CC- ) LA JOLLA, L.L.C., a Delaware limited liability ) PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN company, CC-DEVELOPMENT GROUP, INC., ) CLASSIC RESIDENCE MANAGEMENT ) OPPOSITION TO DEFENDANTS' LIMITED PARTNERSHIP, an Illinois Limited ) MOTION FOR SUMMARY Partnership, and DOES 1 to 110, inclusive, ) JUDGMENT OR, IN THE ) ) ALTERNATIVE, SUMMARY ADJUDICATION Defendants. ---------------) 20 21 22 23 24 25 26 27 28 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Summary Judgment or, in the Alternative, Summary Adjudication
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MICHAEL A. CONGER, ESQUIRE (State Bar #147882) LAW OFFICE OF MICHAEL A. CONGER 16236 San Dieguito Road, Suite 4-14 Mailing: P.O. Box 9374 Rancho Santa Fe, California 92067 Telephone: (858) 759-0200 Facsimile: (858) 759-1906
Attorney for all Plaintiffs, individually, and on behalf of all others similarly situated
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8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN DIEGO 9
10 DONALD R. SHORT, JAMES F. GLEASON, CASEY MEEHAN, MARILYN SHORT, PATTY
11 WESTERVELT, AND DOTTIE YELLE, individually, and on behalf of all others similarly situated,
Plaintiffs,
))))))))))
CASE NO: GIC877707
Date: August 8, 2008 Time: 10:30 a.m. Judge: Hon. Yuri Hofmann Dept: 60 Action Filed: December 29, 2006 Trial Date: September 5, 2008
14 v.
15 CC-LA JOLLA, Inc., a Delaware Corporation, CC- ) LA JOLLA, L.L.C., a Delaware limited liability ) PLAINTIFFS' MEMORANDUM OF
POINTS AND AUTHORITIES IN company, CC-DEVELOPMENT GROUP, INC., ) CLASSIC RESIDENCE MANAGEMENT ) OPPOSITION TO DEFENDANTS' LIMITED PARTNERSHIP, an Illinois Limited ) MOTION FOR SUMMARY Partnership, and DOES 1 to 110, inclusive, ) JUDGMENT OR, IN THE
))
ALTERNATIVE, SUMMARY ADJUDICATIONDefendants.
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Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Summary Judgment or, in the Alternative, Summary Adjudication
TOPICAL INDEX 1
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3 L INTRODUCTION 1
4 II. SUMMARY JUDGMENT AND SUMMARY ADJUDICATION STANDARDS 2
5 III. STATEMENT OF FACTS 3
6 A. Class Members Were Falsely Told That Portions of Their Substantial Entrance Fees Would Be "Set Aside" into a Master Trust and Were Pre
7 Payments for Lifetime Care in the Care Center, Where They Could Transfer, When the Need Arose, for No Additional Cost 3
8 B. Class Members Were Falsely Told They Would Be Provided 24-Hour
9 Emergency Response From a Licensed Nurse 5
10 C. Class Members Were Falsely Told They Could "Rest Assured" Hyatt Would Diligently Act To Minimize Future Monthly Fee Increases 7
11 D. Class Members Were Falsely Told That the Pre-Paid Lifetime Care They
12 Would Receive at the Care Center Would Be "Expert," "Exceptional," "High Quality," and "Outstanding" 9
13 E. Class Members Were Falsely Told They Would Enjoy Retirement Living
14 at Its Finest, Including Several Amenities Which Were Withdrawn for three Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15 IV. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY
16 ADJUDICATION OF THE FIFTH CAUSE OF ACTION FOR VIOLATION OF THE CONSUMER LEGAL REMEDIES ACT 11
17 A. Summary Adjudication of a CLRA Action Commenced
18 as a Class Action Is Expressly Prohibited by Statute 11
19 B. The Parol Evidence Rule Does Not Constitute a Defense to a Claim for Violation of Civil Code Section 1770 12
20 V. SECTION IX(I) OF THE CCRA DOES NOT NEGATE JUSTIFIABLE
21 RELIANCE ON STATUTORY "CONTINUING CARE PROMISES" 12
22 A. Whether a Party's Reliance in Fact Was Justified May Be Decided As a Matter of Law Only When Reasonable Minds Can Come To
23 Only One Conclusion Based Upon the Facts 13
24 B. A Party To a Contract Is Precluded by Civil Code Section 1668 from Contracting Away Its Liability for Fraud or Deceit Based Upon
25 Intentional Misrepresentation 14
26 C. Under the Health and Safety Code, All of the Alleged Extrinsic Promises and Representations Are Enforceable "Continuing Care
27 Promises" Upon Which Class Members Could Justifiably Rely 14
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D. The Defendants' Argument That a Continuing Care Provider Can Use a Contractual Integration Clause To Nullify Statutory Obligations Under the Health and Safety Code Is Mistaken and Contrary To Public Policy 15
E. The Reliance of Class Members on Statutory, "Continuing Care Promises" Was Reasonable and Justifiable 16
VI. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE FOURTH CAUSE OF ACTION FOR ELDER ABUSE 18
VII. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE SIXTH CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY OR THE NINTH CAUSE OF ACTION FOR CONSTRUCTIVE TRUST 21
A. There Are Triable Issues of Fact Regarding Whether the Relationship Between the Plaintiff Class and the Defendants Was a De Facto Fiduciary Relationship 22
1. The defendants have cited no legal authority supporting their contention that the relationship between a continuing care provider and a resident cannot be a de facto fiduciary relationship 22
2. The existence ofa de facto fiduciary relationship is a question o/fact, not law 23
3. There are triable issues offact regarding whether the relationship between plaintiffclass members and the defendants was a de facto fiduciary relationship 23
B. The Relationship Between a Continuing Care Provider and a Resident Should Be Recognized as a De Jure Fiduciary Relationship 25
C. There Are Triable Issues of Fact Regarding Whether the Defendants Committed Constructive Fraud 26
VIII. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE EIGHTH CAUSE OF ACTION FOR BREACH OF CONTRACT 27
A. The Parties Dispute the Contents of Their Continuing Care Contracts 27
B. The Parol Evidence Rule Does Not Entitle Defendants To Summary Adjudication ofthe Eighth Cause of Action. . 27
1. The parol evidence rule 28
2. There is a triable issue offact on the issue ofintegration 28
3. The defendants' "continUing care promises" are admissible to show the meaning ofthe CCRAs 29
a. Parol evidence is admissible to interpret the CCRAs 29
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b. The alleged, extrinsic "continuing care promises" are consistent with, and do not contradict, the
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CCRAs 30
4. Ifthe CCRAs fail to include all ofthe defendants' "continuing care promises, " parol evidence is
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admissible to show their illegality and invalidity 32
C. To the Extent Section IX(I) in the Class CCRA Would Negate Continuing Care Contracts, It Is Against Public Policy,
6 Void, and Unenforceable 32
D. Defendants Breached the "Continuing Care Residency Agreements" by Charging the Operating Costs of the Care Center,
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Which Was Designed to Operate at a Loss, in Independent Living Monthly Fees 33
9 E. There Are Triable Issues of Facts Regarding Breach of the Covenant
Quiet Enjoyment 34
F. There Are Triable Issues of Facts Regarding the Quality of Health Care Provided by the Defendants 34
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IX. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION 13 OF THE TENTH CAUSE OF ACTION FOR VIOLATION OF HEALTH AND
SAFETY CODE SECTION 1793.5 BECAUSE THERE ARE TRIABLE ISSUES 14 OF FACT REGARDING WHETHER THE DEFENDANTS HAVE ABANDONED
THEIR OBLIGATIONS UNDER "CONTINUING CARE CONTRACTS" WITH CLASS MEMBERS 35
16 X. CONCLUSION .
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TABLE OF AUTHORITIES
Cases
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826 2
Aguirre v. Lee (1993) 20 Cal.App.4th 1646 18
Banco Do Brasil, SA. v. Latian, Inc. (1991) 234 Cal.App.3d 973 28
Barbara A. v. John G. (1983) 145 Cal.App.3d 369 23
Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832 2
Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640 13
Bolander v. Thompson (1943) 57 Cal.App.2d 444 23
City ofHope National Medical Center v. Genentech (2008) 43 Cal.4th 375 21
City ofVista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882 2
Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642 22
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1 Witkin, Summary of Cal. Law (lOth ed. 2005) Contracts
§§ 420, 451, pp. 461-462, 492 15
§ 453, pp. 493-494 15
Vlll
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I. INTRODUCTION
This is a certified class action brought on behalf ofapproximately 240 residents of La Jolla
Village Towers ("LJVT"), a continuing care facility owned and operated by the defendants. In
their operative third amended complaint ("TAC"), the plaintiffs have alleged ten causes of action
for: (1) fraud by intentional misrepresentation; (2) fraud by negligent misrepresentation; (3) fraud
by concealment; (4) elder abuse; (5) violations of the Consumer Legal Remedies Act ("CLRA");
(6) breach of fiduciary duty; (7) unfair business practices; (8) breach of contract; (9) constructive
fraud; and (10) violation ofHealth and Safety Code section 1793.5. The defendants have moved
for summary judgment or summary adjudication on the grounds that:
(1) there is no triable issue of fact regarding whether they breached the integrated
Continuing Care Residency Agreements ("CCRAs") entered into with class members
(Memorandum ofPoints and Authorities in Support of Defendants' Motion for Summary
Judgment or, in the Alternative, Summary Adjudication ("Mem."), pp. 7-11);
(2) the first three causes of action for fraud, the fifth cause of action for violation ofthe
CLRA, and the seventh cause ofaction for unfair business practices-which all involve an element
ofjustifiable reliance--cannot be proved because any reliance in fact on written promises and
representations made before class members signed their integrated Continuing Care Residency
Agreements ("CCRAs") was unreasonable as a matter oflaw (id., pp. 11-13);
(3) the six and ninth causes of action for breach of fiduciary duty and constructive
fraud, respectively, cannot be proved because, as a matter oflaw, there was no fiduciary
relationship between the defendants and class members (id., pp. 13-14);
(4) the fourth cause of action for elder abuse cannot be proved because there is no
evidence of a wrongful or fraudulent appropriation or retention of property (id., p. 15); and
(5) the tenth cause of action for violation ofHealth and Safety Code section 1793.5.
cannot be proved absent "abandonment" of any continuing care promise (id., p. 16).
None ofthese contentions have merit. As we will show, there is substantial evidence of
breach of the CCRAs, reasonable andjustifiable reliance on the defendants' precontractual
marketing representations and promises, a de facto fiduciary relationship between the defendants
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and class members, the wrongful misappropriation ofentrance fees paid by the class, and the
abandonment ofcontinuing care promises made by the defendants. The resolution of these issues
are for the jury, not the court.
