Pacific Retirement Services management made its case to Rogue Valley Manor residents this week, hoping to forestall a class action lawsuit.
PRS laid out what concessions it was willing — and not willing — to make Tuesday in the dispute over governance and management of the Medford retirement community during a lengthy presentation and response to 85 previously submitted questions.
"I think it was enlightening for some, while others believe we should have an accounting of what we do in our system," PRS Chief Executive Officer Brian McLemore said Wednesday.
Late last month, the Rogue Valley Manor residents' steering committee served notice it plans to file a class-action suit in Jackson County Circuit Court asking for $30 million, in part because of what it claims have been excessive management charges by PRS. (Correction: See below.)
A class-action notice was served Nov. 21, meaning the suit will be filed Dec. 21.
Manor residents have been at odds with PRS and its board for months, claiming they exceeded their authority and removed virtually all decision-making power from the Rogue Valley Manor's own board.
"Our position is that we're going to get facts out, answer their questions and do everything to look for compromises and solutions," McLemore said.
PRS is the parent company of the Manor, along with nine other retirement communities and other facilities. But the Manor's board predated the PRS board and Manor residents now say PRS has violated agreements made when it was created to oversee the larger operations.
In a draft complaint, residents seek removal of PRS control over the Manor; rescission of an Aug. 24 bylaws amendment that reduced the Rogue Valley Manor board from nine to three members; and reinstatement of dismissed Manor board members or appointment of an independent board that cannot be appointed or removed by PRS.
They also are asking the court to give the Rogue Valley Manor board the right to select the community's executive director and for the return of Kevin McLoughlin to that role. Further, the residents request an accounting of "excessive management and related fees collected by PRS" and action to prevent PRS from transferring or dissipating the Manor's assets.
After two months of mediated talks, which ended Nov. 16, the sides remained at odds on three points: Rogue Valley Manor board independence, management fees and the fate of McLoughlin, who was fired in August at the same time seven Manor board members were removed by PRS.
"From our perspective there are two stumbling blocks that get in the way and PRS can't compromise on the other one," McLemore said. "We've made some proposals concerning the Rogue Valley Manor board of directors and we think there has been misperception about PRS' at-cost management fees."
But McLemore made it clear that PRS would not revisit the dismissal of the former executive director of the Manor.
"We aren't going to discuss the McLoughlin issue," he said.
Under PRS' new proposal, Manor residents would name two Manor board members, four would be appointed by PRS and residents would have veto power over thee other positions selected by PRS. Additionally, the board would select its own officers and determine which two members would represent the Manor on the PRS board. The new Manor executive director would remain a PRS employee, but the Manor board would participate in his or her annual review.
"That's a long ways from where the full board was approved by PRS," McLemore said. "We feel that's a major concession."
Another resident request is protection of the Rogue Valley Manor Foundation's assets.
McLemore said PRS has transferred sole member status for the Rogue Valley Manor Foundation to the foundation. PRS has done the same for Mirabella Portland Foundation, University Retirement Foundation in Davis., Calif., and Capitol Lakes in Madison, Wis. He said the remaining four foundations in the system are going through a similar transition.
As for management fees, McLemore said every resident since 1991 has acknowledged PRS was both the organization's sole member — with total control — and has consent to charge a management fee of 10 percent — although it has never charged that much.
"It's disclosed, but never been collected," he said. "PRS charges a 5 percent base management fee for operating expenses as well as to continue our mission of affordable housing, community services and developing other retirement communities."
McLemore said the entities have had a historical partnership. The Manor opened in 1961 but struggled to keep occupancy figures up in the 1970s. Since the 1980s, however, it has remained above the 90 percent occupancy mark, even as it has grown. PRS was created in 1991.
"We've gone through a pretty wonderful transition from a single-building Continuing Care Retirement Center to a fantastic campus, cottages, support facilities and a golf course," he said. "We've made it the premier CCRC on the West Coast. Not only is the physical plant great, but the financial strength of the organization has improved over the past 21 years. We had $38 million in assets in the late 1980s and have grown to over $200 million just in Medford."
In PRS' presentation, the parent organization showed that Rogue Valley Manor had $67 million in unrestricted cash and investments, or nearly two years of cash on hand. (Correction: See below.)
Its cash-to-debt ratio helped make it one of the few such operations to receive an A rating from Fitch and BBB+ from Standard and Poors.
"There are 10 CCRCs with an A rating from Fitch in the nation and we operate two of them," McLemore said. (Correction: See below.)
During the past 20 years, PRS has pursued new business and done consulting for other organizations. McLemore said PRS would simply go out of existence if it merely billed its affiliates at cost for its services.
"When PRS was set up in 1991 to provide quality housing for seniors of all economic levels, we recognized there would need to be a margin to fulfill our mission," McLemore said. "How do you reinvest in technology and retrain staff if you simply bill at cost? Most not-for-profits make a margin (with more income than expenses) and I think our margin has been fair and allowed us to reinvest in our mission."
Shannon Armstrong, one of the lawyers representing the Manor steering committee, said PRS' margin is a key component in her client's case.
"When Brian McLemore says CCRCs have to make a profit to carry on what their mission is as non-profit, he admitted PRS has profited from management fees at Rogue Valley Manor," Armstrong said. "Our position is that PRS has engaged in self-dealing, wrongfully charging excessive fees in excess of what they can do legally. The 5 percent base management fee is just one of a variety of other charges for direct services, IT, accounting and media. When you add it all together, the fees are in excess of 5 percent."
Reach reporter Greg Stiles at 541-776-4463 or e-mail firstname.lastname@example.org.
Correction: This story has been updated to clarify the number of residents represented in the suit, the Manor's reserves and the number of continuing care retirement communities earning an A rating from Fitch.