Marriott, First American Accused Of Time-Share Conspiracy

By Alex Wolf

Law360, New York (May 24, 2016, 3:05 PM ET) -- A group of Marriott companies involved in the sales of vacation time-shares and the First American Title Insurance Co. were accused in a class action complaint filed last week in Florida federal court of carrying out a scheme that duped points-based time-share purchasers into invalid and illusory real estate interests.

The suit, which also ropes in Orange County, Florida, and its comptroller as defendants, alleges that Marriott Vacation Club and co-defendants violated state racketeering and time-share laws by selling a points-based time-share product to customers that falsely conveys title to a Florida time-share estate and a beneficial interest in a Florida land trust.

While these consumers are paying the costs and taking on the burdens associated with property ownership, like title policy premiums, taxes and maintenance fees, they are not getting the benefits that come with typical time-share ownership, according to the suit. What they are really getting is just a use license for selected corporately-owned time-share estates in various locations across the country, the suit claims.

“For defendants, however, the façade of the MVC product provides significant opportunities for revenue that would not otherwise exist in connection with an awards program of this nature or even with the sale of legacy timeshare estates of the type Marriott has sold for decades,” the complaint said.

Plaintiffs Anthony and Beth Lennen claim that the defendants have profited greatly from sales of the MVC product, while they and other time-share customers “continue to suffer the consequences of the deception.”

In addition to paying ownership costs without receiving ownership benefits, they allege that they are also being harmed by Marriott’s unclear and discretionary point-valuation process, the company’s practice of adding and restricting access to properties in the underlying land trust, and its ongoing interference with actual ownership interests and imposition of exchange and reservation procedures that restrict customer usage.

According to the suit, Marriott devised the MVC product after being saddled with increasing costs associated with holding tens of thousands of time-share properties around the time of the 2008 real estate market collapse. By using a points-based system, the company was able to monetize its inventory of corporate-owned estates and avoid costs, the complaint says.

Instead of having a traditional time-share model, in which customers receive a fractional interest in real property and are able to stay in the property for a week or so every year, MVC owners are allotted increments of points that can be used to book days at various time-share condos, according to the suit.

Despite its nature, the MVC product is sold as a Florida time-share estate vested as a beneficiary interest in a Florida statutory land trust, according to the complaint.

The Lennens, who are also legacy time-share estate owners, say that the MVC scheme is not only hurting the points-based customers but also legacy estate owners, who are allegedly having their interests in the estates materially diluted and their property rights infringed.

They accuse First American of taking part in the scheme by serving as the MVC time-share trustee, title insurer and escrow agent. According to the suit, First American owes customers a specific fiduciary duty to oversee the time-share plan, but it is beholden to Marriott and has failed to audit the company or conduct valid title searches before issuing title policies.

The plaintiffs also claim that Orange County has played a role in the scheme by failing to fulfill statutory duties to verify that the time-share deed recordings evidence the transfer of real property.

The Lennens aim to certify two classes of time-share customers: legacy owners who purchased estates in the MVC trust and MVC owners. They are asking the court to declare the deeds as void and in violation of state law, and that the defendants violated various state and common laws.

In addition, the suit asks that the court break up the structure of the alleged criminal enterprise, temporarily suspend Marriott and First American from related business practices and award damages and attorney’s fees. In a statement Tuesday, First American spokesperson Marcus Ginnaty told Law360 that the company looks forward to the opportunity to defend its rights through the legal system.

An Orange County spokesperson, who noted that the county attorney has not yet seen the suit, said it does not comment on pending litigation. An MVC spokesman said the company has not yet been served with the suit, but all of MVC's sales comply with state regulations.

The plaintiffs are represented by Christopher S. Polaszek of The Polaszek Law Firm PLLC, Lucas A. Ferrara, Jeffrey M. Norton and Roger A. Sachar Jr. of Newman Ferrara LLP and by Soomi Kim.

Counsel information for the defendants was not immediately available Tuesday.

The case is Anthony Lennen and Beth Lennen v. Marriott Ownership Resorts Inc. et al., case number 6:16-cv-00855, in the U.S. District Court for the Middle District of Florida.

--Editing by Patricia K. Cole.