Timeshare company's own "exit" program for "qualified" owners isn't misleading even if broadly unavailable

Wesley Financial Gp. v. Westgate Resorts, Ltd., 2024 WL 4581512, No. 6:23-cv-2347-RBD-LHP (M.D. Fla. Aug. 28, 2024)

A rare timeshare exit company lawsuit against a timeshare developer, alleging false advertising and related claims. It’s unsuccessful but points to practices that the FTC or AGs might have something to say about.

At one point, plaintiff WFG obtained accreditation and an A+ rating from the Better Business Bureau, which it advertised with the AARP, allegedly bringing in more than $10 million in revenue. Its methods to secure exits do not include the use of attorneys or the provision of legal services.

Meanwhile, Westgate will not repossess financed timeshare interests with outstanding loan balances if owners are current on their payments. “Only paid-off (or inherited) timeshares qualify for voluntary repossession or termination with Westgate, and only at its discretion.” WFG’s advice is apparently to stop making payments and then wait for the developer to foreclose on an interest and offer to take it back, because the credit hit is better than the costs of other paths.

In response to exit companies, timeshare developers have rebranded their existing voluntary repossession procedures as developer-backed “exits.” Westgate has tried to divert consumers to its own “exit” program along with suing exit companies. In addition, it “stopped taking back interests from owners whom the developer even suspected of consulting an exit company, conditioning its repossessions on an affidavit swearing the owner has not worked with ‘any timeshare exit company, lawyer or law firm’ in seeking cancellation, or if they have, disclosing the third party, handing over any contract with them, and promising to cooperate in any future lawsuit against them.” WFG responded to this development with a confidentiality clause in its contracts requiring its customers not to reveal they are working with an exit company. Westgate has in fact sued owners it later discovered were WFG customers and signed the affidavit anyway. (I don’t understand why one would get into a relationship with a timeshare developer.)

Anyway, the timeshare coalition ARDA, on whose board two Westgate executives sit, allegedly got the BBB to revoke plaintiff’s accreditation, despite the exit company’s five-star rating based on more than a hundred customer reviews. Then, it successfully lobbied AARP to stop running WFG’s ads because it lost its accreditation. “Westgate later sued the exit company in its home state for violating the Tennessee Consumer Protection Act, which WFG violated by engaging in the unlicensed practice of law, the district court ruled.”

This lawsuit followed.

Lanham Act false advertising: WFG argued that Westgate’s exit program was not in fact available to most owners. It challenged the statement that “[b]y working with Westgate Resorts, owners who chose to relinquish their timeshare have been able to do so with very little effort and have been able to relieve themselves of all future maintenance fee obligations” because this offer is open only to a very limited subset of owners.

The court rejected this claim because the ads truthfully stated that direct “exits,” like voluntary repossession and contract termination, were available to “qualified owners” and “qualifying accounts,” “but without detailing those qualifications.” Given the reference to qualifications, the “owners have been able to relinquish” claim wasn’t likely to be materially misleading, even if “exit” is not available to most owners regardless of loan balance. The court reasoned that “qualified owners” does not mean or imply “most owners.”

This is where the FTC might well disagree: if the conditions are mostly unattainable and the qualifications are possible to explain—like “you’ve paid off the purchase”—then further disclosure is required to prevent consumers from wasting their time/money on something that won’t help them.

But, the court reasoned, “[f]alsely advertising an available ‘exit’ cannot deceive owners into no longer seeking an exit,” so it couldn’t have harmed the plaintiff if hopeful owners inquired further and found Westgate’s program unavailable. I don’t get this logic. Why wouldn’t the failure of the supposedly best option (as other parts of the ad campaign touted) plausibly lead at least some consumers to despair and give up? If I try a headache remedy that’s “the best available” and it doesn’t work, why would I try lesser versions?

Anyway, antitrust claims failed because they were antitrust claims.

FDUTPA prohibits “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.” But, as explained above, “[a]dvertising the Legacy Program—which is undisputedly the only developer-backed way to cancel a Westgate timeshare—does not injure consumers substantially, even if the ads lead consumers to phone trees or high-pressure sales pitches before learning Westgate will not let them out.” So too with lobbying the BBB, and anyway that was the developer coalition, not Westgate directly, and FDUTPA doesn’t “extend indirect liability to third parties for the unfair and deceptive acts of another, regardless of their relationship.”

What about the affidavit of non-involvement with exit companies? The court agreed that the language was “sweeping.” “Blocking consumers from speaking with attorneys about a contract as a condition of bargaining, and punishing consumers if they have done so, offends public policies favoring ‘access to redress,’ ‘access to courts,’ and the uninhibited ability to engage in ‘full and frank communication’ with an attorney about potential legal matters.” But Westgate denied that the affidavit’s language encompasses “all lawyers, law firms, or third parties”—only the ones that potential clients are likely to find and ones that have developed expertise.

Still, the court found that WFG couldn’t succeed, because a prohibition on contracting a non-lawyer exit company was fine. “[E]mploying contracts of adhesion is not an unfair trade practice on its own.”

Timeshare contract terminations are not some overriding consumer good whose blanket availability the law protects. It is not plausible to suggest that it is unethical, unscrupulous, or substantially injurious to consumers for Westgate to change its termination and repossession policies and procedures—even intending to nullify exit outfits’ methods that rely on getting the developer’s owners to stop payments.

This is true even if WFG is forced to refund a client’s money, because of its full refund guarantee, if Westgate finds out about its involvement. Refunds don’t harm consumers.

Tortious interference/civil conspiracy claims also failed, especially since WFG inserted its own nondisclosure provision after Westgate changed its practice—forcing disclosure can’t cause tortious interference under those circumstances.