Flynn et al v. Marriott Ownership Resorts, Inc. et al
Filing
33
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS THE COMPLAINT re 24 Motion to Dismiss. Signed by JUDGE LESLIE E. KOBAYASHI on 02/29/2016. Plaintiffs may file a motion seeki ng leave to file an amended complaint with a proposed amended complaint setting forth the claims that this Court has dismissed without prejudice and in the format dictated by the Local Rules. (eps)CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FILED IN THE
UNITED STATES DISTRICT COURT
DISTRICT OF HAWAII
Feb 29, 2016
FOR THE DISTRICT OF HAWAII
MICHAEL KEVIN FLYNN; MARLA
KAY FLYNN; and PATRICK R.
FLYNN and MARY KAY FLYNN,
Trustees of the Flynn Family
Trust,
)
)
)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
MARRIOTT OWNERSHIP RESORTS,
INC., a Delaware corporation; )
)
ET AL.,
)
)
Defendants.
_____________________________ )
SUE BEITIA, CLERK
CIVIL 15-00394 LEK-BMK
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT
On December 24, 2015, Defendants Marriott Ownership
Resorts, Inc. (“MORI”); Marriott Vacations Worldwide Corporation,
doing business as Marriott Vacations Club (“MVC”); Marriott
Resorts, Travel Company, Inc., doing business as MVC Exchange
Company (“MVC Exchange”); Marriott Resorts Hospitality
Corporation (“Marriott Hospitality”); First American Trust, FSB
(“the Trustee”); MVC Trust; Kauai Lagoons LLC (“Kauai Lagoons”);
and Marriott Kauai Ownership Resorts, Inc., doing business as
Marriott Vacation Club International (“MKORI,” all collectively,
“Defendants”), filed their Motion to Dismiss the Complaint
(“Motion”).
[Dkt. no. 24.]
Plaintiffs Michael Kevin Flynn and
Marla Kay Flynn; and Plaintiffs Patrick R. Flynn and Mary Kay
Flynn, Trustees of the Flynn Family Trust, (all collectively,
“Plaintiffs”) filed their memorandum in opposition on January 22,
2016, and Defendants filed their reply on February 5, 2016.
[Dkt. nos. 26, 27.]
February 16, 2016.
This matter came on for hearing on
After careful consideration of the Motion,
supporting and opposing memoranda, and the arguments of counsel,
Defendants’ Motion is HEREBY GRANTED IN PART AND DENIED IN PART
for the reasons set forth below.
BACKGROUND
I.
The Complaint
Plaintiffs filed their Class Action Complaint
(“Complaint”) on October 2, 2015.1
According to the Complaint,
in 2004, Michael and Marla Flynn purchased from MORI “a week
ownership interest in an Ocean View Two Bedroom Makai Unit” at
Marriott’s Ko Olina Beach Club (“Ko Olina”), and, in 2005, they
purchased from MORI “a week ownership interest in an Ocean View
Two Bedroom Unit” at Ko Olina.
[Complaint at ¶ 19.]
In 2013,
they purchased from a third party an odd-year week ownership
interest at Ko Olina.
[Id.]
In 2006, they upgraded a week
ownership interest at Marriott’s Maui Ocean Club (“Maui Ocean”)
to “a Two Bedroom Ocean View Unit” in a newer phase of the
resort.
In 2007, they purchased from MORI “a Three Bedroom Ocean
Front Unit” at the Maui Ocean.
[Id. at ¶ 20.]
1
Plaintiffs’ class allegations are not relevant to the
instant Motion, and the Court will not address them at this time.
2
In 2004, Plaintiffs Patrick R. Flynn and Mary Kay
Flynn, Trustees of the Flynn Family Trust (“Patrick and
Mary Flynn”), purchased from MORI “a week ownership interest in
an Ocean View Two Bedroom Unit” at Ko Olina.
In 2006, they
purchased from MORI “a week ownership interest in an Ocean View
Two Bedroom Unit” at Maui Ocean.
In 2007, they purchased “a
Platinum season timeshare interest in Marriott’s Newport Coast
Villas” (“Newport Coast”).
[Id. at ¶ 23.]
According to the Complaint, in 2010, Marriott2 owned
tens of thousands of unsold timeshare interests in various
resorts.
In part to sell this inventory, Marriott created a
points-based timeshare program (“Destination Program” or “PointsBased Program”), in which timeshare owners are allotted points
that they use to reserve stays at various Marriott timeshare
resorts (“Points Owners”).
Marriott transferred its unsold
inventory of timeshare interests to the MVC Trust, and the Points
Owners buy beneficial interests (“BIs”) in the trust.
Plaintiffs
allege that the Points-Based Program is radically different from
Marriott’s traditional timeshare program (“Weeks-Based Program”),
in which the timeshare owners (“Week Owners”) buy weeks during a
specific period at a specific resort (“Home Resort”).
Marriott
has attempted to convince the Week Owners to convert their
2
Plaintiffs’ Complaint use the name “Marriott” to refer
collectively to all Defendants except the Trustee. [Complaint at
¶ 39.]
3
timeshare interests to BIs, and, if a Week Owner declines,
Marriott attempts to sell him points as a supplement to his
interest in the Weeks-Based Program.
[Id. at ¶¶ 2-3.]
Michael
and Marla Flynn do not own any interest in the Points-Based
Program.
[Id. at ¶ 21.]
In 2014, during a stay at Newport
Coast, Patrick and Mary Flynn purchased from MORI an interest in
the Points-Based Program.
[Id. at ¶ 24.]
MVC reports that, as of January 2, 2015, it operates
fifty-eight properties (“Marriott Timeshare Resorts”) with 12,866
units, and there are approximately 415,000 timeshare owners.
There are five Hawai`i timeshare resorts (“Hawai`i Marriott
Timeshare Resorts”) – including Maui Ocean and Ko Olina – among
the fifty-eight.
[Id. at ¶ 27.]
The Complaint alleges that
Marriott Hospitality is a wholly-owned subsidiary of MORI, and it
is the managing agent/operator of some of the Marriott Timeshare
Resorts, including the Hawai`i Marriott Timeshare Resorts.
at ¶ 33.]
MORI.
[Id.
MVC Exchange is also a wholly-owned subsidiary of
It “provides exchange and reservation services as the
operator of the Marriott Vacation Club Destinations Exchange
Program (‘the Exchange Program’).”
[Id. at ¶ 31.]
The Exchange
Program, which was introduced with the Points-Based Program,
allows Points Owners to exchange their points-based interests.
[Id. at ¶ 61.]
4
I.
Allegations Regarding the Ability to Use Timeshare Units
Plaintiffs argue that: Marriott operates the Weeks-
Based Program and the Points-Based Program “in a manner that
sacrifices the use right of one set of owners for the betterment
of another set”; and this practice “is inequitable and unlawful.”
[Id. at ¶ 4.]
Plaintiffs argue that Marriott “unfairly gives
superior reservation and use rights” to the Points Owners, of
whom there is “an exponentially growing number.”
[Id. at ¶ 5.]
The competition from the Points Owners allegedly prevents the
Week Owners – particularly those like Plaintiffs who own multiple
weekly interests in premier resorts, such as the Hawai`i Marriott
Timeshare Resorts (“Multi-Week Owners”) – from exercising their
stay rights.
In addition to the increased competition from the
Points Owners in general, Marriott allegedly reserves the best
units and weeks for the MVC Trust, thereby depriving the Week
Owners of the chance to compete fairly for those units and
weeks.3
The Week Owners must compete for the lower quality units
and less desirable weeks that remain after the skimming process.
[Id.]
Plaintiffs argue that Marriott’s practices violate:
(1) [Plaintiffs’] reservation and use rights,
(2) [Plaintiffs’] right to compete on an equitable
“first-come, first-served” basis with other owners
of weekly timeshare interests, and (3) Marriott’s
promise to not compete unfairly with its owners by
3
Plaintiffs refer to this alleged practice as “skimming.”
See, e.g., Complaint at ¶ 84.
5
awarding itself greater reservation rights with
respect to its ownership interests.
[Id.]
In addition, Plaintiffs argue that Marriott’s practices
violate: the statutory prohibition against selling a use week to
more than one purchaser, i.e. the “one-to-one use-right to usenight requirement” (“One-to-One Rule”); and the consumer
protection laws that prohibit unfair and unlawful conduct.
[Id.
at ¶ 6.]
Plaintiffs state that, when Marriott sells the BIs in
the Points-Based Program, it refers to them as “timeshare
estates.”
Plaintiffs argue that this misleads the Week Owners
into believing that, when they purchase points to supplement
their week-based interests, they are purchasing real estate
interests.
Plaintiffs assert that, when the Week Owners purchase
supplemental points, “they become liable for a share of
maintenance fees for Marriott’s unsold timeshare interests in all
resorts Marriott has included in the MVC Trust.”
[Id. at ¶ 7.]
Patrick and Mary Flynn pay annual maintenance and enrollment fees
for their BIs in the MVC Trust.
was approximately $927.50.
The amount of the fees in 2015
[Id. at ¶ 24.]
Plaintiffs refer to the declarations of covenants,
conditions and restrictions for the Marriott Hawai`i Timeshare
Resorts (collectively, “Declarations”) as the governing documents
for their timeshare interests.
The Declarations are publicly
filed with either the State of Hawai`i Office of the Assistant
6
Registrar, Land Court (“Land Court”) or the State of Hawai`i
Bureau of Conveyances (“BOC”).
[Id. at ¶ 17, Exhs. C-G.4]
The
Declarations reserve certain specific rights for MORI, Kauai
Lagoons, and MKORI (collectively, “Developer Defendants”).
According to Plaintiffs, the Declarations state that “no
timeshare owner, including the developer entities, can transfer
or mortgage ownership interests in a manner that ‘otherwise
affect another Owner’s Ownership Interest,’ and an Owner can
transfer only the Owner’s respective interests.”
¶ 43.]
[Complaint at
Plaintiffs argue that, “[a]s owners of interests in the
Hawaii Timeshare Resorts, absent any specifically reserved
rights, MKORI, MORI and Kauai Lagoons are entitled to reserve and
have confirmed use periods on the same basis as other owners –
the developers have no greater reservation rights than Weeks
Owners.”
[Id. at ¶ 45.]
4
Exhibit C is the Maui Ocean Club Vacation Ownership
Program Declaration of Covenants, Conditions and Restrictions
(“Maui Ocean Declaration”), filed on October 7, 1999 with the
Land Court as document number 2580210; Exhibit D is the Ko Olina
Beach Club Vacation Ownership Program Declaration of Covenants,
Conditions and Restrictions (“Ko Olina Declaration”), filed on
September 24, 2001 with the Land Court as document number
2739367; Exhibit E is Marriott’s Kauai Beach Club Vacation
Ownership Program Declaration of Covenants, Conditions and
Restrictions, filed on July 7, 1995 with the Land Court as
document number 2248015; Exhibit F is the Kalanipu`u Vacation
Ownership Program Declaration of Covenants, Conditions and
Restrictions, filed on February 9, 2010 with the BOC as document
number 2010-018377; and Exhibit G is the Waiohai Beach Club
Vacation Ownership Program Declaration of Covenants, Conditions
and Restrictions, filed on March 28, 2011 with the Land Court as
document number 2692944.