II. SUMMARY JUDGMENT AND SUMMARY ADJUDICATION STANDARDS
"Summary judgment is a severe remedy which is to be granted with caution." (Paper
Savers, Inc. v. Nasca (1996) 51 Cal.AppAth 1090, 1094.) A party moving for summary judgment
asks the court to determine that the entire action has no merit or that there is no defense. (Code
Civ. Proc., § 437c, subd. (a).) A party moving for summary adjudication asks the court to
determine that one or more causes of action, affirmative defenses, claims for damages, or issues of
duty has no merit. (Id., subd. (f)(1).) "[T]he moving party's evidence must be strictly construed,
while the opposing party's evidence must be liberally construed." (Binder v. Aetna Life Ins. Co.
(1999) 75 Cal.AppAth 832,838; City ofVista v. Robert Thomas Securities, Inc. (2000) 84
Cal.AppAth 882, 886.) The court's sole function is issue finding, not issue determination.
(Binder, supra, at p. 839.) A court may not weigh the evidence or conflicting inferences. (Aguilar
v. Atlantic Richfield Co. ("Aguilar") (2001) 25 Cal.4th 826,856.) "Only when the inferences are
indisputable may the court decide the issues as a matter of law. If the evidence is in conflict,
factual issues must be resolved by trial. (Binder at p. 839.)
Where the plaintiff has the burden ofproof at trial by a preponderance of the evidence, a
the defendant "must present evidence that would require a reasonable trier of fact not to find any
underlying material fact more likely than not." (Aguilar, supra, 25 Cal.4th at p. 851.) A defendant
may meet its burden by presenting evidence "conclusively negat[ing] a necessary element of the
plaintiffs" cause of action (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317,334) or by
showing that an essential element of the plaintiffs claim cannot be established because "the
plaintiff does not possess, and cannot reasonable obtain, needed evidence" (Aguilar, supra, at p.
854). Only when the defendant meets its burden does the burden shift to the plaintiff to prove the
existence of a triable issue of fact regarding that element of its cause of action. (Saelzer v.
dvanced Group 400 (2001) 25 Cal.4th 763, 780; Crouse v. Brobeck, Phleger & Harrison (1998)
67 Cal.AppAth 1509, 1534 ["if the showing by the defendant does not support judgment in [its]
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favor, the burden does not shift to the plaintiff and the motion must be denied without regard to the
plaintiff s showing"].)
The defendants' motion for summary judgment or summary adjudication is not based on
any affirmative defense, but on the erroneous contention that the plaintiffs cannot prove at least
one element of each of their 10 causes of action. For numerous reasons, the motion should be
entirely denied.
III. STATEMENT OF FACTS
For the purpose of their pending motion, the defendants do not dispute the falsity of the
representations and promises they are alleged to have made to class members-including
consistent statements in the CCRA itself. Nevertheless, in evaluating whether there are triable
issues of fact regarding justifiable reliance, breach of contract, and breach of fiduciary duty, the
court should have those numerous representations and promises in mind, because they form the
background for the parties' dispute.
A. Class Members Were Falsely Told That Portions of Their Substantial Entrance Fees Would Be "Set Aside" into a Master Trust and Were Pre-Payments for Lifetime Care in the Care Center, Where They Could Transfer, When the Need Arose, for No Additional Cost.
According to the CCRA,l "[a]ccommodations at La Jolla Village Towers are offered [to the
class] on the basis of a one-time entrance fee plus a monthly service fee." (Lane Dec., Exh. B,
Appx. C.2) "The entrance fee includes the apartment you select and the promise oftemporary or
long-term care in our future on-site care center." (Ibid. 3) "We offer two options for long term care
All class members had the same version ofthe CCRA (albeit with an updated Appendix C [Notice of Lodgment ("NOL"), Exhs. 1,2]), and that version includes a Master Trust into which all class members' entrance fees were deposited. (See Plaintiffs' Response to Defendants' Separate Statement of Undisputed Facts [etc.]' ~ 1 ["PRSSUF, ~ 1].) We will refer to the identical version of the CCRA which each class member signed as the "class CCRA."
2 Although defendants dispute that the parties' '''continuing care contract' [includes] promise[s], express or implied, by a provider to provide one or more elements of care to an elderly resident for the duration of his or her life or for a term in excess of one year ... [whether] part of a continuing care contract, ... or contained in any advertisement, brochure, or other material, either written or oral ...." (Health & Saf. Code, § 1771, subd. (C)(lO)), defendants concede that the class CCRA "includ[es] the attached Appendices." (Lane Dec., Exh. B., p. 30.)
3 By January 31,2003, after the care center had opened, Appendix C was modified by deleting the word "future," to state: "The entrance fee includes the apartment you select and the promise of temporary or long-term care in our on-site care center." (NOL, Exh. 2.)
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with different repayment programs: a Standard Care Plan and an Extensive Care Plan." (lbid.)4
"The monthly fee represents the cost of providing you with a range of services and amenities, such
as weekly housekeeping, linen service, all utilities (including cable TV), local area telephone
service, a selected meal plan, transportation for medical appointments and personal errands,
wellness center, activities, security, maintenance, and concierge service." (Ibid.)
Unlike a revised CCRA prepared by defendants effective January 1, 2006 O~OL, Exh. 5),
which defendants prepared to remedy the "confusion" and uncertainty caused by the version of the
defendant-drafted CCRA all class members have (Gleason Dec., ,-r 7(a)), the class CCRA does not
provide that the "costs of operating the Community[5] intended to be paid from residents' monthly
fees include ... the costs to provide services and amenities to all residents of the Care Center."
Indeed, from 1998 through 2005, class members were repeatedly expressly told exactly the
opposite-that their entrance fees, which were to be placed in trust, would pay for the increased
cost oflong-term care in the care center and that monthly fees would not. (PRSSUF,,-r 1.) And the
class CCRA provides that the entrance fee would be held in trust and used for only two purposes:
(1) "to repay the existing secured indebtedness relating to the loan that financed the construction of
[8515 Costa Verde Boulevard], and (2) other liabilities related to [8515 Costa Verde Boulevard]."
(Lane Dec., Exh. B, p. 24.) The master trust was "for the purpose ofproviding permanent
financing for the Retirement Center." (Lane Dec., Exh. J Doinder in master trust agreement].)
The "existing secured indebtedness relating to the loan that financed the construction of
[8515 Costa Verde Boulevard]" was paid in full by January 31, 2003 (NOL, Exh. 7, Poorman
4 Based on information provided by defendants in discovery, at least 118 class members have the extensive care plan and at least 114 class members have the standard care plan. (NOL, Exh. 4; Conger Dec., ,-r 3 [parties have met and conferred regarding a few data errors and missing class member information and defendants have agreed to provide it].)
5 Throughout this litigation and shockingly to this Court (Mem., p. 1; SSUF ,-r 5), defendants deceptively used the term "Community" as defined in their revised 2006 CCRA (NOL, Exh. 5, p. 1 ["'Community' will be deemed to refer to Tower I, Tower II, and the Care Center"]) and not as defined in the class CCRA. (Lane Dec., Exh. 8., p. 1 ["Community" defined as "located at 8515 Costa Verde Boulevard, San Diego, California"].) Because the Care center is located at 4171 Las Palmas Square (NOL, Exh. 6, p. 5), it is not included in the definition of"Community" in the class CCRA, which was prepared by defendants. (See Civ. Code, § 1654 ["language ofa contract should be interpreted most strongly against the party caused the uncertainty to exist"]; NOL, Exh. 7, Poorman depo., pp. 83:19-86:11 [acknowledging the definitions of "Community" in the two versions of the CCRA are different].)
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depo., pp. 99:2-101:6 [acknowledging notes that financed construction were paid off by January
31,2003]; NOL, Exh. 85, p. 10 ["notes were paid off as of January 31, 2003"].) Thereafter,
defendants simply depleted the remainder of funds in the Master Trust (NOL, Exh. 28, Richardson
depo., pp. 55:24-56:1 [master trust has zero or nominal balance, funds borrowed at zero percent
interest for 50 years]; NOL, Exhs. 29-44 [trust funds disbursed to CC-Development Group, Inc.,
although not a party to the class CCRA6]; NOL, Exh. 7, Poorman depo., pp. 110:5-123:3; NOL,
Exh. 85, p. 10 [trust funds used in part for "cash distributions" to owners]; NOL, Exh. 55,
Sciortino depo., pp. 117:2-118:21 [five percent commission taken from entrance fees]), although
residents were told that "the use of your entrance fee is protected by a trustee, an advantage not
offered by many retirement communities." (NOL, Exh. 8, pp.3-4; NOL, Exh. 7, Poorman depo.,
pp. 106: 10: 15, 109: 14-22; NOL, Exh. 62, p. 13 ["Remember that the use of your entrance fee is
protected by a trustee and that entrance fees are utilized only to payoff loans and other trustee-
approved expenditures"].)
This issue is very important because, with no additional money being paid by the
independent living residents who transfer to the care center, it is destined to suffer operating losses.
(NOL, Exh. 93, p. 2 [2002 care center operating loss of$I,741,728]; NOL, Exh. 94, p. 4 [care
center operating losses for 2004 and 2005 of $932,567 and $774,755, respectively, and projected
losses of $753,290 and $567,852 for 2006 and 2007, respectively].) Because defendants failed to
set aside a portion of the entrance fees paid by the class in the Master Trust (NOL, Exh. 21, p.
Short 1089) to be used for "pre-paid Long-Term Care" (NOL, Exhs. 18-19), defendants now
charge all class members the full cost of operating the care center as part of their independent
living monthly fees. (NOL, Exh. 45, Sciortino depo, p. 141:14-23 ["The monthly fees from
members of the class have been paying for the operation ofthe care center since the care center
opened in 2002"].)
B. Class Members Were Falsely Told They Would Be Provided 24-Hour Emergency Response From a Licensed Nurse.
The defendants repeatedly told class members that a "licensed nurse" would be available in
6 See the class CCRA, Lane Dec., Exh. B, p. 1 ["No other Hyatt related entity is responsible for performance of this Agreement"]; NOL, Exh. 58, Smith depo., p. 70:1-7 ["not aware ofCC-Development Group, Inc. making any commitments"].
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the wellness center.7 For example, a four-page advertising supplement defendants published in late
March 2000 in the San Diego Union-Tribune, the Los Angeles Times, and the Orange County
Register, stated: "A nurse is on duty 24 hours a day, seven days a week. Ifhe or she is not at the
Wellness Center, residents can call the front desk staff, who will contact the nurse on the two-way
radio." According to Ms. McGrath, defendants' director of marketing from 1999 through 2001, the
elderly residents "were interested in a nurse ... because ... they didn't have that at their own
home, of course, so moving into a community like this, it was a service that they were interested in,
yes." (NOL, Exh. 16, McGrath depo., pp. 27:7-15; pp. 26:7-30:10.) Other marketing personnel
and material also touted the 24-hour nurse. (NOL, Exh. 45, Parkins depo., August 23,2007, pp.
163:15-20,179:4-7; NOL, Exh. 3, Parkins depo., June 11,2008, pp. 35:12-24; NOL, Exh. 46, pp.
