March 1, 2024
The case against The Manhattan Club was closed with prejudice on charges of racketeering. The remaining charges were dismissed without prejudice, meaning those charges could be refiled. Unique to The Manhattan Club, the developers admitted wrongdoing in a New York Attorney General investigation and settlement. Rarely do developers admit wrongdoing. Lawsuits filed against The Manhattan Club (TMC), beginning in 2011, continue to this day. Case 1:20-cv-07042-GHW
By Irene Parker
Excerpts from The Manhattan Club February 26, 2024 order dismissing Platiniffs’ complaint concerning 222 owner plaintiffs - a look back
August 16, 2017: Under the terms of the settlement, the operators of the Manhattan Club, at 200 West 56th Street, acknowledge that they repeatedly misled shareowners about the club’s reservation process, their ability to sell back their shares, and the details of the club’s state-approved offering plan.
From the Feb 26, 2024 order: As part of the (NY AG) Assurance of Discontinuance (AOD), the Eichner Defendants agreed to: not engage in any act relating to “the offer, purchase, sale, issuance, advertisement, marketing, promotion, distribution, negotiation, exchange or transfer of any timeshare interest”; transfer their TMC interests to a third-party approved by the NYAG; and pay $6.5 million as restitution, to be disbursed to TMC timeshare purchasers.
February 26, 2024 Causes of Action and Ruling
Plaintiffs assert twelve causes of action against Defendants: (1) a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(c), based on alleged wire and mail fraud, id. §§ 1341, 1343; (2) a conspiracy to violate RICO, id. § 1962(d), based on alleged wire and mail fraud, id. §§ 1341, 1343; (3) three claims of breach of contract; (4) tortious inference (interference) with contract; (5) a violation of GBL (General Business Law) § 349; (6) common law fraud; (7) fraudulent inducement; (8) a breach of fiduciary duty pursuant to New York Not-For-Profit Corporation Law § 701; (9) a violation of the Pennsylvania Securities Act of 1972, 70 Pa. Const. Stat. § 1-401; and (10) a “tort of negligence” claim “based on” a violation of 70 Pa. Const. Stat. § 1-408. SAC ¶¶ 290–434
Conclusion
Defendants’ motions to dismiss are GRANTED as to Plaintiffs’ RICO claims (First and Second Counts). Plaintiffs’ RICO claims are dismissed with prejudice.
The Court also declines to exercise supplemental jurisdiction over Plaintiffs’ remaining claims and dismisses those claims without prejudice.
The Clerk of Court is directed to enter judgment for Defendants, terminate all pending motions, and close the case. SO ORDERED.
Dated: February 26, 2024 ____________________________________
One form of supplemental jurisdiction, also called ancillary jurisdiction, pendent jurisdiction, or pendent claim jurisdiction, exists when a claim that would not otherwise be subject to federal court jurisdiction arises from the same set of facts as a claim that is subject to federal court jurisdiction. Google
With/without prejudice: Whereas a case that is dismissed “with prejudice” is dismissed permanently, a case that is dismissed “without prejudice” is only dismissed temporarily. This temporary dismissal means that the plaintiff is allowed to refile charges, alter the claim, or bring the case to another court.
We reached out to Zimmerman Law Group. Attorney Jean Marc Zimmerman responded, “We are reviewing the decision and will send out an email by Monday explaining the decision and how we intend to proceed.”
Excerpts from the February 26, 2024 ruling (edited for brevity) (emphasis in bold added) (citations omitted)
MEMORANDUM OPINION & ORDER
GREGORY H. WOODS, United States District Judge
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------
CHARLES R. ACKLIN, et al., Plaintiffs, -against BRUCE EICHNER; LESLIE H. EICHNER; STUART P. EICHNER; SCOTT L. LAGER; T. PARK CENTRAL LLC; O. PARK CENTRAL LLC; PARK CENTRAL MANAGEMENT, LLC; MANHATTAN CLUB MARKETING GROUP, LLC; NEW YORK URBAN OWNERSHIP MANAGEMENT, LLC; and BLUEGREEN VACATIONS UNLIMITED, INC., Defendants. 1:20-cv-7042-GHW
BACKGROUND
The Manhattan Club Association, Inc. (“TMC”) is a not-for-profit organization that operates and sells interests in timeshares located at 200 West 56th Street, New York, NY. TMC is not a Defendant in this case.
The Plaintiffs are 222 individuals and trusts who purchased timeshare interests in TMC.
Defendant BlueGreen is a timeshare operator that became a Sponsor of TMC in June 2018, pursuant to an agreement with the Eichner Defendants to assume the position. BlueGreen appears to no longer be a Sponsor.
Purchase of Timeshare Units Between approximately 1996 and 2013
At the time of purchase, Defendants Marketing and Urban made a number of representations to Plaintiffs during sales presentations, including that the Sponsor would buy back Plaintiffs’ timeshare interests at the purchase price, that the annual maintenance fee charged to TMC members would not increase more than the cost of living (and indeed would likely decrease as additional timeshare interests were sold), and that TMC members could easily make reservations to use their timeshare interests whenever they wanted, including for same-day or short-notice reservations.
