Mcloughlin V. Pacific Retirement Services Inc. 3t6p2s

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[N THE CIRCUIT COURT OF THE STATE OF OREGON

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FOR THE COU1’TY OF JACKSON

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J(J[1,J

v.

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13CVO 1653

COMPLAINT (Breach of Contract; Whistleblower Protection; Wrongful Discharge)

Plaintiff,

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Case No.

MCLOUGHLIN, an individual,

CLAIM NOT SUBJECT TO MANDATORY ARBITRATION JURY TRIAL REQUESTED

PACIFIC RETIREMENT SERVICES, INC., an Oregon nonprofit corporation,

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Defendant. PRAYER: $1,425,000 (ORS 21.160(1)(d)) FiIin Fee: $755

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Plaintiff alleges:

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1.

Plaintiff, Kevin McLoughlin (“McLoughlin”), is a resident of Jackson County, Oregon.

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2. Defendant, Pacific Retirement Services, Inc. (“PRS”), is an Oregon not-for-profit public

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benefit corporation that has its principal place of business in Medford, Jackson County, Oregon.

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j.

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Rogue Valley Manor (“RVM”) is a Continuing Care Retirement Community (“CCRC”),

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organized as an Oregon not-for-profit public benefit corporation with , that has its

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principal place of business in Medford, Jackson County, Oregon.

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4.

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RVM is a CCRC in operation since 1955 presently located on a 200-acre campus serving

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over 900 elderly residents, a substantial number of which are over age 65. As a CCRC, RVM

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offers its residents lifetime continuing care at all levels, a range of housing options, and services,

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amenities and health and wellness programs as part of its charitable mission “to adopt policies

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COMPLAINT

716072.14519-001 LANDYE BENNETT BLUMSTEIN LU’ 350 SW Fifth Aeno. Sotc 3500 Porthrnd, Orego,, 97201 503.224-4100 503 224.4133 Ccin,il)

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and procedures designed to address the need of its residents for protection against the financial

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risks associated with the later years of life.” 5.

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Prior to 1991 RVM was a not-for-profit public benefit corporation without , In

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1991, RVM created Defendant PRS as a §509(a)(3) not-for-profit “ing organization” for

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RVM, after which PRS became, and continues to be, the sole member of RVM. 6.

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McLoughlin was hired by PRS on or about December 18, 1989, and was assigned by

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PRS to serve as RVM’s Executive /Director in 2000. During the entire course of

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his employment, McLoughlin received outstanding performance reviews.

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placed on istrative leave by PRS on August 10, 2012 and ultimately terminated by PRS on

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August 24, 2012.

McLoughlin was

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As Executive Director of RVM McLoughlin was able to and owed direct

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fiduciary duties and responsibilities to RVM’s independent board of directors for every aspect of

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its day-to-day operations. 8.

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On or about March 26, 2011, RVM decided to engage, Lindsay Hart Neil

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+

Weigler, LLP

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(“Lindsay Hart”), to investigate and advise the RVM board about its governance by PRS. As

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part of the decision to conduct an investigation the RVM board adopted a resolution directing

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McLoughlin and all other RVM staff to “cooperate fully with the legal staff of Lindsay Hart

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Neil

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as well as analysis as requested. RVM’s board of directors further directed McLoughlin to

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provide to Lindsay Hart reports about the Management Service Agreements between PRS and

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RVM, fees charged by PRS to RVM, and PRS’s use of RVM property, assets and related

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business.

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Weigler, LLP” which McLoughlin did by communicating written and oral information,

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COMPLAINT 716072. 14519-001 LANDYE BENNETr BLUMSTEIN LU’ 1300 S0’ Fifth Avntto, Soit, 3500 Pottlond, Otgon 97201 0(13224-4100 • 003224.4130 (Incimilo)

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On or about August 9, 2012, through Lindsay Hart, RVM commenced an action against

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PRS for declaratory and injunctive relief, Case No. 123890-E2, in the Circuit Court of the State

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of Oregon for Jackson County.

