We all know a little bit about class actions. Over the years, many of us have probably received a letter or postcard advising us that we may be potential class members. Again, many of us, perhaps sensing that our individual recovery may not be worth the effort, haven’t taken the plunge. Still, a timeshare purchase could be a horse of another color. If only some enterprising lawyer would consider whether a potential class action could help extricate us from our lifelong timeshare obligation! Of course the beauty in this wish is that as a class member, you wouldn’t have to actually hire the lawyer, he or she would be paid from the proceeds of the case (assuming it’s successful, of course).
As a lawyer with some class action experience and who has primarily represented consumer timeshare owners for a considerable period of time, I can report to you that class actions do play a role in our consumer timeshare practice, but that the role is more limited than we would like it to be. The explanation lies with the kinds of cases that can be effective class action cases, and more so if they’re timeshare related.
Most of our clients tell us that they were deceived during their initial timeshare presentation and that a lot of what they were told was simply not truthful, that they relied upon the veracity of the sales staff and it was only later, when they attempted to utilize their purchase, that they learned a different story. Of course this realization did not come during the 5-10 day rescission period (varying by state) provided by law, and so the hapless owner came to realize that the resort would not help them and, furthermore, that the purchase contract they signed is considered to be legally binding and worse, in the absence of a way to unload their purchase on someone else, there is no exit scenario built into the contract. Essentially, in the absence of a viable resale opportunity, these contracts become lifelong obligations!
The above scenario repeated over and over with some variations on the theme is the “staple” fraud in the inducement file we see at Finn Law Group on a daily basis. Per our own internal analysis, these matters occur with amazing frequency, mainly because of the manner that the timeshare product is marketed. In nearly all instances the salesperson assigned to the prospective customer is working on a purely commission-based system, and perhaps quota based as well. The top sales staff can make a very good living, but they must maintain a high closing rate to do so.
This methodology puts the salesperson into a conflict with ethical considerations competing with their own financial needs. Being human, and with direct compensation incentives providing the temptation, sales staff may well significantly over-embellish the advantages of timeshare ownership over the three to five hours they often spend with their sales prospects. After this long sales process, the interested prospects then immediately are ushered into the closing aspect of the transaction attended by different members of the sales team, known internally as “closers,” who thereafter shepherd the prospect into and through the closing process. No prospects are ever given the opportunity to take the presented documentation with them to review or consult with an attorney, pre-execution. It’s all completed on the same day and that is by careful design.
Given the mountain of paperwork processed at a timeshare closing and the relatively short amount of time a consumer has (or takes) to read and understand the finer points of the transaction, it’s no small wonder that what one legally agrees to via their signature and what what they were told they were contracting for are often diametrically different from one another in comparison.
You spend hours with a salesperson who is motivated to determine what is important to you and to tell you that, yes your purchase does include that feature, only to later discover that nowhere within those mounds of paperwork you signed and initialed is there any reference to the feature or features your salesperson assured you were included. In fact, to add insult to injury, one of the contractual clauses that wasn’t pointed out to you as you were signing the mountain of paperwork pushed in front of you was a clause that states that the purchasers did not rely on any oral representations when making their timeshare purchase decision. Imagine a salesman knowing that clause exists resisting the temptation to increase his or her income! (I take credit for naming that provision the “salesman’s license to lie” clause and I can pridefully advise that I was so quoted recently in the New York Times!)
So we now have isolated one of the more frequent legal issues with the typical timeshare purchase, and have identified the possible legal cause of action that applies, which we lawyers call “fraud in the inducement.” The remedy that translates into is that the contract should be rescinded because the purchasers didn’t purchase what they were told they were buying by the sellers. We’ve also identified the defense that the resort developer will undoubtedly utilize if fraud in the inducement is raised in litigation, as it’s unlikely that the salesperson, if called as a witness, will admit they promised items not contained within the preprinted contract. When combined with the “salesman’s license to lie” clause just referenced, the plaintiff consumer’s case is made far more difficult to win. Recall that the burden of proof rests with the party bringing the action. As the consequences of losing the case may mean the loser pays the winner’s attorney fees and costs, the wisdom of pursuing such a case for any one client becomes questionable as few clients will want to roll the dice, especially if the odds seem no better than 50-50.
It’s therefore tempting for a lawyer to look to the possibility of filing class action litigation for fraud in the inducement claims for an entire class of timeshare buyers, who presumably are in much the same boat, having purchased a timeshare interest under the false impression that more attributes were being purchased than what were actually acquired. Surely if everyone reports a similar purchase experience, the court will conclude that all of these purchasers couldn’t be wrong and therefore the developer must be knowingly encouraging its staff to make the false assertions to increase sales?
At this point we must pause and examine the actual state of the law to understand the legal conclusion that most courts have come to, the sad fact that for the most part, courts do not consider fraud to be the type of case that belongs in a class action scenario.
The best explanation I can provide as to why the courts have adopted this position is that the elements of fraud – the actual deceit done with the intent to deceive, relied upon by the buyer to their financial detriment – are all very individualized factors, the underlying nature of which will, by definition, vary with every individual timeshare presentation by each individual timeshare salesperson, and of course presented to individual potential buyers at differing times. Therefore, each separate sales experience constitutes a new and separate set of facts to be evaluated. Courts are loathe to lump together clumps of individualized sets of experiences into one big ball where in every class member theoretically would have suffered the same level and severity of deceit and conclude that all equally relied upon these separate individualized deceptive statements to their detriment.
In short, these fraud based claims in the timeshare arena are not, in the foreseeable future, going to become actionable timeshare-based class actions. Of course individual actions are still quite possible and, in fact, we are aware of recent individual litigation in this realm that ended quite successfully for the consumers. Again however, any owner considering individual litigation based upon a theory of fraud, had better be aware that their battle will be costly and the ultimate results unpredictable.
So is class action litigation just another pretty face with no significant place in the timeshare arena? Decidedly not! My firm, Finn Law Group, has successfully initiated multiple pieces of class action litigation against timeshare resort developers. In one concluded case, over eleven thousand former timeshare owners saw foreclosure entries on their credit reports purged, and another over two thousand owners received extended vacations for no cost. Other class cases are pending, as can be determined by visiting our list, available here.
In conclusion, class action litigation isn’t going to, on its own, repair the underlying problems with timeshare ownership, but it will make a dent, and more importantly, it will continue to serve notice on the timeshare development community that someone out there is paying very close attention to them, and that can’t be a bad thing!
– Michael D. Finn, Esq.