Gillespie et al v. St. Regis Residence Club, New York Inc. et al
Filing
92
ORDER: granting in part and denying in part 46 Motion to Dismiss. For the reasons set forth above, the motion to dismiss is granted in part and denied in part as to Count One. The motion to dismiss is granted as to Count Three with prejudice. The motion to dismiss is denied as to Count Six and granted as to Count Seven. Count Seven is dismissed without prejudice. Plaintiffs are granted leave to replead Count Seven. Any amended complaint must be filed no later than 21 days after the date of this order. SO ORDERED. (Signed by Judge Gregory H. Woods on 9/28/2018) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------------X
FLORA GILLESPIE, et al.,
:
:
Plaintiffs, :
:
-against:
:
ST. REGIS RESIDENCE CLUB, NEW YORK
:
INC., et al.,
:
:
Defendants. :
------------------------------------------------------------------X
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 9/28/18
1:16-cv-9390-GHW
ORDER
GREGORY H. WOODS, United States District Judge:
I.
INTRODUCTION
The Beaux-Arts landmark building at the corner of Fifth Avenue and East Fifty-Fifth Street
in Manhattan provides a temporary home for guests of the exclusive St. Regis New York Hotel.
Beginning in 2006, individuals were invited to become part of what was known as the St. Regis
Residence Club: for the average price of about $455,000, members of this exclusive club could own
an interest in “Club Units”—luxury suites located on a floor that was specially reserved for members
of the club, and in which those members were entitled to spend a certain amount of time annually.
The interests sold well for approximately two years. In 2008, however, when the country entered an
economic recession, sales began to plummet.
In response, the entities that controlled the St. Regis New York Hotel decided to take the
Residence Club in a different direction—without the knowledge or input of its members. Rather
than struggling to sell what was, in effect, a luxury timeshare during the greatest economic downturn
in recent memory, they abandoned their efforts to sell the Club Interests, and, instead, decided to
rent out the Club Units to the public for overnight use. This proved successful, drawing an influx of
short-term renters to the Club Units and reducing their resale value, much to the chagrin of the
Residence Club’s members, who assert that it reduced the resale value of their Units.
Plaintiffs, who are members of the Residence Club, bring this action alleging breach of
contract and unjust enrichment. A subgroup of the Plaintiffs also seek to rescind their purchase
agreements. Defendants now move to dismiss all of Plaintiffs’ claims. For the reasons set forth
below, the motion is granted in part and denied in part.
II.
BACKGROUND1
A. The Fifth and Fifty-Fifth Residence Club
Plaintiffs are the purchasers of fractional timeshare interests in a landmark building on the
corner of Fifth Avenue and East 55th Street in Manhattan. First Am. Compl. (“FAC”) (Dkt. No. 41)
¶ 1. The building is the site of the St. Regis New York Hotel (the “St. Regis”). Id. In 2006,
Starwood Hotels and Resorts Worldwide, LLC (“Starwood”), as part of a joint venture with other
entities, filed a condominium map on the St. Regis, dividing it into four components: the “Hotel
Unit,” the “Retail Unit,” the “Suite Units,” and the “Club Units.” Id. ¶ 3. This action concerns the
Club Units and the Suite Units, as they relate to ownership of the Club Units.
The Suite Units and the Club Units are each “governed by an offering plan filed with the
New York State Department of Law.” Id. ¶ 4. The offering is known as the Fifth and Fifty-Fifth
Residence Club (the “St. Regis Residence Club” or “Residence Club”). Id. ¶ 1. The St. Regis
Residence Club, New York, Inc. is the Residence Club Sponsor (the “Sponsor”). Id. ¶ 18.
1
Unless otherwise noted, the facts are taken from the first amended complaint and the exhibits thereto. See DiFolco v.
MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (“In considering a motion to dismiss for failure to state a claim
pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the
complaint as exhibits, and documents incorporated by reference in the complaint.” (citations omitted)). The alleged
facts are accepted as true for the purposes of this motion. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.
2002). However, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable
to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
2
“The Suite Unit offering allows Defendants to market and sell Suite Units, which are whollyowned condominiums . . . .” Id. ¶ 4. The Club Unit offering, governed by the Fractional Offering
Plan for the Residence Club (the “Plan”) (Dkt. Nos. 41-7 through 41-22), allows Defendants to
market and sell fractional “Club Interests” in the Club Units. Each purchaser of a Club Interest
owns a 1/13th undivided portion of a specific Club Unit as a tenant-in-common with all other
owners of Club Interests in the same Club Unit. Id. ¶ 130. When a purchaser acquires a Club
Interest in a Club Unit, the purchaser is entitled, subject to certain terms and conditions, to “use and
occupy a Club Unit for four weeks annually.” Id. Persons who “hold fee title, of record, to one or
more Club Interests” are known as “Club Members.” Plan, at 19.
Plaintiffs purchased Club Interests pursuant to a standardized Purchase Agreement (the
“Purchase Agreement”) and the 748-page Plan, which was expressly made part of each Purchase
Agreement. FAC ¶ 131. As set forth below, Plaintiffs assert that the St. Regis Residence Club is a
“fractured” offering—meaning that “(a) the developer failed to sell many of the units, and (b) the
value of the units has collapsed”—because of Defendants’ conduct. Id. ¶ 2.
B. Conversion of Suite Units Into Club Interests
Defendants began selling Club Interests in August 2006, and sales continued at a “steady
pace” through 2007. Id. ¶ 5. In mid-2007 and 2008—including shortly after the collapse of Bear
Stearns and the beginning of the recession—Defendants increased the inventory of Club Units (and
therefore, of Club Interests), by converting a number of the Suite Units into Club Units. See id. ¶
134. Although such conversion is permitted by the Plan, Plaintiffs maintain that Defendants were
acting in bad faith to “secretly flood” the Residence Club with new inventory that they never
intended to sell. Id. ¶ 5, 127. According to Plaintiffs, “but for” these conversions, “the offering would
have been fully sold by the middle of 2008.” Id. ¶ 135(a) (emphasis in the original).
3
C. Abandonment of Sales Efforts
Plaintiffs also allege that Defendants took other steps to impede the success of the offering.
First, Defendants increased the price of the Club Interests and Club Members’ annual fees. Id. ¶
142. Then, in mid-2009, they withdrew a seller financing option that had previously been offered to
purchasers, and closed the Residence Club sales office. Id. 2 Defendants sold only a few Club
Interests over the course of the next six and a half years. Id. According to Plaintiffs, Defendants
abandoned their sales efforts in order to pursue a large-scale rental program that, while detrimental
to Plaintiffs’ interests, has been lucrative for Defendants.
D. Rental Program
In or around 2009, Defendants began renting to the general public the approximately 100
unsold Club Interests over which they retained ownership. Id. ¶ 140. Although Plaintiffs concede
that they knew the Sponsor would offer “some rentals,” they maintain that the Plan “made clear that
these [rentals] were a very limited aspect of the fractional offering,” id. ¶ 152 (citing Plan, Club
Reservation Procedures, at 90), and that they “reasonably expected that access to the Club would be
restricted to Club Members and their permitted users”—not the Sponsor’s tenants. Id. ¶ 149
(quoting Plan, Special Risk Factors, at 3 § 1(c) (“[u]se of the Club Units is limited solely to the
personal, recreational and other use by a Club Member and Club Member’s Permitted Users.”)).
