Last week we reported on three lawsuits in which the courts denied Wyndham’s motion to compel arbitration. Today we look at the first of five lawsuits in which the courts denied Wyndham’s motion to dismiss claims of fraud. The rulings defy the overworked oral representation clause in which timeshare buyers unwittingly sign off that they did not rely on statements made by their sales agents. This powerhouse sentence is typically buried in electronic fine print.
If Developers wanted you to know that you can’t believe anything a sales agent says, it would be disclosed prior to the presentation. This is standard practice in promotions and advertisements soliciting business. Existing timeshare members are also routinely told that what they will be attending is NOT a sales presentation. This has been stated in thousands of lawsuits and online complaints.
Kirchners v. Wyndham Vacation Resorts is a class action lawsuit that was filed on March 27, 2020 in Delaware (Civil Action No. 20-436-CFC). On March 27, 2023, presiding Judge Richard Andrews dismissed Count Two of three counts that alleged violations of the Nevada Deceptive Trade Practices Act (NDTPA) and the Tennessee Timeshare Act. He cited a California case to determine that in Nevada timeshares are not “goods or services” which would fall under NDTPA. In Nevada and California timeshares are regulated by the Nevada Real Estate Division (NRED) and the California Real Estate Division. Judge Andrews allowed claims of fraud to proceed in Tennessee.
State laws classifying timeshares as real estate were appropriate for early fixed-week, or floating-week timeshares. Most timeshares sold today are non-deeded, right-to-use points. Points bear no more resemblance to real estate than a gym or country club membership. Properties associated with “right-to-use” points are held in a trust, but the point buyer has no ownership interest in the resort’s brick-and-mortar, hence the term right-to-use.
Remaining Counts: Count One, Fraudulent inducement by omission, Count Three, Violation of the Tennessee Timeshare Act,
The Internal Revenue Service (IRS) disagrees with the position that points are real estate. A recent Better Business Bureau report states the distinction:
It is important to note that the Internal Revenue Service (IRS) typically considers timeshares to be personal assets and not property, meaning that losses cannot be deducted come tax season.
- Deeded. A deeded timeshare means that the buyer takes a percentage ownership stake in the property. The percentage is usually based on the amount of time they have access to it.
- Non-deeded. This type of timeshare typically means that the buyer obtains a “right to use” rather than owning a stake in the property
Excerpts from the Kirchner lawsuit from the Third Amended Complaint filed July 18, 2022, and the Delaware Court Order
STEVEN ERIC KIRCHNER, ELIZABETH LEE KIRCHNER, and ROBERT GRANT WESTON, Plaintiffs, individually and on behalf of all other persons similarly situated, vs. WYNDHAM VACATION RESORTS, INC.
Plaintiffs bring suit under NEV. REV. STAT. § 41.600 because Defendant engaged in a prohibited act defined by NEV. REV. STAT.§ 598.0915. NEV. REV. STAT.§ 598.0915 defines sixteen prohibited deceptive trade practices.
Defendant asserts that timeshares are not a good or service, noting that California courts have found timeshares to be neither a good nor a service “under a substantially similar consumer protection statute.” (citing Kissling v. Wyndham Vacation Resorts, Inc., 2015 WL 7283038).
Plaintiffs respond that no cases from Nevada explicitly find that timeshares are not goods or services. Plaintiffs note that in Fuoroli v. Westgate Planet Hollywood Las Vegas, LLC, the District of Nevada found that a claim under§ 598.0915(15) regarding misrepresentations in timeshare sales presentations “may be viable.”
Plaintiffs argue that the Nevada Time Shares Act, which prohibits “deceptive or unfair acts in the offer to sell or sale of a time share,” incorporates the unfair practices defined in§ 598.0915 as examples of unfair practices, suggesting that the§ 598.0915 should apply to timeshares.
I (Judge Andrews) agree with Defendant that timeshares are neither a good nor a service. Although Defendant cites only to law from other jurisdictions for the specific proposition about timeshares, Archer makes clear, based on a line of cases, that “real estate transactions” of various sorts are not goods or services and are not covered by§ 598.0915.
There seems to be a split of authority arising from the District of Nevada. I am persuaded that Archer represents the more convincing line of cases, and that § 598.0915(15) does not apply to timeshare transactions.
Therefore, Plaintiffs have failed to state a claim under the NDTPA, and I will dismiss Count Two.
The Delaware judge’s decision raised the eyebrows of our EU friends at Timeshare Consumer Association in the UK and Charles Thomas in Spain. Baffled, Charles asked, “Have the developers swayed the judge’s opinion in their favour, or is it just laziness on the part of the judge?”
We reached out to a few attorneys to ask their thoughts on the matter. Attorney Michael Finn responded. A fabulous attorney, known far and wide for his intelligence (and wit), somberly observed: “Since Delaware doesn’t have much of a timeshare presence, the judges there may not comprehend the very significant distinction between ‘real estate’ as the term is generally utilized, and the timeshare industries somewhat convoluted (but often codified in states with significant timeshare political influence) version! Thus the danger exists because they may not completely understand the underlying facts when they attempt to apply the law of a state.”