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fiduciary duties owed to RVM residents by charging and collecting excessive management fees,

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taking undue and excessive risks with RVM properties, dissimilarly treating RVM residents and

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engaging in self-dealing property transactions.

In its action RVM generally alleged that PRS breached its

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On or about August 10, 2012, PRS removed McLoughlin as Executive Director of RVM,

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placed him on paid istrative leave “pending resolution of the matter between [PRS] and

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[RVM],” prohibited him from visiting or accessing RVM and other PRS facilities, and from

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communicating with RVM, staff, residents, board , or attorneys representing RVM.

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11. On or about August 15, 2012, the RVM Board made a presentation to the RVM residents

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explaining the results of its investigation. The conclusions reached included that:

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(1) a reasonable factual basis existed to conclude that PRS had overcharged RVM

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substantial amounts in fees believed to be in the millions;

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(2) potential civil claims for elder abuse could arise as a result of financial exploitation

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byPRS;

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(3) PRS was taking undue and excessive risks with RVM properties;

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(4) PRS was dissimilarly treating RVM residents; and

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(5) PRS was engaging in self-dealing property transactions. 12.

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On or about August 20, 2012, RVM through its counsel appeared in the Circuit Court and

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sought a temporary restraining order requiring PRS to reinstate RVM’s executive director and

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ening PRS from removing RVM’s board .

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McLoughlin was subpoenaed as a

COMPLAINT 716072.14519-00!

LANDYE BENNETT BLUMSTEIN LU’ 1300 SW F00 Avnu, Soi 3500 Po,d,od, Oregon 97201 903224-4100 503.224-4133 (foeeimi1e

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potential witness for that hearing. 13.

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On or about August 23, 2012, the Circuit Court denied RVM’s motion for a temporary

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restraining order. 14.

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On August 24, 2012, PRS removed all of RVM’s board of directors who were

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not tly serving as a PRS board member, and terminated McLoughlin’s employment with

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PRS. 15.

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Based upon the factual investigation undertaken by the RVM board, which relied in part

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on the information and analysis provided by McLoughlin to RVM’s board and counsel, residents

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of RVM engaged the law firm of Markowitz, Herbold, Glade and Mehlhaf, P.C. (“Markowitz”)

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to further investigate claims against PRS. Markowitz’s investigation concluded that a reasonably

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probable basis existed for RVM residents to commence a class action complaint against PRS for

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Elder Abuse, Breach of Fiduciary Duty, Unlawful Trade Practices, Misrepresentation, Breach of

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Contract and Intentional Interference with Contractual Relationships.

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concluded that the RVM residents should seek damages of no less than $30,000,000, as well as

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equitable relief to reinstate the ousted RVM board , RVM Executive Director

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McLoughlin, and other relief

Markowitz further

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As a result of the residents’ reasonable basis for commencement of a class action

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complaint arising in part from the information and analysis provided by McLoughlin to RVM’s

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board, PRS agreed to modify RVM’s governance to provide for total independence of the RVM

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board, capped its management fees to allow RVM to partially recover excess fees previously

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charged by PRS, and modified the duties of RVM’s executive director to permit the RVM board

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to be involved in hiring, firing and review of its executive director notwithstanding direct

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COMPLAINT

716072. 14.519-001 LANDYE BENNETr BLUMSTEIN LLP

Ln

300 SW Fifth Av,nu S,i,, 3500 Prt],od, O,on 97201 503 224-4100 • 503 224.4133 (fimi

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employment by PRS. For his First Claim for Relief, Breach of Contract, Plaintiff alleges:

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Plaintiff realleges and incorporates paragraphs 1 through 16.

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During his employment PRS provided McLoughlin with its “Whistleblower Policy, No.

