A class action lawsuit filed under the Racketeer Influenced and Corrupt Organizations Act (RICO) last month claims Marriott’s “Vacation Club” timeshare program is actually an illegal racketeering scheme. A couple from Shelbyville, Indiana say they were duped into thinking they were purchasing an interest in real estate. Instead they merely receive a “right-to-use license.”
Anthony and Beth Lennen purchased two “Legacy Timeshare Estates” in 2008. Their units were part of a Legacy condominium complex on Marco Island, Florida. They said at closing, they received a deed for unit 503 for week 34 and a deed for unit 507 for week 21. They also received a title insurance policy.
There are a total of 44 Legacy projects located in 11 states. Many are in Florida.
The Lennens say that in 2010, Marriott began marketing their Marriott Vacation Club, appoint system that allows participants to use points to stay in any of the 44 Legacy projects. Prior to the Vacation Club, timeshare owners like the Lennens could swap weeks or locations.
According to the complaint, once Marriott decided to switch to the points system, they began buying up individual units and flooding the market with new units. Within a few years the Vacation Club was the dominant participant in the Legacy projects.
Instead of selling deeds to specific weeks and projects, the Lennens say that Marriott duped new investors into thinking they were getting a title interest in property when they were merely buying into a point driven scheme allowing them to have a limited right-to-use license.
The Lennens say Marriott devised this scheme because it was stuck with thousands of unsold timeshare units after the collapse of the real estate market in 2008. Under the projects’ condo declarations, Marriott was stuck having to pay millions of dollars in maintenance and fees. The new Vacation Club points system allowed Marriott to more easily market the vacant units.
Instead of actually owning a particular week of a particular unit, Vacation Club members bought points. The more points you have the better your access to prime locations and weeks.
What is the difference between owning a timeshare and points? The Lennens say that by structuring the program to make it look like investors were buying an interest in real estate, Marriott and First American Title Company were able to collect closing costs, title policy premiums, maintenance fees, dues and tax revenues.
The vacation club owners are told they are investing in some sort of real property trust but the Lennens say that at most, they simply have a license to stay in a property in return for so many points. They own nothing.
Although they own no real property, First American Title Company collects hefty premiums for title insurance. Not only does First American act as the title insurance company, the Lennens say that it is also the trustee of the Marriott Vacation Club land trust. As trustee, it should have a duty to the owners (Vacation Club members) but in reality, its loyalty is to Marriott.
It gets worse, the Lennens say that there is a Marriott Vacation Club Owners Association that acts as the manager for the timeshare program. Club members can’t vote for the Association’s directors. Those folks are either Marriott directors or designees.
How does Marriott’s actions cause harm?
The Vacation Club members are obviously harmed because they falsely think they are buying into a rel estate investment. They get none of the benefits of property ownership yet must pay “the costs and [take] on the burdens associated with real property ownership, including closing costs, recording fees, title policy premiums, taxes, and various operational and maintenance fees and dues.”
Legacy owners like the Lennens are harmed because their interests in the Legacy projects have been diluted and their rights to trade reduced.
Florida RICO Claims
Suits against timeshare promoters are nothing new. This case, however, represents a novel use of Florida’s RICO statute. Patterned after the federal RICO law, Florida’s law allows fraud victims to sue when an individual or company conspires with another to engage in racketeering activity. In this case, the Lennens say that First American Title Company and Marriott conspired to engage in a wide variety of criminal acts (racketeering activity) including Marriott’s illegal withdrawals of escrow monies.
They say that at each closing, Marriott falsely executes an affidavit saying a closing has occurred when it knows that there was no valid timeshare interest being conveyed. After Marriott delivered the affidavits, First American would release the buyers’ funds to Marriott. Lest anyone think this is an isolated incident, the Lennens say that First American Title and Marriott have committed more than 180,000 incidents of criminal conduct since 2010. Florida’s RICO statute requires just two incidents over a five-year period to constitute a pattern of racketeering.
RICO Damages
RICO is a powerful plaintiff’s remedy because it allows damages to be tripled. It also allows victims to recover their legal fees and costs if successful. Big corporations like First American Title and Marriott have very deep pockets and can afford expensive lawyers. RICO gives the little guy a fair chance, however. If the Lennens win their RICO claim, the wrongdoers will also be ordered to pay their legal fees.
According to an article in the Orlando Sentinel, a spokesperson for Marriott Vacation Club said in response to the lawsuit, “We sense the people behind this lawsuit have a misunderstanding of how our product works. But we follow every aspect of the state regulatory compliance for vacation ownership sales. Everything we do as far as sales, is reviewed by the state.”
Courts generally don’t like RICO claims because the statute is quite complex and often misapplied. If used properly, however, it is one of the most potent legal weapons available. Unfortunately, most RICO claims are tossed by courts. If you have a potential claim involving fraud or a criminal conspiracy, find an experienced RICO lawyer.
The lawyers at MahanyLaw and Judge, Lang & Katers sue banks, loan servicers and big corporations. We primarily represent small businesses and individuals where there are at least $10 million in actual losses. Our fees are reasonable and often we can structure a capped or alternative fee.
For more information, contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany can also be reached at [hidden email].
We are two independent national boutique firms joined for RICO claims and claims against the financial industry. MahanyLaw founder Brian Mahany was one of the lead counsels in the historic case against Bank of America that resulted in a $16.65 billion recovery, the largest civil recovery against a single defendant in U.S. government history.
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