Court Opinion

ID: 4539841
Source: CourtListenerOpinion
Date Created: 2020-06-08 20:01:27.856699+00
Date Added: 2024-06-11T12:44:53.246696
License: Public Domain

NOT FOR PUBLICATION                            FILED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).

                                          5
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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