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3.1.24,” which provided in pertinent part, “requires that its board , officers and

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employees, and the board , officers, employees and volunteers of its s, act in

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accordance with all applicable law, regulations and policies and to observe high standards of

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business and personal ethics in the conduct of their duties and responsibilities,” defines a

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“whistleblower” as “[a] board member, officer, employee or volunteer who reports about an

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activity relating to PRS or any of its s, which that person in good faith believes to be

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fraudulent, dishonest, unlawful or a violation of corporate policy,” defines “fraudulent or

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dishonest conduct” as “a deliberate act or failure to act with the intention of obtaining an

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unauthorized benefit,” including examples of “improper use of fund.

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of PRS’s conflict or interest policy, theft and fraudulent financial reporting, and”

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assurance that individuals will be protected from reprisals or victimization for conveying such

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information appropriately and in good faith” and thereafter assures employees that there will be

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“no retaliation” against an employee who makes “a good faith report,” as follows:

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or other assets,” violation * * *

provides

NO RETALIATION: PRS and its s shall not permit any negative or adverse actions to be taken against any person for making a good-faith report of possible fraudulent or dishonest activities, violations of law or violations of corporate policies, even if the report is mistaken, or against any person who assists in the investigation of a reported violation. Retaliation in any form will not be tolerated.

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ACTING IN GOOD FAITH: Anyone reporting a concern must be acting in good faith and have reasonable grounds for believing the information disclosed indicates a violation and/or fraudulent activity.

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COMPLAINT

71607214519-001 LANDYE BENNETT BLUMSTEIN LU’ a! La. 3500 1300 SW FiSh A,rn,e. Po.4-nd, Oregon 97201 503.224-4100 • 503 224-4133 (IcioiI) l/MflIfJS

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McLoughlin reasonably relied upon that policy to his detriment by providing information

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and analysis in good faith to RVM’s board and counsel when specifically instructed to do by

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resolution of the RVM board as part of its investigation, and, therefore the Whistleblower Policy

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created a contractual relationship between McLoughlin and PRS. 20.

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PRS breached its agreement with McLoughlin as set out in the Whistleblower Policy,

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and the covenant of good faith and fair dealing implied in that policy, when it took negative and

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adverse action against him by suspending and, thereafter, terminating his employment for

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providing information and analysis as part of the RVM board investigation. 21.

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As a result of PRS’s breach, McLoughlin has been damaged in that he has suffered

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economic loss of his total compensation of approximately $176,530 per year in salary, bonus of

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approximately $40,000 per year, benefits including medical, dental and vision coverage, more

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than four weeks paid vacation, and retirement benefits equal to a four percent (4%) 403b match

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and defined contribution plan based upon 20% of his salary, from the date of his termination and

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continuing through trial, and reasonably continuing into the future in an amount to be determined

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at trial, but reasonably believed to be in excess of $675,000.

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For his Second Claim for Relief, Whistlebiowing (ORS 659A.885(2)), Plaintiff alleges: 22.

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Plaintiff realleges and incorporates paragraphs 1 through 25. 23.

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PRS suspended, discharged, and retaliated against McLoughlin in violation of ORS

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659A. 199 with regard to the , conditions and privileges of his employment because, as part

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of his job responsibilities as RVM Executive Director, he in good faith reported information to

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the RVM board that he believed was evidence of a violation of state and federal law, rules and

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716072.14519-001 L4NDYE BENNETr ULUMSTEIN LLP LAD’ 1300 SW Fif,h Anue, SDiD 3500 PodDod, Ogon 97201 503224.4100 • 503 221.4133 (1c,n4Ie) DI

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regulations. 24.

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McLoughlin is entitled to equitable and injunctive relief, including reinstatement with full

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back pay pursuant to ORS 659A.885(1), back pay from the date of termination through trial of

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approximately $176,530 per year, bonus of approximately $40,000 per year, benefits including

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medical, dental and vision coverage, more than four weeks paid vacation, and retirement benefits

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equal to a four percent (4%) 403b match and defined contribution plan based upon 20% of his

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salary, and front pay until the date of his reinstatement. 25.

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McLoughlin is entitled to the compensatory damages alleged herein, or $200, whichever

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is greater, punitive damages pursuant to ORS 659A.885(3) in an amount to be further alleged

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pursuant to ORS 31.725, and reasonable attorney fees pursuant to ORS 659A.885(1).