At stake in determining whether a timeshare stay is real estate or personal property is nothing less than our national security. Four developers have been sued accused of violating the Military Lending Act (MLA). At the crux of the matter is whether a timeshare is a residential stay, or a transient stay, because arbitration is prohibited under the MLA unless the dispute pertains to a home mortgage loan.
In the Westgate MLA lawsuit, the presiding Florida Judge quipped, “When I check out of my timeshare I can’t leave my underwear and toothbrush.” More than a few active duty service members have found their security clearances in danger if forced to default on a timeshare loan. Developers vigorously argue for arbitration in their effort to avoid public filings.
How timeshare complaints work in America
In Nevada and California, timeshare complaints must be filed against a specific sales agent. Nevada and California are states that require timeshare sellers to hold a real estate license. Virginia and Missouri are two states that do not require a real estate license. Industry lobbyists worked to amend the North Carolina Timeshare Act so that timeshare sellers in NC are no longer required to hold a real estate license, to the detriment of consumers.
In some states, like Arizona, consumer complaints are filed directly with the attorney general’s office in the state where the timeshare contract was signed. In other states, a specific department under the auspices of the Office of the Attorney General (OAG) is assigned to respond to timeshare complaints. It takes a volume of complaints to inspire an attorney general to launch an investigation. The BBB’s report on timeshare lists Florida as having received over 16,000 timeshare complaints over two years. To our knowledge, no investigations are making headlines.
States regulating timeshares as real estate have not kept up with timeshares today. The trend is towards non-deeded points. Early “fixed-week” timeshare units that an “owner” can see, feel, and touch, are properly classified as real estate. Laws calling non-deeded points real estate need to be amended. In our gym or country club analogy, “members” are exactly that. A member has no ownership in the standing structures of their gym or country club. Some years back Quebec amended their timeshare law to define a timeshare as a service contract, allowing liberal reasons to cancel. Just because “we always did it this way” does not justify how timeshares should be classified today.
A $6.7 million settlement due to timeshares in Nevada classified as real estate.
In 2018, current and former Diamond Resort sales representatives received a $6.7 million settlement because Diamond misclassified the employees as exempt from the Fair Labor Standards Act (FLSA). According to the law firm representing the plaintiffs: In the initial approval of the settlement the court agreed the workers should be overtime eligible, unlike some sales exemptions, because they were selling real estate interests and not selling goods or services to consumers that is usually exempt under the FLSA.
EU opinion: The Delaware judge who claims that timeshare is not “goods or services”, has certainly got some people’s backs up.
Real Estate, Arbitration, and the Military Lending Act
Thank you, Irene, I thought you might remember my comment on Judge Andrews’s statement, confused and flabbergasted (lovely word), are probably the best words to describe my feelings at the time. In all the years of writing about court cases, it is the most ridiculous comment that ever emerged from a courtroom. It shows a total lack of understanding of what is happening in the real world, it also shows how the industry has “manipulated” legislation and the application of the law in their favour. This was eloquently explained above by Attorney Mike Finn, who over the years has always provided some humorous insights into legislation.
The one thing we can say is it does appear that a majority of judges and courts, both sides of the Great Lake, are taking a more “consumer” view of the cases that come before them. It is a slow process, Spain has been at the forefront of consumer protection from the timeshare industry, but it has taken almost 24 years to reach the stage we are at now. Malta, another timeshare hotspot in the past, was also very active in consumer protection, with very strict laws which were unfortunately flouted by the sister company of Silverpoint, Azure (BPF loans scandal). Those laws have since been further strengthened.
The US is very similar to Europe when it comes to timeshare law, each US State and each European Member State have their own laws, all brought in when timeshare was in its infancy. What was it? Was it property/real estate? Where did it fit in with current legislation? All these questions are still being argued over today. The EU tried to answer these questions and began the process of formulating “Directives” specifically designed for timeshare.
The whole point was to coordinate consumer protection across the EU, so it made no difference which EU Country the purchase was made, the protection was the same as you would receive at home. They tried to be fair to both the consumer and the developer, but as usual, the developers thought they were above the law and continued to carry on as if nothing had changed.
Look where it has taken the timeshare industry in Europe now, totally discredited as a useless product, the reputation of being nothing more than a scam which also leads to being scammed by former employees (exit & claims). Resorts losing members and now reverting to hotels, some even buying out their old fixed-week members to end timeshare completely. Private hotels & resorts which leased out sections to points clubs such as Diamond are no longer renewing the contracts or reducing capacity, ending their timeshare involvement. All the sales decks closing, even before the pandemic, three of which are in liquidation. The writing is on the wall for all to see.
You the consumer are the BOSS, it is your money they want, if they can’t play fair then don’t purchase, if you do and it turns out they didn’t play fair, take action you have the tools at your disposal, it is called “Social Media”. This is where you begin, connecting with those in a similar position and together you can change this industry. Have a good weekend.