III.
PROCEDURAL HISTORY
Plaintiffs filed the initial complaint in this action on December 5, 2016. Dkt. No. 1. The
FAC was filed on March 6, 2017. Defendants seek to dismiss the FAC’s allegations of breach of
express and implied contract (Counts One and Three), Rescission (Count Six), and Unjust
According to Plaintiffs, Defendants abandoned all sales and marketing efforts in 2009 and Plaintiffs were not informed
of that fact until after a tolling agreement went into effect on May 20, 2016. FAC ¶¶ 141, 142.
2
4
Enrichment (Count Seven).3 Plaintiffs submitted supplemental authority in support of their
opposition to the motion on August 1, 2018, Dkt. No. 84, to which Defendants responded the
following day. Dkt. No. 85.
IV.
LEGAL STANDARD
“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.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). It is not
enough for a plaintiff to allege facts that are consistent with liability; the complaint must “nudge[ ]”
claims “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. “To survive
dismissal, the plaintiff must provide the grounds upon which his claim rests through factual
allegations sufficient ‘to raise a right to relief above the speculative level.’” ATSI Commc’ns, Inc. v.
Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 555).
Determining whether a complaint states a plausible claim is a “context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S.
at 679. The court must accept all facts alleged in the complaint as true and draw all reasonable
inferences in the plaintiff’s favor. Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 124 (2d Cir. 2008)
(per curiam). However,
[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.’ A complaint must
therefore contain more than ‘naked assertion[s] devoid of further
factual enhancement.’ Pleadings that contain ‘no more than
conclusions . . . are not entitled to the assumption of truth’ otherwise
applicable to complaints in the context of motions to dismiss.
These constitute all of the claims alleged in the FAC. The gap in numbering is the result of edits made to the initial
complaint.
3
5
DeJesus v. HF Mgmt. Servs., LLC, 726 F.3d 85, 87–88 (2d Cir. 2013) (alterations in original) (quoting
Iqbal, 556 U.S. at 678–79). Thus, a complaint that offers “labels and conclusions” or “naked
assertion[s]” without “further factual enhancement” will not survive a motion to dismiss. Iqbal, 556
U.S. at 678 (alteration in original) (citing Twombly, 550 U.S. at 555, 557).
In addition to the facts alleged in the complaint, courts “may consider any written
instrument attached to the complaint, statements or documents incorporated into the complaint by
reference . . . .” ATSI, 493 F.3d at 98. Courts may also consider “matters of which judicial notice
may be taken.” Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir. 2016) (citation omitted).
V.
DISCUSSION
A. Breach of Contract (Counts One and Three)
In Counts One and Three, Plaintiffs allege that the Sponsor breached the terms of the Plan
by abandoning sales efforts and renting out Club Units to the general public. “To properly plead a
breach of contract claim under New York law, a party must identify (1) the existence of a contract;
(2) performance by one party; (3) breach of the contract by the other party; and (4) resulting
damages.” Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994). A breach of contract
claim will not survive a motion to dismiss where the plaintiff fails to allege “the specific provisions
of the contract upon which liability is predicated.” Martinez v. Vakko Holding A.S., No. 07 Civ. 3413
(LAP), 2008 WL 2876529, at *2 (S.D.N.Y. July 23, 2008); see also Dilworth v. Goldberg, 914 F. Supp. 2d
433, 457 (S.D.N.Y. 2012) (quoting Atkinson v. Mobil Oil Corp., 614 N.Y.S.2d 36 (2d Dep’t 1994) and
collecting cases) (“Case law is clear that to state a breach of contract claim, the pleadings ‘must allege
the provisions of the contract upon which the claim is based.’”).
In addition, under New York law, the “fundamental, neutral precept of contract
interpretation is that agreements are construed in accord with the parties’ intent.” Greenfield v. Philles
Records, Inc., 98 N.Y.2d 562, 569 (2002). “The best evidence of what parties to a written agreement
6
intend is what they say in their writing.” Greenfield, 98 N.Y.2d at 569 (internal quotation marks
omitted). “Thus, a written agreement that is complete, clear and unambiguous on its face must be
[interpreted] according to the plain meaning of its terms.” Id.; see South Rd. Assocs., LLC v. IBM, 4
N.Y.3d 272, 277 (2005) (“In cases of contract interpretation, it is well settled that when parties set
down their agreement in a clear, complete document, their writing should . . . be enforced according
to its terms.” (internal quotation marks omitted)).
Here, Plaintiffs attached copies of the Plan and a template purchase agreement as exhibits to
the FAC, which the Court considers in resolving the motion. For the reasons set forth below, the
motion to dismiss Counts One and Three is granted in part and denied in part.
i.
Plaintiffs Insufficiently Allege Breach of Express Contract Provision in
Connection with Count One
Plaintiffs’ claim for breach of an express contract provision in connection with Count One
cannot proceed because they have not identified any express provision imposing an obligation to sell
Club Units. Plaintiffs allege that the Sponsor “materially breached express and/or implied terms of
the Purchase Agreement and Club Offering Plan by abandoning any effort to sell Club Interests.”
FAC ¶ 191. They contend in their opposition that paragraph 132 of the FAC identifies the
contractual provisions allegedly breached, namely the following: the “Introduction” at page 12,
which provides that the “Sponsor anticipates that twelve (12) Club Interests will be sold in each
Club Unit”; the section entitled “General” at page 103, which provides that, “The Offering Plan
does not knowingly omit any material fact or knowingly contain any untrue statement of any
material fact. Sponsor believes that the Offering Plan contains a fair summary of the material
provisions of the documents referred to in the Offering Plan . . . .”; and the “Certification of
Sponsor and Principals” at pages 733 to 734, which provides that “We jointly and severally certify
that the offering plan does . . . not omit any material fact . . . .” Pl.’s Opp., at 10; FAC ¶ 132.
7
None of these provisions is an express covenant requiring the Sponsor to sell a specific
quantity of Club Interests. The representation that the Sponsor “anticipates” that twelve Club
Interests will be sold in each Club Unit is a statement of expectation, not a commitment sufficient to
impose an obligation to sell all twelve interests. Moreover, Plaintiffs identify no provision that
requires the Sponsor to continue its sales efforts indefinitely, until a certain time, or until a certain
number of Club Interests were sold. Plaintiffs argue that the Plan “never once states that
Defendants retain the right to abandon sales efforts.” The absence of such a provision does not
amount to an affirmative prohibition on abandoning sales efforts, however. Lacking express
language prohibiting Defendants from abandoning sales efforts, the Court will not read such a
provision into the Plan. Accordingly, Defendants’ motion to dismiss the claim for breach of an
express contractual provision to sell all Club Interests, or a sufficient number of Club Interests to
make the offering viable, must be granted.
ii.
