another timeshare exit company can be sued under state law, but not Lanham Act

Orange Lake Country Club, Inc. v. Reed Hein & Assoc., LLC, 2019 WL 7423517, No: 6:17-cv-1542-Orl-78DCI (M.D. Fla. Oct. 4, 2019)

Another timeshare case, this one kicking out Lanham Act claims but not FDUTPA deceptive practices claims on proximate cause. Defendant TET

allegedly puts out false and misleading advertisements, leading owners to believe that it can relieve them of their timeshares. Those owners then contact TET, which induces them to, inter alia, stop paying on their timeshare contracts and hire TET. Once hired, TET outsources the owners’ cases to “vendor attorneys” like Defendant Mitchell Reed Sussman (“Sussman”), who allegedly engage in fruitless “negotiation” with timeshare companies before employing one of his three deceptive and unlawful methods to “exit” owners from their timeshare contracts. As a result, Plaintiffs claim that the owners who contractually agreed to pay them have defaulted on their obligations, causing harm to Plaintiffs.

The advertising allegedly “create[s] the impression that TET can legally and permanently get owners out of the timeshare contracts for any reason.” It used to claim a “100% success rate,” eventually changed to “highest success rate in the industry.” It also “guarantee[d]” exit, and advertised a “100% money back guarantee,” which deposition testimony indicated was not true. The ads described TET’s process as finding illegal tactics in the underlying timeshare sale and using them to get an exit. Dave Ramsey also served as a paid endorser. Sales reps allegedly advised owners to cease all communication with their timeshare developers, and (at least until 2016 and allegedly later) advised owners to stop making payments under their timeshare agreements. 

Over 95% of TET’s cases went to outside vendors. When accounts went to attorneys, TET allegedly prohibited account coordinators from disclosing the attorney’s contact information to the client, and the attorneys were prohibited from communicating directly with TET clients. [This can’t be ok under Florida’s ethical rules for lawyers, can it? But then again given what Florida lawyers did with foreclosures, why would anyone have noticed?]  TET allegedly requires account coordinators to report that the case is proceeding according to a predetermined timeline, even if untrue, to deceive customers into thinking things are going well.

Defendant Sussman, a vendor attorney, allegedly also treated these cases the same regardless of circumstance, accusing developers of fraud and instructing them not to contact the owners. When a developer thus sends billing statements to Sussman, he throws them away. Sussman employs allegedly ineffective methods to exit the timeshare; Orange Lake rejects his cancellation methods, but Sussman continues to use them and tells owners they’re no longer “responsible for future fees in connection” with the timeshares, leaving them in foreclosure without their knowledge.  “In 2014, TET’s general counsel vocally opposed Sussman’s methods, but Sussman ran amok until April 2016, when TET supposedly terminated its relationship with him. Even then, TET still had approximately 6,000 open files with Sussman, 700 of which remained open as of September 2018.”

One Orange Lake owner hired TET, which told her to stop payment. The rep assured her that TET had an attorney that would “fix” any issues that arose from cessation. She discovered who was working on her case and left a voicemail, but only got a brief letter claiming he was representing her; all he did was send a C&D to Orange Lake. Ultimately, Orange Lake “voluntarily” accepted a deed in lieu of foreclosure [ed. note: which actually sounds like a relatively good result, but the anxiety and possible credit damage have to be factored in, though the court’s summary doesn’t make clear whether she could have instead afforded to pay forever].  The client demanded a refund from TET, while TET refused and claimed that it helped, even though a month after her release, TET claimed to still be working on an “exit” and claimed Orange Lake was delaying the process.

Other Orange Lake owners who started out current on payments and became delinquent due to TET’s instructions paid late fees to Orange Lake and also paid TET for ineffective services; one hired a different attorney who communicated with Orange Lake, at which point Orange Lake accepted a deed in lieu of foreclosure. TET allegedly took credit for that exit and denied her a refund. Other Orange Lake owners also had frustrating relationships with TET, though interestingly Orange Lake did release some of them (allegedly outside the TET connection). In one case, TET allegedly abandoned clients when they received a foreclosure notice (they ended up with a deed in lieu of foreclosure).

Lanham Act: The damages suffered by Orange Lake—nonpayment of fees—were not proximately caused by the ads. Orange Lake did not allege that its reputation was affected by the ads. The ads accused “Plaintiffs and all timeshare companies generally [the ads don’t seem to have named Orange Lake, so that’s a stretch] of engaging in deceitful, manipulative, or otherwise imprudent behavior,” and Orange Lake’s expert testified that TET’s website “reflect negatively on the timeshare industry and make Website viewers less likely to purchase a timeshare.” This could create a question of fact on reputational harm, but Orange Lake’s complaint didn’t rely on reputational harm, but only on loss of sales.  Because none of the advertisements directed owners to cease paying timeshare obligations, Orange Lake couldn’t show proximate cause. The but-for causation—if not for the ads, clients wouldn’t have hired TET and been instructed not to pay—was too remote. Summary judgment for defendants.

Tortious interference did survive; although predisposition to breach is a defense and the owners wanted to exit their relationships, there was evidence that at least some owners were not predisposed to do so via breach (stopping payment of fees).

FDUTPA: Requires “(1) a deceptive act or unfair trade practice; (2) causation; and (3) actual damages.” Orange Lake argued that TET violated FDUTPA by (1) soliciting Orange Lake owners through false and misleading advertising; and (2) fraudulently inducing Orange Lake owners into retaining TET based on TET’s advertised 100 percent guarantees of exiting timeshares when TET cannot actually fulfill the guarantee.  TET argued that some of its statements were accurate, and others mere opinion/puffery. A reasonable jury could find some of the statements false or misleading. “For example, the evidence reflects that TET’s ‘100% money back guarantee’ is riddled with non-apparent conditions and not honored in many cases. TET tacitly admits this by stating that it has procured exists for half of its 28,000 customers but issued only 800 refunds.” There was also evidence from deposed clients that they were deceived. “TET’s failure to deliver on its advertised promises is sufficient evidence of consumer deception to create a genuine issue of material fact.”