1-2 ["Our wellness center staff is also available around the clock to respond to medical
emergencies"]; Exh. 47 [printed June 2001], p. 2), including defendants' licensing application.
(NOL, Exh. 48 [signed under penalty ofpetjury by defendants' "apex" employee, Penny Pritzker].)
Defendants also expressly informed residents that "the Resident Handbook is incorporated
in[to] the [CCRA]." (NOL, Exh. 49, p. 2.) And the resident handbook stated that a 24-hour nurse
would be provided. (NOL, Exh. 50 [1997]; NOL, Exh. 51 [2002]; NOL, Exh. 52 [2003].)
Despite their promises, defendants brazenly eliminated the overnight nurse and replaced the
nurse with a security guard to save money. (NOL, Exh. 3, Parkins depo., June 11,2008, pp. 43:2
25 [overnight nurse replaced with security guard]; NOL, Exh. 11, Zuehl depo., p. 132:18-21 [save
money].) Instead, residents now are instructed to call 911 for medical emergencies. (NOL, Exh.
53, deposition of Donald R. Short, p. 300:8-10 ["we are now told that if we have a medical
emergency in the middle of the night to call 911, which is what anybody can do"].) Defendants
never told any residents that the nurse would be eliminated, until 2005 when they eliminated
depo., June 11,2008, pp. 41:19-42:3, 44:21-45:5 [told prospects response would be from a nurse
from 1999 through 2005 because "I had no idea, nor would I have any idea, if something was
7 The wellness center-not to be confused with the care center-is located in the independent living building and is used to provide nursing care to independent living residents. The care center, located in an adjoining building, provides nursing care to patients admitted to assisted living, skilled nursing, and the memory support unit.
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subject to change in the future"].)
C. Class Members Were Falsely Told They Could "Rest Assured" Hyatt Would Diligently Act To Minimize Future Monthly Fee Increases.
Defendants were aware that residents were very sensitive to fee increases (NOL, Exh. 62
["we are as sensitive about increases as you are"]; NOL, Exh. 55, Sciortino depo., p. 122:14-22
[many residents "are more concerned about their monthly fees and how long their money is going
to last over a period of years than they are [about] entrance fees"].)
On Apri128, 1998, the first day defendants acquired LJVT, they began making
misrepresentations. In a letter dated April 28, 1998, to all residents, defendants' chief operating
officer Mary G. Leary touted the advantages to residents of becoming a member of defendants'
"family of senior living communities." (NOL, Exh. 8, p. 1.) "Please rest assured that we will work
diligently to manage expenses and that, as an affiliate of Hyatt Corporation, [LJVT] will reap the
benefits of group purchasing volume discounts." (NOL, Exh. 8, p. 2.)
Unknown to residents, that very same day the defendants entered into a sweetheart 50-year
contract8 with a Hyatt affiliate which effectively allows the defendants' owners to funnel residents'
cash to themselves under the guise of necessary operating expenses, which residents must then pay
pursuant to the residency agreement. (NOL, Exh. 54 [April 28, 1998 management and marketing
agreement]; Lane Dec., Exh. B, p. p.4 [residents' monthly fees include all operating expenses].)
Notably, the management and marketing agreement, which was never provided to the residents
(Gleason Dec., ,-r 9), was signed by both parties~defendant CC-La Jolla, LLC (the defense entity
which owns LJVT) and defendant Classic Residence Management Limited Partnership (the
defense entity which operates LJVT)--by the same person-defendants' vice-chairperson of the
board John Kevin Poorman. (NOL, Exh. 54, p. 29.)9
8 The contract's original term is 25 years with five, five-year renewal options at Classic Residence's (the operator and recipient of resident funds paid via monthly fees) option. (NOL, Exh. 54, p. 4.) Pursuant to that agreement, residents must pay for marketing (p. 10, ,-r 3.6), management (p. 12, ,-r 4.2(a)), commissions (p. 4, ,-r 4.4), and administrative services (p. 15, ,-r 7.2). Worse, because the six percent management fee charged is a percentage of monthly fees, each time the defendants raise monthly fees they automatically increase their management fee by the same percentage. (NOL, Exh. 55, Sciortino depo., p. 121 :1-4.)
9 Because the class CCRA provided residents a 90-day cancellation period. (Lane Dec, Exh. B, p. 18) and each class member signed an identical promissory note which reduced
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In furtherance of this common scheme, the defendants continued to falsely proclaim to all
residents that they were trying to minimize any annual monthly fee increases. (NOL, Exh. 56
[December 20, 2000 letter to all residents from executive director Vicky Simpson: "You can rest
assured that I, along with the entire staff, am always diligently working to minimize the impact of
such increases"]; NOL, Exh. 57 [December 26,2001 letter to all residents from executive director
James Hayes: "Please be assured that we are looking at all our expenses and systems to find ways
of reducing the impact of such increases"10] ; NOL, Exh. 59 [December 15, 2003 letter to all
residents from executive director Steve Brudnick: "Please be assured that it is our goal to continue
to operate the community in a fiscally responsible manner"]; NOL, Exh. 60 [November 14,2005
letter to all residents from executive director Steve Brudnick: "Please be assured that it is our goal
to continue to operate the community in a fiscally responsible manner"].) Defendants also told all
residents "fee increases, if any, will take place once a year. This has been Hyatt's experience with
their other [retirement properties]. In some cases there has been a refund but no increase over 3
[percent]." (NOL, Exh. 61.)
Residents were also assured that monthly fee increases would not exceed three percent.
(NOL, Exh. 63, class member and former Resident Council president Norman Eichberg depo., p.
42:12-18 [defendants' sales person Annie Reynolds "said that Classic Residence would never raise
their rates more than 3 percent ... I recall that very distinctly"]; NOL, Exh. 64, class member
Louise Flentye depo., p. 30 [told by marketing director Linda McGrath that monthly fees would not
increase by more than "three percent maximum"]; NOL, Exh. 97, class member Pierce depo., p.
20:2-8 ["they said [monthly fee increases] would never be more than 3 percent"].) And defendants
provided residents projections anticipating only three percent increases in monthly fees. (NOL,
Exh.65.) Yet defendants have increased monthly fees-including the amount the defendants pay
themselves for management fees--eumulatively by more than 49 percent since January 1,2000.
the amount of any entrance fee refund over the 50-month period after residency began (Lane Dec., Exh. B, pp. Short 1469-1470 [promissory note repayment schedule "less ... a charge of two percent (2%) ofthe Entrance Fee for each month" or residency after the cancellation period]), it was in defendants' financial interest to keep all residents in the dark regarding this aspect of their financial scheme.
10 This statement was false because there was no negotiation of the management and marketing agreement, either in 1998 (NOL, Exh. 7, Poorman depo., p. 24:10-18) or thereafter. (NOL, Exh. 58, CFO Smith's depo., pp. 132:17-133:16.)
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(NOL, Exh. 66, p. 4:14-5:5.)
D. Plaintiffs and All Class Members Were Falsely Told That the Pre-Paid Lifetime Care They Would Receive at the Care Center Would Be· "Expert," "Exceptional, "High Quality," and "Outstanding."
The defendants widely distributed to class members the following written statements:
• "Exceptional Care [~] In the Care Center at La Jolla Village Towers, the highest value will be placed on delivering exceptional care [by a]n expert staff ...." (NOL, Exh. 67 [LJVT newsletter summer 1999], emphasis in original].)
• "Under our continuing care plans, residents will be able to move to our on-site care center, offering high-quality assisted living, memory support!Alzheimer's care and skilled nursing care ... " (NOL, Exh. 17 [marketing brochure], p. Short 1280.)
• "Perhaps most important of all, La Jolla Village Towers offers ... the peace of mind that comes from knowing your potential long-term care needs will be expertly met at our on-site care center at virtually no extra cost." (NOL, Exh. 23 [letter to residents].)
Defendants continue to openly represent that the nursing care provided at their care center is
"outstanding" and "exceptional." (NOL, Exh. 68, care center administrator Bliss depo., p. 24:12
21 [marketing care center as providing "outstanding" and "exceptional" care]; NOL, Exh. 6 [care
center marketing brochure obtained from defendants and marked during April 23, 2008 deposition
ofclass member Ed Silva stating "experience exceptional care"]; NOL, Exh. 69, p. 156:2-16.)
But the care provided is too often poor. (NOL, Exh. 69, Silva depo., p. 117:4-118:9
[describing poor care received by his Alzheimer's inflicted wife, class member Dottie Silva]; NOL,
Exh. 70, class member Cassidy depo., pp. 67:12-20, 70:6-20 [language barrier and understaffed];
NOL, Exh. 71, retired physician and class member Beatrice Rose depo, pp. 96:22-98: 13
[describing poor care she observed], 107:35-108:4 [describing medical incompetence, negligence
and malpractice]; NOL, Exh. 72, retired Navy admiral and director of nursing Fran Buckley depo.,
pp. 13:7-17, 106:5-15 [defendants attempted to administer incorrect medication], 111:5-112:3
[failure to correctly assess upon admission], 114:25-116:14, 123:2-8 [mistaken dose of medication
causing diarrhea and weight loss and failure to check her soiled diapers for several days], 122:7-14
[care provider did not speak English], 130:23-132:6 [requested discharge from care center because
her condition had deteriorated so much and she would have died if she remained, "if! stayed there,
I was going to die"]; NOL, Exh. 73, former hospital administrator Iris Masotti depo., pp. 25:7
26: 12 [describing problem with care givers who do not speak English], 90:4-92: 15 [poor care];
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NOL, Exh. 74, class member Clifford Halliday depo., pp. 74:3-11 [ran out ofhis heart medication
for several days], 75:16-19 [food was cold and served without proper utensils], 75:22-76:4 [some
nurses spoke poor English], 82:9-84:17 [delayed response to emergency call button on several
occasions]; NOL, Exh. 75, class member Phyllis Fishleder depo., pp. 67:14-69:5 [poor care].)
E. Class Members Were Falsely Told They Would Enjoy Retirement Living at Its Finest, Including Several Amenities Which Were Withdrawn for Three Years.
Class members were told by defendants, in writing, that they would enjoy "luxury senior
living at its finest," "a relaxed, easy going lifestyle," "luxurious surroundings," and "almost
unlimited opportunities for relaxation," "the finest elements of retirement living," and peace and
quiet. (NOL, Exhs. 14, 15, 17,22,23,67.) "This warm and gracious setting brings together the
finest elements of retirement living-all designed for your comfort and backed by the sterling
reputation of Hyatt." (NOL, Exh. 17, p. 2.) "We firmly believe that people shouldn't have to
compromise their standards as they grow older." (NOL, Exh. 15, p. Short 2329.) "[T]hey should
enjoy gracious surroundings as well as security and peace of mind ...." (Ibid.) And all were also
told they would enjoy specific amenities, such as a heated indoor swimming pool, an exercise
room, an art studio, a billiards room, a computer center, picnic tables, putting green, walking paths,
and a card room, to name a few. (NOL, Exhs. 14, 15, 17,22,23,67.)