Plaintiffs Sufficiently Allege Breach of Implied Covenant in Connection with
Count One
Significantly for purposes of this motion, however, Plaintiffs allege that the Purchase
Agreement and Plan include both an “express and/or implied” promise by the Sponsor “to timely sell
all of the Club Interests . . . or at least a sufficient number of Club Interests to make this fractional
offering viable.” FAC ¶ 188 (emphasis added). Although, as described above, Plaintiffs fail to allege
that an express covenant to sell Club Interests was breached—or even that such a covenant
existed—Plaintiffs sufficiently allege that the implied covenant of good faith and fair dealing was
breached.4
“Generally, under New York law, a cause of action alleging breach of the implied covenant is duplicative of a cause of
action alleging breach of contract.” Rojas v. Don King Prods., Inc., No. 11-cv-8468 (KBF), 2012 WL 760336, at *3
(S.D.N.Y. Mar. 6, 2012); see also Harris v. Provident Life and Accident Ins. Co., 310 F.3d 73, 80 (2d Cir. 2002) (quoting Fasolino
Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir.1992) (internal quotation marks omitted)) (“Under
New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is
merely a breach of the underlying contract.”). Because the Court dismisses Plaintiffs’ claim for express breach of
contract in connection with this claim, see supra § V(A)(i), there is no need to dismiss the claim for breach of an implied
4
8
Under New York law, all contracts contain an implied covenant of good faith and fair
dealing in the course of performance. 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144,
153–54 (2002) (collecting cases); Carvel Corp. v. Diversified Mgmt. Grp., 930 F.2d 228, 230 (2d Cir.
1991). “This covenant embraces a pledge that ‘neither party shall do anything which will have the
effect of destroying or injuring the right of the other party to receive the fruits of the contract.’”
Provident Life, 310 F.3d at 80 (citations omitted). “While the duties of good faith and fair dealing do
not imply obligations ‘inconsistent with other terms of the contractual relationship’ they do
encompass ‘any promises which a reasonable person in the position of the promisee would be
justified in understanding were included.’” Jennifer, 98 N.Y.2d at 153 (internal citations omitted).
The New York Court of Appeals’ decision in Jennifer commands the Court to deny
Defendant’s motion to dismiss the Plaintiffs’ claim that the Sponsor breached an implied covenant
to sell a sufficient number of Club Units. In Jennifer, the sponsor of a cooperative apartment
building failed to sell more than half of the cooperative’s shares. 98 N.Y.2d at 150. In addition, the
sponsor allowed the offering plan to lapse and rejected bona fide purchase offers. Id. at 151. The
plaintiffs in Jennifer—the cooperative corporation’s board of directors and a number of individual
shareholders and proprietary lessees—alleged that the sponsor had breached its contracts with them
by retaining most of the cooperative’s shares. Id. at 150. This conduct, plaintiffs alleged, “so
drastically undermined the contract that its fundamental objective—the creation of a viable
cooperative—has been subverted.” Id. at 153. The Court of Appeals affirmed the lower court’s
denial of the defendants’ motion to dismiss, concluding that the plaintiffs had sufficiently alleged
that the sponsor had undertaken, and breached, a “duty in good faith to timely sell so many shares in
the building as necessary to create a fully viable cooperative.” Id. at 152.
covenant as redundant. Wiseman v. ING Groep, N.V., No. 16-cv-07587 (AJN), 2017 WL 4712417, at *8 (S.D.N.Y. Sept.
28, 2017).
9
The Court appreciates that the Court of Appeals adopted this rule in the context of a case
involving formerly rent-stabilized apartments, whose owners had presumably fewer means than the
purchasers of Club Units at the St. Regis. However, the Court declines to adopt Defendants’
suggestion that the Court of Appeals’ holding in Jennifer not apply here because the Club Units are
expensive and available only to the well-heeled, unlike the formerly rent-stabilized tenants affected
by the sponsor’s alleged misconduct in Jennifer. The ultimate basis for the Court of Appeals’
conclusion was a reaffirmation of the fundamental principle of New York law that all contracts
contain an implied covenant of good faith and fair dealing. Id. at 153–54. That obligation applies to
real estate purchases by the rich as well as by the poor. The rule established in Jennifer has been
applied in the context of sales of condominiums—including high cost apartments. See, e.g., Bauer v.
Beekman Int’l Ctr. LLC, 40 Misc. 3d 1237(A) (Table) (Sup. Ct. 2013), aff’d, 1 N.Y.S.3d 808 (1st Dep’t
2015); Board of Managers of the Warren House Condominium v. 34th Street Associates LLC, et al., No.
152052/13, 2015 WL 4915600, at *1 (N.Y. Sup. Aug. 18, 2015).
In Jennifer, the Court of Appeals concluded that the complaint adequately alleged the
creation of a duty to sell sufficient units. Plaintiffs have done so here as well. Here, as in Jennifer,
Plaintiffs plead that, based on the terms of the Purchase Agreement and Plan, they reasonably
expected that the Sponsor “would endeavor to timely sell all Club Interests, or at least a sufficient
number to make the St. Regis Residence Club viable,” and that it failed to do so. FAC ¶ 189.
According to the FAC, the Sponsor, acting in bad faith, engaged in conduct that had the effect of
destroying or injuring a viable offering. Specifically, Plaintiffs allege that the Sponsor’s conduct—
including the alleged abandonment of sales efforts—“frustrated Plaintiffs’ rights and reasonable
expectations under the contract, deprived Plaintiffs of the value of their Club Interests, and allowed
Defendants . . . to profit at Plaintiffs’ expense.” Id. ¶ 190; see also id. ¶¶ 146–147 (the “ongoing
program of halting sales in favor of renting the unsold units” has “destroyed the viability of the St.
10
Regis Residence Club.”). Plaintiffs also allege that the resulting “massive inventory of nightly
rentals” hinders the viability of the offering because it allows the public to enjoy the same benefits as
Club Members without the associated burdens of ownership—including the purchase price, annual
maintenance fees, and other ownership expenses that Club Members are obligated to pay regardless
of whether they actually make use of the Residence Club. FAC ¶ 146.
Furthermore, the facts pleaded in the FAC support the allegation that the Sponsor failed to
exercise good faith and deal fairly in satisfying that duty by, among other things, abandoning sales
efforts and creating financial disincentives for prospective purchasers, including raising the price of
Club Interests. See Jennifer, 98 N.Y.2d at 154 (“By spelling out the basis for their claim that the
sponsor failed to exercise good faith and deal fairly in fulfilling the terms and promises
contemplated by the offering plan, plaintiffs pleaded a valid cause of action for breach of
contract.”).
As Defendants observe, there are many distinctions between this case and Jennifer. “In
Jennifer, the sponsor converted a rent-regulated apartment house to a co-op and sold less than 38%
of its shares to tenants who ‘surrendered their rights pursuant to the Rent Stabilization Code . . . but
pa[id] more in monthly maintenance and cooperative loan payments than they had paid in rent as
tenants.’ The sponsor then allowed its offering plan to lapse, which, pursuant to applicable law,
precluded it from selling or marketing the remaining shares.” Defs.’ Br. at 10 (quoting Jennifer, 98
N.Y.2d at 151, 153). Here, by contrast, Plaintiffs allege that the Sponsor sold over 80% of its
interests. FAC ¶ 137. And, rather than the cooperative interests of formerly rent-stabilized tenants,
the Club Interests here are timeshares in “luxury units” in which owners spend only a fraction of the
year. FAC ¶¶ 1, 28–126, 151–52. The Club Units represent only a portion of the property located
at the St. Regis hotel—the property is also supported by the hotel, and the Suite Units. These are
meaningful distinctions, but the ultimate question whether the Sponsor’s failure to sell 20% of the
11
Club Interests actually undermined the “viability” of the offering is not before the Court at this
time—the only question is whether Plaintiffs have adequately pleaded that the Sponsor had an
implied duty to sell sufficient units to make the offering viable—they have.