7
According to Plaintiffs, the disclosure statements that
they received among their contract documents (“Disclosure
Statements”) explain the timeshare program.
The Disclosure
Statements emphasize that the Week Owners “bargain to compete
only with other Weeks Owners ‘on a first come, first served
basis’ for accommodations twelve months in advance” – and
thirteen months in advance for Multi-Week Owners.
n.17.5]
[Id. at ¶ 46 &
They also state that “the developer possesses ‘no
greater priority with respect to reservation than any other
Owner, and the Program Operator will always seek to assign Use
Periods on an equitable basis among all Owners, including the
Developer.’”
[Id. at ¶ 47 & n.18.6]
Plaintiffs argue that Points Owners are not subject to
the restrictions that Week Owners are subject to.
According to
5
The Disclosure Statement on Marriott Ownership Resorts,
Inc. in the Ko Olina Beach Club Vacation Ownership Program
(“Ko Olina Disclosure Statement”) states: “Owners will have the
ability to request a reservation for a seven (7) night stay for
an accommodation for a check-in day on a first-come, first-served
basis, with other Owners, beginning twelve months in advance of
the requested check-in day.” [Complaint, Exh. H at 4,
§ 3.C(6)(a)(iii).] The Disclosure Statement on Marriott
Ownership Resorts, Inc. in the Maui Ocean Club Vacation Ownership
Program (“Maui Ocean Disclosure Statement”) apparently contains a
substantively identical provision. [Id., Exh. I (excerpts of
Maui Ocean Disclosure Statement) at 5, § iii.]
6
The Ko Olina Disclosure Statement states, “the Developer
does not possess any greater priority with respect to reservation
than any other Owner, and the Program Operator[ – Marriot
Hospitality –] will always seek to assign Use Periods on an
equitable basis among all Owners, including the Developer.”
[Complaint, Exh. H at 1, § 2.]
8
the MVC website, Points Owners can “‘chose from any location and
any size villa, check in on any day they wish and stay as long as
they want.’”
[Id. at ¶ 66.]
In addition, Points Owners with
Premier or Premier Plus status7 have additional benefits, such as
booking stays thirteen months in advance, while Week Owners can
only book twelve months in advance.
[Id. at ¶ 67.]
According to
the Complaint, Plaintiffs argue that the lack of restrictions on
the Points Owners ensures that they are automatically given the
best units.
[Id. at ¶ 72.]
Plaintiffs allege that, from the inception of the
Points-Based Program until April 2015, the only preferred status
groups for Points Owners were Premier and Premier Plus, and
Marriott limited the number of the total available points that
could be owned by each group.
However, there are now five status
groups – Owner, Select, Executive, Presidential, and Chairman’s
Club.8
Plaintiffs argue that all five groups have greater
reservation rights than the Week Owners, and there are no longer
any limitations on the number of Points Owners that can belong to
7
From the commencement of the Points-Based Program until
April 2015, Premier Plus status was given to Points Owners with
13,000 points or more, and Premier status was given to Points
Owners with 6,500 to 12,999 points. [Complaint at ¶ 68.]
Marriot later expanded the categories of Points Owners. See
infra note 8.
8
The current categories of Points Owners are: Owner (less
than 4,000 points); Select (4,000-6,999 points); Executive
(7,000-9,999 points); Presidential (10,000-14,999 points); and
Chairman’s Club (15,000 or more points). [Complaint at ¶ 69.]
9
each status category.
[Id. at ¶¶ 68-69.]
Plaintiffs argue that
Marriott has “unilateral control of the number of points required
to establish such status.”
[Id. at ¶ 73.]
According to Plaintiffs, before the creation of the
Points-Based Program, their reservation rights were determined by
their Home Resorts’ Declarations, and they only competed for
units with other Week Owners who owned weeks in similar units at
the same Home Resort, during the same period.
Multi-Week Owners,
such as Michael and Marla Flynn, were entitled to preferential
reservation rights.
[Id. at ¶ 70.]
After the Points-Based
Program began, the Week Owners – including the Multi-Week Owners
– “began facing increased difficulty in reserving units at their
designated times in light of the increasing number of Points
Owners competing for reservations of the same categories of units
and the advantageous reservation rights given to particularly
elite Points Owners.”
[Id. at ¶ 71.]
Plaintiffs argue, based on
information and belief, that Marriott gives the timeshare
interests owned by the MVC Trust an unfair reservation preference
to ensure the success of the Points-Based Program.
Marriott
allegedly does this by giving the MVC Trust greater reservation
priority and by skimming the best units during the best time
periods.
[Id. at ¶ 74.]
Plaintiffs argue that Marriott’s practices have
“substantially impaired the reservation rights of Plaintiffs
10
. . . by providing Points Owners with rights to reserve units in
the Marriott Hawaii Timeshare Resorts that are better than the
rights of Plaintiffs.”
[Id. at ¶ 73.]
Plaintiffs argue that
their inability to reserve desirable units and time periods also
impairs the trading value of their weeks when they decide either
not to use their weeks during a particular year or if they decide
they want to try to exchange their weeks at their Home Resorts
for weeks at different Marriott Timeshare Resorts.
¶ 84.]
[Id. at
Plaintiffs also argue that Marriott’s practices violate
the Declarations and other contract documents.
[Id. at ¶¶ 75-
77.]
B.
Allegations Regarding the Sale of Points
Plaintiffs allege that, since the creation of the
Points-Based Program, Marriott has primarily promoted and
marketed the program though sales centers at the Marriott
Timeshare Resorts, including the Hawai`i Marriott Timeshare
Resorts.
[Id. at ¶ 79.]
of this sales approach.
The Week Owners are the primary target
[Id. at ¶ 81.]
Plaintiffs allege that,
to induce the Week Owners to buy interests in the Points-Based
Program, Marriott “specifically and falsely represents in sales
presentations that [] beneficial interests in the MVC Trust
constitute real estate,” and it “deliberately and actively
devalues the traditional week ownership interests and frustrates
Weeks Owners’ abilities to utilize their Use Weeks.”
11
[Id. at
¶ 82.]
According to Plaintiffs, Marriott does this by
highlighting the advantages of the Points-Based Program compared
to the Weeks-Based Program.
[Id. at ¶ 83.]
If a Week Owner is unwilling to exchange his interest
for a points-based interest, Marriott’s sales representatives
tell him that the points-based interests, inter alia: “constitute
real property, just as are their weekly timeshare interests; will
restore and enhance the trading power and competitive value of
their devalued weekly timeshare interests; will allow them to
extend their stay; [and] will allow them to upgrade their units.”
[Id. at ¶ 85.]
Plaintiffs state that Marriott’s sales
representative at Newport Coast made these representations to
Patrick and Mary Flynn when they purchased 1,500 points in 2014
“to buttress and protect the value of their weekly timeshare
interest.”
[Id. at ¶ 87.]
Plaintiffs argue that this is the
only reason a Week Owner would buy that number of points, which
has no independent value and is not real estate.
According to
Plaintiffs, the maintenance fees that Patrick and Mary Flynn must
pay in connection with their 1,500 points are exorbitant.
[Id.
at ¶¶ 88-91.]
“By the end of 2013, almost 134,000 weeks-based owners
had enrolled over 233,000 weeks in the points program, and of
these owners who enrolled weeks with one of Marriott’s sales
executives, approximately 45 percent also purchased points.”
12
[Id. at ¶ 86 & n.25 (citing Marriott Vacations Worldwide Corp.,
Annual Report (Form 10-K) (February 27, 2014)).]
Plaintiffs
argue that Marriott is unjustly enriched by the maintenance fees
the Points Owners pay because they reduce the amount of
maintenance fees that Marriott must pay for all of the unsold
timeshare units throughout the Marriott system which are held in
the MVC Trust.
C.
[Id. at ¶ 92.]
Claims and Relief
Plaintiffs allege the following claims: breach of
contract against MVC, MVC Exchange, MORI, MKORI, Kauai Lagoons,
and Marriott Hospitality (“Count I”); breach of the implied
covenant of good faith and fair dealing against MVC, MVC
Exchange, MORI, MKORI, Kauai Lagoons, and Marriott Hospitality
(“Count II”); a claim for violations of Hawai`i consumer
protection statutes against all Defendants (“Count III”); a claim
for violation of the Hawai`i timeshare statutes, Haw. Rev. Stat.
§ 514E-1, et seq., against the Developer Defendants (“Count IV”);
and unfair and deceptive acts and practices (“UDAP”), in
violation of Haw. Rev. Stat. Chapters 480 and 514E, against the
Developer Defendants (“Count V”).
As to all counts, Plaintiffs pray for attorneys’ fees,
costs, and prejudgment interest.
[Id. at pg. 56, ¶ A.]
As to
Counts I and II, Plaintiffs pray for: compensatory, general, and
special damages; and any other appropriate relief, including an
13
injunction as to Count I to force Marriott to modify the
reservation procedures.
[Id. at pg. 57, ¶¶ C-D.]
As to
Count III, Plaintiffs pray for: actual, compensatory, treble, and
punitive damages; an injunction requiring an independent, annual
audit of the points and weeks timeshare inventories; an
injunction requiring Marriott to create a mechanism which ensures
that Plaintiffs and other Week Owners have priority in reserving
units at their Home Resort as provided in the timeshare
agreements; and any other appropriate relief.
58, ¶ E.]
[Id. at pgs. 57-
As to Count IV, Plaintiffs pray for: actual and
special damages; and any other appropriate relief.
58, ¶ F.]
[Id. at pg.
As to Count V, Plaintiffs pray for: statutory, actual,
and special damages pursuant to Chapter 514E; actual,
compensatory, treble and punitive damages, and injunctive relief
pursuant to Chapter 480; and any other appropriate relief.
at ¶ G.]
[Id.
In addition, Patrick and Mary Flynn pray for rescission
of the points purchase contract.
[Id. at pg. 57, ¶ B.]
In the instant Motion, Defendants argue that:
Plaintiffs’ claims under Haw. Rev. Stat. Chapters 480, 481A, and
514E are time-barred; Plaintiffs lack standing to bring
Chapter 480 UDAP claims because they are not “consumers”; each
count fails to state a claim upon which relief can be granted;
and, to the extent that any of Plaintiffs’ claims remain, the
only proper defendant is MORI.
14
DISCUSSION
I.
Defendants’ Reply
At the outset, this Court notes that Defendants did not
timely file their reply.
Based on the February 16, 2016 hearing
date, Defendants’ reply was due by February 2, 2016.
Rule LR7.4.
See Local
When Defendants filed their reply on February 5,
2016, it was three days late, and they did not obtain an
extension of the deadline from this Court.
Although this Court has the discretion to disregard or
strike Defendants’ reply, see id. (“Any opposition or reply that
is untimely filed may be disregarded by the court or stricken
from the record.”), it declines to do so because there is no
indication that Plaintiffs were prejudiced as a result of the
late filing of the reply.
However, this Court CAUTIONS
Defendants that the filing of late memoranda or other documents
in the future may result in sanctions, including, inter alia,
striking the untimely filing.
This Court now turns to the merits of the Motion.
II.
Counts III and V - Plaintiffs’ Statutory Claims
A.
Whether Plaintiffs’ Statutory Claims are Time-Barred
1.
