Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Minn.: Fractional condominium interest purchasers failed to adequately plead fraud, (Feb 11, 2014)

By Peter Reap, J.D., LL.M.

Putative class claims brought by two individuals who purchased fractional interests in condominiums against six defendants for violation of the state consumer protection statutes of California, Florida, Colorado, and Hawaii were without merit because they did not plead fraud with the requisite particularity, the federal district court in Minneapolis has decided (Hoyt v. Marriott Vacations Worldwide Corp., February 7, 2014, Doty, D.). Thus, the claims were dismissed.

Background. In 2003, Steven Hoyt purchased a fractional interest in a condominium at the Ritz-Carlton Bachelor Gulch resort in Beaver Creek, Colorado. That same year, Bradley Hoyt purchased a fractional interest at the Ritz-Carlton Aspen Highlands resort in Aspen, Colorado. Purchasers of fractional interests, including the plaintiffs Steven and Bradley Hoyt, are required to pay condominium association fees, the court noted.

On April 28, 2009, Ritz-Carlton announced a new membership option (Portfolio Membership), which allowed individuals to stay at Ritz-Carlton resorts without having to purchase fractional interests. Instead, Portfolio Members purchased points to exchange for stays at Ritz-Carlton resorts and were not obligated to pay condominium association dues or fees. The plaintiffs’ fractional interests were converted to “Home Club” memberships, which Ritz-Carlton represented were identical to fractional interest ownership. The plaintiffs brought suit, alleging that the introduction of Portfolio Membership decreased the secondary market for fractional interests, rendered the resorts less exclusive, and limited their ability to reserve time at other Ritz-Carlton properties.

Consumer protection act claims. The plaintiffs alleged state consumer protection claims under (1) the California Unfair Competition Law, (2) the Florida Deceptive and Unfair Trade Practices Act, (3) the Colorado Consumer Protection Act, and (4) the Hawaii Uniform Deceptive Trade Practices Act. Specifically, the plaintiffs alleged that the defendants committed consumer fraud by: (1) marketing the fractional interest as an alternative to traditional timeshares; (2) representing that future owners would be able to enjoy the same benefits and privileges as the plaintiffs; (3) representing that Home Club residence interests would be identical to fractional ownership; and (4) introducing Portfolio Membership which allegedly transformed the fractional ownership into a traditional timeshare.

Here, the allegations of consumer fraud fell far short of Rule 9(b)’s particularity requirements, the court ruled. The plaintiffs did not specifically identify who made the allegedly fraudulent statements, nor did they identify the particular marketing statements and material at issue. Moreover, the plaintiffs failed to differentiate between the six defendants when identifying the allegedly fraudulent statements. Such group pleading was insufficient under Rule 9(b), according to the court.

As a result, the plaintiffs failed to plead their state consumer law claims with particularity, and dismissal was warranted.

The case is No. 12-3093 (DSD/JJK).

Attorneys: Ann T. Regan (Zimmerman Reed PLLP) for Steven B. Hoyt. Phillip R. Sellinger (Greenberg Traurig, LLP) for Marriott Vacations Worldwide Corp.

Companies: Marriott Vacations Worldwide Corp.

Cases: StateUnfairTradePractices MinnesotaNews