However, the Court declines to expand the holding of Jennifer, as Plaintiffs suggest, to imply
an obligation that the Sponsor sell “all” of the Club Interests. See, e.g., FAC ¶ 189. Jennifer sustained
a claim related to an implied obligation to sell a sufficient number of units. Jennifer does not support
the contention that the Sponsor was under an obligation to sell all of the Club Units or Interests.
Bauer v. Beekman Int’l Ctr. LLC, 1 N.Y.S.3d 808, 808 (1st Dep’t 2015) (“While defendant sponsor
sold a majority of the newly-constructed condominium’s residential units, contrary to plaintiff unit
owner’s contention, it was not under an implied obligation to sell all of them. Plaintiff’s reliance on
[Jennifer] where the owner sold a minority of the shares and the pleading was upheld to the extent
that it alleged an implied promise to sell ‘a sufficient number of shares,’ is misplaced.”). Similarly,
the allegations here do not support the inference of an implied covenant requiring the Sponsor to
sell all of the Club Units—to do so would run contrary to the language of the offering documents.
The offering documents specifically advise purchasers of the prospect that the Sponsor will
not be able to sell all of the Club Interests. Indeed, the Plan contains a defined term for “Unsold
Club Interests,” Plan at 25, and it uses the term repeatedly to advise purchasers of the prospect that
the Sponsor will not be able to sell all Club Interests, and to identify risks associated with that
possibility. For example, the Plan states clearly that the “Sponsor may have a large inventory of
Unsold Club Interests.” Plan, Special Risk Factors, at 3 § 1(a). The Plan identifies the potential
impact of the Sponsor’s failure to sell all Club Interests. See, e.g., Plan at 3 § 1(a), 2 (“Any Club
Member attempting to rent or resell a Club Interest would have to compete, at a substantial
disadvantage, with Sponsor in the rental and sale of its Unsold Club Interests . . . . The successful
operation and maintenance of the Club depends upon the ability of Sponsor to meet its financial
12
obligations with respect to Unsold Club Interests.”) Given the Plan’s numerous statements
regarding the expectation that the Sponsor would not be able to sell all Club Interests, no obligation
to sell all Club Interests can be implied here.5
There is similarly no basis to imply the existence of an obligation on the Sponsor to support
the resale value of the Club Interests. Purchasers of Club Interests could not have reasonably
expected that the Sponsor would be obligated take steps to support or enhance the resale value of
Club Interests. Purchasers were specifically advised that units should not be purchased with an
expectation of resale at a profit. See, e.g., Plan at 3 § 1(a) (“The purchase of a Club Interest should be
based upon its value as a vacation experience, for spending leisure time, or for other personal use,
and not considered for purposes of acquiring an appreciating investment or with an expectation that
the Club Interest may be rented or resold at a profit.”). This express language does not permit the
implication of an obligation on the part of the Sponsor to support the resale value of the Club
Interests.
Plaintiffs do not expressly claim breach of such a duty, FAC ¶ 189, but the complaint could
be read to suggest that Plaintiffs believe that the offering would not be “viable” unless it resulted in
sales sufficient for their Club Interests to maintain their value, or to appreciate in value. Such a
foundation for their surviving claim cannot be sustained in the face of the clear statements in the
Plan advising them of the illiquidity of the Club Interests, and that they should not be acquired for
There is similarly no basis to imply the existence of an obligation on the Sponsor to support the resale value of the
Club Interests. Purchasers of Club Interests could not have reasonably expected that the Sponsor would be obligated
take steps to support or enhance the resale value of Club Interests. Purchasers were specifically advised that units
should not be purchased with an expectation of resale at a profit. See, e.g., Plan at 3 § 1(a) (“The purchase of a Club
Interest should be based upon its value as a vacation experience, for spending leisure time, or for other personal use, and
not considered for purposes of acquiring an appreciating investment or with an expectation that the Club Interest may
be rented or resold at a profit.”). This express language does not permit the implication of an obligation on the part of
the Sponsor to support the resale value of the Club Interests. Plaintiffs do not expressly claim breach of such a duty.
FAC ¶ 189. Plaintiffs’ claim that the Sponsor violated an implied duty to sell sufficient Club Interests to support the
“viability” of the offering survives. But it should be clear that, given the language of the Plan, the surviving claim does
not encompass asserted resulting reductions in the resale value of the Club Interests.
5
13
investment purposes. The Court cannot conclude here precisely what constitutes a “viable” offering
in this context. However, given the clear cautionary language contained in the Plan regarding
resales, the Court does conclude that Plaintiffs cannot reasonably have expected that the offering
would only be viable if the Sponsor’s sales were sufficient to support the price and resale value of
their Club Interests. Increasing, or even stable, valuation of the acquired Club Interests was not the
fruit of any Plaintiff’s contracted purchase of a Club Interest; it was “its value as a vacation
experience, for spending leisure time, or for other personal use . . . .” Plan at 3 § 1(a).
iii.
Plaintiffs Insufficiently Allege Breach of Express Contract Provision in
Connection with Count Three
Plaintiffs’ claim that the Sponsor breached an express contract provision in connection with
Count Three must fail because the negative covenants concerning Club Unit rentals that are
identified by Plaintiffs do not prohibit the Sponsor from renting Club Units to overnight tenants.
To the contrary, the offering documents provide clear warning that the Sponsor may rent Club
Units owned by it.
In the FAC section entitled “Third Claim for Relief,” Plaintiffs fail to identify any express
terms of the Plan that they allege were breached. FAC at 65–66. In their opposition to the motion
to dismiss, Plaintiffs identify a number of provisions that, they contend, expressly limit the
Sponsor’s ability to rent out the Club Units. Only one of those provisions contains an express
negative covenant concerning rentals, however. It states that “[u]se of the Club Units is limited
solely to the personal, recreational and other use by a Club Member and Club Member’s Permitted
Users.” Plan, 3 § 1(c). As a result, they argue, use of the Club Units by individuals who are not Club
Members6 or Club Members’ Permitted Users violates the terms of the Plan. But the Plan’s
definition of Permitted Users is expansive enough to permit overnight renters.
