Damaging advertising and now reputation damaging legal actions have been a major tool for the law firm Levitt Robinson in their bid to win a cash pool of up to $500 million from its class-action against Aveo.
However the latest move to seek a lien over the retirement village homes for up to 5,000 Aveo residents is potentially the biggest threat to Aveo and the sector yet.
‘Novel’ and a court first
In summary, Levitt Robinson has organised Galactic Litigation out of New York to fund all the legal work for the class action in return for 30% of the payout if successful. The challenge is collecting this cash. If the loss per resident that is the basis of the class action is not crystallised until the resident leaves the home, how can Galactic be sure of collecting their share down the track?
It has come up with a solution that the courts call ‘novel’, because it has not been seen before.
What Galactic wants to do is approach the approximately 5,000 residents from 2016 who are still in their village homes and ask them to ‘opt in’ to the class-action so they can get the benefit of a potential court win.
According to the legal newsletter Lawyerly, if they ‘opt in’, Galactic ‘may seek an order for contribution toward costs by unfunded group members whose gains had not been realised because they have not sold their properties and who had not opted out of the class-action’.
Extraordinary lien
Galactic wants the contribution to be secured by the lien over the resident’s retirement village home.
The courts have been told that this is ‘extraordinary’ and ‘unprecedented’ as a funding model and a class action.
As Lawyerly explains it, quoting Aveo’s counsel, ‘fund orders or funding equalisation orders usually drew from a pool of funds coming out of a settlement or a judgement, but Levitt Robinson’s proposed orders would require individual group members to pay the funder directly.’
The alternative is that the residents ‘opt out’ of the class action, meaning they don’t get any benefit from it but also don’t have to get involved in providing security and a later date requirement to deliver Galactic any cash.
Aveo is understandably alarmed about this ‘novel’ proposal because of the confusion and distress it will create with the 5,000 residents, their families and, by extension, the wider Aveo resident population.
Distress, anxiety, confusion
In the courts, Aveo’s barrister Kathleen Foley SC, says there is a real risk of ‘distress and anxiety and confusion’.
In another first, the court has agreed to appoint an amicus curiae, which is defined as:
An amicus curiae is an individual or organization who is not a party to a legal case, but who is permitted to assist a court by offering information, expertise, or insight that has a bearing on the issues in the case. The decision on whether to consider an amicus brief lies within the discretion of the court.
Meg O’Sullivan SC has been appointed by the court to be the amicus and she has come down heavily on Aveo’s side of the argument.
Advice: opt out
In the Lawyerly 9 August edition she “told the court of the ‘enormous risks’ confronting the unfunded group members by the funding model to be described in the notice. The risks were ‘so far on the extreme’, she said, that she would advise them to opt out of the proceedings.”
“If these relevant unfunded members were my clients, I would be advising them to opt out. I would be advising them not to have anything to do with the proceedings”, she said.
“The potential for immediate, out-of-pocket liability, the potential that they may lose their property – which is presumably their life savings – and for them to experience dislocation at their time of need, when they need to move into higher care settings…those risks are enormous, real, significant.”
“We are told that they might get money, a share in the pot, if…they agree to enter into a rental contract with Aveo which (the class-action argues) puts them in a worse financial position.”
“And its because of that, that I say it’s almost an absolute proposition that there is no benefit for these people to remain in the proceedings.”
The argument before the courts now centres on the wording of a notice to the 5,000 residents, which Justice Anderson is now considering.
Class action damage
From the outset Levitt Robinson has utilised the media to make life uncomfortable for Aveo, which at the same time makes life uncomfortable for the retirement village sector.
In August 2016 they advertised in local media and directly with Aveo residents that the Aveo Way contracts were not good for residents.
In September 2017 the law firm formally launched its class action and commenced prime breakfast radio advertising in Sydney (2GB) and Melbourne (3AW) spruiking that the ‘Aveo Way contracts were the wrong way’, seeking residents or their families to learn more.
In 2018 more meetings were advertised and on 2020 breakfast radio advertising was again engaged. By July 2021 Aveo was going to the courts complaining about a series of Google ads promoting the class action, resulting in Levitt Robinson and their consultants Class PR being required to seek Aveo’s approval of the ads before they were published.
There is no doubt that, in addition to the potential distress, anxiety and confusion that Aveo residents will feel as a result of the Galactic tactics, that other potential village residents will be unsettled. Watch this space.
Background to the class-action
To understand the full basis of the class-action, check out this August 2017 post in The SOURCE.
Court records reported by Lawyerly state: “Aveo is accused of misleading and deceptive conduct and unconscionable conduct with the introduction of the ‘Aveo Way’ (contract) in early 2015, which altered the terms on which residents could resell their retirement units”.
“This change in terms was detrimental to residents despite Aveo’s promise they would leave existing freeholders and 99 year lease holders no worse off, the lawsuit claims.”
In essence, Aveo changed the title from freehold to leasehold for the homes in question, telling the residents that the sale price would not be affected, and that they would be no worse off financially.
The class action is based on the premise that there was more value for the resident in retaining the freehold title – that it would achieve a bigger price when they sold. By accepting the Aveo Way contract the resident would be delivered a loss on what they would have achieved (after the DMF, costs etc).
Levitt Robinson has talked about a loss of around $50,000 per resident X 5,000 to 10,000 residents.
In the six years since commencing the strategy, Levitt Robinson has not been able to identify how they will prove this loss. It has been an ongoing issue through the courts.
Will an incoming village resident pay more for a freehold title than a lease title?
The experienced village executive will say ‘No’. Nearly all new residents buy into a village because of its location and its answers their need at that point in time. They can either afford it or they can’t. Geography and price are the dominant factors. There is unlikely to be the same combination in another village close by let alone offering a freehold option versus a lease or licence option.
If this view is accepted, then the loss from a transfer to the Aveo Way contract is unlikely to exist. The class-action is built on sand.
The market has also turned. Demand exceeds supply and all village prices are escalating. 800 people are moving into a village every week, irrespective of the title. Loss is not a factor.
And how can a loss for each of 10,000 individual homes be calculated in any case?
The ordinary person could come to the conclusion that Levitt Robinson and Galactic may have done their own cash.