However, for a period in excess of two years, while defendants raised residents' monthly
fees more than the three percent maximum promised, defendants took away most of these
promised amenities from residents, most of whom, because of the non-refundable aspect of the
entrance fees paid to defendants, were financially incapable of simply moving out. Defendants
closed the pool, exercise room, art studio, computer center, and card room, and demolished the
park-like entrance with picnic tables. (Gleason Dec., ~~ 4-6.) For more than two years the front
entrance was closed, forcing residents to use the back alley, and wait for their cars next to the
smelly grease trap and refuse. (Gleason Dec., ~ 6; NOL, Exh. 16, McGrath depo., pp. 107:17
108:7 [I have to admit, it would smell"].) Soft water, important to elderly persons as they age and
their skin dries out normally, was also eliminated. (NOL, Exh. 70, Cassidy depo., pp.38:22-39:9.)
The dust and noise affected residents tremendously. (NOL, Exh. 72, Buckley depo., pp. 80:25
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81: 15 [dust exacerbated fibromyalgia causing physical pain and "had I realized and understood
exactly what was going to be going on here, I wouldn't have moved here"], p. 82:6-23 ["made my
life miserable," an "absolute nightmare," "noise is terrible"], 83:5-8 [air quality awful], 83:9-84:2
[explaining why outdoor pool at Hyatt Aventine not adequate substitute]; NOL, Exh. 64, Flentye
depo., pp. 46 ["the construction period has been hell for the vast majority of us. We have had to
give up most ofthe things that we live here for"], 47-48 [because ofclosure ofcommon areas "we
all stayed in our apartments," lost contact with one another, and became depressed. "It was a
miserable three and a half years"]; NOL, Exh. 75, Fishleder depo., pp. 64:8-65:9 [describing
substantial disruption]; NOL, Exh. 70, Cassidy depo., pp. 43:19-44:7 [construction noise before
7:00 a.m.], 59:15-25 ["last three years under construction things have deteriorated considerably"],
~~ 3-4, Exh. 1 [construction noise before 7:00 a.m.]; NOL, Exh. 76, Gleason depo., p. 274:16-17
[explaining how he "thought the inconveniences would be minimal. They were gigantic"]; NOL,
Exh. 77, class member Ann Elliott depo., pp. 59: 15-18 [disrupted greatly], 78:23-83: 11 [explaining
why outdoor pool at Hyatt Aventine not adequate substitute]; NOL, Exh. 97, Pierce depo., pp.
58:2-10 [describing dust and "horrible noises and drilling for two years"-''you could never take a
nap"], 60:15-25, 6] :20-62:12; NOL, Exh. 71, Dr. Rose depo., pp. 75:6-16 ["we have a lot of
people with cardiac and respiratory problems, and this has caused a great deal ofdifficulty for
them"], 76:1-20 [disruptive, unhealthful and dangerous].)
IV. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE FIFTH CAUSE OF ACTION FOR VIOLATION OF THE CONSUMER LEGAL REMEDIES ACT.
The defendants contend they are entitled to summary adjudication of the fifth cause of
action for violation of the CLRA (Civ. Code, § 1750, et seq.) because the class cannot prove
'ustifiable reliance. (Mem., p. 12:13-23.)
A. Summary Adjudication of a CLRA Action Commenced as a Class Action Is Expressly Prohibited by Statute.
As a matter of civil procedure, the Legislature has prohibited summary adjudication of the
fifth cause ofaction. The defendants have overlooked Civil Code section 1781, subdivision (c)(3),
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which provides: "A motion based upon Section 437c ofthe Code of Civil Procedure shall not be
granted in any action commenced as a class action pursuant to subdivision (a)." The plaintiffs'
fifth cause ofaction for violation of Civil Code section 1770 was commenced as a class action
pursuant to Civil Code section 1781, subdivision (a) (Third Amended Class Action Complaint
[etc.], filed August 28,2007, ,-r,-r 1, 150-156), and the defendants' motion is based solely upon Code
of Civil Procedure section 437c (Defendants' Notice of Motion and Motion for Summary
Judgment or, in the Alternative, Summary Adjudication, p. 2:1).
B. The Parol Evidence Rule Does Not Constitute a Defense to a Claim for Violation of Civil Code Section 1770.
Contrary to the defendants' argument that the parol evidence rule precludes proof of
.ustifiable reliance, the parol evidence rule provides no defense to a cause of action under the
CLRA. As the Court of Appeal succinctly explained and held in Wang v. Massey Chevrolet (2002)
97 Cal.App.4th 856, 870:
"By its very language, subdivision (a)(l4) of [Civil Code] section 1770 contemplates the existence of collateral oral promises, representations or agreements which may be inconsistent with the rights, remedies, or obligations set out in a written contract; the statute makes such misrepresentations unlawful. In light of the unlawful acts set out in subdivision (a)(14) of section 1770, the Legislature clearly intended to repudiate any purported bar or defense based on the parol evidence doctrine.
To permit the bar or defense of the parol evidence rule under the instant facts is to deem the Legislature to have engaged in an absurd task: the Legislature would have made a practice unlawful but would have precluded a plaintiff from ever establishing it by application of the parol evidence rule. Further, permitting a parol evidence bar or defense under the instant circumstances would be tantamount to construing the written contract as constituting essentially a waiver of the protections of the act, which waiver is contrary to public policy." (Italics added.)
In addition, for reasons explained in the following section, the reasonableness of the
reliance of class members on the defendants' extrinsic promises and representations is a triable
issue of/act, not a question of law.
V. SECTION IX(I) OF THE CCRA DOES NOT NEGATE JUSTIFIABLE RELIANCE ON STATUTORY "CONTINUING CARE PROMISES."
The class CCRA contains the following sentence on page 30: "This Agreement, including
the attached Appendices, constitutes the entire agreement between You and Classic Residence by
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Hyatt ...." (Lane Dec., Exh. B, p. 30 [CCRA, § IX(I)].) Basically, the defendants contend that
Section IX{I) as a matter of law, renders unjustifiable any reliance by class members on the
defendants' prior continuing care promises and representations and insulates the defendants from
liability for fraud, for violation ofthe CLRA, and for violation of Unfair Competition Law.
(Mem., pp. 11-13.)
A. Whether a Party's Reliance in Fact Was Justified May Be Decided As a Matter of Law Only When Reasonable Minds Can Come To Only One Conclusion Based Upon the Facts.
"[W]hether reliance was reasonable is a question ofJact for the jury, and may be decided as
a matter of law only if the facts permit reasonable minds to come to just one conclusion." (Grisham
v. Philip Morris USA, Inc. (2007) 40 Ca1.4th 623,637-638, quoting Boeken v. Philip Morris, Inc.
(2005) 127 Cal.App.4th 1640, 1666.) "Further, under California law, whether reliance is
reasonable in an intentional fraud case is not tested against the 'standard ofprecaution or of
415, ....) [,n 'Exceptionally gullible or ignorant people have been permitted to recover from
defendants who took advantage of them in circumstances where persons of normal intelligence
would not have been misled. [Citations.] "No rogue should enjoy his ill-gotten plunder for the
simple reason that his victim is by chance a fool." [Citation.] If the conduct of the plaintiff in the
light of his own intelligence and information was manifestly unreasonable, however, he will be
denied a recovery. [Citations.] "He may not put faith in representations which are preposterous, or
which are shown by facts within his observation to be so patently and obviously false that he must
have closed his eyes to avoid discovery of the truth...." [Citation.]' (Seeger v. Odell, supra, 18
Ca1.2d at p. 415.)" (Boeken, supra, at pp. 1666-1667.)
For numerous reasons demonstrated in the following subsections, the issue whether the
reliance of class members on the continuing care promises and representations made in marketing
materials was justifiable is a question of fact for the jury. In fact, numerous employees of the
dejimdants have testified under oath that such reliance was not only justifiable but intended.
III
I I I
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B. A Party To a Contract Is Precluded by Civil Code Section 1668 from Contracting Away Its Liability for Fraud or Deceit Based Upon Intentional Misrepresentation.
It has long been "settled that parol evidence of fraudulent representations is admissible as
an exception to the parol evidence rule to show that a contract was induced by fraud. [Citations.]"
(Richard v. Baker (1956) 147 Cal.App.2d 857,863.) Recently, in Manderville v. PCG&S Group,
Inc. (2007) 146 Cal.App.4th 1486, the Court of Appeal for the Appellate District, Division One,
was required to decided whether an integration clause, and other exculpatory clauses, in a
standardized contract precluded, as a matter of law, the plaintiffs justifiable reliance in a cause of
action for intentional misrepresentation. (Id. at p. 1489.) Reversing a summary judgment favoring
the defendants, the court held that Civil Code section 1668 precludes such a conclusion. (Id. at pp.
1498-1502. That statute provides: "All contracts which have for their object, directly or indirectly,
to exempt anyone from responsibility for his own fraud, or willful injury to the person or property
of another, or violation oflaw, whether willful or negligent, are against the policy of the law." The
court recognized, "[i]t is well established in California that a party to a contract is precluded under
section 1668 from contracting away his or her liability for fraud or deceit based on intentional
misrepresentation." (Id. at p. 1500.) As a matter oflaw, Section IX(I) of the CCRAs does not
negate the alleged justifiable reliance of class members.
c. Under the Health and Safety Code, All of the Alleged Extrinsic Promises and Representations Are Enforceable "Continuing Care Promises" Upon Which Class Members Could Justifiably Rely.
In fact, the Legislature has enacted a unique statutory scheme to prevent vulnerable elderly
citizens from being induced to enter into contracts by means of false continuing care promises and
Health and Safety Code section 1771, subdivision (c)(8), provides: "'Continuing care
contract' means a contract that includes a continuing care promise made, in exchange for an
entrance fee, the payment of periodic charges, or both types ofpayments." (Italics added.)
Health and Safety Code section 1771, subdivision (c)(10), provides: '''Continuing care
promise' means a promise, expressed or implied, by a provider to provide one or more elements of
care to an elderly resident for the duration ofhis or her life or for a term in excess of one year. Any
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such promise or representation, whether part of a continuing care contract, other agreement, or
series of agreements, or contained in any advertisement, brochure, or other material, either written
or oral, is a continuing care promise."
Class members were induced to pay substantial entrance fees (and sign the CCRAs) based
upon the defendants' continuing care promises contained in "advertisement[s], brochure[s], or
other material" (id., § 1771, subd. (c)(10). Because those extrinsic continuing care promises are
supported by consideration, they constitute continuing care contracts within the meaning ofHealth
and Safety Code section 1771, subdivision (c)(8).
The defendants now contend that class members could not justifiably rely upon certain
continuing care promises they made, because those continuing care promises are not contained in
the CCRAs. However, by any fair reading of the relevant statutes, the defendants' position is
untenable. Whether continuing care promises were made in the CCRAs or in "advertisement[s],
brochure[s], or other material" (id., § 1771, subd. (c)(lO)), as a matter of public policy embodied in
statutory law, they are enforceable, and they could justifiably be relied upon.
