Today we publish the article by Mike Finn, which was postponed from last Friday’s Letter from America, it is the second in his series on Class Action Litigation, Part 1 looked at Arbitration. Tomorrow we publish a rather interesting article which compares two different industries, but surprisingly they operate in a very similar way.
Well it is that time of the year, the sound of envelopes containing your maintenance bills dropping on the mat. How much will they have gone up by this year, we hear you asking?
To be honest, one question we often ask, is what the hell do they spend this money on, after all our resort hasn’t had a facelift in decades. The tiles round the pool are still damaged, the bed covers are the same as when we bought 30 years ago. Even the sofa bed is still falling apart!
It would seem that they don’t spend it on maintenance, it goes on their profit line, so what can you do about it? Not a lot, you’re tied into perpetuity contracts, there is no resale or secondary market, yes, you are stuck in a rut with no way out.
Well not quite, things are changing, back in June Business Wire, published news of a lawsuit filed by Finn Law Group against Diamond Resorts. The suit was about maintenance fee practices and alleges maintenance billing practices were fiduciary duty violations and breach of contract. Follow the link below.
In Spain at least, owners do have a way out, many of the contracts are illegal under Spanish timeshare law, so those owners can take their case to court. Not only do they get their money back, but more importantly their contracts are declared null & void, leaving them timeshare and maintenance free!
So, on with today’s article.
CLASS ACTION LITIGATION
Misunderstood by Timeshare Consumers
By Mike Finn of the Finn Law Group
October 31, 2017
Part I – Arbitration – The Question Timeshare Buyers Never Ask
http://insidetimeshare.com/tuesday-slot-arbitration/
We all know a little bit about class action lawsuits, many of us have even received a letter or postcard advising us that we may be potential class members. Many sense that our individual recovery may not be worth the effort.
A timeshare purchase could be a horse of a different color. The beauty of a class action is that, as a class member, you wouldn’t have to actually hire the lawyer – he or she would be paid from the proceeds of the case assuming it is successful. As a lawyer with some class action experience, who has primarily represented consumer timeshare owners over a considerable period of time, I can report to you that class actions do play a role in consumer timeshare practice. That role, however, is more limited than we would like it to be.
The explanation lies with the kinds of cases that can be effective class action cases, especially if they are timeshare related. Most of our clients tell us that they were deceived during their initial timeshare presentation. They relied upon the veracity of the sales staff and only later, when they attempted to utilize their timeshare, did they learn the truth of their purchase. Of course, this realization did not come during the rescission period provided by law, which varies state to state. Instead, the hapless owner came to realize too late that the resort would not help them, and that the purchase contract they signed is legally binding, and that, in the absence of a viable resale market, there is no exit scenario built into the contract.
Essentially, they committed themselves to a lifelong obligation!
The above scenario, repeated over and over with some variation on the theme, is the “staple” fraud-in-the-inducement file we see at Finn Law Group on a daily basis. Per our own internal analysis, these matters occur with amazing frequency, mainly because of the manner that the timeshare product is marketed.
In nearly all instances, the salesperson assigned to the prospective customer is purely commission based. Top sales staff can make a very good living, but they must maintain a high closing rate to do so. This methodology puts the salesperson into a conflict, with ethical considerations competing against their own financial needs. With direct compensation incentives providing temptation, sales staff may well significantly embellish the advantages of timeshare ownership over the course of the three to five hours they often spend with their sales prospects. After this long sales process, the interested prospects are then immediately ushered into the closing aspect of the transaction, attended by different members of the sales team known internally as “closers.” These closer’s shepherd the prospect into and through the closing process. No prospects are ever given the opportunity to take the presented documentation with them for review or consultation with an attorney pre-execution. It’s all completed on the same day and that is by careful design. Given the mountain of paperwork processed at a timeshare closing and the relatively short amount of time a consumer has (or takes) to read and understand the finer points of the transaction, it is no small wonder that what one legally agrees to via their signature, compared to what they were told they were contracting for, are often diametrically different from one another.
