Friday, August 23, 2019

timeshare company adequately pleads case against timeshare exit promoter

Wyndham Vacation Ownership v. Reed Hein & Assoc., LLC, No. 18-cv-02171-GAP-DCI, 2019 WL 3934468 (M.D. Fla. Aug. 20, 2019)

This is another lawsuit over timeshare exit companies’ allegedly false advertising of the ease of exiting a timeshare. Defendant TET allegedly published false and misleading advertisements to convince Wyndham timeshare owners that it has a “safe,” “legitimate,” or “guaranteed” means of “exit[ing]” them from their timeshare contracts; the ads were allegedly created, at least in part, by defendant Happy Hour. TET would then allegedly instruct owners to stop making payments on their timeshare contracts, without disclosing that the results include breach of their contracts, foreclosure of their timeshare interests, and other adverse consequences. The lawyer defendants would then allegedly get a fixed fee from TET “to engage in fruitless negotiations with Wyndham,” without speaking to any owner.  Wyndham sued for false advertising and contributory false advertising under the Lanham Act, tortious interference with contractual relations (and civil conspiracy to do that), and violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA).

Lanham Act: TET argued that Wyndham didn’t satisfy Lexmark’s zone of interest/proximate cause requirement. Originally, Wyndham failed to adequately “allege that [its] injury flow[ed] directly from TET’s advertising.” But it fixed the pleading problem in this amended complaint.  “TET cites no authority to support its contention that false advertisements must expressly tell viewers to withhold trade from a plaintiff or that the false advertising must be the only reason behind a consumer’s actions for a plaintiff to prevail on a false advertising claim.”  Proximate causation is required, not sole causation or predominant causation.

Wyndham’s alleged lost sales and injury to its reputation were “precisely the sort of commercial interests that the Lanham Act seeks to safeguard.” And it alleged proximate cause by alleging false and misleading advertising statements concerning TET’s services and about Wyndham that deceived identifiable Wyndham owners into retaining TET, who then instructed them to stop satisfying their contractual obligations to Wyndham.  These ads also allegedly caused owners to believe that Wyndham engaged in unlawful conduct and would not voluntarily release them from their timeshare contracts. [That last part sounds … true, unless Wyndham itself determines there’s no more money to be had by squeezing, based on Wyndham’s own description of its conduct in these cases, but ok.] When “a defendant harms a plaintiff’s reputation by casting aspersions on its business, the plaintiff’s injury flows directly from the audience’s belief in the disparaging statements.”

The court also rejected TET’s arguments that its ads were directed at the “timeshare industry” as a whole and do “not expressly or implicitly nam[e] any one timeshare company,” thus could not proximately cause Wyndham’s injury. But “common sense dictates that an entity can plausibly be harmed by disparaging statements directed at the industry it occupies.” Also, the amended complaint alleged that TET made false statements specifically targeted at Wyndham.

TET then argued that its ads didn’t constitute “commercial advertising or promotion” under the Lanham Act because there is no “commercial competition” between Wyndham and TET. Lexmark abrogated that prong of the test for advertising or promotion.

Next, TET argued that its statements were nonactionable opinion.  But whether the statements were false or misleading was a fact-intensive inquiry not suitable for a motion to dismiss.  [Note that many, many courts would at least examine the statements to see if they plausibly conveyed specific, falsifiable facts.] Here, the court accepted as true the factual allegations that the ads were “either literally false or deceptively misleading” and that those statements caused owners to (1) believe that Wyndham engaged in unlawful activity and would not release them from their timeshares, (2) hire TET, and (3) cease payment on their timeshare contracts.  [Note also that doctrinally speaking, (1)-(3) don’t necessarily bear on whether the statements were specific enough to be falsifiable—the genius of puffery (or opinion) is that it can both be persuasive enough to get consumers to act and also not specific or falsifiable enough for a court to deem it actionable.]

Contributory false advertising against other defendants: This requires primary false advertising plus contribution to the primary conduct. The plaintiff must allege that the defendant: (1) “had the necessary state of mind — in other words that it ‘intended to participate in’ or actually knew about’ the false advertising”; and (2) “actively and materially furthered the unlawful conduct — either by inducing it, causing it, or in some other way working to bring it about[,]” such as through the “provision of a necessary product or service, without which the false advertising would not be possible.” Courts should consider: (1) “the nature and extent of the communication between the third party and the defendant regarding the false advertising;” (2) “whether or not the [defendant] explicitly or implicitly encouraged the false advertising;” (3) “whether the false advertising is serious and widespread, making it more likely that the defendant kn[ew] about it and condoned the acts;” and (4) “whether the defendant engaged in bad faith refusal to exercise a clear contractual power to halt the false advertising.”

Wyndham adequately alleged that “the advertisements run by TET were made and created, at least in part, by Happy Hour,” which was apparently enough, even without more specifics about who was responsible for the falsity. Legal services providers SGB and Privett were allegedly aware of TET’s false advertising due to its widespread dissemination [standing alone, this just can’t be right—they need to be aware of the falsity, not just of the advertising], and it sufficed to allege that “SGB[ ] and Privett explicitly or implicitly encourage the false advertising because they knowingly accept legal representation of the consumers deceived by the false advertising” and “derive much, if not all, of their revenue from the consumers solicited through TET’s false advertising.” “Without ... SGB[ ] and Privett’s willingness to accept those consumers as clients,” Wyndham alleged, “TET could not advertise what they do.”

In a sign of how things are going for defendants, the FDUTPA claim survived too, despite defendants’ argument that the pleadings didn’t survive Rule 9(b)—the court wasn’t even convinced the complaint was grounded in fraud, which is somewhat surprising given how 9(b) analysis in similar cases usually goes. But anyway, Wyndham sufficiently pled the who, what, when, why, and how.  

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