A Club Member is defined, in relevant part, as “any Person or Persons who hold fee title, of record, to one or more
Club Interests (including a contract seller, but excluding a contract purchaser) at the time in question.” Plan,
6
14
“Permitted Users” are defined in the Plan as:
any of Declarants, Sponsor, Suite Sponsor, Unit Owners, the Condominium Board,
the Club Board, Club Members (and any individual(s) designated by the Primary
Owner who may make reservations of Club Weeks for a particular Club Interest) and
their successors and assigns, and all officers, stockholders, principals, partners,
employees, members, agents (including selling and managing agents), guests,
exchangers, contractors, tenants, invitees, Permitted Mortgagees, invitees and licensees
of any of the foregoing who has permission to use a Unit and/or the common
Elements, subject to the terms of the Condominium Documents and the Club
Documents, whether written or oral, granted by a Unit Owner or Club Member, the
condominium Board, the Condominium Documents, the Club Board, the Club
Documents, or the Offering Plan.
Plan, Definitions, at 23 (emphases added). Thus, guests, tenants, and invitees of the Sponsor and
Club Members are Permitted Users. This provision does not prohibit short term rentals of the
Units—indeed, Plaintiffs acknowledge that such rentals by the Sponsor are permitted; Plaintiffs
allege that “Defendants’ status as the owner of unsold inventory arguably makes them a Club
Member entitled to rent like any other Club Member . . . .” FAC ¶ 158.
However, Plaintiffs compare this to another provision of the Plan, which states that “[t]he
Suite Units may be used for . . . transient hotel purposes,” to conclude that the Plan contemplates
that the Suite Units—and not the Club Units—were intended to be used for “transient hotel
purposes,” like overnight rentals. Id. ¶ 150 (citing Plan, Introduction, at 5 § 13(b) (emphasis added)).
If it were otherwise, Plaintiffs contend, the language regarding transient hotel purposes would have
appeared in the provision about the use of Club Units. But the Court cannot convert language
permitting the use of Suite Units for hotel purposes into an express covenant prohibiting the use of
Club Units for that purpose. Because the express provisions of the Plan identified by Plaintiffs does
not restrict use by overnight renters, Plaintiffs have failed to state a claim for breach of this express
provision of the Plan.
Definitions, at 19. The definition encompasses the Sponsor, which holds fee title to Club Interests and is not otherwise
excluded.
15
The other provisions of the Plan that Plaintiffs point to as a basis for their claim for an
express contractual breach also do not support the claim. Plaintiffs identify the provision of the
Plan stating that “[e]ach Club Interest includes the right to confirm the reservation of seven (7)
consecutive days” and “the right to use a maximum of fifteen (15) weekdays and six (6) weekend
days . . . fox a maximum total of twenty one (21) days.” FAC ¶ 149 (citing Plan, Introduction, at
12). Given these limitations, Plaintiffs argue that the Plan makes clear that the use of the Club Units
is “strictly regimented” and not intended to be used for unlimited nightly rentals. However, these
limitations do not specifically constrain the Sponsor (or any other Club Member) from renting
Units.
Next, Plaintiffs point to paragraph 151 of the FAC, which cites to several provisions
prohibiting the subdivision of Club Units. Paragraph 151 cites the Plan’s Special Risk Factors and
Introduction, which provide, respectively, that “[u]nder the Club Declaration, each Club Unit
included shall remain undivided,” and “Club Members are strictly prohibited from subdividing their
Club Interest.” FAC ¶ 151 (citing Plan, Special Risk Factors, at 4 § 17; Plan, Introduction, at 13).7
7
Paragraph 151 of the FAC also cites to the Plan’s Club Declaration, which provides:
Except for Sponsor, no Club Unit may be used in fact or effect as part of or in furtherance of an
Occupancy Plan (defined below). The term Occupancy Plan means a program, plan, agreement or
other arrangement for the use, occupancy, marketing, advertising or promotion of one or more Club
Units or Club Interests under any timeshare or fractional plan, residence, destination or luxury club,
equity or non-equity program, interval exchange (whether the program is based on direct exchange of
occupancy rights, cash payments, reward programs or other point or accrual systems) or other
membership plans or arrangements through which a participant in the plan or arrangement acquires
the right to use and occupy such Club Unit(s) or a portfolio of accommodations including such Club
Unit(s).
FAC ¶ 151 (citing Plan, Club Declaration, at 460, Art. 10) (emphasis added). This provision fails to support Plaintiffs’
position, however, given that the Sponsor is expressly exempt.
Finally, paragraph 151 cites the Third Amendment to the Plan, which provides that:
The Club Association has endorsed through an affiliation agreement, the Starwood Residence
Network or SRN as the Club’s exchange program. The Club shall not recognize or honor any exchanges from
any entity, other than SRN. SRN will permit Club Members to exchange or “interchange” Club Weeks
associated with their Club Interest with Club Members at other Starwood Residence Club locations,
provided such location is also affiliated with SRN.
16
Plaintiffs characterize these provisions as protection “against further timesharing.” Pl.’s Opp., at 10.
Again, however, the provision does not expressly prohibit the Sponsor from renting Units to
overnight “guests” and “invitees.” Such overnight rentals cannot reasonably be considered to
constitute subdivisions of the unit interests.
iv.
Plaintiffs Do Not Sufficiently Allege Breach of Implied Covenant in
Connection with Count Three
Plaintiffs assert that they “could not reasonably have anticipated based on the Offering Plan,
that Sponsor would retain a significant number of shares which it would itself rent on daily basis at
market rates.” Pls.’ Opp., at 9 (citing FAC ¶¶ 155–57, 133–36). Plaintiffs allege that Defendants are
“frustrating” Plaintiffs’ rights under the Plan by engaging in those rentals. According to Plaintiffs,
Defendants are “making it impossible for [Plaintiffs] to resell their shares while increasing their
maintenance payments” due to the increased wear and tear from the overnight tenants. Id. (citing
FAC ¶¶ 127, 142, 147); see also FAC ¶ 127 (“This rental program has suppressed the value of
Plaintiffs’ Units. Adding insult to injury, Defendants have foisted the costs of the increased wear
and tear caused by the rental program on Plaintiffs in the form of increased annual fees.”). Plaintiffs
have also pleaded that the rental program suppresses the value of the Club Interests, FAC ¶ 127, and
makes it difficult for Plaintiffs to access their Club Interests because they have to compete with
renters. Id. ¶ 148.
While the Court has found that Plaintiffs have adequately pleaded an implied covenant on
the part of the Sponsor to sell a sufficient number of Club Interests, Plaintiffs have not adequately
alleged the existence of an independent duty not to rent units. To conclude that such an implied
covenant existed here would run in the face of the express provisions of the Offering Plan that
Id. Plaintiffs have not argued how the exchange program contemplated in this part of the provision is relevant
to the question of overnight rentals, however.
17
reserved to the Sponsor the right to rent units. Plaintiffs concede that the “Offering Plan opens
with a reference to Sponsor’s rental . . . of its Unsold Club Interests,” that Plaintiffs knew “there
would be some rentals,” and that the Sponsor, as owner of unsold Interests, is arguably “entitled to
rent like any other Club Member.” FAC ¶¶ 152, 155, 158. The Plan clearly anticipates that the
Sponsor will rent Club Interests. See, e.g., Plan at 3 § 1(a) (“Any Club Member attempting to rent or
resell a Club Interest would have to compete, at a substantial disadvantage, with Sponsor in the
rental and sale of its Unsold Club Interests.”). The Court cannot, therefore, find in the Plan an
implied covenant for the Sponsor not to rent units—such an implied term is contradicted by the
contract’s express language. Accordingly, the motion to dismiss Count Three is granted.
v.
