Linda Cork v. Cc-Palo Alto, Inc. ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 8 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
LINDA C. CORK, ET AL., No. 19-15441
Plaintiffs-Appellants, D.C. No. 5:14-cv-00750
v.
MEMORANDUM*
CC-PALO ALTO, INC, ET AL.,
Defendants-Appellees,
Appeal from the United States District Court
for the Northern District of California
Edward J. Davila, District Judge, Presiding
Argued and Submitted April 17, 2020
San Francisco, California
Before: HAWKINS and PAEZ, Circuit Judges, and RESTANI,** Judge.
Plaintiff-Appellants (“Residents”) live at the Vi at Palo Alto, a continuing care
retirement community (“CCRC”) in Palo Alto, California. The Vi at Palo Alto (“Vi”)
is operated by CC-Palo Alto, Inc. (“CC-PA”) and has a parent company, CC-
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Jane A. Restani, Judge for the United States Court of
International Trade, sitting by designation.
Development Group, Inc. (“CC-DG”). Residents brought various claims against
CC-PA, CC-DG, and Classic Residence Management Limited Partnership
(collectively, “Corporate Defendants”) and members of CC-PA’s board of directors
(collectively, “Director Defendants”).1 At base, Residents’ claims stem from an
alleged violation of their contractual and statutory rights caused by CC-PA’s failure
to maintain a refund reserve of entrance fees paid by Residents, a portion of which
CC-PA is eventually required to return. The District Court dismissed Residents’ first
ten claims, finding that they had failed to show sufficient injury to establish Article
III standing. The District Court subsequently granted summary judgment for
Defendants on the remaining derivative and fraudulent transfer claims. Residents
appeal both decisions. We affirm the District Court’s summary judgment decision
on the derivative claims and vacate and remand for further proceedings on the
remaining claims.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We review a dismissal
without leave to amend de novo. See, e.g., Sonoma Cty. Ass’n of Retired Emps. v.
Sonoma Cty., 708 F.3d 1109, 1118 (9th Cir. 2013). Similarly, a District Court’s
rulings regarding standing and summary judgment are reviewed de novo. See La
1
The California Advocates for Nursing Home Reform and California Continuing
Care Residents Association, Inc.’s motion for leave to file as amici curiae (Dkt.
No. 18) is granted.
2
Asociación de Trabajadores de Lake Forest v. City of Lake Forest, 624 F.3d 1083,
1087 (9th Cir. 2010).
We begin with Article III standing, which requires injury in fact. Residents
assert that CC-PA’s purported noncompliance with the refund reserve requirements
in Cal. Health & Safety Code §§ 1792.6 and 1793 is sufficiently “concrete, actual,
and imminent.” The District Court misconstrued the alleged harm and found that
Residents “have not alleged any distinct injury.” Where, as here, the asserted harm
is based on a statutory violation, we evaluate the plaintiff’s injury by considering:
“(1) whether the statutory provisions at issue were established to protect [plaintiff’s]
concrete interests (as opposed to purely procedural rights), and if so, (2) whether the
specific procedural violations alleged in this case actually harm, or present a material
risk of harm to, such interests.” Robins v. Spokeo, Inc., 867 F.3d 1108, 1113 (9th
Cir. 2017). As to (1), the statutes at issue were intended as a bulwark against the
potential abuse of the particularly vulnerable residents in CCRCs, who “expend a
significant portion of their savings” to live in such communities. See Cal. Health &
Safety Code § 1770(b) (discussing the need to protect against the “tragic
consequences” of abuse of elderly residents). The reserve requirement helps to
ensure the financial security of those living in CCRCs, by mandating that certain
portions of refundable entrance fees be maintained in trust. See id. § 1792.6(a).
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As to (2), the statutory violation of failing to maintain a refund reserve harms
Residents by putting them in the distressing position of choosing between vacating
the Vi and potentially risking non-repayment, or continuing to live at the Vi in a
state of perceived financial insecurity. See Robins, 867 F.3d at 1117 (noting that
“anxiety, stress, concern, and/or worry about [plaintiff’s] diminished employment
prospects” was sufficient harm to establish a concrete injury). Residents have a
concrete interest in their contracted-for financial security. See Spokeo, 136 S. Ct.
1550, 1544, 1549 (2016) (“[T]he violation of a procedural right granted by statute
can be sufficient in some circumstances to constitute injury in fact” and “a plaintiff
need not allege any additional harm beyond” that which the legislature identified.).2
Further, contrary to the District Court, we conclude that the relevant statute
clearly affords Residents a private right of action in circumstances that may exist in
this case.3 See Cal. Health & Safety Code § 1793.5. Although some subsections of
Section 1793.5 discuss criminal liability alone—see id. §§ 1793.5(a)–(c), (e)–(f)—
subsection (d) additionally mentions civil liability and authorizes recovery in a “civil
2
The Supreme Court’s recent decision in Thole v. U. S. Bank N.A., ___ S.Ct. ___,
2020 WL 2814294 (June 1, 2020) does not alter the analysis required by Spokeo in
a case such as this.