Which Limitations Period Applies
Count III alleges that all Defendants violated Hawaii’s
consumer protection laws, in particular, Haw. Rev. Stat. § 480-1
through 480-24, and Haw. Rev. Stat. § 481A-3(5), (7), (9), (10),
15
and (12).
[Complaint at ¶ 138.]
Count V alleges a UDAP claim in
violation of Chapters 480 and 514E.
[Id. at pg. 55.]
Section 480-24(a) states:
Any action to enforce a cause of action arising
under this chapter shall be barred unless
commenced within four years after the cause of
action accrues, except as otherwise provided in
subsection (b) and section 480-22. For the
purpose of this section, a cause of action for a
continuing violation is deemed to accrue at any
time during the period of the violation.
Plaintiffs argue that, because neither Chapter 481A nor
Chapter 514E has a specific statute of limitations, the six-year
catchall limitations period in Haw. Rev. Stat. § 657-1(4)
applies.9
[Mem. in Opp. at 8.]
This Court disagrees.
First, even though Count III is based on both
Chapter 480 and Chapter 481A, the entire claim is subject to the
four-year statute of limitations in § 480-24(a).
See, e.g.,
Martin v. GMAC Mortg. Corp., Civil No. 11-00118 LEK-BMK, 2011 WL
6002617, at *10 (D. Hawai`i Nov. 30, 2011) (concluding that a
claim alleging violations of Haw. Rev. Stat. § 480–2(a), Haw.
Rev. Stat. § 481A–3, and/or Haw. Rev. Stat. Chapter 454M was
barred by the statute of limitations in § 480-24(a)).
Second, although Count V is based on both Chapter 480
and Chapter 514E, an examination of the allegations in Count V
9
Section 657-1(4) states: “The following actions shall be
commenced within six years next after the cause of action
accrued, and not after: . . . [p]ersonal actions of any nature
whatsoever not specifically covered by the laws of the State.”
16
reveals that the nature of the claim is ultimately a Chapter 480
UDAP claim.
See Au v. Au, 63 Haw. 210, 214, 626 P.2d 173, 177
(1981) (“The proper standard to determine the relevant
limitations period is the nature of the claim or right, not the
form of the pleading.
The nature of the right or claim is
determined from the allegations contained in the pleadings.”
(citations omitted)).
The allegations in Count V are based upon
the language in Haw. Rev. Stat. § 514E-11, titled “Prohibited
practices,” and § Haw. Rev. Stat. § 514E-11.1, titled “Deceptive
trade practices.”
Compare Complaint at ¶ 151 with Haw. Rev.
Stat. § 514E-11(4), (6), and Haw. Rev. Stat. § 514E-11.1(8),
(10), (11).
Section 514E-11 states: “Any violation of this section
shall also constitute an unlawful or deceptive practice within
the meaning of section 480-2,” and the practices listed in
§ 514E-11.1 “constitute an unfair or deceptive practice, within
the meaning of chapter 480.”
Plaintiffs allege that, “[a]s a
result of Defendants’ unfair and deceptive practices described
herein, the Plaintiffs . . . have suffered damages, including but
not limited to loss of property and loss of money.”
at ¶ 152 (emphasis added).]
[Complaint
This Court therefore FINDS that the
nature of the claim or right alleged in Count V is a Chapter 480
UDAP claim.
17
Thus, this Court CONCLUDES that the four-year
limitations period in § 480-24(a) applies to all claims in
Count III and Count V.
2.
When Did the Limitations Period Begin to Run
As to when the limitations period begins to run for a
UDAP claim, this Court has stated that the period “starts to run
upon the occurrence of the defendant’s alleged violation.”
Lowther v. U.S. Bank N.A., 971 F. Supp. 2d 989, 1008 (D. Hawai`i
2013) (citations, internal quotation marks and brackets omitted).
In Lowther, this Court rejected the plaintiff’s argument that the
limitations period did not start to run until his injury
occurred.
Id.
Thus, this Court concluded that, “[i]n light of
the four-year limitations period under Haw. Rev. Stat.
§ 480–24(a), [Lowther’s UDAP claim] is time-barred unless the
Complaint alleges sufficient facts to support a finding of a
‘continuing violation,’ or some reason that the statute of
limitations may be tolled.”
Id. at 1008-09.
In the instant case, Plaintiffs’ Complaint does not
include any allegations that would support either equitable
tolling or tolling based on the circumstances described in § 48024(b).
This Court also notes that Plaintiffs did not argue in
response to the Motion that tolling applies.
Plaintiffs contend
that the their statutory claims are timely under the continuing
violation doctrine.
In Lowther, this Court stated:
18
In Au [v. Republic State Mortgage Co., Civil
No. 11–00251 JMS/KSC, 2013 WL 1339738, at *13 n.4
(D. Hawai`i Mar. 29, 2013)], with respect to the
“continuing violation” theory, this district court
cited Joseph v. J.J. Mac Intyre Cos., LLC, 281 F.
Supp. 2d 1156 (N.D. Cal. 2003). Au, 2013 WL
1339738, at *13 n.4. In Joseph, the court applied
the continuing violation doctrine to the
plaintiff’s claim under the federal Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C.
§ 1692. The plaintiff’s FDCPA claim alleged that,
in attempts to collect on the plaintiff’s debt,
the defendant used an automated dialing system
with a pre-recorded voice to make repeated calls
to the defendant, some on [sic] which occurred
within the limitations period, and some of which
preceded it. Joseph, 281 F. Supp. 2d at 1158-59.
The court stated that “[t]he key is whether the
conduct complaint of constitutes a continuing
pattern and course of conduct as opposed to
unrelated discrete acts.” Id. The court focused
on the pattern of the defendant’s harassing
conduct, and found a continuing violation because
“claims of a pattern of debtor harassment
consisting of a series of calls cannot be said to
occur on any particular day.” Id. at 1161
(internal quotations marks omitted) (quoting Nat’l
R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 115,
122 S. Ct. 2061, 2073, 153 L. Ed. 2d 106 (2002)).
In other words, “[i]t occurs over a series of days
or perhaps years and, in direct contrast to
discrete acts, a single act of harassment may not
be actionable on its own terms.” Morgan, 536 U.S.
at 115, 122 S. Ct. at 2073. . . .
Id. at 1009 (some alterations in Lowther).
First, to the extent that Counts III and V assert
claims based upon allegedly improper practices that occurred in
connection with Patrick and Mary Flynn’s purchase of their shares
in the Points-Based Program in 2014, Plaintiffs brought those
claims within the four-year limitations period.
Those portions
of Counts III and V are timely, regardless of whether or not the
19
continuing violation doctrine applies.
To the extent that the
Motion asks this Court to dismiss as untimely the portions of
Counts III and V related to Patrick and Mary Flynn’s interest in
the Points-Based Program, the Motion is DENIED.
The remaining portions of Counts III and V arise from
Plaintiffs’ ability to use their floating interests in the WeeksBased Program at the Hawai`i Marriott Timeshare Resorts.10
Based
on the allegations in the Complaint, this Court FINDS that
Plaintiffs’ alleged injuries arise from the implementation of the
Points-Based Program, which occurred in 2010.
¶ 2.]
[Complaint at
Plaintiffs have alleged a discrete act, the effect of
which Plaintiffs continue to experience, not a continuing pattern
and course of conduct.
This Court therefore CONCLUDES that:
1) the continuing violation doctrine does not apply; and 2) the
portions of Counts III and V arising from Plaintiffs’ ability to
use their floating interests in the Weeks-Based Program are timebarred because Plaintiffs filed their Complaint more than four
years after the implementation of the Points-Based Program.
10
Where Plaintiffs purchased floating units, they are not
“guaranteed use of any specific Unit in the Program,” only “use
of one (1) of the Units in the Program of the same Unit Type
[they] selected.” [Motion, Decl. of Andrew S. Mack (“Mack
Decl.”), Exh. A (Maui Ocean Club Buyer’s Acknowledgments (Lahaina
Tower), dated 2/6/06 by Patrick and Mary Flynn) (“Buyer’s
Acknowledgments”) at § 2(a).] Based on the allegations in the
Complaint, Plaintiffs’ claims relate only to their floating
timeshare interests, not to any fixed timeshare interests, i.e.
where they purchased the right to use a specific unit during a
specific week of the year.
20
Thus, those portions of Counts III and V fail to state a claim
upon which relief can be granted.
See Fed. R. Civ. P. 12(b)(6).
This Court GRANTS the Motion, to the extent that those portions
of Counts III and V are DISMISSED.
The Ninth Circuit has stated that: “As a general rule,
dismissal without leave to amend is improper unless it is clear
. . . that the complaint could not be saved by any amendment.”
Sonoma Cty. Ass’n of Retired Emps. v. Sonoma Cty., 708 F.3d 1109,
1117-18 (9th Cir. 2013) (citation, internal quotation marks, and
brackets omitted).
This Court CONCLUDES that it is arguably
possible to cure by amendment the defects in the portions of
Counts III and V that accrued within the limitations period.
Plaintiffs may be able to amend their Complaint to identify other
discrete acts – which occurred within four years prior to the
filing of the Complaint – that allegedly caused Plaintiffs’
damages.
See, e.g., Complaint at ¶¶ 68-69 (discussing the
introduction of additional categories of Points Owners in April
2015).
In addition, this Court must consider whether it would
be possible for Plaintiffs to cure the defects in the portions of
Counts III and V based on the implementation of the Points-Based
Program by adding allegations that would justify tolling the
statute of limitations.
As previously noted, there are currently
no allegations in the Complaint addressing tolling, and
21
Plaintiffs did not argue that hearing on the Motion that they
could amend the Complaint to assert a basis for tolling.
Based
on the existing record, it is difficult for this Court to see how
Plaintiffs could amend their Complaint to allege a basis for
either equitable or statutory tolling.
However, case law does
not allow this Court to dismiss a claim with prejudice because
there is a low likelihood that the plaintiff will be able to cure
the defects by amendment.
To justify dismissal with prejudice,
this Court must conlude that the claim could not be saved by any
amendment.
Viewing the Complaint with a jaundiced eye, this
Court cannot say that the portions of Counts III and V based on
the implementation of the Points-Based Program could not be saved
by any amendment.
To the extent that this Court has dismissed
these portions of Counts III and V as time-barred, it is arguably
possible for Plaintiffs to cure those defects by amendment.
B.
Plaintiffs’ Standing to Pursue Their Statutory Claims
1.
Weeks-Based Chapter 480 Violations
Defendants next argue that Plaintiffs do not have
standing to pursue claims alleging Chapter 480 violations related
to their interests in the Weeks-Based Program because Plaintiffs
are not “consumers.”
Haw. Rev. Stat. § 480-13(b) states, in
pertinent part:
Any consumer who is injured by any unfair or
deceptive act or practice forbidden or declared
unlawful by section 480-2:
22
(1) May sue for damages sustained by the
consumer . . . ; and
(2) May bring proceedings to enjoin the
unlawful practices . . . .
(Emphasis added.)
In addition, Haw. Rev. Stat. § 480-2(d)
states: “No person other than a consumer, the attorney general or
the director of the office of consumer protection may bring an
action based upon unfair or deceptive acts or practices declared
unlawful by this section.”
(Emphasis added.)
