Timeshare developer wins disgorgement against timeshare exit marketers despite unclean hands

Bluegreen Vacations Unlimited, Inc. v. Timeshare Lawyers P.A., 2023 WL 7109914, No. 20-24681-Civ-Scola (S.D. Fla. Oct. 27, 2023)

Intro:

In this trial, the Court has learned that tens of thousands of timeshare owners have been victimized twice: first by the timeshare industry, which used false and misleading tactics to induce the owners to purchase their timeshares —often financed with high-interest mortgages; and second by the timeshare exit industry, which charged the owners thousands of dollars and used false and misleading tactics to tortiously induce them to breach their contracts with the timeshare companies, thus exposing them to damaged credit.

Bluegreen sued a lot of entities, but only the marketing defendants remained in the case: their role was “to advertise timeshare exit services by promoting a legitimate process to exit timeshare contracts while protecting the customers’ credit.” Bluegreen sued them for Lanham Act false advertising, tortious interference, and violation of Florida’s Deceptive and Unfair Trade Practices Act. Previously, the court granted partial summary judgment in Bluegreen’s favor only for tortious interference as to 15 timeshare owners (except for damages) and its FDUTPA injunctive relief claim. Bluegreen elected to proceed only on its equitable claims, including requesting disgorgement, and sought a bench trial. After trial, the court found in Bluegreen’s favor and awarded $100,000 in disgorgement damages for the false advertising.

The court began by recounting timeshare owners’ testimony that Bluegreen lied to them and otherwise defrauded them, including by falsely promising that owners could rent out timeshares for extra money. “Bluegreen asked the Court to accept as credible the testimony of the timeshare owners relating to misrepresentations made to them by Pandora, but to reject the same owners’ testimony concerning misrepresentations made to them by Bluegreen. This is simply not plausible.”

Meanwhile, defendants claimed to only accept timeshare owners who were subjected to misrepresentations—but they also took the position that this happens to every timeshare owner. (They might be closer to right than wrong on this one, based on the cases.) When soliciting customers, defendants made false claims part of the script—e.g., “we’re going to protect your credit.” This was literally false and highly material to consumers; they couldn’t guarantee credit protection, and customers testified that they experienced negative credit effects after ceasing payment to Bluegreen. Indeed, the defendants failed to introduce any evidence that they protected or repaired even a single Bluegreen timeshare owner’s credit.

Likewise, the marketing defendants told potential customers during that an attorney that Bluegreen owners separately retain would provide them with an exit from their timeshare obligations. They touted attorney involvement as key to their services. It was literally false to tell potential customers that the attorneys would provide the exit, because the lawyers’ steps were insufficient to do so. All the lawyers would do was send a C&D and a demand letter; they wouldn’t litigate or arbitrate, and they couldn’t force Bluegreen to act. Any “exit” came from default. Likewise, it was false to claim that their process cancelled timeshare contracts “permanently and legally ....” when the defendants “virtually never” delivered an “exit” to a Bluegreen Owner except through default. In a particularly “yikes” bit, one marketing defendant

1990. In email correspondence with the Lawyer Defendants, a Marketing Defendant employee stated “[p]lease know that we do not want [the fact that the lawyers send only two letters] mentioned to clients. Whenever we ask the firm to contact a client, we are doing so in hopes that the firm reassures a client that they’re doing all that they can to help cancel, not that they aren’t doing anything else on the file besides sending out two letters…. less is more when it comes to clients ....” They kept doing it even when they knew Bluegreen had a policy of not responding to these letters.

Customers also testified that attorney representation was material to them, as were other false statements about defendants’ “perfect” success rate, e.g., “we are consumer advocates, we’ve never lost a single case, we have won [sometimes ‘resolved’] every case we’ve taken.” This was false because they’d had to refund timeshare owners for failure to achieve an exit, and there were other clients who still have active Bluegreen contracts. And there were false statements that, once the attorney contacts the developer, the owner is out or done with the timeshare, and can stop making payments. Numerous owners testified that they stopped paying Bluegreen based on these instructions, including statements that stopping payments would make the attorneys’ process “faster,” “quicker,” or “easier.” (Here’s one script: “I cannot tell you to stop making payment that would be unprofessional and unethical. However, we have found that we are able to get you out quicker if you do not make payments.”) This was false because the attorneys had nothing to do with it: the default was the only thing that mattered.

Lanham Act specific analysis: did the telephone sales presentations that were the “last stage” of the ad campaign, where the false statements occurred, constitute “commercial advertising or promotion”? Yes. The defendants use

a nationwide, multi-stage campaign involving various dissemination methods, including Pandora’s website, in-person presentations, and social media. The result of this comprehensive advertising is the scheduling of timeshare owners to speak with an analyst who delivers the sales presentation, an integral part of the multi-stage campaign. The sales presentations were thus “part of an organized campaign to penetrate the relevant market,” i.e., the market of timeshare owners seeking a release from their timeshare obligations.

And the falsities were part of the scripts and other training materials; audio recordings showed that they appeared “with regularity.”

Bluegreen was also injured, and it didn’t need to prove as much once it dropped its request for legal remedies. “The burden for demonstrating causation under the Lanham Act is lower for equitable relief and actual damages need not be proven.” Disgorgement of profits “is appropriate where: (1) the defendant’s conduct was willful and deliberate, (2) the defendant was unjustly enriched, or (3) it is necessary to deter future conduct.” But disgorgement “shall constitute compensation and not a penalty.”

Equity also requires that the Court consider a plaintiff’s unclean hands. This is relevant because the owners generally testified that Bluegreen lied to them first. “But for Bluegreen’s wrongful conduct, owners would not have sought out Pandora in an attempt to unburden themselves from a lifetime of limitless and ever-increasing maintenance fees and years of high-interest loan payments, totaling tens of thousands of dollars, in exchange for illusory timeshare accommodations.”  But the defendants learned the ropes in the timeshare industry, “then used their inside knowledge to victimize the owners a second time.”

There was evidence that Bluegreen owners paid over $1.5 million to the marketing defendants; defendants’ deductions were not reliable, so the court found disgorgement of $100,000 to be appropriate based on defendants’ and Bluegreen’s own conduct.

Tortious interference: that too.