3
Because we conclude that a private right of action exists under the plain language
of the statute, at least in certain situations, we do not turn to the legislative history.
Accordingly, we deny Residents’ Motion to take Judicial Notice (Dkt. No. 15) as
unnecessary.
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action brought by or on behalf of [a] resident.” Id. § 1793.5(d); see also Lu v.
Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592, 596 (2010) (noting that language
describing “a remedy or means of enforcing,” a statute is strongly indicative of an
intent to create a private right of action). Under a liberal reading of the statute,
required by Section 1775(e), at least insofar as such a reading “protect[s] persons
attempting to obtain or receiving continuing care,” a resident need only show that an
entity has abandoned its obligation under a continuing care contract. Id. § 1775(e).
Thus, Residents’ ability to sue here depends on whether Appellees’ conduct
amounts to abandonment of CC-PA’s obligations under its contract with Residents
pursuant to Section 1793.5(d). This assessment turns, in part, on whether the
contracts are “refundable,” as defined in Section1771(r)(2), as the District Court
ruled.4 Nonetheless, the District Court dismissed the first ten counts of the
Complaint. This occurred prior to the issuance of certain letters about the Vi from
the California Department of Social Services (“DSS”), the agency charged with
overseeing such facilities. We decline to decide in the first instance whether the DSS
opinion letter, which was issued after the District Court granted the motion to
4
As was discussed in the District Court, Residents have proffered some evidence
suggesting that CC-PA advertised the contracts as refundable and subject to
reserve requirements. A contract that would otherwise be classified as repayable
will be classified as refundable if the applicant or provider refers to the repayment
as a refund. See Cal. Health & Safety Code § 1771(r)(3).
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dismiss, is correct. On remand, the District Court may revisit this issue in the light
of the DSS opinion.
As to Residents’ derivative claims, the District Court was correct in granting
summary judgment in favor of Defendants. Residents’ derivative claims are based
on the theory that CC-PA was insolvent as a matter of law, thus allowing them
standing to sue as creditors. The District Court excluded Residents’ expert reports
as inadmissible, finding that the reports failed to demonstrate that CC-PA was
insolvent or show that insolvency was a disputed fact under any valid insolvency
analysis. The District Court reasonably found that CC-PA was a going concern, that
a discounted cash flow analysis was the appropriate way to determine solvency in
this case, and that the Residents’ experts failed to conduct such an analysis or any
other appropriate analysis. Accordingly, the District Court did not abuse its
discretion in excluding Residents’ expert testimony.
Finally, although the failure to demonstrate insolvency is fatal to Residents’
fraudulent transfer claim insofar as it is based on constructive fraud, the District
Court erred in dismissing this claim insofar as it is based on actual fraud, which the
District Court noted does not require a showing of insolvency. Compare Cal. Civ.
Code § 3439.04(a) (actual) with id. § 3439.05 (constructive) and Del. Code Ann. tit.
6, § 1304(a) (actual) with id., § 1305 (constructive). It is undisputed that CC-PA has
previously required financial infusions from CC-DG in order to satisfy debts and
6
that CC-DG has also disclaimed a duty to repay outgoing Vi residents their owed
refunds. Residents are not in privity with CC-DG, but with CC-PA. Residents are
prejudiced by the transfer of funds to an entity beyond their reach and the resulting
insecurity that they may not be repaid when owed. See Mehrtash v. Mehrtash, 112
Cal. Rptr. 2d 802, 805 (Cal. Ct. App. 2001) (“It cannot be said that a creditor has
been injured unless the transfer puts beyond her reach property she otherwise would
be able to subject to the payment of her debt.”) (citations omitted and alterations
accepted). Although Residents may not be able to demonstrate monetary loss at this
juncture, they may still be entitled to an order limiting future transfers or other
equitable relief. See Cal. Civ. Code § 3439.07; Del. Code Ann. tit. 6, § 1307; see
also Cal. Civ. Code § 3439.01(b) (noting that a claim “means a right to payment,
whether or not the right is . . .fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured”); Del. Code Ann. tit. 6, §
1301(3) (same). We express no opinion as to the merits of Residents’ actual fraud
claim, but simply hold that it was error to dismiss this claim at summary judgment
on the basis that Residents failed to demonstrate harm.
For the reasons stated above, we vacate the order dismissing Residents’ first
ten claims and remand to the District Court for further proceedings. The District
Court’s decision granting summary judgment on Residents’ derivative claims is
7
affirmed and its decision regarding Residents’ fraudulent transfer claim based on
actual fraud is vacated and remanded for further proceedings.
AFFIRMED in part, and VACATED and REMANDED in part for
further proceedings. The parties shall bear their own costs on appeal.
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