Thus, a plaintiff
who is not a “consumer” lacks standing to bring a Chapter 480
UDAP claim.11
See, e.g., Liberty Mut. Ins. Co. v. Sumo-Nan LLC,
Civil No. 14-00520 DKW-KSC, 2015 WL 4093337, at *9 (D. Hawai`i
July 6, 2015).
For purposes of Chapter 480: “‘Consumer’ means a
natural person who, primarily for personal, family, or household
purposes, purchases, attempts to purchase, or is solicited to
purchase goods or services or who commits money, property, or
services in a personal investment.”
Haw. Rev. Stat. § 480-1.
The Hawai`i Supreme Court has held that “real estate or
residences do not qualify as ‘goods’ under HRS § 480–1.”
Cieri
v. Leticia Query Realty, Inc., 80 Hawai`i 54, 66, 905 P.2d 29, 41
(1995).
The supreme court held that the plaintiffs did “not have
11
In contrast, for example, to the extent that Count V
asserts a UDAP claim based upon practices declared unfair,
unlawful, or deceptive practices under Haw. Rev. Stat. §§ 514E-11
or 514E-11.1, the requirement that the plaintiff be a consumer
does not apply.
23
standing as ‘consumers’ to bring a claim alleging a violation of
HRS chapter 480 for the real estate transaction at issue in
[that] case as purchasers of ‘goods.’”
Id.
However, it also
held that “real estate or residences qualify as ‘personal
investments’ pursuant to HRS § 480–1.”
Id. at 69, 905 P.2d at
44.
In the instant case, the Complaint alleges that:
“Plaintiffs . . . are ‘consumers’ as defined by section 480-1 of
the consumer protection statutes because they are natural persons
who, primarily for personal, family, or household purposes,
purchased services or committed money, property or services in a
personal investment (here, the timeshare program).”
at ¶ 128.]
[Complaint
For purposes of the instant Motion, this Court must
assume that all of the factual allegations in the Complaint are
true.
However, this Court is “‘not bound to accept as true a
legal conclusion couched as a factual allegation.’”
Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)).
Plaintiffs have not pled any
facts to support their conclusion that they are consumers under
§ 480-1 because they purchased their timeshare interests for
personal investment.
This Court therefore does not accept this
allegation as true for purposes of the instant Motion.
Defendants argue that Plaintiffs are not consumers with
respect to their purchases of their interests in the Weeks-Based
24
Program because Plaintiffs acknowledged that the purchase was for
personal use.
Defendants point out that, in connection with
their 2006 Maui Ocean purchase, Patrick and Mary Flynn
acknowledged:
OWNERSHIP INTERESTS ARE FOR PERSONAL USE. The
Seller emphasizes that any purchase should be made
for personal use and enjoyment, not as an
investment. You understand that the Seller does
not promise that you will realize any economic
benefit from your Ownership Interest(s) or the
operation of the Program. This includes, but is
not limited to, benefits such as tax treatment or
advantages; investment potential; income; savings;
appreciation; or other kind of financial
advantage. You understand that the purchase of an
Ownership Interest in the Program should be based
solely upon its value; and that value is in the
use of the Ownership Interest.
[Buyer’s Acknowledgments at § 6.12]
Similarly, the Maui Ocean
Disclosure Statement states: “Ownership Interests in the Program
are being offered and sold as real estate and not as a security.
12
The Motion states that Patrick and Mary Flynn signed an
identical document in connection with their purchase of an
interest in the Ko Olina Weeks-Based Program and that Michael and
Marla Flynn signed an identical document in connection with each
of their purchases of interests in the Maui Ocean and Ko Olina
Weeks-Based Programs. [Mem. in Supp. of Motion at 6 n.2.]
However, this is merely argument by defense counsel; Defendants
have not submitted any evidence to support these assertions. The
Court will not consider these statements because “[s]tatements
and arguments of counsel are not evidence.” See Kowalski v.
Anova Food, LLC, Civil No. 11-00795 HG-RLP, 2015 WL 1117993, at
*2 (D. Hawai`i Feb. 12, 2015) (citing Barcamerica Intern. USA
Trust v. Tyfield Importers, Inc., 289 F.3d 589, 593 n.4 (9th Cir.
2002); EOTT Energy Operating Ltd. Partnership v. Winterthur Swiss
Ins. Co., 257 F.3d 992, 999 (9th Cir. 2001)).
25
Purchases should be made for personal use and enjoyment, not as
an investment.”
[Complaint, Exh. I at 22, § 20.A.]
First, this Court must determine whether it can
consider the Buyer’s Acknowledgments in ruling on the instant
Motion.
As a general rule, this Court’s scope of review in
considering a motion to dismiss is limited to the allegations in
the complaint.
See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d
992, 998 (9th Cir. 2010).
“[A] court may consider evidence on
which the complaint necessarily relies if: (1) the complaint
refers to the document; (2) the document is central to the
plaintiff’s claim; and (3) no party questions the authenticity of
the copy attached to the 12(b)(6) motion.”
internal quotation marks omitted).
Id. (citations and
Ordinarily, consideration of
other materials requires the district court to convert a motion
to dismiss into a motion for summary judgment.
Yamalov v. Bank
of Am. Corp., CV. No. 10–00590 DAE–BMK, 2011 WL 1875901, at *7
n.7 (D. Hawai`i May 16, 2011) (citing Parrino v. FHP, Inc., 146
F.3d 699, 706 n.4 (9th Cir. 1998)).13
The Complaint refers to and attaches the purchase
agreements that Michael and Marla Flynn and Patrick and Mary
Flynn executed for their respective timeshare purchases.
[Complaint at ¶¶ 18, 22, Exh. A (Michael and Marla Flynn’s
13
Parrino was superseded by statute on other grounds, as
stated in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676,
681-82 (9th Cir. 2006) (per curiam).
26
purchase agreements), Exh. B (Patrick and Mary Flynn’s purchase
agreements).14]
The Complaint also refers to and attaches the
“Timeshare Agreements” for each of the Hawai`i Marriott Timeshare
Resorts.
[Id. at ¶ 41, Exhs. C-G.]
What Plaintiffs refer to as
the “Timeshare Agreements” are the Declarations.
note 4 (listing the Declarations).
See supra
Plaintiffs refer to the
purchase agreements and the applicable Declarations and
Disclosure Statements as their “Contract Documents.”
at ¶ 46.]
[Complaint
The Complaint relies on the Contract Documents as
setting forth the terms that Plaintiffs agreed to when they
purchased their respective timeshare interests.
In the Motion, Defendants argue that the “Contract
Documents” also include the Buyer’s Acknowledgments, and that
this Court can consider that document even though it is not
contained in the Complaint.
This Court agrees.
In the Buyer’s
Acknowledgment, Patrick and Mary Flynn acknowledged receiving,
inter alia, the Maui Ocean Disclosure Statement, the Maui Ocean
Declaration, and the Maui Ocean Purchase Agreement.
Acknowledgment at 1.]
[Buyer’s
Further, the Maui Ocean Purchase Agreement
states:
14
Pages 2-7 (in the district court’s electronic filing
system) of Exhibit B are the Purchase Agreement that Patrick and
Mary Flynn executed on February 6, 2006 for their Maui Ocean
timeshare interest (“Maui Ocean Purchase Agreement”). They
executed the Buyer’s Acknowledgments in connection with that
purchase.
27
21. WHAT ARE THE DOCUMENTS; CHANGES MUST BE IN
WRITING AND SIGNED; THESE DOCUMENTS CONTAIN THE
ENTIRE AGREEMENT; PARTS OF THESE DOCUMENTS WILL
STAY IN EFFECT AFTER CLOSING. The “Contract
Documents” consist of: (a) this Purchase
Agreement; (b) your Buyer’s Acknowledgments;
(c) the Escrow Agreement . . . ; and (d) any
changes to these documents. . . . The entire
agreement between you and the Seller will be
contained in the Contract Documents. . . .
22. YOUR BUYER’S ACKNOWLEDGMENTS. Your Buyer’s
Acknowledgments is part of the Contract Documents,
as stated in Paragraph 21. It refers to other
important documents and to matters which describe
and explain the rights, limits and duties of
everyone who owns an Ownership Interest. . . .
[Complaint, Exh. B at 7 (emphases in original).]
While Plaintiffs challenge Defendants’ interpretation
of particular statements in the Buyer’s Acknowledgments, they
have not raised any challenge to the authenticity of the copy of
that document which Defendants attached to the Motion.
in Opp. at 22.
See Mem.
This Court therefore FINDS that: 1) insofar as
the Complaint refers to the “Contract Documents,” and, insofar as
the Buyer’s Acknowledgments is one of the Contract Documents for
Patrick and Mary Flynn’s 2006 Maui Ocean purchase, the Complaint
refers to the Buyer’s Acknowledgment; 2) the Contract Documents –
including the Buyer’s Acknowledgments – are central to
Plaintiffs’ claims related to the Maui Ocean purchase; and 3) no
party questions the authenticity of the copy of the Buyer’s
Acknowledgments that Defendants filed with the Motion.
This
Court therefore CONCLUDES that it can consider the Buyer’s
28
Acknowledgment for Patrick and Mary Flynn’s 2006 Maui Ocean
purchase without converting the Motion into a motion for summary
judgment.
Plaintiffs argue that paragraph 6 of the Buyer’s
Acknowledgment is not evidence that Patrick and Mary Flynn agreed
that the purchase was not for investment.
According to
Plaintiffs, it merely required Patrick and Mary Flynn “to
acknowledge what Defendants, as sellers, ‘emphasize’ should have
been Plaintiffs’ reason for the purchase,” and, if Defendants had
wanted to force them to contractually acknowledge or specifically
agree that the purchase was not for investment, Defendants could
have included such language in the Buyer’s Acknowledgment.
in Opp. at 22.]
[Mem.
Plaintiffs state that Michael and Marla Flynn
purchased their timeshare interests “for personal use and
enjoyment and also as an investment.”
[Id. at 23.]
This Court
does not consider this statement dispositive because, as noted
supra note 12, it is not evidence because it is merely a
statement by Plaintiffs’ counsel without supporting
documentation.
This Court, however, does note that the Hawai`i
Supreme Court has recognized that real estate may be purchased
with the intent that it be both for personal use and for
investment.
Cieri, 80 Hawai`i at 68, 905 P.2d at 42 (“We further
believe that . . . real estate may be purchased with an intent to
reside on the parcel of property and, concurrently, with an
29
intent to hold the property in anticipation of an appreciation in
the parcel’s resale value.”).
As to the Maui Ocean Disclosure Statement, Plaintiffs
argue that it is not evidence that Patrick and Mary Flynn
acknowledged or agreed that the purchase was not for investment.
[Mem. in Opp. at 22.]
Further, Plaintiffs argue that “the very
fact that the contract documents (drafted by the Defendants) also
discuss rental of timeshare units by owners . . . undermines
Defendants’ position that timeshare purchasers do not also have
an investment motive.”
[Id. at 23 (some citations omitted)
(citing Buyer’s Acknowledgments at § 7(a)).]
This Court’s determination of whether Patrick and
Mary Flynn made their 2006 Maui Ocean purchase as “consumers” –
as the term is defined in § 480-1 – will depend upon an
interpretation of the Contract Documents and an examination of
other evidence, such as declarations by Patrick and/or Mary
Flynn.
