Engineering the Law: Marriott Vacations Worldwide’s class-action Timeshare Battle
In the spring of 2016, Marriott Vacations Worldwide, which books more than $600 million a year in timeshare sales, was hit with a class-action lawsuit. The lead plaintiffs were Anthony and Beth Lennen, a couple from Shelbyville, Ind. The Lennens had bought time at Marriott’s Crystal Shores resort on Marco Island a few years earlier. They owned two weeks in the oceanfront tower; one in January and another in August.
That’s how most timeshares used to be sold — in increments of time, usually a week, tied to a specific resort on specific dates. In recent years, however, the industry has developed a new business model. Most firms now sell timeshares as “points” that owners purchase. Instead of owning a specific week at a specific property, the owners can redeem their points throughout the year at a variety of locations.
Marriott started a points-based network, the Marriott Vacation Club, in June 2010 as it dug out from the global recession [“Timeshare Giants,” February 2017]. The network includes more than 55 Marriott properties, most of which were initially built as traditional timeshares and already had lots of individual owners. Today, Marriott Vacation Club is one of the largest and most successful timeshare points programs in the industry, with more than 400,000 owners. It accounts for most of Marriott’s timeshare sales.
It is also, according to the Lennens’ lawsuit, a sham.
The suit, filed in federal court in Orlando, targets a variety of Marriott subsidiaries and a third-party title insurer. The suit is complex; the original complaint is 639 paragraphs long and alleges 21 counts of wrongdoing, including three violations of the RICO Act, the law initially created to prosecute organized crime.
The allegations boil down to two overarching claims involving Marriott’s new business model.
First, the suit contends that points amount to a phoney real estate that isn’t tethered to any physical property. Second, it claims that Marriott is cheating its legacy timeshare owners by diluting the value of the genuine real estate — the ownership stake in a specific property — that they originally bought from the company.
Jeffrey Norton, the lead attorney representing the Lennens, says his clients have been harmed in two ways.
First, he says the Lennens bought into a specific property, the Marco Island resort, but Marriott is now using that property in its larger points network. A much larger pool of timeshare owners now can use the resort, which conflicts with the Lennens’ ownership rights.
Second, since launching its points program, Marriott has successfully persuaded many of its legacy owners to also purchase points in its Vacation Club network. The Lennens, for instance, opted to buy points to supplement their two weeks because, Norton says, “they fell for the pitch” that the points would give them greater flexibility if they ever wanted to exchange their weeks in Marco Island for reservations somewhere else. As a result, Norton says, Marriott sold them real estate that isn’t really real estate because the points aren’t tethered to any specific property. “At most, they purchased a use license, like a gym membership,” Norton says.
The suit seeks to have Marriott’s entire points program unwound and the company subjected to punitive damages.
The Lennens’ legal team is formidable: It includes Norton, who’s a partner at Newman Ferrara, a Manhattan firm specializing in commercial, securities and shareholder litigation, along with a Florida attorney who once co-led the securities fraud, commodities and antitrust department at Morgan & Morgan, and a third lawyer who battled Marriott previously when she was the deputy district attorney in Las Vegas, another timeshare hotbed.
Marriott’s action plan
Marriott’s lawyers say the arguments in the Lennens’ lawsuit have never been tested in court. But the threat was significant enough that Marriott, which turned a profit of nearly $140 million last year on revenue of more than $1.8 billion, disclosed it to investors, though the company said it could not yet estimate a potential liability.
Marriott then set about fighting the case.
First, Marriott asked the judge presiding over the case, Carlos E. Mendoza, to hold off on making a decision and refer the matter to administrative regulators in Tallahassee. Marriott also filed a motion asking him to dismiss the lawsuit entirely. In November 2016, Mendoza ordered both sides to stop submitting briefs and began considering his decision.
As Mendoza deliberated, however, Marriott began fighting the suit on another front. The company turned to the Florida Legislature, acting through the American Resort Development Association, the trade group that represents the timeshare industry. At the time, ARDA’s chairman was Steve Weisz, Marriott Vacations’ president and CEO.
ARDA had already begun working with a pair of legislators — Rep. Mike La Rosa, a Republican from Osceola County, and Sen. Travis Hutson, a Republican from St. Johns County — on legislation for the 2017 legislative session. That bill dealt with how to handle ageing timeshares whose original government documents were due to expire.