Statute of Limitations for Breach of Contract Claims
Finally, the parties dispute whether the breach of contract claims asserted in Counts One
and Three are time-barred.8 New York’s statute of limitations for breach of contract—express and
implied—is six years, C.P.L.R. §213(2), and “accrues at the time of the breach . . . even though the
injured party may be ignorant of the existence of the wrong or injury” at that time. Ely-Cruikshank
Co. v. Bank of Montreal, 81 N.Y.2d 399, 402–03 (1993); V.E.C. Corp. of Del., 896 F. Supp. 2d at 259.
According to Plaintiffs, the statute of limitations for the alleged breaches has not yet
expired.9 According to Defendants, however, the claims would have accrued in or around 2008 and
2009, when Defendants allegedly abandoned their sales efforts and implemented the overnight rental
program. If Defendants are correct, the claims expired prior to the tolling agreement entered into
by the parties approximately seven or eight years later, in 2016. See Defs.’ Br. at 18. For the reasons
set forth below, the Court cannot conclude, at this time, that the contract claims are time-barred.
The Court does not address the parties’ arguments regarding Count Three because it has been dismissed.
In the alternative, Plaintiffs maintain that (i) Defendants annually reaffirmed their duty to sell the Club Units by filing
annual amendments to the Plan; and (ii) the duty to sell requires continuing performance and therefore implicates the
continuing violation doctrine.
8
9
18
Count One derives from the Sponsor’s implied covenant to sell a sufficient number of Club
Interests to permit the fractional offering to become viable. “Nonperformance of a required duty
under a contract is not a breach of the contract until the performance is due.” N.Y. State Elec. & Gas
Corp. v. State, 630 N.Y.S.2d 412, 414 (3d Dep’t 1995) (citing Restatement (Second) of Contracts §
235 cmt. b (1981)). Where, as here, no time for contract performance is specified, a party to a
contract is permitted a “reasonable time” to perform. See Jennifer, 98 N.Y.2d at 154. What
constitutes a reasonable time is a question of fact for the jury. See Sands v. Bernstein, No. 07-cv-9824
(RWS), 2009 WL 151729, at *4 (S.D.N.Y. Jan. 21, 2009) (“The question of what is a reasonable
period of time for performance of a particular contract is a question of fact for a jury, unless the
facts are undisputed, in which case the question becomes one appropriate for summary judgment.”)
(internal quotations and citations omitted); Baisch, Inc. v. Pike Co., 959 N.Y.S.2d 786, 787 (4th Dep’t
2013) (“What constitutes a reasonable time for performance depends upon the facts and
circumstances of the particular case.”); Lituchy v. Guinan Lithographic Co. Inc., 400 N.Y.S.2d 158, 159
(2d Dep’t 1977) (“[T]he question as to what constitutes a reasonable time under the circumstances
presented here is a factual one requiring a trial.”).
Given that the governing documents do not specify a deadline for the Sponsor’s
performance, the Sponsor is entitled to a “reasonable time” to perform.10 Because the question of
“reasonable time” is a question of fact, however, the Court declines to dismiss Count One as
untimely at this stage.
In their opposition, Plaintiffs assert repeatedly that “both sides agree that the recession suspended Sponsor’s duty to
sell,” and, therefore, that the statute of limitations did not begin to run until a reasonable time after the recession. Pls.’
Opp., at 12–13. It is not apparent to the Court, however, that both sides do, in fact, agree on that issue. Moreover, the
question of when the statute began to run—whether before or after the recession—requires the Court to evaluate
additional facts that are not available at this early stage of the litigation.
10
19
B. Rescission (Sixth Count)
Defendants’ motion to dismiss Plaintiffs’ claim for rescission is denied because the
contractual language upon which Plaintiffs’ motion is predicated is ambiguous. Plaintiffs, with the
exception of a small subset of “Non-Rescinding Plaintiffs,” move to rescind their purchase
agreements, as an alternative to their breach of contract claims. FAC ¶ 198. The section of the Plan
on which they rely provides, in relevant part, that:
Sponsor reserves the right, from time to time prior to the First Closing of a Club
Interest, without obtaining the consent of Purchasers or others, to substantially
revise the terms and conditions upon which the Club Interests are to be sold,
including changes affecting the rights, obligations and liabilities of Sponsor, the
Purchasers and/or prospective Purchasers under the Offering Plan . . . . All substantive or
material revisions will be contained in a duly filed amendment to the Offering Plan.
If there is a substantial amendment to the Offering Plan that materially and adversely
affects Purchasers, except as otherwise provided herein, Purchasers will have a right of
rescission for a period of fifteen (15) days from the Presentation Date11 of such
amendment to them, sponsor shall promptly return any Deposit to Purchasers who
rescind . . . .
Plan at 103 (emphasis added). Both parties have presented reasonable alternative constructions of
several components of this language, which renders it ambiguous.
“In a dispute over the meaning of a contract, the threshold question is whether the contract
is ambiguous.” Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011).
The question of “[w]hether or not a writing is ambiguous is a question of law to be resolved by the
courts.” W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). “It is well settled that a
contract is unambiguous if the language it uses has a definite and precise meaning, as to which there
is no reasonable basis for a difference of opinion. Conversely, . . . the language of a contract is
ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire integrated agreement.” Lockheed
The “Presentation Date” is the “date on which the Offering Plan or an amendment thereto . . . is personally delivered
or the fifth day after mailing to prospective Purchasers and Club Members.” Plan, at 23.
11
20
Martin Corp., 639 F.3d at 69. “‘Ambiguity is determined by looking within the four corners of the
document, not to outside sources.’” JA Apparel Corp. v. Abboud, 568 F.3d 390, 396 (2d Cir. 2009)
(quoting Kass v. Kass, 91 N.Y.2d 554, 566 (1998)).
The parties first dispute the meaning of the term “Purchaser,” which is used in the rescission
provision to define the category of people with the right to claim rescission. “Purchaser” is defined
in the Plan as “a purchaser of a Club Interest under a Purchase Agreement with Sponsor.” Plan at 24
(emphasis added).12
Defendants argue reasonably that the term “Purchaser” applies only to persons who are still
“under” their Purchase Agreements, in that the purchase has not yet closed. Defendants argue that
“[t]he Plan’s definition of ‘Purchasers’ implements a right to rescind afforded under the Martin Act
regulations to ‘purchasers under contract.’” Defs.’ Br. at 20 (citing 13 N.Y.C.R.R. § 24.5(a)(5)).
Defendants argue that their proposed construction of the contract is bolstered by the limited nature
of the remedy available for those who opt to rescind; they are entitled to the return of their
deposit—a remedy which, they reasonably argue, would not redress all harm to a person who has
already closed their purchase.