This Court therefore CONCLUDES that it arguably possible
for Plaintiffs to amend the Complaint to allege that Patrick and
Mary Flynn made the 2006 Maui Ocean purchase – at least in part –
as a personal investment.
Thus, it is arguably possible for them
to amend their Complaint to allege that they have standing to
bring claims alleging Chapter 480 violations related to that
timeshare interest as “consumers.”
30
Similarly, as to Michael and Marla Flynn’s purchases
and Patrick and Mary Flynn’s other purchases in the Weeks-Based
Program for Hawai`i Marriott Timeshare Resorts, this Court FINDS
that there are insufficient allegations in the Complaint to plead
a basis for standing to bring claims alleging Chapter 480
violations as “consumers.”
However, this Court CONCLUDES that it
is possible for Plaintiffs to amend the Complaint to cure this
defect.
This Court DENIES the Motion to the extent that it asks
this Court to dismiss with prejudice for lack of standing
Plaintiffs’ claims alleging Chapter 480 violations based on their
purchase of interests in the Weeks-Based Program at the Hawai`i
Marriott Timeshare Resorts.
2.
Points-Based Chapter 480 Violations
Similarly, there are insufficient allegations in the
Complaint to plead a basis for standing bring claims alleging
Chapter 480 violations based on Patrick and Mary Flynn’s interest
in the Points-Based Program.
This Court acknowledges that
Plaintiffs contend that the BIs sold in the Points-Based Program
are not real estate, but, even assuming, arguendo, that this
Court accepted their position, Plaintiffs have not established
that Patrick and Mary Flynn’s interest in the Points-Based
Program is either goods or services.
To the extent that
Plaintiffs allege that Patrick and Mary Flynn are consumers
because they purchased their interest in the Points-Based Program
31
for personal investment, there are insufficient factual
allegations in the Complaint to support their position.
This Court therefore DISMISSES, for failure to state a
claim, Patrick and Mary Flynn’s claims alleging Chapter 480
violations based on their interest in the Points-Based Program.
However, this Court CONCLUDES that it is possible for Plaintiffs
to amend the Complaint to allege a factual basis for their
position that Patrick and Mary Flynn are consumers with regard to
the purchase of their interest in the Points-Based Program.
This
Court DENIES the Motion to the extent that it asks this Court to
dismiss with prejudice for lack of standing Plaintiffs’ claims
alleging Chapter 480 violations based on Patrick and Mary Flynn’s
purchase of their interest in the Points-Based Program.
3.
Chapter 514E Violations
As previously noted, Count V includes § 480-2 claims
based on prohibited practices under § 514E-11 and deceptive trade
practices under § 514E-11.1.
Haw. Rev. Stat. § 514E-30 states:
This chapter applies to the offer and sale in
Hawaii of time share interests in time share units
located in Hawaii. . . . As to the offer and sale
outside of Hawaii of time share interest in a time
share plan which includes time share units located
in Hawaii, this chapter, except for sections
514E-2.5, 514E-8, 514E-9, 514E-10(b), 514E-11, and
514E-11.1 shall apply.
(Emphases added.)
32
Patrick and Mary Flynn are Arizona citizens who
purchased their interest in the Points-Based Program while they
were staying at Newport Coast in California.
¶¶ 22, 24.]
[Complaint at
Thus, pursuant to § 514E-30, because the offer and
sale of their interest occurred outside of Hawai`i, §§ 514E-11
and 514E-11.1 do not apply to the offer and sale of that
timeshare interest.
This Court therefore CONCLUDES that Patrick
and Mary Flynn do not have standing to pursue the claims in Count
V based upon prohibited practices under § 514E-11 and deceptive
trade practices under § 514E-11.1 related to their interest in
the Points-Based Program.
Further, this Court CONCLUDES that it
is not possible to amend the Complaint to cure this defect.
This
Court GRANTS the Motion to the extent that the portion of Count V
alleging §§ 514E-11 and 514E-11.1 violations related to Patrick
and Mary Flynn’s interest in the Points-Based Program is
DISMISSED WITH PREJUDICE for lack of standing.
As to Patrick and Mary Flynn’s and Michael and
Marla Flynn’s interests in the Weeks-Based Program, this Court
notes that the Complaint alleges when and from whom they
purchased their respective interests in the Weeks-Based Program,
[Complaint at ¶¶ 19-20, 23,] but it does not allege where
Plaintiffs purchased these interests.
This Court cannot
determine if the offer and sale of these interests occurred in
Hawai`i.
As with Patrick and Mary Flynn’s purchase of their
33
interest in the Points-Based Program, Plaintiffs would not have
standing to pursue the portion of Count V alleging §§ 514E-11 and
514E-11.1 violations related to any offer and/or sale of an
interest in the Weeks-Based Program that occurred outside of
Hawai`i.
This Court CONCLUDES that it is arguably possible for
Plaintiffs to cure this defect in Count V by amendment.
This
Court DENIES the Motion to the extent that it asks this Court to
dismiss with prejudice for lack of standing the portion of
Count V alleging §§ 514E-11 and 514E-11.1 violations related to
Plaintiffs’ respective interests in the Weeks-Based Program.
4.
Chapter 481A Violations
Count III alleges violations of both Chapter 480 and
Chapter 481.
Haw. Rev. Stat. § 481A-3 sets forth twelve
categories of practices that constitute deceptive practices when
they occur “in the course of the person’s business, vocation, or
occupation.”
Haw. Rev. Stat. § 481A-4(a) states, in pertinent
part: “A person likely to be damaged by a deceptive trade
practice of another may be granted an injunction against it under
the principles of equity and on terms that the court considers
reasonable.”
For purposes of Chapter 481A, “‘[p]erson’ means an
individual, corporation, government, or governmental subdivision
or agency, business trust, estate, trust, partnership,
unincorporated association, two or more of any of the foregoing
having a joint or common interest, or any other legal or
34
commercial entity.”
Thus, Plaintiffs are persons who have
standing to bring Chapter 481A claims, and Defendants are all
persons who are subject to suit for Chapter 481A claims.
This
Court DENIES the Motion to the extent that it asks this Court to
dismiss with prejudice for lack of standing the portion of
Count III alleging Chapter 481A violations.
C.
Whether the Statutory Claims are Sufficiently Pled
Defendants next argue that, even if Plaintiffs’ claims
in Counts III and V are not time-barred, and even if Plaintiffs
have standing to pursue those claims, the claims are not
sufficiently pled.
See Iqbal, 556 U.S. at 678 (“To survive a
motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” (quoting Twombly, 550 U.S. at 570, 127
S. Ct. 1955)).
The only portions of Counts III and V that are timely
are Patrick and Mary Flynn’s claims related to their interest in
the Points-Based Program.
This Court dismissed their Count V
claims alleging §§ 514E-11 and 514E-11.1 violations with
prejudice in light of § 541A-30, and dismissed their claims
alleging Chapter 480 violations without prejudice because the
Complaint does not allege a factual basis for Plaintiffs’
position that Patrick and Mary Flynn are “consumers” as to the
purchase and use of their interest in the Points-Based Program.
35
The only portion of Counts III and V that remain related to
Patrick and Mary Flynn’s interest in the Points-Based Program is
the portion of Count III alleging Chapter 481A violations.
This
Court cannot determine from the Complaint what is the basis of
Plaintiffs’ claim alleging violations of Chapter 481A related to
Patrick and Mary Flynn’s interest in the Points-Based Program.
Thus, the remaining portion of Count III fails to state a claim,
but this Court CONCLUDES that it is possible for Plaintiffs to
cure that defect by amendment.
The portion of Count III alleging
Chapter 481A violations related to Patrick and Mary Flynn’s
interest in the Points-Based Program is therefore DISMISSED
WITHOUT PREJUDICE.
Insofar as this Court has dismissed all portions of
Counts III and V, this Court declines to address whether claims
in Counts III and V which this Court has not already addressed
are sufficiently pled.
Even if this Court were to conclude that
any portion of Count III or Count V was not sufficiently pled,
this Court would give Plaintiffs the opportunity to cure the
defects by amendment.
In order to provide guidance to Plaintiffs in amending
Counts III and V, this Court notes that those counts are based –
at least in part – on allegations that Marriott made various
intentional misrepresentations to Plaintiffs.
Those portions of
Counts III and V sound in fraud and must comply with the
36
following heightened pleading standard:
[Fed. R. Civ. P.] 9(b) requires that, “[i]n
alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud
or mistake.” Pursuant to Rule 9(b), a party is
required to make particularized allegations of the
circumstances constituting fraud. See Sanford v.
MemberWorks, Inc., 625 F.3d 550, 557–58 (9th Cir.
2010).
In their pleadings, Plaintiffs “must allege
the time, place, and content of the fraudulent
representation; conclusory allegations do not
suffice.” See Shroyer v. New Cingular Wireless
Servs., Inc., 622 F.3d 1035, 1042 (9th Cir. 2010)
(citation omitted). “Malice, intent, knowledge,
and other conditions of a person’s mind may be
alleged generally.” Fed. R. Civ. P. 9(b); see
also Odom v. Microsoft Corp., 486 F.3d 541, 554
(9th Cir. 2007) (en banc) (“[T]he state of mind —
or scienter — of the defendants may be alleged
generally.” (citation omitted)); Walling v.
Beverly Enters., 476 F.2d 393, 397 (9th Cir. 1973)
(stating that Rule 9(b) “only requires the
identification of the circumstances constituting
fraud so that the defendant can prepare an
adequate answer from the allegations” (citations
omitted)).
When there are multiple defendants,
Rule 9(b) does not allow a complaint to
merely lump multiple defendants together but
require[s] plaintiffs to differentiate their
allegations when suing more than one
defendant . . . and inform each defendant
separately of the allegations surrounding his
alleged participation in the fraud. In the
context of a fraud suit involving multiple
defendants, a plaintiff must, at a minimum,
identif[y] the role of [each] defendant[] in
the alleged fraudulent scheme.
Swartz v. KPMG LLP, 476 F.3d 756, 764–65 (9th Cir.
2007) (alterations in Swartz) (internal quotation
marks and citations omitted); see also Meridian
Project Sys., Inc. v. Hardin Constr. Co., 404 F.
37
Supp. 2d 1214, 1226 (E.D. Cal. 2005) (“When fraud
claims involve multiple defendants, the complaint
must satisfy Rule 9(b) particularity requirements
for each defendant.” (citations omitted)).
Barker v. Gottlieb, 23 F. Supp. 3d 1152, 1164-65 (D. Hawai`i
2014) (alterations in Barker) (some citations omitted).
Further,
the false representation forming the basis of a
fraud claim “must relate to a past or existing
material fact and not the occurrence of a future
event.” Joy A. McElroy, M.D., Inc. v. Maryl
Group, Inc., 107 Hawai`i 423, 433, 114 P.3d 929,
939 (Ct. App. 2005) (citations and block quote
format omitted) (emphasis in original). Further,
even if the allegations satisfy the other elements
of a fraud claim, “[f]raud cannot be predicated on
statements which are promissory in their nature,
or constitute expressions of intention, and an
actionable representation cannot consist of mere
broken promises, unfulfilled predictions or
expectations, or erroneous conjectures as to
future events[.]” Id. (citations and block quote
format omitted) (emphasis in original). The
exception to this general rule is that “[a]
promise relating to future action or conduct will
be actionable, however, if the promise was made
without the present intent to fulfill the
promise.” Id. (citations and block quote format
omitted) (emphasis in McElroy).
