preyed on twice over: timeshare and timeshare exit lawyer squabble with consumers as collateral damage

Westgate Resorts, Ltd. v. Sussman, No. 6:17-cv-1467-Orl-37DCI (M.D. Fla. May 31, 2019)

OK, this fact shocked me: about 35% of Westgate’s timeshare buyers default some time during their loan periods, according to the decision here in this battle in the timeshare wars.  That is an appalling number, indicating to me a need for greater regulatory action to protect consumers from a purchase that seems unlikely to work out well, especially given individual Americans’ distaste for strategic default. [My in-laws bought timeshares from a different company and it seems like something that satisfies them, though from the outside it looks like fighting with the management is half of the fun for them.  Sounds nightmarish to me.]

The court here seems pretty unimpressed by both sides: Westgate (which the court calls The Trapper) sells timeshares via warranty deed, with the aforementioned default rates, and has a right of first refusal that seems to make it pretty hard to resell the interest, not that there is a very deep market for such sales.  It will sometimes accept deeds in lieu of foreclosure from owners who want out and can demonstrate financial hardship, typically seeking an additional payment therefor, though apparently this doesn’t always work and default is the only option for unwilling owners.  (Even if you don’t have a mortgage, ongoing HOA fees continue to be required, so owners can’t just abandon the property.)

Meanwhile, defendant Sussman (The Weasel)

is a California-based real estate attorney who claims a specialty in ridding timeshare owners of their timeshare obligations. He does this by directing timeshare owners to stop all payments to their timeshare, sending demand letters to the timeshare company, and recording another owner on the property  deed—all for a fee, of course. At the end of the day, he tells the timeshare owners they got off scot-free thanks to his skillful negotiation tactics and ability to drive a hard bargain. But, alas, it’s not so. Rather, from the timeshare company’s perspective … and contractually, the owners’ obligations are undiminished. Despite this inconvenient truth, Mr. Sussman kept on.

(The third group here is owners: The Prey.) Westgate sued Sussman for tortious interference with existing contracts and violation of Florida’s  Deceptive and Unfair Trade Practices Act. The court here grants partial summary judgment to Westgate, leaving causation/damages issues for trial.

There were various tactics at issue here, and sometimes Sussman worked through middlemen—exit companies—but the court found that Sussman directed owners to stop all payments to Westgate as part of the cancellation process.  Westgate categorically rejected Sussman’s methods, but Sussman nonetheless told owners they’d successfully exited their timeshares. “Should trouble follow—such as an owner being told they still owe money to Westgate, Westgate seeking foreclosure, or Westgate suing the owner—Mr. Sussman is long gone. As his retainer ‘clearly’ states, he ‘will not represent them if there is a lawsuit.’” When there is a foreclosure, Sussman would send a congratulatory letter—not mentioning the word “foreclosure” because, to Sussman, “[owners] don’t even understand the nature of these things. [They] are laypeople.” He phrased it as the developer “agree[ing] to take back their time share”—he sees agreement “by virtue of their conduct” foreclosing.  [I feel that the California bar might also want to take an interest.]

On tortious interference, the court found that Westgate had mostly proven its case as to Sussman’s instructions to stop paying all obligations. “In Florida, the elements of tortious inference with contractual relations are: (1) the existence of a contract; (2) the defendant’s knowledge of the contract; (3) the defendant’s intentional procurement of the contract’s breach; (4) absence of any justification or privilege; and (5) damages resulting from the breach.” The sole hitch was damages, as it was with Sussman’s practice of sending “deeds back” to Westgate, which led owners to believe that they had no further obligations.  “As if that weren’t enough, with these congratulatory letters he instructed the owners that any further attempt to collect would be invalid.”  Similarly, Sussman’s practice of sending “resignation” letters and deeds to third parties (without offering a right of refusal to Westgate) also intentionally interfered with Westgate’s approved exit process. However, there was no evidence in the record that any owners stopped payments because of these practices.  For example, “[w]hile it is tempting to infer that a congratulatory letter following ‘resignation’ would induce future non-payment, there is no evidence of that fact.”  A jury would have to resolve the issue as to both causation and damages. Likewise, the supposed deeds to third parties were “intentional, unjustified, and non-privileged interference with these owners’ Right of First Refusal obligation.”  But there wasn’t a showing that Sussman’s interference actually led to further damages to Westgate—a jury would have to decide.

As for damages, Westgate claimed over $3.8 million, but the court wasn’t prepared to find that Sussman’s intentional interference proximately caused all the damages from delinquent accounts for which it had a letter of representation from Sussman.  It wasn’t clear that all the unpaid amounts were proximately connected to Sussman’s conduct, or what methods he used for each of the claimed owners. While payments stopped at the beginning of Sussman’s or an exit company’s representation “could perhaps logically be attributed to an initial direction to stop payments,” that wasn’t necessarily so for continued nonpayment at the back end.

FDUTPA: FDUTPA prohibits “unfair or deceptive acts or practices” committed “in the conduct of any trade or commerce.” As I’ve noted previously, it’s broader than the Lanham Act in scope and requires: “(1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.” “To satisfy the first element, the plaintiff must show that ‘the alleged practice was likely to deceive a consumer acting reasonably in the same circumstances.’” This is an objective test that doesn’t require actual reliance.

The court found that Sussman’s business practice and exit methods were deceptive. Directly or via an exit company, he “prey[ed] on owners helplessly ensnared by the Sisyphean obligations of their timeshare trap…. Each method Mr. Sussman employs is likely to mislead reasonable Westgate owners to believe they are no longer contractually obligated on their timeshares.” Although the court didn’t find that his website/ads misled consumers—making my point that FDUTPA is broader than the Lanham Act’s false advertising coverage of “commercial advertising or promotion”—his initial setup of telling Westgate owners that his methods could relieve them of their contractual obligations was deceptive. So were his letters telling timeshare owners they successfully exited, regardless of method.  Causation, however, remained an issue for the jury.

In sum, the court ended with a poem: “The Weasel reneged on his promise. The Prey remains trapped in the snare. The Trapper is looking for bounty, we’ll see if the jury gets there.”