Defendants’ argument that the language is clear and unambiguous, however, is foiled by an
article—the word “a” in the definition of Purchaser. Unlike the language in the Martin Act
regulation which Defendants cite, the definition of “Purchaser” here does not refer to a “purchaser
under contract”—which in this context the Court might readily construe to be an unambiguous
reference to a purchaser who is subject to the terms of a contract that has not yet closed. Instead,
the definition refers to “a purchaser of a Club Interest under a Purchase Agreement.” This
language, which introduces the article “a” and uses the defined term “Purchase Agreement,” rather
A “Purchase Agreement” is defined as “the agreement to purchase a Club Interest entered into between Sponsor and
Purchaser.” Id.
12
21
than a generic reference to a contract, permits the alternative construction forwarded by Plaintiffs—
namely that the term refers to any person who purchased a Club Interest pursuant to a Purchase
Agreement with the Sponsor, as opposed to a purchaser from a third party.
When viewed in the context of the document as a whole, the term “Purchaser” is used
variably in ways that support both Plaintiffs’ and Defendants’ proposed construction of the term.
As an illustration, the Plan states that “each Purchaser of a Club Interest will acquire a 4/52
undivided interest in a Club Unit, as tenant-in-common with all other Purchasers of Club Interests
in such Club Unit.” Plan at 12. This provision makes little sense if the term “Purchaser” is defined,
as Defendants argue, to refer only to people currently under contract to buy a unit, but not to
people who have closed the sale. While this may not have been the intent of the parties or the
scrivener, as drafted, the text of the contract permits alternative constructions of the term
“Purchaser” as used. Since the term as used here is ambiguous, the Court cannot dismiss the
rescission claim on this ground.13
The Court fully appreciates Defendants’ argument that the first sentence of the paragraph
establishing the rescission right should inform the analysis of the contractual provision. Defendants
present the provision as one that clearly relates solely to rights in the event of an exercise by the
Sponsor of its expressly reserved right to revise sales terms “prior to the First Closing of a Club
Interest.” Plan at 103. This is a valid argument, but one that is weakened by the contract’s use of
the defined term quoted above. For the “First Closing of a Club Interest” does not mean the first
13 Neither Plaintiffs nor Defendants discuss the waiver of claims made by “Purchasers” and their effect on Plaintiffs’
claims in the event that Plaintiffs do qualify as Purchasers, as they argue. The Plan contains a number of provisions
limiting the Sponsor’s liability to Purchasers. It also includes limitations on Purchasers’ rights to bring action against
third parties, such as the following: “Under no circumstances shall any Purchasers and offerees under the Offering Plan
(or their purchasers or tenants or invitees others) have any claim or recourse whatsoever against or privity with Fee
Owner, any Commercial Unit Owner, the Club Sponsor or Starwood or any of their respective affiliates (other than
Sponsor), or any of their respective officers, directors, partners, members, managers, shareholders, agents, employees or
successors-in-interest or other party/ies claiming through, in connection with the Offering Plan, the renovation of the
Suite Units (or any other Unit in the Condominium or element thereof), any ‘fiscal’ matters (e.g., adequacy of
budgets, reserves, etc.) or the purchase of a Club Interest or any other matter relating to the Building.” Plan at 27.
22
closing of any Club Interest or Club Unit. Instead, it is defined as “the Closing of Title with respect
to the first Club Interest in a particular Club Unit.” Plan at 22. Because of the use of this defined
term, rather than natural language, the Sponsor’s reserved right described in the paragraph can be
argued to apply not only once at the outset of sales, but a multitude of times as it begins sales in
each separate particular Club Unit.
Defendants also argue that the rescission claim must be dismissed because the preconditions
for exercising the right to rescind have not been satisfied. As noted above, there must have been “a
substantial amendment to the Offering Plan that materially and adversely affects Purchasers” to
trigger the right to rescind. Plan, at 103. Here, the parties dispute whether the complaint
sufficiently pleads the existence of such substantial amendments.
According to Plaintiffs, the alleged substantial amendments are (i) the conversions of Suite
Units into Club Units and changes in expense allocations, which were endorsed formal amendments
to the Plan—namely, the Seventh and Eighth Amendments; and (ii) the Sponsor’s decision to
abandon sales and instead pursue a large-scale rental program, which Plaintiffs classify as a “de facto”
amendment. See FAC ¶ 201.
Defendants argue that these changes do not constitute “substantive or material revisions”
sufficient to satisfy the rescission provision’s preconditions. Defs.’ Br. at 21. In particular,
Defendants argue that the Plan “plainly contemplates rescission only based on amendments that
have been ‘duly filed,’”—which excludes the de facto amendments.14 The rescission provision
provides that “[a]ll substantive or material revisions will be contained in a duly filed amendment to the Offering
Plan. If there is a substantial amendment to the Offering Plan that materially and adversely affects
With respect to the Seventh and Eighth Amendments, Plaintiffs allege that the changes were concealed and Plaintiffs
did not learn of them until a tolling agreement went into effect on May 20, 2016. Id. ¶ 204. Accepting the allegations of
the FAC as true, the time to exercise the right of rescission has not expired because it runs from the Presentation
Date—which has not yet occurred. Id. ¶ 205.
14
23
Purchasers, except as otherwise provided herein, Purchasers will have a right of rescission.” Defs.’
Br. at 21 (quoting FAC ¶ 201) (emphasis added). It is reasonable to construe the plain language of
the rescission provision to limit the right of rescission to Purchasers who have been subjected to
“substantive or material revisions” that are contained in duly filed amendments. Plaintiffs do not
propose another reading of this clause, and the Court does not find that the language is capable of a
different interpretation. Accordingly, the Court grants the motion to dismiss with respect to
rescission rights allegedly derived from the de facto amendments.
Defendants’ other substantive argument rests on selective quotation from the relevant
contractual provision, and falls on the back of the ambiguous language of the complete text.
Defendants argue that a “substantial amendment” for purposes of the rescission provision is one
that “materially and adversely affects Purchasers, except as otherwise provided herein . . . .” Defendants
then point to provisions in the Plan granting the Sponsor the “right to create and add additional
Club Units . . . by subdividing . . . and/or converting the Suite Units” and noting that “it is
anticipated that the methods of allocation of [expenses] will be periodically adjusted.” Plan, at 7–8 §
20(e), 42. Defendants argue that because of the fact that unit conversion and expense allocation are
provided for elsewhere in the Plan, those actions cannot constitute substantial amendments that
trigger the right to rescind. This argument is not implausible as presented.
However, Defendants’ argument rests on selective quotation from the contract. The full
clause of the contractual provision at issue reads as follows: “If there is a substantial amendment to
the Offering Plan that materially and adversely affects Purchasers, except as otherwise provided herein,
Purchasers will have a right of rescission for a period of fifteen (15) days . . . .” In the complete text,
the clause “except as otherwise provided herein” can be read to caveat the language that follows it—
in other words, that the Purchasers will have a right of rescission for a period of time, except as
otherwise provided in the agreement. This is a more natural construction of that language in
24
context than Defendants’ suggestion that the clause caveats what constitutes a material and adverse
effect on Purchaser. Defendants’ argument, which rests on its selective quotation from the contract,
does not provide sufficient basis to dismiss this claim.