Molina v. OneWest Bank, FSH, 903 F. Supp. 2d 1008, 1020 (D.
Hawai`i 2012) (alterations in Molina) (some citations omitted).
This Court emphasizes that it makes no findings or conclusions
regarding whether the allegations in the Complaint are sufficient
to comply with these standards.
D.
Summary of Plaintiffs’ Statutory Claims
Thus, the Motion is GRANTED IN PART AND DENIED IN PART
as to Counts III and V.
This Court DISMISSES WITHOUT PREJUDICE
38
as untimely all portions of Counts III and V, except for the
portions related to Patrick and Mary Flynn’s interest in the
Points-Based Program.
As to the claims related to Patrick and Mary Flynn’s
interest in the Points-Based Program: the portion of Count V
alleging §§ 514E-11 and 514E-11.1 violations is DISMISSED WITH
PREJUDICE for lack of standing; the portions of Counts III and V
alleging Chapter 480 violations are DISMISSED WITHOUT PREJUDICE
for failure to state a claim upon which relief can be granted;
and the portion of Count III alleging Chapter 481A violations is
DISMISSED WITHOUT PREJUDICE for failure to state a claim.
III. Count IV - Chapter 514E Claim
In addition to the Chapter 514E claims alleged in
Count V, Plaintiffs allege a violation of Chapter 514E’s One-toOne Rule.
Hawaii’s One-to-One Rule states:
(a) A developer shall not offer or dispose of a
time share unit or a time share interest unless
the one-to-one use-right to use-night requirement
is currently satisfied and will continue to be
satisfied for the duration of the time share plan.
(b) The time share instruments shall contain
provisions assuring satisfaction of the one-to-one
use-right to use-night requirement for the
duration of the time share plan except during
temporary periods of noncompliance due to casualty
or condemnation.
(c) The following criteria shall be considered in
determining whether the one-to-one use-right to
use-night requirement is satisfied:
39
(1) If the time share plan has more than one
class of time share interest, then the
requirement must be satisfied within each
class;
(2) Only use nights available and protected
from blanket liens for the duration of the
time share plan shall be counted; provided
that if time share interests are classified
by duration, then as to each class, only use
nights available and protected from blanket
liens for the entire duration of that class
shall be counted;
(3) A use night counted to satisfy the
requirement for one class may not also be
counted to satisfy the requirement for a
competing class;
(4) No individual time share unit may be
counted as providing more than three hundred
sixty-five use nights per calendar year (or
more than three hundred sixty-six use nights
per leap year);
(5) The use rights of each owner shall be
counted without regard to whether the owner’s
use rights have been suspended for failure to
pay assessments or otherwise. Use rights
attributable to unsold time share interests
shall be counted;
(6) Use rights of nonowners shall be
counted. Use rights of the developer and its
affiliates in excess of those attributable to
unsold time share interests shall be counted;
(7) Use nights reserved by the association
or plan manager for the purpose of performing
maintenance and repairs to a time share unit
shall not be considered;
(8) Use rights borrowed from a subsequent
year or carried over from a prior year shall
not be considered; provided that such
practice is not established for the purpose
of evading the requirements of this section;
and provided further that any such
40
acceleration or deferral of use rights is
appropriately balanced and restricted; and
(9) The director may adopt rules identifying
additional criteria to be used to calculate
whether the one-to-one use-right to use-night
requirement is satisfied.
(d) This section shall not be deemed to prohibit
the time share instruments from including
provisions permitting rental by the association or
the developer, or reservation and use by owners,
of use nights which remain unreserved as of sixty
or fewer days in advance of the use night. Any
such use rights shall not be considered in
determining whether the one-to-one use-right to
use-night requirement is satisfied.
Haw. Rev. Stat. § 514E-8.6.15
The “‘[o]ne-to-one use-right to
use-night requirement’ means that the sum of the nights which
owners are entitled to use in a given year shall not exceed the
number of nights available for use by those owners during that
year.”
Haw. Rev. Stat. § 514E-1.
The Hawai`i State Legislature
enacted the One-to-One Rule “‘to prohibit overselling, or selling
the right to use more weeks or nights than are available in a
time share plan, and to assure the right and practical ability of
each owner to use a time share unit for the maximum number of
nights to which the owner is entitled.’”
Roaring Lion, LLC v.
Exclusive Resorts PBL 1, LLC, No. CAAP-11-0001072, 2013 WL
15
The Court notes that, because § 514E-8.6 is not one of
the sections listed in § 514E-30, the One-to-One Rule applies
even if Plaintiffs purchased their interests in the Hawai`i
Marriott Timeshare Resorts outside of Hawai`i.
41
1759002, at *9 (Hawai`i Ct. App. Apr. 24, 2013) (quoting Sen.
Comm. Rep. No. 582, in 1997 Senate Journal, at 1127).
Plaintiffs allege that Marriott has violated the Oneto-One Rule through the following:
143. The Defendants failed to fulfil their
obligation and violated the statute by
implementation and operation of the new timeshare
model because, with the exponentially increasing
number of Points Owners, the sum of nights which
owners are entitled to use in a given year, on
information and belief, has exceeded the number of
nights available for use by those owners during
that year.
144. In other words, the Defendants have
violated the one-to-one use-right to use-night
requirement by, on information and belief, failing
to assure the right and practical ability of each
owner to use a timeshare unit for the maximum
number of nights to which the owner is entitled.
145. [Plaintiffs] have experienced increased
difficulty or inability to reserve their Use
Weeks. On information and belief, this is a
result of (1) Marriott skimming from the inventory
to which Plaintiffs . . . are entitled and (2) the
infinite and exponentially growing number of
Points Owners competing with [Plaintiffs] for the
same finite number of premier units and use
periods.
146. As alleged above, Plaintiffs bargained
for (and Marriot agreed to) the right to compete
fairly with other Weeks Owners (and to compete for
the best use periods). Initially, the Plaintiffs
enjoyed this right and were able to reserve
quality units, hassle-free. Since the points
program, [Plaintiffs’] use rights have been
impaired by (on information and belief) Marriott’s
unfair practice of scooping up a portion of the
quality inventory before [Plaintiffs] even have a
chance to compete. It is no longer an equitable
first-come, first-served reservation process but
42
rather a system rigged to Marriott’s and the MVC
Trust’s advantage. This drastically limits the
inventory available to [Plaintiffs]. . . .
[Complaint at pgs. 53-54 (emphases added).16]
Although
Plaintiffs allege that the number of nights that owners are
entitled to use in a year exceeds the number of nights that are
available to those owners, this is a legal conclusion which is
not entitled to the presumption of truth.
The only factual
allegations that Plaintiffs make in support of their position is
that their ability to make reservations during their designated
periods has been impaired, such that they only have access to
“poor quality units and less desirable use periods.”
See, e.g.,
id. at ¶ 5.
There is virtually no case law regarding the
application of § 514E-8.6.
However, this Court finds the
reasoning in Abramson v. Marriott Ownership Resorts, Inc., CASE
NO. SACV 15-0135 AG(JCGx), 2016 WL 105889 (C.D. Cal. Jan. 4,
2016), to be persuasive.
The Abramsons challenged the same
Marriott Points-Based Program at issue in the instant case, and
the claims included the alleged violation of California’s One-to-
16
This Court assumes that the references to “Defendants” in
these paragraphs refer to the Developer Defendants, who are the
only named defendants in Count IV. See Complaint at pg. 52.
43
One Rule, Cal. Bus. & Prof. Code § 11250.17
The Abramsons were
Week Owners at Newport Coast who converted their week-based
interest into points and purchased an additional 1,000 points.
Id. at *4.
In concluding that the Abramsons’ allegations were
insufficient to state a claim for violation of the One-to-One
Rule, the district court stated:
The Abramsons [sic] allegations are
inadequate. They merely allege that their right
to reserve was “impaired.” They merely allege
that they were “left to compete for poor quality
units and less desirable use periods.” They
merely allege that they “had to badger Marriott in
17
Cal. Bus. & Prof. Code § 11250 states:
A time-share plan may be created in any
accommodation unless otherwise prohibited. All
time-share plans shall maintain a one-to-one
purchaser to accommodation ratio, which means the
ratio of the number of purchasers eligible to use
the accommodations of a time-share plan on a given
night to the number of accommodations available
for use within the plan on that night, such that
the total number of purchasers eligible to use the
accommodations of the time-share plan during a
given calendar year never exceeds the total number
of accommodations available for use in the
time-share plan during that year. For purposes of
the calculation under this section, each purchaser
must be counted at least once, and no individual
accommodation may be counted more than 365 times
per calendar year or more than 366 times per leap
year. A purchaser who is delinquent in the
payment of time-share plan assessments shall
continue to be considered eligible to use the
accommodations of the time-share plan for purposes
of calculating the one-to-one purchaser to
accommodation ratio.
Section 11250, like § 614E-8.6, “bars timeshare plans from
overselling timeshares.” Abramson, 2016 WL 105889, at *6
44
order to get the quality[] rooms they bargained
for.” They merely allege that they “had to accept
units that [we]re not the quality they requested.”
In short, the Abramsons merely allege that their
ability to reserve was not ideal. Defendants sum
up the problem succinctly. “The One-to-One Rule
does not address the quality of units; it
prohibits selling more units than are
available. . . . [T]he [Second Amended Complaint]
. . . fails to identify a single instance where
[the Abramsons] tried to reserve a unit during
their designated times but were unable to do so.”
“Not ideal” isn’t enough to violate the One-to-One
Rule. . . .
Id. at *5 (some alterations in Abramson).
This Court agrees with the analysis in Abramson and
adopts that analysis in the instant case.
Plaintiffs’ Complaint
does not allege any instance when they were unable to reserve any
room of the type they purchased during any week during their
designated period.
Plaintiffs, like the Abramsons, merely allege
that their use rights were not ideal, and this is not enough to
allege a plausible basis for their claim that the Developer
Defendants are violating the One-to-One Rule.
This Court,
however, CONCLUDES that it is possible for Plaintiffs to amend
the Complaint to cure this defect.
Count IV is therefore
DISMISSED WITHOUT PREJUDICE.
IV.
Count I - Breach of Contract
Count I alleges that Marriott has breached Plaintiffs’
Contract Documents by: 1) skimming the most desirable units and
dates for the Points Owners; 2) violating the One-to-One Rule;
3) transferring or mortgaging ownership interests to the MVC
45
Trust in a way that diminished the value of the Week Owners’
interests; [Complaint at ¶¶ 110-15;] 4) “deliberately and
actively undermining week ownership interests in advertising”;
[id. at ¶ 116;] and 5) impairing Plaintiffs’ “ownership and use
rights by utilizing an arbitrary points value system in
conjunction with the reservation preferences granted to Points
Owners to diminish the value of week ownership interests” [id.].
A.
Violation of the One-to-One Rule
First, insofar as this Court has already concluded that
Plaintiffs fail to state a plausible claim for violation of the
One-to-One Rule, that theory of liability for their breach of
contract claim also fails.