But in mid-January, records show that the ARDA lobbyist working on the bill emailed both La Rosa’s and Hutson’s offices asking them to add two provisions to the bill. One dealt with the rights of legacy timeshare owners; the other addressed the obligations of a timeshare developer who moves a legacy timeshare property into a broader network of resorts.
In both provisions, the lobbyist, Gary Hunter, of Hopping, Green & Sams in Tallahassee, included extra sentences saying the changes were meant as “a clarification of existing law” — an effort to ensure Marriott could use them as a retroactive defence in the Lennen lawsuit.
Hunter also urged the lawmakers to make the changes while the bill was still in its “drafting period” — and exempt from public-record laws. If the bill had been formally filed, the changes would have been considered amendments that would have been discussed and voted on in public meetings.
“I promise you that neither sponsor wants to try to explain this as an amendment, not due to controversy but the complexity of the subject,” Hunter wrote. La Rosa and Hutson agreed.
The bill then advanced through the Legislature, with ARDA sending talking points and “issue briefs” to coach La Rosa and Hutson on their presentations. The bill was ultimately heard publicly 10 times between committee hearings and floor votes. Neither La Rosa nor Hutson ever mentioned any lawsuit. Hutson spent a cumulative 2 minutes and 5 seconds presenting his bill across the five Senate hearings.
ARDA sent more than talking points and issue briefs. A few days after Hunter sent in the additions to the bill, the organization gave $25,000 to the Republican Party of Florida and another $25,000 to a committee controlled by Senate Republican leaders. In April — on the same day that both the House and Senate scheduled the legislation for floor votes — ARDA gave another $10,000 to the state Republican Party. (ARDA, which represents a heavily regulated industry and works on legislation every year, is a reliable source of money for the state GOP, which controls all levers of state government. The organization gives more than $100,000 to the party and its affiliates every year.)
The legislation passed both chambers in late April, and Gov. Rick Scott signed it into law a month later. After the legislation passed, ARDA gave another $50,000 to the fund controlled by Republican Senate leaders.
Two weeks to the day after the bill became law, Marriott went back in court in Orlando, alerting Judge Mendoza to the new Florida law whose provisions “go to the very heart” of the case. “These clarifications of existing law … decimate much of the complaint,” Marriott’s attorneys wrote.
The lawyers leading the suit against Marriott protested, accusing the company of trying to change the rules in the middle of the game. Norton, who chairs Newman Ferrara’s class-action and complex litigation group, says Marriott is “resorting to political influence and shady backroom deal-making.”
“To be clear, we view this as an admission that Marriott was violating the rights of purchasers and owners under existing law — precisely in the manner alleged in the complaint,” Norton says. “We hope the court will see it for what it is: A failed attempt to manipulate the political process to mask wrongdoing.”
The two Florida legislators who carried the bill claim they never knew about the Marriott lawsuit while they were working on the legislation. Both said they only learned of it weeks after the session ended. Asked about his reaction to learning that his own bill could affect an active lawsuit, Hutson says only that he was “surprised.” La Rosa, meanwhile, describes himself as “still learning more about the motivation of both sides.”
‘Bigger than a lawsuit’
A spokesman for Marriott declined to comment on either the lawsuit or the legislation. But Hunter, the lobbyist for the American Resort Development Association who worked the bill, says the goal of the legislation isn’t just to help Marriott defend itself. It is, he says, meant to protect the entire timeshare industry from similar attacks in the future, should a judge, who is unlikely to be familiar with the history and intricacies of timeshare law, interpret state statutes in a way that no one in the industry ever intended.
“This was bigger than a lawsuit,” Hunter says. A negative ruling “could have a consequence of being devastating, conceivably, to the industry.”
Everyone must now wait to see if the legislative strategy worked.
In late September, Mendoza, the judge presiding over the case, granted Marriott’s motion to dismiss — but gave the Lennens permission to refile with a clearer, more concise complaint. Norton said his clients intend to try again.
Anthony and Beth Lennen owned two weeks at Marriott’s Crystal Shores on Marco Island. They claim the switch to a points system cheats them by diluting the value of their timeshare real estate.
Jeffrey Norton represents the Lennens in their class-action lawsuit. He calls Marriott’s actions “shady backroom deal-making.”
Timeshare industry lobbyist Gary Hunter worked with state Rep. Mike La Rosa and state Sen. Travis Hutson on adding two provisions to a bill while it was still in the drafting phase and exempt from public records laws.
Posted on: 16th November 2017