C. Plaintiffs’ Unjust Enrichment Claim Must be Dismissed (Seventh Count)
Finally, Plaintiffs’ unjust enrichment claims against Defendants other than the Sponsor are
inadequately pleaded. 15 “The essential inquiry in any action for unjust enrichment . . . is whether it is
against equity and good conscience to permit the defendant to retain what is sought to be
recovered.” Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 (2011) (quoting Paramount Film
Distrib. Corp. v. State of New York, 30 N.Y.2d 415, 421 (1972)). “A plaintiff must show ‘that (1) the
other party was enriched, (2) at that party’s expense, and (3) that ‘it is against equity and good
conscience to permit [the other party] to retain what is sought to be recovered.’” Id. (quoting
Citibank, N.A. v. Walker, 787 N.Y.S.2d 48 (2d Dep’t 2004)); see also Kaye v. Grossman, 202 F.3d 611,
616 (2d Cir. 2000) (“To prevail on a claim for unjust enrichment in New York, a plaintiff must
establish 1) that the defendant benefitted; 2) at the plaintiff’s expense; and 3) that ‘equity and good
conscience’ require restitution.”).
The Plaintiffs’ unjust enrichment claims rely on improper group pleading. The FAC defines
“Defendants” as the collective term for Starwood, Marriott International, Vistana Vacation
Ownership, Inc., Vistana Signature Experiences, Inc., Merger Sub, Inc., and Interval Leisure Group,
Inc. (collectively, the “Non-Sponsor Defendants”), together with the Sponsor. FAC at 8.
Throughout the complaint, Plaintiffs consistently refer to the actions of Defendants collectively
without specific attribution.
15 A claim of unjust enrichment “cannot be maintained alongside a properly asserted breach of contract claim as a matter
of law.” Adams v. Labaton, Sucharow & Rudoff LLP, No. 07-cv-7017 (DAB), 2009 WL 928143, at *7 (S.D.N.Y. Mar. 20,
2009). Here, however, the breach of contract claims are asserted only as to the Sponsor and the unjust enrichment claim
is asserted only as to Defendants other than the Sponsor.
25
Complaints that rely on group pleading “fail to differentiate as to which defendant was
involved in the alleged unlawful conduct are insufficient to state a claim.” Adamou v. Cty. of
Spotsylvania, Va., No. 12-cv-7789 (ALC), 2016 WL 1064608, at *11 (S.D.N.Y. Mar. 14, 2016) (citing
Atuahene v. City of Hartford, 10 Fed. App’x 33, 34 (2d Cir. 2001) (observing that Federal Rule of Civil
Procedure 8 “requires, at a minimum, that a complaint give each defendant fair notice of what the
plaintiff’s claim is and the ground upon which it rests,” and that a complaint fails to meet that
minimum where it “lump[s] all the defendants together in each claim and provide[s] no factual basis
to distinguish their conduct”); see also Spring v. Allegany-Limestone Cent. Sch. Dist., 138 F. Supp. 3d 282,
293 (W.D.N.Y. 2015), aff'd in part, vacated in part, 655 F. App’x 25 (2d Cir. 2016), remanded to No. 14cv-476S (WMS), 2017 WL 6512858 (W.D.N.Y. Dec. 20, 2017) (“Because the personal involvement
of a defendant is a prerequisite to an award of damages under § 1983, a plaintiff cannot rely on a
group pleading against all defendants without making specific individual factual allegations.”);
Thomas v. Venditto, 925 F. Supp. 2d 352, 363 (E.D.N.Y. 2013) (“[I]t is insufficient for the plaintiffs to
rely on group pleading against [these defendants] without making specific factual allegations [against
them].” (alterations in original) (internal quotation marks and citation omitted)); cf. Iqbal, 556 U.S. at
676 (“[A] plaintiff must plead that each Government-official defendant, through the official’s own
individual actions, has violated the Constitution.”).
While Plaintiffs’ reliance on imprecise group pleading is not fatal to their other claims, their
practice leaves the complaint bare of sufficient facts to sustain their pleading burden with respect to
the unjust enrichment claim. Plaintiffs fail to plead that the Non-Sponsor Defendants specifically
profited at Plaintiffs’ expense. Instead, the allegations pertaining to their unjust enrichment claim
refer to “Defendants”—meaning all defendants, including the Sponsor. Plaintiffs contend that their
interests were harmed because “rental income that rightfully belongs to them” was “diverted to
Defendants.” Pls.’ Opp., at 24. They point to the allegations in the FAC that claim “Defendants
26
have unlawfully profited at Plaintiffs’ expense, including by renting time associated with unsold Club
Interests in violation of the Club Offering Plan” and that “[e]quity and good conscience require that
all sums improperly obtained by Defendants be disgorged by Defendants and restored to Plaintiffs.”
FAC ¶¶ 208–209.16
But these blanket assertions as to all Defendants are not sufficient to state a claim. There are
no specific facts that would suggest how, for example, Defendants other than the Sponsor profited
by renting time in the Club Units, or how rental income was diverted to them. Given the few
specific facts that are pleaded regarding the Non-Sponsor Defendants’ involvement in the
transactions at issue, the Court is unable to look through the group pleading to find facts sufficient
to allow the unjust enrichment claims to proceed as to any of the Non-Sponsor Defendants.
Accordingly, the motion to dismiss Count Seven must be granted.17
16 Moreover, the few allegations relating specifically to the Non-Sponsor Defendants do not plausibly allege that they
were unjustly enriched. The FAC asserts that Starwood, in a joint venture with several other entities, filed the
condominium map on the building housing the St. Regis, which created the Club Units. FAC ¶ 3. Starwood is the
former owner of Starwood Vacation Ownership, Inc., which has been renamed and acquired by defendant ILG. Id. ¶
19. On October 28, 2015, Starwood announced that it had entered into a definitive agreement to spin off its vacation
ownership businesses, including VVO and the Sponsor, and to then merge these spun-off entities with a subsidiary of
ILG, Merger Sub (the “Spin-Off/Merger”). Id. ¶ 25. The Spin-Off/Merger was completed by May 2016 and ILG
became the owner of the Sponsor and its unsold Club Interests. Id. Defendants ILG, VVO, VSE, and Merger sub are
referred to collectively in the FAC as “ILG-Vistana.” Id. ¶ 26. Defendant Marriott acquired Starwood in 2016. Id. ¶ 20.
While these connections explain why the Non-Sponsor Defendants were named in this action, there is no factual basis
from which the Court can discern that they were unjustly enriched.
Because the unjust enrichment claim is dismissed on this ground, the Court need not address Defendants’ remaining
arguments—namely, that the unjust enrichment claim is conclusory, was released against the relevant defendants, and
that it is untimely.
17
27
VI.
CONCLUSION
For the reasons set forth above, the motion to dismiss is granted in part and denied in part
as to Count One. The motion to dismiss is granted as to Count Three with prejudice. The motion
to dismiss is denied as to Count Six and granted as to Count Seven. Count Seven is dismissed
without prejudice. Plaintiffs are granted leave to replead Count Seven. Any amended complaint
must be filed no later than 21 days after the date of this order.
SO ORDERED.
Dated: September 28, 2018
New York, New York
_____________________________________
GREGORY H. WOODS
United States District Judge
28
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?