However, for the same reasons as with
Count IV, it is arguably possible for Plaintiffs to cure the
defects in this portion of the breach of contract claim by
amendment.
B.
Skimming
As to the skimming theory of liability, Plaintiffs
allege that Marriott’s skimming practice violates the portions of
the parties’ agreements promising that: 1) “Marriott has no
greater reservation or use rights than other Weeks Owners and
possesses no ‘greater priority with respect to reservation than
any other Owner’”; 2) “reservation[s] will equitably be on a
‘first-come, first-served’ basis”; and 3) “Weeks Owners [will]
compete only with other Weeks Owners for the units in which they
46
have an interest.”
[Complaint at ¶ 112.]
The factual
allegations Plaintiffs’ offer in support of their skimming theory
are as follows:
to insure the success of the points model and
particularly the ability of Points Owners to
reserve use period[s], on information and belief,
Marriott gives itself an unfair reservation
preference. Although the governing documents
provide that all Owners will compete for
reservations on a “first-come, first-served
basis,” on information and belief, Marriott gives
itself greater priority and automatically reserves
for itself use periods and units ahead of other
Weeks Owners – and undoubtedly it reserves the
best of available options. To illustrate, if the
MVC Trust owns twenty 2-bedroom units in Ko Olina
Club, the moment the reservation window opens up
thirteen months in advance (for multiple Weeks
Owners), Marriott – through Marriott Hospitality
and MVC Exchange Co. (which operate the
reservation systems) and programs in its computer
reservation system – automatically reserves for
itself twenty units with the best view, in the
best location within the resort, and during the
most in-demand weeks. In short, on information
and belief, Marriott skims from the crème de la
crème of its inventory - leaving Weeks Owners,
even multiple Weeks Owners, to compete for the
chaff.
[Id. at ¶ 74 (emphases added).]
Plaintiffs’ skimming theory is based upon allegations
made “on information and belief,” assumptions, and hypothetical
illustrations.
This district court has stated, “although
allegations ‘upon information and belief’ may state a claim after
Iqbal and Twombly, a claim must still be based on factual content
that makes liability plausible, and not be ‘formulaic recitations
47
of the elements of a cause of action.’”
Klohs v. Wells Fargo
Bank, N.A., 901 F. Supp. 2d 1253, 1260 n.2 (D. Hawai`i 2012)
(quoting Long v. Yomes, 2011 WL 4412847, at *4 (D. Haw. Sept. 20,
2011) (quoting Twombly, 550 U.S. at 555, 127 S. Ct. 1955)).
Plaintiffs’ Complaint does not contain sufficient factual content
to make their skimming theory of liability plausible because
their allegations regarding this issue are purely speculative.
To the extent that it is based on their skimming theory,
Plaintiffs’ breach of contract claim fails to state a claim upon
which relief can be granted, and must be dismissed.
C.
Improper Transfer of Ownership Interests
As to the improper transfer theory of liability,
Plaintiffs argue that Marriott violated the provisions in the
Declarations stating that “no timeshare owner, including the
developer entities, can transfer or mortgage ownership interests
in a manner that ‘otherwise affect another Owner’s Ownership
Interest,’ and an Owner can transfer only the Owner’s respective
interests.”
[Complaint at ¶ 43.]
Plaintiffs argue that
“Marriott transferred its unsold interests to MVC Trust and thus
created an entirely new class of owners that competes with Weeks
Owners and which has led to the diminution in value of week
ownership interests.
Marriott did not specifically reserve any
right that permitted such transfer.”
48
[Id. at ¶ 115.]
Plaintiffs do not identify the specific provision in
the Contract Documents that their improper transfer theory is
based upon.
¶¶ 43, 115).
See Mem. in Opp. at 15-16 (citing Complaint at
According to Defendants, the quoted language in the
Complaint comes from § 7.5 of the Declarations, which states:
7.5
LIMITATION ON TRANSFERS.
A.
AFFECT ON OTHERS. The right to
transfer and mortgage an Ownership Interest is
limited to each Owner’s respective interest in the
Ownership Interest, and no Owner may transfer,
mortgage or otherwise affect another Owner’s
Ownership Interest.
B.
LIMITATION ON TRANSFER RIGHTS. The
right to transfer and mortgage shall not apply to
the Property, any Unit or the Common Furnishings.
An Owner shall not transfer or mortgage the
Property, any Unit or the Common Furnishings, or
any part or interest therein, except such Owner’s
own Ownership Interest.
C.
ASSOCIATION FUNDS. No Owner shall
transfer, mortgage or otherwise adversely affect
funds held by the Association or the Program
Operator, except to the extent required by this
Declaration.
D.
PROTECTION OF OTHER OWNERSHIP
INTERESTS. No Owner shall take any action or fail
to take any action which will subject any other
Owner’s Ownership Interest, the Property, any
Unit, or Association funds to any lien, attachment
or other similar proceedings, which may result in
sale or threatened sale of the Ownership Interest
of any other Owner, any Unit, or any portion
thereof, in which such Owner has an interest,
except such Owner’s Ownership Interest, or any
other portion of the Property; or which would
result in a sale or threatened sale or other
action which would cause any interference in the
use and enjoyment by any other Owner of such
Owner’s Ownership Interest.
49
[Complaint, Exh. C (Maui Ocean Declaration) at 21 (emphases
omitted).]
An “Owner” includes, inter alia, a purchaser of an
Ownership Interest and the “Developer” – MORI – “with respect to
each Ownership Interest it owns and which is not subject to an
agreement of sale.”
[Id. at 4, § 1.2.F.]
The Ko Olina
Declaration contains comparable provisions.
[Complaint, Exh. D
at 4-5, § 1.1.F; id. at 28, § 7.5.]
Plaintiffs apparently argue that MORI’s transfer of the
unsold timeshare interests to the MVC Trust violated § 7.5.A
because the transfer “affect[ed] another Owner’s Ownership
Interest.”
Defendants argue that § 7.5.D defines the affects on
another owner’s ownership interests that are prohibited in
§ 7.5.A.
[Reply at 14.]
This Court disagrees with Defendants’
interpretation because § 7.5.D does not state that it defines
“affect another Owner’s Ownership Interest.”
Further, § 7.5.A
prohibits transfers, mortgages, or other actions that affect
other ownership interests, whereas § 7.5.D prohibits “any action
or fail[ure] to take any action” that has the defined effects on
other ownership interests.
However, even assuming, arguendo, that § 7.5.D does not
apply to Plaintiffs’ claim for the breach of § 7.5.A, Plaintiffs
have not plead sufficient allegations that, if proven, would
establish that the mere transfer of MORI’s unsold timeshare
interests to the MVC Trust affected Plaintiffs’ ownership
50
interests in the Weeks-Based Program at Maui Ocean and Ko Olina.
To the extent that it is based on their improper transfer theory,
Plaintiffs’ breach of contract claim fails to state a claim upon
which relief can be granted, and must be dismissed.
D.
Undermining Plaintiffs’ Interests During Advertising
Plaintiffs also argue that MVC and MORI breached
Plaintiffs’ Contract Documents by “deliberately and actively
undermining week ownership interests in advertisements.”
[Complaint at ¶ 116.]
Plaintiffs allege that the following are
examples of such advertising:
Marriott unceasingly and unabashedly touts the
advantage of the points in comparison to the weeks
product, representing that when owners elect
Vacation Club Points (1) they are “no longer
locked into 7-night stays,” (2) they are “no
longer locked into weekend check-ins,” (3) “[y]ou
choose where and when you want to go. You aren’t
tied to a specific time of year,” (4) “[y]ou
aren’t tied to the same place every year,” and
(5) “[o]wners in the Marriott Vacation Club
Destinations[] program can choose from any
location and any size villa, check in on any day
they wish and stay as long as they want.”
[Id. at ¶ 83 (some alterations in original).]
This district court has recognized that: “To allege
breach of contract, the complaint must, at a minimum, cite the
contractual provision allegedly violated.”
Valencia v.
Carrington Mortg. Servs., LLC, Civil No. 10–00558 LEK–RLP, 2013
WL 375643, at *7 (D. Hawai`i Jan. 29, 2013).
Plaintiffs have not
alleged which specific provision in which of the Contract
51
Documents Marriott’s advertising allegedly violated, nor have
Plaintiffs alleged how the advertising violated that provision.
To the extent that it is based upon the theory that Marriott
undermined Plaintiffs’ ownership interests during the advertising
of the Points-Based Program, Plaintiffs’ breach of contract claim
fails to state a claim upon which relief can be granted, and must
be dismissed.
E.
Creation and Operation of the Points-Based Program
Plaintiffs’ final theory of liability for their breach
of contract claim is that Marriott impairs Plaintiffs’ “ownership
and use rights by utilizing an arbitrary points value system in
conjunction with the reservation preferences granted to Points
Owners to diminish the value of week ownership interests.”
[Complaint at ¶ 116.]
Plaintiffs apparently argue that the
creation and operation of the Points-Based Program violate the
provisions in Plaintiffs’ Contract Documents which promise that:
“Owners” can reserve stays “on a first-come, first-served basis,
with other Owners, beginning twelve months in advance of the
requested check-in day”; and “the Developer does not possess any
greater priority with respect to reservation than any other
Owner.”
See supra notes 5-6 (quoting Disclosure Statements).
Plaintiffs state that “Owner” is defined in the Declarations.
[Complaint at pg. 20 n.17.]
52
The relevant sections of the Maui Ocean Declaration
state:
E.
OWNERSHIP INTERESTS. “Ownership
Interests,” which shall include the following
interests or rights which are indivisible and
inseparable:
1.
OWNERSHIP SHARE. As to each
Ownership Interest, an “Ownership Share” in one of
the Units. An “Every Year Ownership Share” has a
one-fifty second (1/52) fractional undivided
interest, as tenant in common, in a Unit. An
“Every Other Year Ownership Share” has a one-one
hundred and fourth (1/104) fractional undivided
interest, as tenant in common, in a Unit;
2.
RIGHT TO USE. The right to reserve
and then use for a period of approximately one (1)
week, a Unit in the Program of the same type as
the particular Unit in which a share is owned in
accordance with Paragraph 3.7 hereof, every year
(if an Owner owns an Every Year Ownership Share)
or every other year (if an Owner owns an Every
Other Year Ownership Share) on a fixed or floating
time basis in accordance with Paragraph 3.7 D.
hereof; and
3.
MEMBERSHIP. Membership in the
Association pursuant to Paragraph 4.1 hereof.
F.
OWNERS. “Owners” of Ownership
Interests, including:
1.
Each person who initially acquires
an Ownership Interest from the Developer, and such
Owner’s heirs, devisees, successors, personal
representatives and assigns;
2.
Each person who is a purchaser of
an Ownership Interest under an agreement of sale,
and such person’s heirs, devisees, successors,
personal representatives and assigns, only,
however, to the extent and for the purposes
described in Paragraph 7.2 B. below. In all other
respects, the seller under an agreement of sale
shall be considered the Owner; and
53
3.
The Developer, with respect to each
Ownership Interest it owns and which is not
subject to an agreement of sale.
[Id., Exh. C at 4, § 1.1 (emphases omitted).]
Declaration contains comparable provisions.
