complaint·February 24, 2021

Rachel Raymond, Assistant Chief Counsel, Carla Nuti-Martinez, Regional Manager, and Allison Nakatomi, Manager of the Continuing Care Contracts Bureau, conducted a virtual meeting to deliver the findings of an investigation conducted by the Department and met with Tara Cope, General Counsel of Vi Living, Gary Smith, CFO of Vi Living, and Paul Gordon, Hanson Bridgett The Department received and reviewed a complaint dated November 12, 2020, and titled “Formal Complaint on Behalf of the Residents of Vi at La Jolla Village and Vi at Palo Alto Life Plan Communities,” from complainants.  As part of its investigation of the complaint, the Department in interviewed representatives of the residents, along with Tara Cope and Gary Smith of the provider and conducted records review. Based on the preponderance of evidence standard, the Department finds the above allegation to be substantiated, meaning there is a preponderance of evidence to prove the allegation occurred. The Department is informed that there was a settlement pending court approval in the amount of one million dollars.  A portion of the settlement has been allocated to the 2020 operating account for Vi at Palo Alto.  Specifically, it shows an expense in the amount of approximately $350,000, which includes $250,000 for the cost of settlement and $100,000 for the cost of defense attorneys’ fees. This will result in a reduction of the COS in the amount of $350,000.  Further, the provider intends to pass on $175,000 in attorneys fees it projects for this suit in 2021. Residents have argued that the costs of the suit cannot be used to increase monthly care fees because they are barred by Health and Safety Code section 1788(a)(35) and Civil Code section 1688 as indemnity.  The Department has rejected this conclusion because these statutes do not address indemnity.  The residents have also argued that the cost of settlement and attorneys fees cannot be passed on because they are costs of the management company and not the provider.  The Department has rejected this contention because after review of the management agreement the Department has concluded that there is not sufficient evidence to find that the costs could not be passed on to the providers. Nevertheless, the Department finds that the apportionment of these costs to the Vi at Palo Alto operating account does result in a reduction in the COS, which affects the monthly care fees. The provider is obligated to base monthly care fee increases on “projected costs, prior year per capita costs and economic indicators.”  While the defense fees are an appropriate cost, it is not clear that the costs in the settlement agreement are because, to date, the settlement agreement has not apportioned the proceeds between attorney’s fees for defense, restitution, fines, penalties and LCPAGA attorney’s fees. The Department is requiring that this information be provided to it and the residents prior to any adjustment to the COS.  Proceeds associated with attorney fees for defense of the action and payments to employees may be included as a cost of operation.  Costs associated fines, penalties and LCPAGA attorney’s fees are not allowed to be included as a cost of operation. This report was reviewed with Katie Hernandez and a copy of the report was provided.