Chicago's Pritzker family is one of the world's richest. There are ten Pritzkers listed in the 2007 Forbes 400, the magazine's compilation of the nation's wealthiest people. Those ten Pritzkers are worth a collective $26.6 billion, according to Forbes. The Pritzkers are known for intra-family feuding and shrewd if sometimes dubious use of decades-old offshore trusts to minimize or eliminate taxes. The Pritzkers are occasionally written up for having had unsavory business associations. "Do the Pritzkers hate paying taxes more than they seem to despise one another?" asked Forbes in a 2003 article.
Among many valuable assets, the Pritzker family controls the Hyatt hotel chain and its various subsidiaries. An affiliate of Hyatt, through related entities, controls and manages a purportedly luxury 21-story home for senior citizens, Classic Residence by Hyatt at La Jolla Village, at 8515 Costa Verde Boulevard, and a related care center at 4171 Las Palmas Square. In the early part of its tumultuous existence, the facility was known as La Jolla Village Towers.
Residents of those buildings are as mad at Hyatt as the Pritzkers have historically been mad at each other. On December 14, Superior Court Judge Yuri Hoffman granted class certification to a fraud suit against Hyatt affiliates. Among many things, the suit charges that the residents had deposited a collective $85 million that was supposed to go into a trust fund to provide them with prepaid long-term health care, but the Hyatt operation squirreled the money out in the form of a secret 50-year, zero percent interest loan to themselves. Now residents say they are being charged a second time for lifetime health care they thought they had purchased with advance payments.
The court agreed that 349 elderly residents (consisting of most persons living there except the disabled or mentally impaired) may have been misled by marketing brochures, contracts, and oral representations from Hyatt affiliates and constitute the class. "Probably a few will opt out of the suit," says Donald R. Short, a resident who initially filed suit against Hyatt as an individual. "A hundred people have indicated that if our suit were not certified as a class action, they would seriously think about filing their own suit," says Short, who remains a half-owner of a partnership that owns 532 residences in Phoenix. "We trusted [Hyatt], believing that they would treat us right. They deliberately planned and set up a system by which they would convert the ownership of $85 million from the people who live here to their own account. The word in my vocabulary that describes this is 'steal.' They have no remorse."
One of the six primary plaintiffs in the suit, along with Short, is James F. Gleason. The lawyer representing the residents is Michael A. Conger. In 2003, Gleason was plaintiff in a suit against the City of San Diego over the intentional underfunding of the pension system. Conger was the attorney in that case, which was settled after the City agreed to put $130 million in the pension system. "The suits have similarities," says Gleason. "The first was about the City underfunding the pension system, and this second suit is about Hyatt not funding promised long-term care."
Residents have many other complaints: an indoor swimming pool, computer room, art studio, billiards facility, outdoor park with picnic tables, and other amenities were taken away when Hyatt began constructing a second, adjacent tower. The company had promised to provide 24-hour nursing assistance. Now, if a medical emergency happens after normal working hours, an attendant phones 911, according to the suit. The residents also complain that service in the care center is substandard.
Despite the sharp decline in services, monthly fees have been going up, not down. The people had been told all along that their monthly fees were not going toward long-term care. Then a Hyatt official told the residents that their escalating monthly fees were going toward the care center. People thought they had paid for this through their original payments. "Now we're learning that we are paying for it a second time with a monthly fee," says Gleason.
Residents paid entrance fees of $218,000 to more than $1.2 million, depending on the size and quality of their suites and other factors. The money often represented "the bulk of their life savings," says Conger. "[Hyatt] told the residents, 'You give us the entrance fee, and a portion of the entrance fee -- sometimes 8 percent, sometimes 40 percent -- would be set aside for long-term care. You move first into independent living, but if you need assisted living, skilled nursing, or Alzheimer's care, you move next door to the care center.' The residents were told it was already prepaid; there would be no higher fee. It was supposed to be set aside in a master trust fund, but they never gave anybody a copy of the master trust agreement." That "hidden agreement" said that all the money is loaned out to Hyatt for 50 years at zero percent interest, says Conger.
Entrance fees are fully refundable for 90 days after residency and partially refundable on a declining scale for the next 50 months. After that, fees are nonrefundable. Thus, after the first few years, residents "have no realistic alternative if they are cheated or mistreated," according to the suit.
The defendants' lawyer, Eric M. Acker, denies every allegation, both generally and specifically. The plaintiffs did not file their complaint within reasonable time and have not suffered damage, says Acker. And the complaints are barred by the statute of limitations, says Acker.
Susan Compton, interim executive director of the facility, released a statement that was cleared through Hyatt headquarters in Chicago. Hyatt affiliates "vigorously deny" any violations of state law, according to the statement. The ruling on class certification "is a procedural ruling only, and has no bearing on the merits of the plaintiffs' allegations. The court simply decided that it believes that it will be more efficient to adjudicate the claims of residents that choose to be a member of the class action together, instead of handling claims in separate individual lawsuits." The Hyatt facility "is the finest community of its kind in San Diego," boasted Compton, saying the second tower will open in spring 2008.
Hostility at this facility dates back about a dozen years. In mid-1996, the California Department of Social Services declared that the financial condition was unsound. Then in 1996, management riled residents by stating, "Materials published by La Jolla Village Towers could be construed to mean that La Jolla Village Towers will provide care at the facility for a resident's life." But because the developers hadn't received financing, it wasn't necessarily so, the residents were warned. The developers went into Chapter 7 (liquidation) bankruptcy in late 1996. Later, that was boosted to Chapter 11 (reorganization).
Hyatt and a major creditor bought it out of bankruptcy in 1998. For a while, the rancor evanesced, but then it flared up again in recent years over the same topic: the residents thought they had prepaid for long-term care but say they were duped. They were still paying, and the care facility was insufficient. Further, the noise and loss of amenities from the construction of the second tower took away what luxury the place had.
"We trusted that [Hyatt] had actuarial accounting," says Gleason. "Older people thought it was a gilt-edged company."