D. The Defendants' Argument That a Continuing Care Provider Can Use a Contractual Integration Clause To Nullify Statutory Obligations Under the Health and Safety Code Is Mistaken and Contrary To Public Policy.
The objective ofcontractual terms must be lawful. (Civ. Code, § 1550, subd. (3).) A
contractual term which is "[c]ontrary to the policy of express law, though not expressly
prohibited," is unlawful. (Civ. Code, § 1667, subd. (2), italics added; see 1 Witkin, Summary of
Cal. Law (10th ed. 2005) Contracts, §§ 420, 451, pp. 461-462, 492; Rest.2d, Contracts, § 178(1)
["A promise or other term of an agreement is unenforceable on grounds of public policy if
legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed
in the circumstances by a public policy against the enforcement ofsuch terms."II].)
The Legislature has declared that any "continuing care promise," i.e., any "promise ... to
provide one or more elements of care to an elderly resident for the duration of his or her life or for
a term in excess of one year" (Health & Saf. Code, § 1771, subd. (c)(lO)) made "in exchange for an
entrance fee" (id., subd. (a)(8)) constitutes a "continuing care contract" (ibid.). That is so whether
28 11------::-:------- 11 For a description ofthe weighing process prescribed by the Restatement, see 1
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the continuing care promise is "part of a continuing care contract [e.g., the CCRA], other
agreement, or series ofagreements, or contained in any advertisement, brochure, or other material,
either written or oral." (Id., subd. (a)(10).) The Legislature has clearly prohibited continuing care
providers from making unenforceable continuing care promises and representations. Moreover, the
Legislature has expressed its intent that "[t]his chapter shall be liberally construed for the
protection of persons attempting to obtain or receiving continuing care." (Health & Saf. Code,
§ 1775, subd. (e).y2
The defendants contend, to the contrary, that a continuing care provider may, for example,
make continuing care promises A, B, C, and D (e.g., a 24-hour nurse) in exchange for an entrance
fee, provide the resident with a CCRA that contains only continuing care promises A and B and an
"integration clause," and thereby be relieved of its continuing care promises C and D. By any fair
reading of Health and Safety Code section 1771, that is precisely what the Legislature prohibited
by expressly defining "continuing care promise" and "continuing care contract" to protect
vulnerable, elderly citizens. If, as the defendants contend, Section !X(I) of the class CCRA was
intended to nullify prior, extrinsic, continuing care promises, then it is contrary to public policy,
illegal, and unenforceable.
E. The Reliance of Class Members on Statutory, "Continuing Care Promises" Was Reasonable and Justifiable.
As defendants themselves concede, class members' reliance on defendants' statutory
continuing care promises was reasonable. As Mr. Sciortino, defendants' senior vice president of
operations, testified: "it is reasonable for ... prospect[ive residents] to rely on the [defendants']
12 To the extent the defendants argue that the class CCRA was approved by the Department of Social Services, both Health and Safety Code section 1788, subdivision (a)(34), and the class CCRA provide: "Approval by the department is NOT a guaranty ofperformance or an endorsement of any continuing care contract provisions." (Emphasis in original.) And the defendants' suggestion that section 1787 requires a continuing care contract to be in writing (Mem., p. 7, n. 3), and therefore it has no liability for statutory continuing care promises, should also be rejected. Section 1787 places an obligation on the defendants to include all of their statutory continuing care promises in a CCRA. Sections 1771, subdivisions (c)(8) and (c)(10), can thus be easily harmonized with section 1787-providers should be required to accurately and comprehensively include all statutory continuing care promises they make in any written continuing care contract. Unscrupulous providers-such as the defendants who heavily advertise one thing and attempt to abandon those promises---eannot escape the reach of this remedial statute by omitting statutory continuing care promises and sneaking in an integration clause.
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marketing materials." (NOL, Exh. 55, Sciortino depo., pp. 125:5-13,81:12-17 [defendants
"wanted and expected that people would rely on what is written" in defendants' marketing
brochures, and in fact, "they should [rely]"]; NOL, Exh. 45, Parkins depo., August 23, 2007,13 pp.
201 :12-203: 19 [objective of defendants' marketing materials is for prospective residents to read
and rely on those materials and decide to move into LJVT], 96:6-97:5 [reasonable reliance],
192:17-193:10 ["I would assume I would rely on what I told them"]; NOL, Exh. 3, Parkins depo.,
June 11,2008, pp. 96:18-97:8 [she herself relies on defendants' marketing brochures and "ifit's
good enough [for her], it's good enough for a resident to rely on"]; NOL, Exh. 16, McGrath depo.,
pp. 57:24-58:22 [expected prospective residents to rely on what she told them], 98:1-99:1
["absolutely had a right to rely on delivery of [marketing] promise[s]"]; NOL, Exh. 79, defendants'
sales counselor Kristen Cram depo., pp. 149:9-150:13 [reasonable reliance on what she told
residents, which she herself gleaned from defendants' written materials]; NOL, Exh. 98, former
executive director Steve Brudnick depo., pp. 41 :4-42:6 ["reasonable for residents to rely" on what
he told them despite language in class CCRA], 66:24-67:23 [reasonable for residents to believe his
"please rest assured" letters: "We trusted one another. What I said, they believed"].)
In their marketing brochures and letters to this admittedly vulnerable group,14 defendants
purposefully and often chose words inviting reliance. (NOL, Exh. 6, p. 2 ["COUNT ON"]; NOL,
Exh.8 ["please rest assured"]; NOL, Exh. 17 ["backed by the sterling reputation of Hyatt"]; NOL,
Exh. 23 ["peace of mind"]; NOL, Exh. 27 ["RELY ON"]; NOL, Exh. 56 ["You can rest assured"];
NOL, Exh. 57 ["Please be assured"]; NOL, Exh. 59 ["Please be assured"]; NOL, Exh. 59 ["Please
be assured"]; NOL, Exh. 62 ["working to ensure"]; NOL, Exh. 80 ["thank your for your display
of trust" and "In return for your trust ... we pledge"]; NOL, Exh. 81 ["Thank you for your .
trust"]; NOL, Exh. 82 ["Thank you for your ... trust"].)
"Where advertising is aimed at a particularly susceptible audience ... its truthfulness must
13 Ms. Parkins was designated as the defendants' person most knowledgeable regarding its marketing program. (NOL, Exh. 45, Parkins depo., August 23, 2007, pp. 23:1324:9; NOL, Exh. 78, deposition notice, p. 1:27-28.)
14 The Legislature has expressly recognized the vulnerability of elderly persons and the need to protect them. (See., e.g., Conservatorship ofKayle (2005) 134 Cal.AppAth 1, 5 ["legislative purpose of [Elder Abuse Act] is to afford extra protection to vulnerable portion of population"]; Welfare & Inst. Code, § 15600; Health & Saf. Code, 1770; Civ. Code, §§ 1780, subd. (b)(l), 3345.)
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be measured by the impact it will likely have on members of that group ...." (Lavie v. Procter &
Gamble Co. (2003) 105 Cal.AppAth 496, 506.) "Where the plaintiff contends that a more
vulnerable subgroup is the true target of such an advertisement, a question of fact is
presented ...." (Ibid.) Thus, because there are triable issues of fact on the first, second, and third
causes of action for fraud, the fifth cause of action for violations of the Consumer Legal Remedies
Act, or the seventh cause ofaction for unfair business practices, summary adjudication on these
issues should be denied.
VI. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE FOURTH CAUSE OF ACTION FOR ELDER ABUSE.
In their fourth cause of action, the plaintiffs allege financial elder abuse. Welfare and
Institutions Code section 15610.30, subdivision (a)(l) provides: '''Financial abuse' of an elder ...
occurs when a person or entity does any of the following: (1) Takes, secretes, appropriates, or
retains real or personal property ofan elder or dependent adult to a wrongful use or with intent to
defraud, or both." (Italics added.) "[I]fthe person or entity knew or should have known that the
elder or dependent adult had the right to have the property transferred or made readily available to
the elder or dependent adult or to his or her representative," e.g., for a refund of an entrance fee,
then the taking of that property is "in bad faith" (Welf. & Inst. Code, § 15610.30, subd. (b)(1» and
constitutes a "wrongful use" (id., subd. (b».
"The Elder Abuse Act's remedial purpose is to 'protect elder and dependent adults who are
residents of nursing homes and other health care facilities from reckless neglect and various forms
of abuse.' [Citation.]" (Country Villa Claremont Health-Care Center, Inc. v. Superior Court
(2004) 120 Cal.AppAth 426,432.) It is well established that remedial legislation "must be
liberally construed to effect its purposes." (Parkmerced Co. v. San Francisco Rent Stabilization &
rbitration Bd. (1989) 315 Cal.App.3d 490,495; accord, Aguirre v. Lee (1993) 20 Cal.AppAth
1646, 1653.)
The defendants argue that financial elder abuse cannot be proved because there is no
evidence of a wrongful or fraudulent appropriation or retention of property. (Mem., p. 15.)
However, there is substantial evidence that: (1) class members collectively paid approximately $65
18 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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million in entrance fees to the defendants (NOL, Exh. 4, columns K and 0); (2) those funds, which
were placed in a master trust, were to be used exclusively to repay the loan made to purchase the
independent living tower and for other liabilities of the community, including the refund of
entrance fees, when required (Lane Dec., Exh. B, p. 24; NOL, Exh. 83 [Keenan promissory note];
NOL, Exh. 84 [Keenan owed $157,397.50 from master trust]; Lane Dec., Exh. J [purpose of trust
funds to "provide permanent financing" for LJVT]; NOL, Exh. 7, Poorman depo., pp. 107:21
108:8 [trust funds were to be used to payoffconstruction loan]; NOL, Exh. 4, Column M [refund
option]); (3) residents were told that "the use ofyour entrance fee is protected by a trustee, an
advantage not offered by many retirement communities" (NOL, Exh. 8, p. 4; NOL, Exh. 62, p. 13
["Remember that the use of your entrance fee is protected by a trustee and that entrance fees are
utilized only to pay off loans and other trustee-approved expenditures"]; NOL, Exh. 7, Poorman
depo., pp. 104:6-105:13, 106:6-16, 107:21-109:1); however, (4) after the construction loan was
paid in full by January 31,2003 (NOL, Exh. 7, Poorman depo., pp. 99:2-101:6 [acknowledging
notes that financed construction of the community were paid off by January 31,2003]; NOL, Exh.
85, p. 10 ["the notes were paid off as of January 31,2003"]); (5) defendants simply depleted the
remainder of funds in the master trust (NOL, Exh. 28, Richardson depo., pp. 55:24-56:1 [master
trust has zero or nominal balance, funds borrowed at zero percent interest for 50 years]; NOL, Exh.