A buyer spend hours with a sales person who is motivated to tell you, “yes,” your purchase does include that feature only to discover later that nowhere within those mounds of paperwork you signed and initialed is there any reference to the feature or features your salesperson assured you were included. To add insult to injury, one of the contractual clauses that was not pointed out to you was a clause that states that the purchasers did not rely on any oral representations when making their timeshare purchase decision.
Imagine a salesman knowing that clause exists resisting the temptation to increase his or her income!
I call that provision the “salesman’s license-to-lie” clause and I can say with pride that I was so quoted in the New York Times! So, we have now isolated one of the more frequent legal issues with the typical timeshare purchase, and we have identified the possible legal cause of action that applies, which lawyers call “fraud in the inducement.”
From this, a remedy becomes readily apparent: The contract should be rescinded, because the purchasers didn’t buy what they were told they were purchasing by the sellers. Herein lays the rub, however. Should fraud in the inducement be raised in litigation, the developer will undoubtedly counter by claiming no such acts ever occurred, as it’s unlikely that the salesperson, if called as a witness, will admit they promised items not contained within the preprinted contract.
When combined with the salesman’s “license-to-lie” clause, this makes the plaintiff consumer’s case far more difficult to win – recall that the burden of proof rests with the party bringing the action. As the consequences of losing the case may mean the loser pays the winner’s attorney fees and costs, the wisdom of pursuing such a case for any one client becomes questionable, especially if the odds are no better than 50-50.
It’s tempting for a lawyer to look into the possibility of filing class action litigation for fraud-in-the-inducement claims for an entire class of timeshare buyers who have purchased a timeshare interest under the false impression that more attributes were being purchased than what were actually acquired. Surely, if everyone reports a similar purchase experience, the court will conclude that all of these purchasers couldn’t be wrong; and therefore, that the developer must be knowingly encouraging its staff to make false assertions to increase sales?
At this point we must pause and examine the state of the law to understand the legal conclusion that most courts have reached on this matter, with the sad fact being that, for the most part, courts have not considered fraud to be the type of case that belongs in a class action scenario.
The best explanation I can provide as to why the courts have adopted this position is that the elements of fraud – the actual deceit perpetuated with the intent to deceive – are all very individualized factors. The underlying facts of which will, by definition, vary with every individual timeshare presentation and by each individual timeshare salesperson. Therefore, each separate sales experience constitutes a new and separate set of facts to be evaluated. Courts are loathe to combine individualized sets of experiences, wherein every class member theoretically would have suffered the same level and severity of deceit and conclude that all members equally relied upon these separate individualized deceptive statements to their detriment.
In short, these fraud-based claims in the timeshare arena are not, in the foreseeable future, going to become actionable timeshare-based class actions. Of course, individual actions are still possible and we are aware of recent individual litigation that ended quite successfully for the consumers. Again, however, any owner considering individual litigation based upon a theory of fraud had better be aware that their battle will be costly and the ultimate results unpredictable.
So, is class action litigation just another pretty face with no significant place in the timeshare arena?
Decidedly not! Finn Law Group has successfully initiated multiple class action litigations against timeshare resort developers. In one concluded case, more than 11,000 former timeshare owners saw foreclosure entries on their credit reports purged, and more than two thousand others received extended vacations at no cost.
Other class cases are currently pending. View:
https://www.finnlawgroup.com/english/active-litigation
In conclusion, class action litigation isn’t going to, on its own, repair the underlying problems with timeshare ownership, but it will make a dent. More importantly, it will continue to serve notice to the timeshare development community that someone out there is paying very close attention to them, and that can’t be a bad thing.
Thank you Mike, this certainly explains class actions for us, in Europe this type of litigation is not common, most cases are done on an individual basis. We have seen some class actions, most notably against Barclays Partner Finance, who provided loans for illegal timeshares. Another of note was the RCI class action, which ended up at the High Court London. This was a bit of a shambles to be honest, although the court agreed that RCI had used banked weeks for rental, the members did not lose out financially, so no compensation was awarded. Unfortunately those who took part in the “No Win, No Fee” action, may now be left with all of RCI’s legal costs. The decision from the court is still to be announced.
If you have any questions regarding this or any other article, contact Inside Timeshare, we will be pleased to help.
