Manor rebellion

Rogue Valley Manor Board files suit to seek independence from Pacific Retirement Services
A group of Manor residents listens Monday as Jim Macmillan discusses the turmoil that led to the Rogue Valley Manor Board of Directors filing a lawsuit seeking authority to separate from its parent company, Pacific Retirement Services.Bob Pennell

Hints that something was afoot at the Rogue Valley Manor were subtle at first. But then boardroom cajoling gave way to blunter words and lawyers were called in.

As the quarterly Manor board meetings turned into almost weekly gatherings, many of the 950 residents of Southern Oregon's best-known retirement community started asking questions.

Then it all hit like a thunderstorm blowing in from the Siskiyous: First the Rogue Valley Manor board filed suit in Jackson County Circuit Court asking for approval to seek independence from Pacific Retirement Services' control and the restoration of its authority over the retirement center's campus and affairs.

The lawsuit alleges that "PRS has engaged in a course of dealing that has been improper and detrimental to the Manor and its residents," in part due to excessive management fees and interference by PRS in the Manor board's functions.

PRS responded immediately, placing longtime Manor Executive Director Kevin McLoughlin on administrative leave, a move that some Manor residents said came because PRS believed McLoughlin had sided with the Manor board in the dispute.

In a letter signed by the PRS board and management team and sent to Manor residents on Friday, the organization said it would fight any break-up attempt.

"Because we believe the separation of the two organizations is not in the best interest of either RVM or PRS stakeholders, PRS will vigorously defend itself against this court action and is considering removal of one or more members of the Rogue Valley Manor board of directors," the letter stated.

"It is important that you know the decision to make these changes was not made hastily. These actions are a result of PRS' lack of confidence in the RVM board's ability to successfully lead RVM into the future."

In essence, said Earl Norgard, former president of the residence council at the Manor, the battle is for control and governance, with the Manor board attempting to gain equal footing with PRS when negotiating terms of management service. PRS has the power to set management fees unilaterally, with those costs passed onto Manor residents. (Correction: The name of the council has been corrected in this story.)

"I think the gloves have already come off and I don't think our board is blinking," Norgard said.

PRS has "in essence and fact" complete control over decisions affecting the Manor, said Norgard, a one-time chief financial officer for Wells Fargo. "The complete control has been used too much to their benefit and in some ways to our detriment."

PRS owns and operates continuing-care units in Oregon, Washington state, California and Texas, and in recent years has focused on management agreements for senior communities.

While Manor executives created PRS in 1991 to provide management and other services, PRS became in essence the parent company of the Manor, with its board appointing members to the Manor board. That took control of the Manor operations and finances out of the hands of its own board.

The Manor board's complaint says the arrangement "no longer serves (its) stated organizational missions and no longer is in the best interests of the Manor, its residents and its stakeholders."

Thomas McDermott, a Portland attorney representing the Manor board, said the board is seeking a preliminary injunction to head off any effort by PRS to remove members from the Manor board.

At issue is PRS' pledge to the Manor that it would manage the senior living community at cost — with no profit — once the new parent company was formed, McDermott said. The Manor board believes extra fees collected from its residents now support less-profitable PRS endeavors, he noted.

"We're not in the least bit interested in causing harm to PRS," McDermott said. "If approved, there is no ownership transfer, just a corporate reorganization. We would like to go back to the way it was before PRS was created. Then we'd be able to much more comfortably deal as equals and have at-arms-length transactions."

PRS President and Chief Executive Officer Brian McLemore said there is more at stake than control of the Manor.


"Since May, PRS has carefully considered concerns voiced by the RVM board, offered proposals to address these concerns, and repeatedly requested that the RVM board offer its own proposals for resolution. RVM has been unwilling to do so," McLemore said in an email.

In the period the entities have worked together, they have created one of the most successful retirement communities in the nation, McLemore said.

"This did not happen by chance, but rather has been achieved by hundreds of employees, residents and board members working together for the greater good of RVM," he said. "Terminating the affiliation between PRS and RVM is not an arrangement that PRS is willing to accept due to the detrimental impact it will have on RVM, PRS, and the other communities that PRS manages and is affiliated with."

McDermott, the Manor board's lawyer, said that Manor residents are increasingly unhappy that management fees charged by PRS are supporting other operations.

McDermott said annual management fees, amounting to $3,500 per unit, are far beyond PRS' cost of running the facility. He said $1,500 per unit would be closer to the actual cost.

In looking at costs associated with PRS operations outside their facility, Manor residents performed their own analysis of the development of Centennial Golf Course by PRS and determined it was a financial drain on the organization.

"The residents of the Manor are very heavily invested in it," Norgard said. "We put up the money to buy the land and some was donated and some donated to us."

A 50-page analysis of the golf course transaction by residents revealed unfavorable results for the Manor's holdings. But the work was ignored by PRS executives, Norgard said.

"It was kept under wraps," he said. "And it went in a drawer."

McDermott indicated that the Manor took an $18 million hit on the Centennial development.

A busload of Manor residents who hoped to voice their support for McLoughlin made the short trip Monday to nearby Homewood Suites, where they believed the PRS board was scheduled to meet. But they found no PRS gathering.

Doug Phillips, who heads up the Manor's residence council, said news of PRS putting McLoughlin on leave created an instant stir. He said his telephone has never been so busy, stacking up multiple messages as he reviewed the matter with callers.

"Every time I hung up, it said I had missed three calls," Phillips said. "There is a feeling that PRS thought Kevin has talked out of turn and shouldn't be talking to Manor residents about certain matters. That's absolutely not true, even in our meetings Kevin is so circumspect.

"I will say there are things that we're in the dark about and he will tell us he can't talk about it."

Mike Morris, son-in-law of former PRS Chief Executive Tom Becker, who was ousted in April 2010, is now PRS' chief operating officer. In McLoughlin's absence, Morris is the acting administrator for the Manor.

Reached by phone, Becker said he was perplexed by the dispute.

"I can't comprehend it really," Becker said. "I don't know what would trigger the (Manor) board to do that. To me, it's all about the residents, but anything can happen."

Reach reporter Greg Stiles at 541-776-4463 or email business@mailtribune.com.



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