58, Smith depo., p. 29:19-24 [all of the money has been taken out ofthe trust]); (6) at the direction
of the defendants, substantial trust funds have been wrongfully diverted to defendant CC-
Development Group, Inc., and the owners ofLJVT (NOL, Exhs. 29-44 [trust funds disbursed to
CC-Development Group, Inc.,]) although not a party to the CCRA executed by the class (Lane
Dec., Exh. B, p. 1 ["No other Hyatt related entity is responsible for performance of this
Agreement"]; NOL, Exh. 58, Smith depo., p. 70:1-7 ["not aware ofCC-Development Group, Inc.
making any commitments"]; NOL, Exh. 85, p. 10 [trust funds used in part for "cash distributions"
to owners]; NOL, Exh. 55, Sciortino depo., pp. 117:2-118:21 [undisclosed five percent
commission taken from entrance fees]); and (7) defendants have also used class member trust
funds for purposes other than liabilities associated with LJVT. (Gleason Dec., ~ 7(c) [Sciortino
and defendants' general counsel Stephanie Fields' admissions on videotape January 18,2008];
19 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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NOL, Exh. 84, pp. 2-4 [LJVT master trust funds used to finance defendants' Scottsdale, Arizona
property].) The defendants' misappropriation ofentrance fees that were supposed to be held in
trust, and used exclusively to repay the loan made to purchase the independent living tower and for
other liabilities of 8515 Costa Verde Boulevard, constitutes "financial abuse."
Similarly, the (1) defendants' payment of never-negotiated (NOL, Exh. 7, Poorman depo.,
p. 24:10-18; NOL, Exh. 58, CFO Smith's depo., pp. 132:17-133:16) exorbitant management fees
(Short Dec., ~ 6), marketing fees and administrative expenses by means of a never disclosed,
higWy confidential, self-dealing contract with related entities (NOL, Exh. 54 [marked
"Confidential Attorneys' Eyes Only"]); (2) despite defendants' assurances to plaintiffs that they
would minimize such fees (NOL, Exh. 8 [encouraging numerous class members who resided at
LJVT when property was purchased by defendants to remain: "please rest assured we will work
diligently to manage expenses"]; NOL, Exh. 56 [announcing six percent montWy fee increase in
2001 and stating "You can rest assured that I, along with the rest ofthe staff, am always diligently
working to minimize the impact of such increases"]; NOL, Exh. 57 [announcing six percent
monthly fee increase in 2002 and stating "Please be assured that we are looking at all our expenses
and systems to find ways of reducing the impact of such increases"]; NOL, Exh. 59 [announcing
six percent monthly fee increase in 2004 and stating "Please be assured that it is our goal to operate
the community in a fiscally responsible manner"]; NOL, Exh. 60 [announcing five percent montWy
fee increase in 2006 and stating "Please be assured that it is our goal to operate the community in a
fiscally responsible manner"]; NOL, Exh. 62 ["we are as sensitive about increases as you are [and]
are working to ensure that the community operates efficiently"]; (3) particularly in light of contrary
assurances (NOL, Exh. 63, Eichberg depo., p. 42:12-18 [defendants' sales person Annie Reynolds
"said that Classic Residence would never raise their rates more than 3 percent ... I recall that very
distinctly"]; NOL, Exh. 64, Flentye depo., p. 30 [told by marketing director Linda McGrath that
monthly fees would not increase by more than "three percent maximum"]; NOL, Exh. 97, Pierce
depo., p. 20:2-8 ["they said [monthly fee increases] would never be more than 3 percent"]); (4)
class members' age (NOL, Exh. 4, column C; Gleason Dec., ~ 10 [average age of class is 87.2
years]) and vulnerability; and (5) the non-refundability of entrance fees paid by residents (Lane
20 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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fee]; SSUF ~ 52), constitutes "financial abuse."
VII. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE SIXTH CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY OR THE NINTH CAUSE OF ACTION FOR CONSTRUCTIVE FRAUD.
Relying heavily upon a recent case, City ofHope National Medical Center v. Genentech
(City ofHope) (2008) 43 Cal.4th 375, the defendants contend they are entitled to judgment on the
sixth cause of action for breach of fiduciary duty and the ninth cause ofaction for constructive
fraud because, as a matter oflaw, the relationship between them and the class is not a fiduciary
relationship. (Mem., pp. 13-14.)
lOIn City ofHope the Supreme Court held that the relationship between an inventor or
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researcher and another party who has been entrusted with a new idea or discovery for the purpose
of developing, patenting, and commercially exploiting the idea or discovery in return for royalties
to be paid to the inventor or researcher is not a de jure fiduciary relationship. That case obviously
involved materially different facts. The dominant purpose of such a relationship is commercial,
not personal. Here, by contrast, elderly and vulnerable class members are relying upon the
defendants to meet all of their most personal needs, i.e., to provide them with food, health care, and
shelter for the rest of their lives.
More importantly, in City ofHope the court did not hold that (l) the relationship between a
continuing care provider and a resident is not a de jure fiduciary relationship; (2) such a
relationship can never be a de facto fiduciary relationship; or (3) as the defendants mistakenly urge,
the fact that one of the parties derives compensation for services performed precludes recognition
of the relationship as either a de facto or de jure fiduciary relationship. That is plainly incorrect.
Doctors, lawyers, and professional trustees (such as banks) all provide services for compensation,
and all are fiduciaries as a matter of law.
As we will show, the existence of the alleged de facto fiduciary relationship is a triable
issue of fact, not a question oflaw. (Section VII(A), post.) There is abundant evidence that the
relationship between class members and the defendants was a de facto fiduciary relationship of
trust and confidence. The trust of class members was deliberately inculcated by written statements
21 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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made by the defendants; and that trust was accepted and openly acknowledged by the defendants.
Even if the nature ofthe relationship between the class and the defendants were a question oflaw,
the court should hold, as a matter of first impression, that the relationship between a continuing
care provider and a resident-like the relationship between a doctor and a patient or a guardian and
a ward-is a de jure fiduciary relationship. (Section VII(B), post.)
A. There Are Triable Issues of Fact Regarding Whether the Relationship Between the Plaintiff Class and the Defendants Was a De Facto Fiduciary Relationship.
1. The defendants have cited no legal authority supporting their contention that the relationship between a continuing care provider and a resident cannot be a de facto fiduciary relationship.
In their sixth cause of action for breach of fiduciary duty, the plaintiffs allege that a de facto
fiduciary relationship of trust and confidence existed between the class and the defendants. (TAC,
~ 159, pp. 26-27.) "A fiduciary relationship is '''any relation existing between parties to a
transaction wherein one of the parties is in duty bound to act with the utmost good faith for the
benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one
person in the integrity of another, and in such a relation the party in whom the confidence is
reposed, ifhe voluntarily accepts or assumes to accept the confidence, can take no advantage from
his acts relating to the interest of the other party without the latter's knowledge or consent.... .'''
[Citations.]" (Wolfv. Superior Court (2003) 107 CaLApp.4th 25,29; see BAJI (2002 9th ed.) No.
12.36 ["A fiduciary or a confidential relationship exists whenever under the circumstances trust
and confidence reasonably may be and is reposed by one person in the integrity and fidelity of
another"].)
As the defendants recognize (Mem., pp. 1: 18-21), certain relationships are fiduciary
relationships as a matter oflaw, such as the relationships of (1) partners, (2) spouses, (3) trustee
and beneficiary, (4) attorney and client, (5) doctor and patient, (6) priest and parishioner, (7)
principal and agent, (8) guardian and ward, (9) conservator and conservatee, (10) homeowners'
associations and members (Cohen v. Kite Hill Community Assn. (1983) 142 CaLApp.3d 642,650
651), and (11) majority and minority shareholders (Jones v. H F. Ahmanson & Co. (1969) 1 Ca1.3d
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93, 108). (See, e.g., GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (GAB)
(2000) 83 Cal.App.4th 409,416, disapproved on another ground in Reeves v. Hanlon (2004) 33
Cal.4th 1140, 1154.)
However, other relationships-which we refer to as de facto fiduciary relationships-may
be fiduciary as a matter offact, when trust and confidence is reasonably reposed by one party, who
is in a relatively dependent or vulnerable position, in the integrity and fidelity of another, who is in
a relatively dominant position of control. "It is settled by an overwhelming weight of authority that
the principle [as to confidential relationship] extends to every possible case in which a fiduciary
relation exists as a fact, in which there is confidence reposed on one side and the resulting
superiority and influence on the other. The relation and the duties involved in it need not be legal.
It may be moral, social, domestic, or merely personal. Hence, the rule embraces both technical
fiduciary relations and those informal relations which exist wherever one man trusts in and relies
upon another.'" (Pryor v. Bistline (1963) 215 Cal.App.2d 437,446, italics added, quoting 23
Am.Jur. at p. 764; Bolander v. Thompson (1943) 57 Cal.App.2d 444,447.)
Whether or not the relationship between a continuing care provider and a resident should be
recognized as a de jure fiduciary relationship (see Section VII(B), post), the defendants have cited
no legal authority that such a relationship cannot be a de facto fiduciary relationship. Unless there
is no triable issue of fact regarding the existence of such a relationship, the defendants are not
entitled to judgment as a matter oflaw. (Code Civ. Proc., § 437c, subd. (c).)
2. The existence ofa de facto fiduciary relationship is a question offact. not law.
The existence ofde facto fiduciary relationship founded upon agreement (the "repose" and
"acceptance" ofa confidence) is a question of fact, not law. (GAB, supra, 83 Cal.App.4th at p.
417; Barbara A. v. John G. (1983) 145 Cal.App.3d 369,383; Pryor v. Bistline, supra, 215
Cal.App.2d at p. 446; Kent v. First Trust & Savings Bank (1950) 101 Cal.App.2d 361,370.)
3. There are triable issues offact regarding whether the relationship between plaintiffclass members and the defendants was a de facto fiduciary relationship.
There is abundant evidence that the trust and confidence of class members was solicited by
the defendants, accepted by the defendants, and acknowledged by the defendants. First, class
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members are vulnerable because of their age and because they have each paid hundreds of
thousands of dollars in non-refundable entrance fees to defendants. (NOL, Exh. 4.) Second, class
members are dependent upon the defendants to provide them with food, shelter, and health care for
the rest of their lives. (Lane Dec., Exh. B; NOL, Exh. 12 [lifetime care coverage and "lifetime
C; NOL, Exhs. 1-1), the continuing care relationship is analogous to the de jure fiduciary
relationship in which a guardian is responsible for providing a ward with the necessities of life.
Because the defendants established a trust fund for the ostensible purpose of preserving and
securing the very substantial entrance fees paid by class members, their relationship with residents
is analogous to a de jure trustee-beneficiary fiduciary relationship. Because the defendants are
privy to confidential financial information regarding class members, the continuing care
relationship certainly has an attribute of a de jure attorney-client fiduciary relationship. Most
significantly, the dependency of elderly residents on their continuing care provider to faithfully
perform the life-sustaining services they have willingly undertaken is utterly complete, and the
potential for abuse of that relationship is at least as great as the potential for abuse of the de jure
fiduciary relationship between majority and minority shareholders.