§§ 1.1E-F.]
The Ko Olina
[Id., Exh. D at 4,
Thus, the Contract Documents define “Owners” as the
Week Owners – including Multi-Week Owners – and the Developer –
MORI.
After the implementation of the Points-Based Program,
the Week Owners still compete with other Week Owners who have
ownership interests in the same type of room during the same
period.
Plaintiffs’ argument, however, is that Marriott breached
the Contract Documents by forcing them to also compete with a new
group – the Points Owners – to whom Marriott has given greater
rights than the Week Owners.
Plaintiffs’ Complaint does not
identify which specific provision in which of the Contract
Documents Marriott allegedly violated when it created the new
group and gave the group more rights than the Weeks Owners.
To
the extent that the claim is based upon the creation and
operation of the Points-Based Program, Plaintiffs’ breach of
contract claim fails to state a claim upon which relief can be
granted, and must be dismissed.
F.
Summary of Plaintiffs’ Breach of Contract Claim
This Court has dismissed all of the theories of
liability in Plaintiffs’ breach of contract claim.
54
However, this
Court CONCLUDES that it is arguably possible to cure the defects
in Count I by amendment to state either a plausible breach of
contract claim or a plausible claim for fraudulent
misrepresentation.
This Court therefore DISMISSES Count I
WITHOUT PREJUDICE.
V.
Count III - Breach of the Covenant
of Good Faith and Fair Dealing
Count II alleges that Marriott’s actions breached the
covenant of good faith and fair dealing.
In the Motion,
Defendants argue that Count II fails to state a claim because
Hawai`i law does not recognize a claim for breach of the covenant
of good faith and fair dealing in this context.
Hawai`i courts have recognized that “every contract
contains an implied covenant of good faith and fair dealing that
neither party will do anything that will deprive the other of the
benefits of the agreement.”
Best Place, Inc. v. Penn Am. Ins.
Co., 82 Hawai`i 120, 123-24, 920 P.2d 334, 337-38 (1996)
(citations omitted).
“Good faith performance ‘emphasizes
faithfulness to an agreed common purpose and consistency with the
justified expectations of the other party.’”
Hawaii Leasing v.
Klein, 5 Haw. App. 450, 456, 698 P.2d 309, 313 (1985) (quoting
Restatement (Second) of Contracts § 205 cmt. a (1981)).
This
district court, however, has observed that:
Hawai`i courts have not recognized a separate tort
cause of action for bad faith or breach of the
duty of good faith and fair dealing based upon any
55
type of contract in any circumstances. Moreover,
in Francis v. Lee Enterprises, Inc., 89 Hawai`i
234, 971 P.2d 707, 711–12 (1999), the Hawai`i
Supreme Court stressed the importance that claims
of bad faith be limited to “the insurance context
or situations involving special relationships
characterized by elements of fiduciary
responsibility, public interest, and adhesion.”
The Hawai`i Supreme Court stated that the
limitation on the tort of bad faith was important
due to the fact that recovery in tort was very
different from contractual remedies. Id. at
712–13. Accordingly, the Hawai`i Supreme Court
stated that Hawai`i law will not allow a recovery
in tort “in the absence of conduct that
(1) violates a duty that is independently
recognized by principles of tort law and
(2) transcends the breach of the contract.” Id.
at 717.
Sung v. Hamilton, 710 F. Supp. 2d 1036, 1050 (D. Hawai`i 2010).
Plaintiffs argue that Count II is sufficiently pled
because the Complaint includes allegations that “the Parties’
relationship in this case is analogous to that of an innkeeper
(e.g., a hotelier, proprietor, host, landlord) and her customer.”
[Mem. in Opp. at 17.]
The Hawai`i Supreme Court has adopted the
analysis of the Arizona Supreme Court which indicates that an
innkeeper-customer relationship is one of the special
relationships that supports a claim for breach of the covenant of
good faith and fair dealing.
In recognizing the claim in the
insurance context, the Hawai`i Supreme Court stated:
[t]ort actions for breach of covenants implied in
certain types of contractual relationships are
most often recognized where the type of contract
involved is one in which the plaintiff seeks
something more than commercial advantage or profit
from the defendant. When dealing with an
56
innkeeper, a common carrier, a lawyer, a doctor or
an insurer, the client/customer seeks service,
security, peace of mind, protection or some other
intangible. These types of contracts create
special, partly noncommercial relationships, and
when the provider of the service fails to provide
the very item which was the implicit objective of
the making of the contract, then contract damages
are seldom adequate, and the cases have generally
permitted the plaintiff to maintain an action in
tort as well as contract.
Best Place, 82 Hawai`i at 131-32, 920 P.2d at 345-46 (alteration
in Best Place) (quoting Rawlings v. Apodaca, 151 Ariz. 149, 159,
726 P.2d 565, 575 (1986) (citing W. Prosser & W. Keeton, Law of
Torts § 92 at 660-61 (5th ed. 1984))).
However, this Court cannot determine which portions of
the Complaint contain allegations that Plaintiffs’ relationship
with the Defendants named in Count II is analogous to an
innkeeper-customer relationship.
Further, even assuming,
arguendo, that the Complaint does allege that Plaintiffs’
relationship with those Defendants is akin to an innkeepercustomer relationship, Plaintiffs have not identified any case
law – from Hawai`i or elsewhere – which supports their position
that the relationship between a timeshare owner and the
developer, seller, or operator of the timeshare facility is akin
to the innkeeper-customer relationship.
This Court is not aware of any Hawai`i case law on this
issue, and therefore this Court must predict how the Hawai`i
Supreme Court would decide it.
See Trishan Air, Inc. v. Fed.
57
Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011).
In holding that
recognizing a claim for breach of the implied covenant of good
faith and fair dealing in the insurance context would not open
the floodgates to such claims for all contracts, the Hawai`i
Supreme Court stated: “The public interest in insurance
contracts, the nature of insurance contracts, and the inequity in
bargaining power between the insurer and the policyholder all
serve to distinguish insurance contracts from other types of
contracts.”
Best Place, 82 Hawai`i at 131, 920 P.2d at 345
(citing and quotation marks omitted).
While it is true that,
like an insured, a purchaser/owner of a timeshare interest does
not participate in the drafting of the documents relating to the
timeshare, there is not the same inequity of bargaining power as
in the insurance context.
Someone who is considering purchasing
a timeshare interest at a hotel or resort can choose instead to
enter in the traditional innkeeper-customer relationship,
reserving his stays on an individual basis.
That relationship
would involve “a duty that is independently recognized by
principles of tort law” and could support a claim for the breach
of the covenant of good faith and fair dealing.
A purchaser of a
timeshare interest seeks a “commercial advantage” from the
seller, insofar as he purchases the timeshare interest because he
determines it is more advantageous than making reservations on an
individual basis.
58
This Court FINDS that the relationship between
Plaintiffs and the Defendants named in Count II does not meet the
criteria that the Hawai`i Supreme Court has set forth for
relationships where a claim for breach of the covenant of good
faith and fair dealing is available.
This Court therefore
PREDICTS that the Hawai`i Supreme Court would not recognize a
claim for breach of the covenant of good faith and fair dealing
between a timeshare owner and the developer, seller, or operator
of the timeshare facility.
Thus, this Court CONCLUDES that
Count II fails as a matter of law, and it is not possible for
Plaintiffs to cure the defects in this claim by amendment.
This
Court GRANTS the Motion insofar as Count II is DISMISSED WITH
PREJUDICE.
VI. Proper Defendants
Finally, Defendants argue that MORI is the only proper
defendant in this case because: Plaintiffs purchased their
timeshare interests from MORI; MORI was the principal developer
of the Marriott Timeshare Resorts; MORI owns and manages the
Points-Based Program; and MORI owns, developed, and sells all of
the MVC-branded products and programs.
Defendants argue that the
majority of the other Defendants are only named because they are
either the parent or a subsidiary of MORI, and the Complaint does
not plead a sufficient basis for liability against those entities
based on an alter ego theory.
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This Court disagrees and finds that Plaintiffs’ claims
against the Defendants besides MORI are not based solely on the
Defendants’ corporate affiliation with MORI.
The Complaint
contains allegations describing each Defendant’s alleged role in
the events which gave rise to Plaintiffs’ claims.
However, as
previously noted, this Court makes no findings or conclusions at
this time regarding whether Plaintiffs’ allegations against each
Defendant are sufficient to satisfy the heightened pleading
standard applicable to Plaintiffs’ claims that sound in fraud.
To the extent that the Motion contends that MORI is the
only proper defendant in this case, the Motion is DENIED WITHOUT
PREJUDICE.
Defendants may revisit this issue to challenge the
sufficiency of the allegations against each Defendant in the
amended complaint.
VII. Summary and Leave to Amend
This Court GRANTS the Motion insofar as this Court:
-CONCLUDES that the four-year limitations period in Haw. Rev.
Stat. § 480-24(a) applies to all claims in Counts III and V;
-DISMISSES as untimely all portions of Counts III and V except
for the portions related to Patrick and Mary Flynn’s
interest in the Points-Based Program;
-DISMISSES WITH PREJUDICE for lack of standing the portion of
Count V alleging §§ 514E-11 and 514E-11.1 violations related
to Patrick and Mary Flynn’s interest in the Points-Based
Program;
-DISMISSES for failure to state a claim upon which relief can be
granted the portions of Counts III and V alleging Chapter
480 violations related to Patrick and Mary Flynn’s interest
in the Points-Based Program;
60
- DISMISSES f or failure to s tat e a claim the portion of Count I II
a l leging Chapter 481A viola ti ons related to Patrick and Mary
Flynn's i nterest in the Points-Based Program;
- DISMISSES Count IV for failure t o p l ead sufficient al l egat i ons
to estab l ish a v i olat i on o f the One - to- One Rule;
- DISMISSES al l portions of Count I for failure t o state a c l a i m
upon which re l ie f can be gran t ed; and
- DISMISSES WI TH PREJUDICE Count II because Hawai'i l aw does no t
recognize a c l aim for breach of the covenant o f good faith
and fair deal i ng in this context .
This Court DENIES the Mo t ion insofar as:
- the d i smissa l o f Count s I, III, IV, and V are WITHOUT PREJUDI CE
because it i s arguably possible for Plaintiffs t o cure by
amendment a l l of the defects in those cla i ms that this Court
has identif i ed in this Order ; and
- th i s Court REJECTS Defendants' argumen t tha t MORI i s the only
proper defendant in this case .
Pla i nt iff s may f i le a mo t ion seeking leave to f ile an amended
compla int with a proposed amended complaint set ti ng forth the
c l a i ms that this Court has dismi ssed wi thout prejudi ce and i n the
format d i cta t ed by the Local Ru l es .
CONCLUSION
On the basis of the forego i ng, Defendan t s ' Mot i on to
Di smiss the Comp l a i nt , f iled December 24, 2015 , is HEREBY GRANTED
IN PART AND DENIED IN PART , as set forth supra Discussion
Section VII .
II
II
II
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IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, February 29, 2016.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
MICHAEL KEVIN FLYNN, ET AL. VS. MARRIOTT OWNERSHIP RESORTS, INC.,
ET AL; CIVIL 15-00394 LEK-BMK; ORDER GRANTING IN PART AND DENYING
IN PART DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT
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