Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—SDCal: Timeshare Operator Not Liable Under California Unfair Competition Law for Allegedly Moldy Units , (Nov 1, 2012)

By Jody Coultas, J.D.

A timeshare owner lacked standing to assert California Unfair Competition Law (UCL) claims against a timeshare operator that allegedly failed to disclose the presence of mold at one of its resorts, according to the federal district court in San Diego (Hermengildo Martinez v. Welk Group, Inc., October 30, 2012, Battaglia, A.).

Prior to purchasing the timeshare, an agent for the timeshare operator assured the owner that the resorts were clean, safe, and well maintained. The owner allegedly found something that may have been mold, but it was not tested. A neighbor and former employee of the timeshare operator told him that there was mold at the resort. The owner felt that if one unit had mold, all the units would be uninhabitable even if the mold was removed. He declined to stay at the resort again or any other timeshare operated by the group and declined to sell his timeshare to anyone else.

The UCL prohibits three separate types of unfair competition: unlawful acts or practices, unfair acts or practices, and fraudulent acts or practices. The UCL borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable. To state a claim under the fraudulent prong, a plaintiff must show that a reasonable consumer was likely to be deceived by the business practice.

In order to have standing to assert a UCL claim, the timeshare owner needed to show that he had suffered an injury in fact and lost money or property as a result of the unfair competition. The requisite injury must be an invasion of a legally protected interest which is concrete and particularized, and actual or imminent, not conjectural or hypothetical.

Because the owner failed to show that the operator’s statements were actually false, the court dismissed the claims for lack of standing. The owner argued that he would not have purchased the timeshare had the mold issue been disclosed. However, the owner failed to offer proof that the resort was not clean, safe, and well-maintained, or that all units were infested with mold.

In addition, the owner could not show that the operator violated any other laws. A reasonable consumer was unlikely to be deceived by the representations at issue. Even if the operator assumed a duty to the owner by voluntarily responding to his inquiries regarding the maintenance and suitability of the resort, there was no evidence that a reasonable consumer would have expected or assumed that the entire resort was, and always has been, free of any mold, mildew, or water intrusion. The operator also did not make any affirmative misrepresentations as to the safety and maintenance of the resort.

The case is No. 09cv2883 AJB.

Alfredo Torrijos (Arias Ozzello & Gignac LLP) for Hermenegildo Martinez. Cordon Telfair Baesel (McKenna Long & Aldridge LLP) for The Welk Group, Inc.

Cases: StateUnfairTradePractices CaliforniaNews