For all these reasons, the court should hold as a matter of common law that the relationship
between a continuing care provider and a resident is a de jure fiduciary relationship. The
defendants' argument that such a relationship, in which the vulnerable, elderly resident is
dependent upon the provider for lift care, should not be recognized as a de jure fiduciary
relationship simply because the provider receives compensation pursuant to a contract (Mem., pp.
13-14) is overbroad15 and without merit and should be rejected.
c. There Are Triable Issues of Fact Regarding Whether the Defendants Committed Constructive Fraud.
As to the ninth cause of action for constructive fraud, the defendants contend only that the
plaintiffs' "constructive fraud claims fail for lack of a fiduciary or confidential relationship."
(Mem., p. 14:26-27.) Because the defendants are mistaken in contending that there is no fiduciary
relationship between them and class members as a matter of law, they are equally mistaken in
contending that they are entitled to judgment as a matter of law on the ninth cause of action for
15 For example, legal services, medical services, and trust services, like continuing care services, are all typically performed for contractual compensation. (See, e.g., Bus. & Prof. Code, § 6148, subd. (a) [attorney fee contracts must be in writing]; Health & Saf. Code, 1787, subd. (a) [continuing care contracts must be in writing].) However, such contractual compensation does not preclude the law's recognition of the fiduciary nature of attorney-client, doctorpatient, and trustee-beneficiary relationships.
26 Plaintiffs' Memorandmn of Points and Authorities in Opposition to Defendants' Motion [etc.]
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constructive fraud.
VIII. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE EIGHTH CAUSE OF ACTION FOR BREACH OF CONTRACT.
A. The Parties Dispute the Contents of Their Continuing Care Contracts.
The defendants argue that the plaintiffs have "concede[d]" the "integrated agreement is
unambiguous." (Mem., p. 7:17.) While incorrect (PRSSUF, ~ 2), it also begs a fundamental
dispute between the parties regarding the substantive content of their "continuing care contracts."
The defendants contend their contractual relationship with class members does not include
the prior "continuing care promises" they made in marketing brochures, unless those promises are
expressly repeated in the CCRA, because Section IX(I) of the defendant-drafted CCRA provides:
"This Agreement, including the attached Appendices, constitutes the entire agreement between
You and Classic Residence by Hyatt ...." (Lane Dec., Exh. B, p. 30.)
The plaintiffs contend, to the contrary, that their statutorily-defined "continuing care
contracts"(Health & Saf. Code, § 1771, subd. (c)(8)) include all of the defendants' continuing care
promises, whether those promises are contained in the defendant-drafted CCRAs or in
"advertisement[s], brochure[s], or other material" (id., subd. (c)(lO)).
In fact, however, this dispute regarding substantive content is more apparent than real,
because the extrinsic "continuing care promises" in dispute do not contradict the CCRAs. They
explain their meaning. In light of the extrinsic "continuing care promises," which are admissible
under a statutory exception to the parol evidence rule (Code Civ. Proc., § 1856, subd. (g)), the
CCRAs are not ambiguous. That is what the plaintiffs have contended in discovery.
B. The Parol Evidence Rule Does Not Entitle Defendants To Summary Adjudication of the Eighth Cause of Action.
Invoking the parol evidence rule, the defendants argue that "[p]laintiffs cannot bring a
breach of contract claim to enforce alleged promises that fall outside of (and contradict) the CCRA.
To the extent that [p]laintiffs' breach of contract claim is based, as [p] [laintiffs allege, on promises
made in written or oral representations outside of the contract, that claim fails." (Mem., pp. 7-8.)
However, the defendants have entirely ignored the applicable exceptions to the parol evidence rule.
The defendants are not entitled to summary adjudication of the eighth cause of action or
27 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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any part of it. First, as shown below, there are triable issues of fact regarding breach of the
intrinsic terms of the CCRAs (Section VIII(D)-(E),post), and summary judgment may not be
granted as to part ofa cause of action (Code Civ. Proc., § 437c, subd. (f)(1)). Second, the parol
evidence rule is not equal to the task defendants have assigned it.
1. The parol evidence rule
In California the parol evidence rule is codified in Code of Civil Procedure section 1856
(Garcia v. Truck Ins. Exchange (1984) 36 Ca1.3d 426,435; Banco Do Brasil, S.A. v. Latian, Inc.
(1991) 234 Cal.App.3d 973, 1000), which provides in relevant part:
"(a) Terms set forth in a writing intended by the parties as afinal expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.
(b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. ...
(d) The court shall determine whether the writing is intended by the parties as a final expression of their agreement with respect to such terms as are included therein and whether the writing is intended also as a complete and exclusive statement of the terms of the terms of the agreement." (Italics added.)
However, as shown below, there are a number of applicable exceptions to the parol evidence rule
in California. Some are codified, and others are recognized in decisional law.
2. There is a triable issue offact on the issue ofintegration.
First, parol evidence may be admissible on the preliminary question of integration. Since
Masterson v. Sine (1968) 68 Cal.2d 222,226-227, it has been hornbook law that whether a writing
is nonintegrated, "partially integrated," or "completely integrated" depends upon the parties' intent,
which may be determined by consideration of relevant extrinsic evidence that explains but does not
flatly contradict the writing. (Stevenson v. Oceanic Bank (1990) 223 Cal.App.3d 306, 316; Mobil
Here there is evidence that class members did not understand Section IX(I) of the CCRAs
to exclude or nullify the prior "continuing care promises" and representations that had been made
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to them by the defendants in marketing materials. The defendants not only failed to explain such a
meaning to class members; they took a contrary position before this litigation commenced. In a
memorandum dated March 10, 2000, the defendants took the position that, even after residents
signed CCRAs, their LJVT Resident Handbook was a binding part of the parties' continuing care
contracts (NOL, Exh. 49, p. 2 ["the Resident Handbook is incorporated into the [CCRA]"), even
though the Resident Handbook was not an appendix to, or otherwise expressly incorporated in, the
class CCRA. The Resident Handbook reaffirmed the defendants' prior continuing care promise of
a 24-hour nurse. (NOL, Exh. 50 ["response nurse"]; NOL, Exh. 51 ["the nurse is available 24
hours a day"]; NOL, Exh. 52 ["during no-office hours and on weekends, nurses are on call"].)
"A contract must be so interpreted as to give effect to the mutual intention of the parties as
it existed at the time of contracting, so far as the same is ascertainable and lawfuL" (Civ. Code,
§ 1636.) Where, as here, both class members and the defendants understood the CCRAs as
nonexclusive statements of the parties' rights and obligations, the court can and should find that the
CCRAs were not "integrated." However that may be, because there is a triable issue offact
regarding whether the CCRAs were intended by the parties as "integrations," the defendants are
not entitled to summary adjudication regarding the alleged breach of their "extrinsic" statutory
continuing care promises.
3. The defendants' "continuing care promises" are admissible to show the meaning ofthe CCRAs.
a. Parol evidence is admissible to interpret the CeRAs.
Second, subdivision (g) of Code of Civil Procedure section 1856 permits the admission of
"evidence of the circumstances under which the agreement was made or to which it relates, as
defined in [Code of Civil Procedure section] 1860, or to explain an extrinsic ambiguity or
otherwise interpret the terms of the agreement." This is undoubtedly the major exception to the
parol evidence rule. The defendants' argument that the CCRAs "cannot be interpreted through
parol evidence" (Mem., p. 7:2-3, boldface and capitalization omitted) is simply mistaken.
The admissibility ofparol evidence to establish the meaning ofan integrated contract is
explained in the seminal cases of Pacific Gas & E. Co. v. G. W Thomas Drayage etc. Co. (1968)
29 Plaintiffs' Memorandum ofPoints and Authorities in Opposition to Defendants' Motion [etc.]
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69 Cal.2d 33,37-40, and Delta Dynamics, Inc. v. Arioto (1968) 69 Cal.2d 525,528-529. (See 2
Witkin, Cal. Evidence (4th ed. 200) Documentary Evidence, §§ 74-77, pp. 192-196.) "The test of
admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it
appears to the court to be plain and unambiguous on its face, but whether the offered evidence is
relevant to prove a meaning to which the language of the instrument is reasonably susceptible."
(Pacific Gas & E. Co., supra, at p. 37; Rest.2d Contracts, § 215, com. (b) ["[T]he asserted meaning
must be one to which the language of the writing, read in context, is reasonably susceptible."].)
b. The alleged, extrinsic "continuing care promises" are are consistent with, and do not contradict, the CCRAs.
Without analysis, defendants incorrectly assert that reliance cannot be justifiable "because
the representations contradict the parties integrated contract." (Mem., p. 12:6-7, citing Slivinksy v.
Watkins-Johnson Company (1990) 221 Cal. App.3d 799,807.)
As Appendix C to each class members' CCRA explains: "The entrance fee includes the
apartment you select and the promise of temporary or long-term care in our future on-site care
center." (Ibid.) "The monthly fee represents the cost ofproviding you with a range of services and
amenities, such as weekly housekeeping, linen service, all utilities (including cable TV), local area
telephone service, a selected meal plan, transportation for medical appointments and personal
errands, wellness center, activities, security, maintenance, and concierge service." (Ibid.)16
Because long-term care is only referenced with regard to the entrance fee,17 and not the monthly
fee, defendants' numerous written statements are consistent with the class CCRA. And the class
CCRA allowed residents who selected the standard plan to pay an additional entrance fee of
22 11---":":""""-----
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16 The provision that services included in the monthly fee include "Long-Term Care Plans ... as described in Section IV" (Mem., p. 5:4-8) is consistent with section IV's statement that "[t]he amount You are obligated to pay for utilizing those services is determined according to the 'Long-Term Care Plan' You selected at Closing" (Lane Dec., Exh. B, p. 8) because residents continue to pay the monthly fee after transfer to the care center. (Lane Dec., Exh. B, p. 8 [standard plan], p. 9 [extensive plan], p. 18 ["Your Monthly Fee after a permanent transfer to a higher care setting will be determined according to the Long-Term Care Plan You selected, as described in Section IV.A."].)
17 At closing, residents only pay an entrance fee and do not begin paying a monthly fee until occupancy. Thus, pursuant to the class CCRA, section IV.A., the amount residents pay for long-term care depends on whether they choose the extensive care plan, which required an higher entrance fee, or the standard plan, which required a lower entrance fee.
30 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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$12,000 "for each 100 additional care benefit days of coverage." (Lane Dec., Exh. B, p. 9, closing
worksheet.) Further, the "second person coverage fee" for the unlimited care plan increased
hour nurse was "consistent with the program or product [she] was selling"]; NOL, Exh. 11, Zuehl
depo., pp. 72:11-73:3 [defendants explanation of "Lifetime Care Center Coverage" in NOL, Exh.