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For his Third Claim for Relief, Wrongful Termination, Plaintiff alleges: 26.

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Plaintiff realleges and incorporates paragraphs 1 through 21. 27.

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In providing the information and analysis requested by the RVM Board, McLoughlin was

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performing an employment related right having an important societal purpose to assist in the

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investigation of elder abuse, and the prevention of financial exploitation of elderly residents in

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CCRCs under life-care contracts, and to protect vulnerable persons from abuse by a not-for-

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profit public benefit “ing organization” established to provide “models of care and

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service that achieve quality of life for the elderly of various economic backgrounds at the most

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reasonable cost” “at a price based on recovery of costs rather than fair market value.” 28.

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McLoughlin was further fulfilling an important societal purpose to ensure that RVM

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fulfilled its not-for-profit charitable mission “to adopt policies and procedures designed to

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COMPLAII’TT

716072.14519-001 LANDYE BENNETT BLUMSTEJN LLP AtIonjs a! Lan

300 S’W Pfth AVCaUa, Sui!e 3500 Porrlred, Oregon 97201 503.224-4100 003.224-4133 (fnriniIe

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address the need of its residents for protection against the financial risks associated with the later

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years of life,” and to ensure that “no part of the net earnings of the corporation shall insure to the

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benefit of, or be distributable to its directors, officers, or other persons, except

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reasonable compensation for services rendered; and to prevent financial dominance and control

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over RVM’s assets and property by PRS.

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to pay

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PRS wrongfully terminated McLoughlin in retaliation for fulfilling his societal duty of

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assisting in the protection of CCRC residents from elder abuse, and his good faith reporting of

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information regarding potential elder abuse to the RVM board and its counsel. 30.

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As a result of PRS ‘s wrongful termination, McLoughlin has suffered economic loss of

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total compensation of approximately $176,530 per year in salary, bonus of approximately

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$40,000 per year, benefits including medical, dental and vision coverage, more than four weeks

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paid vacation, and retirement benefits equal to a four percent (4%) 403b match and defined

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contribution plan based upon 20% of his salary, from the date of his termination and continuing

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through trial, and reasonably continuing into the future in an amount to be determined at trial, but

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reasonably believed to be in excess of $675,000. McLoughlin has also suffered non-economic

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harm in the form of anxiety, worry, distress, embarrassment, and humiliation, for which he is

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entitled to compensation in the amount of $750,000. WHEREFORE, Plaintiff, requests a jury trial and the following relief:

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1.

On his First, Second and Third Claims for Relief, economic damages of

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approximately $176,530 per year, bonus of approximately $40,000 per year, benefits including

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medical, dental and vision coverage, more than four weeks paid vacation, and retirement benefits

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equal to a four percent (4%) 403b match and defined contribution plan based upon 20% of his

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salary, from the date of his termination and continuing through trial, and reasonably continuing

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into the future in an amount to be determined at trial, but reasonably believed to be in excess of

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COMPLAINT

716072.14519-001 LANDYE BENNETT BLUMSTEIN LLP ,/ L. I 300 SW Fifth Avoo,, Suic 35 Pothnd, Ocgon 97201 003.224-4100 • 503.224-4133 (0cinik)

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$675,000; On his Second Claim for Relief, equitable and injunctive relief

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including

reinstatement, punitive damages in an amount to be further alleged, and reasonable attorney fees;

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3.

On his Third Claim for Relief, non-economic damages in the amount of $750,000;

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Costs and disbursements incurred herein;

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Such other and further legal and equitable relief as this court deems just and proper.

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DATED this _ day of April 2013. LANDYE BENNETT BLUMSTEIN

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LLP

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#062 168 Of Attorneys for Plaintiff

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COMPLAINT

716072.14519-001 LANDYE BENNETT BL{JMSTE{N LU’ piL 1 Atto,,, 300 S’X’ FiSh ,\vnu. Soit 3500 Porthnd, Orcgon 97201 503.224-4100 • 503.224-4133 (1csünik)