Engineering the law: Marriott Vacations Worldwide's class-action timeshare battle
As a lawsuit against Marriott Vacations wound its way through the courts, the company and the timeshare industry tried to undermine the suit by getting the Legislature to change the law that provided the basis for the suit.
In the spring of 2016, Marriott Vacations Worldwide, which books more than $600 million a year in timeshare sales, was hit with a class-action lawsuit. The lead plaintiffs were Anthony and Beth Lennen, a couple from Shelbyville, Ind. The Lennens had bought time at Marriott’s Crystal Shores resort on Marco Island a few years earlier. They owned two weeks in the oceanfront tower; one in January and another in August.
That’s how most timeshares used to be sold — in increments of time, usually a week, tied to a specific resort on specific dates. In recent years, however, the industry has developed a new business model. Most firms now sell timeshares as “points” that owners purchase. Instead of owning a specific week at a specific property, the owners can redeem their points throughout the year at a variety of locations.
Marriott started a points-based network, the Marriott Vacation Club, in June 2010 as it dug out from the global recession [“Timeshare Giants,” February 2017]. The network includes more than 55 Marriott properties, most of which were initially built as traditional timeshares and already had lots of individual owners. Today, Marriott Vacation Club is one of the largest and most successful timeshare points programs in the industry, with more than 400,000 owners. It accounts for most of Marriott’s timeshare sales.
It is also, according to the Lennens’ lawsuit, a sham.
The suit, filed in federal court in Orlando, targets a variety of Marriott subsidiaries and a third-party title insurer. The suit is complex; the original complaint is 639 paragraphs long and alleges 21 counts of wrongdoing, including three violations of the RICO Act, the law initially created to prosecute organized crime.
The allegations boil down to two overarching claims involving Marriott's new business model.
First, the suit contends that points amount to phony real estate that isn’t tethered to any physical property. Second, it claims that Marriott is cheating its legacy timeshare owners by diluting the value of the genuine real estate — the ownership stake in a specific property — that they originally bought from the company.
Jeffrey Norton, the lead attorney representing the Lennens, says his clients have been harmed in two ways.
First, he says the Lennens bought into a specific property, the Marco Island resort, but Marriott is now using that property in its larger points network. A much larger pool of timeshare owners now can use the resort, which conflicts with the Lennens’ ownership rights.
Second, since launching its points program, Marriott has successfully persuaded many of its legacy owners to also purchase points in its Vacation Club network. The Lennens, for instance, opted to buy points to supplement their two weeks because, Norton says, “they fell for the pitch” that the points would give them greater flexibility if they ever wanted to exchange their weeks in Marco Island for reservations somewhere else. As a result, Norton says, Marriott sold them real estate that isn’t really real estate because the points aren’t tethered to any specific property. “At most they purchased a use license, like a gym membership,” Norton says.
The suit seeks to have Marriott’s entire points program unwound and the company subjected to punitive damages.
The Lennens’ legal team is formidable: It includes Norton, who’s a partner at Newman Ferrara, a Manhattan firm specializing in commercial, securities and shareholder litigation, along with a Florida attorney who once co-led the securities fraud, commodities and antitrust department at Morgan & Morgan, and a third lawyer who battled Marriott previously when she was the deputy district attorney in Las Vegas, another timeshare hotbed.
Marriott’s action plan
Marriott’s lawyers say the arguments in the Lennens’ lawsuit have never been tested in court. But the threat was significant enough that Marriott, which turned a profit of nearly $140 million last year on revenue of more than $1.8 billion, disclosed it to investors, though the company said it could not yet estimate a potential liability.
Marriott then set about fighting the case.
First, Marriott asked the judge presiding over the case, Carlos E. Mendoza, to hold off on making a decision and refer the matter to administrative regulators in Tallahassee. Marriott also filed a motion asking him to dismiss the lawsuit entirely. In November 2016, Mendoza ordered both sides to stop submitting briefs and began considering his decision.