12 is exactly how the CCRA "worked the entire time [she] was [employed]"], 79:20-80:17
[explaining that her understanding that Care center operating shortfalls would be made up by CC
Development Group, Inc., as explained in the August, 1998 Q & A to residents (NOL, Exh. 9) was
consistent with class CCRA].) Nor do defendants explain how the marketing representation to
provide "high-quality" care in the care center contradicts the class CCRA. (NOL, Exh. 17.)
"[W]hat we provide is high-quality service and care [which] fulfills the promise that we have in
our agreements." (NOL, Exh. 28, Richardson depo., p. 88:19-20.) Because the interpretation of
the class CCRA advanced by the plaintiffs-based on defendants' numerous and repeated statutory
continuing care promises--does not contradict the class CCRA, the defendants' statutory promises
are admissible to aid interpretation of the class CCRA.
31 Plaintiffs' Memorandwn of Points and Authorities in Opposition to Defendants' Motion [etc.]
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4. Ifthe CCRAs fail to include all ofthe defendants' "continuing care promises, " parol evidence is admissible to show their illegality and invalidity.
Third, Code of Civil Procedure section 1856 permits the admission of extrinsic evidence
relevant to prove "the validity [or, presumably, the invalidity] of the agreement" (subd. (f)) "or to
establish illegality or fraud" (subd. (g)).18 It was the defendants' statutory obligation to express all
oftheir "continuing care promises" (Health & Saf. Code, § 1771, subd. (c)(10)) in writing (id.,
§ 1787, subd. (a)) in the "continuing care contracts" (id., § 1771, subd. (c)(8)) they drafted and
entered into with class members. If, for example, the defendants made 20 "continuing care
promises" in advertisements, marketing brochures, and oral presentations to prospective residents,
and thereby induced class members to sign CCRAs which include only a subset of those continuing
care promises (and a generic clause which purports to exclude all other extrinsic continuing care
promises), then the defendants have not only committed fraud in the inducement of the CCRAs;
they have violated the special statutes which the Legislature enacted to protect vulnerable, elderly
consumers of continuing care services. And parol evidence is admissible to show the illegality of
the defendant-drafted class CCRA.
c. To the Extent Section IX(I) in the Class CCRA Would Negate Continuing Care Contracts, It Is Against Public Policy, Void, and Unenforceable.
In essence, the defendants contend that 17 words on page 30 of the CCRA-"This
Agreement, including the attached Appendices, constitutes the entire agreement between You and
Classic Residence by Hyatt"-nullify all unincluded continuing care promises that the defendants
made to induce class members to pay entrance fees. As explained in Section V(D), ante, whatever
merit such an argument might have in a normal contractual setting, it has none in this context. If
that is what the defendants had in mind by inserting such language in the CCRAs, then the
"integration clause" is plainly contrary to public policy, void, and unenforceable.
/ / /
~ _
18 As noted above (Section V(B), ante), an integration clause cannot be used to insulate a party from liability for intentional misrepresentation. (Civ. Code, § 1668.) Other invalidating causes include duress, mistake, and lack of consideration. (See generally 2 Witkin, Cal. Evidence (4th ed. 2000) Documentary Evidence, §§ 95-103, pp. 217-223, and authorities there cited; Rest.2d Contracts, § 214(d).)
32 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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D. Defendants Breached the "Continuing Care Residency Agreements" by Charging the Operating Costs ofthe Care Center, Which Was Designed to Operate at a Loss, in Independent Living Monthly Fees.
Despite numerous making statutory continuing care promises to the contrary (PRSSUF, ,-r 1;
Section III, ante), defendants concede that they charge all class members the cost of operating the
care center as part of their independent living monthly fees. (NOL, Exh. 45, Sciortino depo, p.
141:14-23 ["The monthly fees from members of the class have been paying for the operation of the
care center since the care center opened in 2002"].) Because the care center always will operate as
a loss (NOL, Exh. 93, p. 2 [2002 care center operating loss of$I,741,728]; NOL, Exh. 94, p. 4
[care center operating losses for 2004 and 2005 of $932,567 and $774,755, respectively, and
projected losses of $753,290 and $567,852 for 2006 and 2007, respectively]19), forcing class
members to pay for "the costs to provide services and amenities to all residents of the Care
Center," as set forth in the revised CCRA for residents entering after January 1,2006 (NOL, Exh.
5), forces class members to pay for long-term care a second time.20
E. There Are Triable Issues of Facts Regarding Breach of the Covenant Quiet Enjoyment.
Defendants contend that, as a matter of law, they are entitled to summary adjudication of
plaintiffs' breach of quiet enjoyment claim because the "major expansion" (NOL, Exh. 86) of an
adjoining 21-story tower was not substantial and simply amounted to a "minor inconvenience."
(Mem., pp. 10-11.) As the court held in Andrews v. Mobile Aire Estates (2005) 125 Cal.App.4th
578,593, in reversing summary judgment for a landlord, a "triable issue[] of fact" is presented by
the question of "whether the level of interference ... [is] sufficient to amount to deprivation of the
[tenants'] right to quiet enjoyment. ..." As described in Section III(E), ante, plaintiffs have
19 Defendants maintain two sets of financial records. One set, typically showing operating losses, is used to increase residents' monthly fees. (NOL, Exh. 94, p. 2 [showing 2005 operating loss of$1,052,593].) The other set is filed to demonstrate financial viability. (NOL, Exh. 95, p. 3 [audited financial statement showing 2005 operatingprojit of$1,114,929].)
20 Which is precisely why "a portion of [residents'] entry fee is set aside to cover additional costs associated with the higher levels of care" at the care center (NOL, Exh. 21, p. Short 1089) and why residents, including Jim and Pat Gleason asked: "Will residents' entrance fees or monthly fees be adversely affected if the Care Center does not do well financially?" (NOL, Exh 9, p. 9 [hand out to all residents August, 1998]; Gleason Dec., ,-r 8.) In fact, the Gleasons were so concerned with this issue in 2002 they asked Ms. Parkins to confirm it in a handwritten note, which she did. (NOL, Exh. 96; NOL, Exh. 76, Gleason depo., pp. 155:21157:7; NOL, Exh. 3, Parkins depo., June 11,2008, pp. 21:1-22:12.)
33 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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presented sufficient evidence of substantial disruption to create a triable issue of fact. Moreover,
unlike a normal landlord-tenant relationship, here defendants have captive residents who would
lose substantial non-refundable entrance fees if they moved out. And defendants expressly
advertised "the peaceful and quietness" ofLJVT. (NOL, Exh. 70, Cassidy depo., p. 23:10-13.)
F. There Are Triable Issues of Facts Regarding the Quality of Health Care Provided by the Defendants.
Defendants contend that "the CCRA does not include [the] guarantee" of high-quality or
exceptional care in the care center. (Mem., p. 9:10-15.) Yet defendants made each of these
statutory continuing care promises and have not met them. (Section III(D), ante.)
IX. THE DEFENDANTS ARE NOT ENTITLED TO SUMMARY ADJUDICATION OF THE TENTH CAUSE OF ACTION FOR VIOLATION OF HEALTH AND SAFETY CODE SECTION 1793.5 BECAUSE THERE ARE TRIABLE ISSUES OF FACT REGARDING WHETHER THE DEFENDANTS HAVE ABANDONED THEIR OBLIGATIONS UNDER "CONTINUING CARE CONTRACTS" WITH CLASS MEMBERS.
The plaintiffs' tenth cause of action is for violation ofHealth and Safety Code section
1793.5. Subdivision (d) of that statute provides in relevant part:
"An entity that abandons ... its obligations under a continuing care contract ... shall be liable to the injured resident for treble the amount of damages assessed in any civil action brought by or on behalf of the resident in any court having proper jurisdiction. The court may, in its discretion, award all costs and attorney fees to the injured resident, ifthat resident prevails in the action."
The defendants argue that the plaintiffs' section 1793.5 claims fail because "[t]here is no evidence
that [d]efendants have abandoned the contract ...." (Mem., p. 16:8-9.)
The word "abandon" has not been judicially construed in this statutory context. However,
the Legislature has expressed its intent that section 1793.5, and all other statutes pertaining to
continuing care contracts, "be liberally construed for the protection ofpersons attempting to obtain
or receiving continuing care." (Health & Saf. Code, § 1775, subd. (e).) Therefore, the most
reasonable interpretation of "abandon" is that it means to "breach" continuing care promises or "to
cease intending or attempting to perform" (Webster's New Collegiate Dict. (9th ed. 1984), p. 43)
such promises. As the defendants concede, a "cessation of services promised" under a continuing
care contract constitutes an "abandonment" of the provider's obligations. (Mem., p. 16:14-15.)
The defendants' "obligations" under its continuing care contracts are statutorily defined.
34 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
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'''Continuing care promise' means a promise, expressed or implied, by a provider to provide one or
more elements of care to an elderly resident for the duration of his or her life or for a term in excess
of one year. Any such promise or representation, whether part of a continuing care contract, other
agreement, or series of agreements, or contained in any advertisement, brochure, or other material,
either written or oral, is a continuing care promise." (Health & Saf. Code, § 1771, subd. (c)(lO).)
"'Continuing care contract' means a contract that includes a continuing care promise made, in
exchange for an entrance fee, the paYment of periodic charges, or both types of payments. A
continuing care contract may consist of one agreement or a series of agreements and other writings
incorporated by reference." (Id., subd. (c)(8).) Therefore, as a matter of statutory law, the
defendants' obligations to class members include all of its "continuing care promises," whether
such promises are contained in the defendant-drafted CCRAs or "in any advertisement, brochure,
or other material." The defendants are mistaken in contending that "the CCRA [alone] is the
written 'continuing care contract.'" (Mem., p. 16:7.)
The defendants are also mistaken in denying the evidence of the cessation of promised,
continuing care services. For example, the defendants promised class members they would receive
an emergency response, 24 hours a day, from an on-site licensed nurse. They made that continuing
care promise in exchange for an entrance fee and the paYment of monthly fees. Then they
abandoned their continuing care obligation by discontinuing the on-site nursing service. That is
precisely what Health and Safety Code section 1793.5, subdivision (d), is intended to prohibit.
Because there is abundant evidence that the defendants have abandoned their obligations under the
CCRAs and other written continuing care promises they made in consideration for the paYment of
entrance fees by class members (see Section VIII(D)-(F), ante), there are numerous triable issues of
fact on the tenth cause of action.21
X. CONCLUSION
For all of the above reasons, the defendants' motion for summary judgment or, in the
alternative, summary adjudication should be denied in its entirety.
21 The defendants also argue that they have not abandoned a "continuing care retirement community," as defined in Health and Safety Code section 1771, subdivision (c)(lI). (Mem., p. 16:11-18.) However, that argument is a red herring because the plaintiffs have not even alleged abandonment of the "community." (TAC, '1183, p. 32.)
35 Plaintiffs' Memorandum ofPoints and Authorities in Opposition to Defendants' Motion [etc.]
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Dated: September 24, 2008
By:
LAW OFFICE OF MICHAEL A. CONGER
Michael A. Conger Attorney for Plaintiffs
36 Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion [etc.]