Plaintiffs’ actual experience as TMC members fell far short of what they had been told at the sales presentations. First, Plaintiffs found that the annual maintenance fee charges increased substantially and quickly. Second, Plaintiffs found that the process of making reservations to use their TMC timeshares was considerably more difficult than anticipated: On numerous occasions, Urban denied reservation requests made by Plaintiffs, including short-notice reservations, on the basis that no rooms were available. Purportedly, this happened in part because the Eichner Defendants used the inventory of rooms allocated to TMC members for other purposes, such as the Transient Rental Program. Third, Plaintiffs found that they were not able to sell back their TMC timeshare interests to the Sponsors at the original purchase price. Instead, the Sponsors, through Urban, “fraudulently” offered to buy back the TMC timeshare interests of TMC members who were in arrears on their annual maintenance fee payments, in exchange for $100 and the forgiveness of the arrearages.
On August 14, 2017, the NYAG entered into an Assurance of Discontinuance with the Eichner Defendants following an investigation into—and a related legal proceeding regarding—the Eichner Defendants’ conduct in connection with the offer and sale of TMC timeshare interests. The NYAG found that the Eichner Defendants had violated New York’s Martin Act, which governs fraudulent practices in the public offer and sale of securities.
The Court does not accept as true the factual findings contained in the AOD to the extent that they are contrary to Plaintiffs’ allegations in the Second Amended Complaint.,,, noting the AOD “may not be used by any third party in any other proceeding and is not intended, and shall not be construed, as an admission of liability by the [Eichner Defendants] in any other proceeding”).
In March 2018, BlueGreen—who appears to be the third-party transferee referenced in the Assurance of Discontinuance—entered into an Asset Purchase Agreement (“APA”) with the Eichner Defendants to acquire the remaining unsold timeshare units held by the Eichner Defendants. As part of the APA, BlueGreen assumed the role of TMC’s Sponsor and obtained the right to appoint four out of the seven seats on TMC’s Board of Directors.
At an unidentified time, BlueGreen ceased to be a Sponsor, and the Eichner Defendants resumed their roles as Sponsor. Plaintiffs allege that, during its time as a Sponsor, BlueGreen “ratified and continued the wrongful practices . . . as regards charging fraudulently determined annual maintenance fees, employing a fraudulent reservations scheme, and making fraudulent buy back offers . . . .” (noting Plaintiffs continued to have difficulties making reservations during BlueGreen’s tenure as Sponsor).
On September 27, 2021, the Court dismissed Plaintiffs’ RICO claims without prejudice and declined to exercise supplemental jurisdiction over Plaintiffs’ remaining state law claims, dismissing the state law claims without prejudice as well.
Plaintiffs amended the complaint twice in rapid succession after commencing the action. (August 31, 2020 amended complaint); (September 2, 2020 amended complaint).
The Court treats Plaintiffs’ latest amended complaint, filed on November 25, 2022, as the operative complaint, even though Plaintiffs filed it without complying with Rule 15(a).
To establish a RICO violation under 18 U.S.C. § 1962, Plaintiffs must show “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
To satisfy that requirement, the complaint must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.”
Plaintiffs’ allegations of mail and wire fraud center on three types of “fraudulent” activities by Defendants: (1) maintenance fee statements; (2) implementation of TMC’s reservation policies; and (3) offers to buy back timeshare interests from TMC members.
As described below, Plaintiffs have failed to adequately plead that any of this conduct was a “scheme to defraud” and therefore fail to state a claim against Defendants for a pattern of racketeering activity in violation of RICO.
Plaintiffs’ third basis for asserting that the annual maintenance fee statements are “fraudulent” is the purported failure to disclose certain information. Chief among these is an alleged conflict of interest: namely, that the Eichner Defendants have a financial incentive to rent out their own inventory of rooms and the rooms owned by other TMC members for the Transient Rental Program, and that they “acted to materially advance their own interests rather than TMC’s to which they owe a fiduciary duty.”
A breach of contract is not fraud. See, e.g. Perlman v. Zell, (“Breach of contract is not fraud, and a series of broken promises therefore is not a pattern of fraud.
Defendants’ implementation of TMC’s reservation system, also fails to amount to a “scheme to defraud.”
In short, Plaintiffs complain that, contrary to their expectations, they have experienced significant difficulties in reserving the use of their TMC timeshare interests. However, these allegations fail to identify a single misrepresentation or other element of deception, as is required to plead a “scheme to defraud.”
Plaintiffs also complain of experiencing significant difficulties in making reservations on short notice or being made or asked to pay their maintenance fees early. But these issues, taken as true, still fail to point to any actual misrepresentation or deception. Plaintiffs therefore fail to plead a “scheme to defraud” adequate to meet the heightened pleading burden of Rule 9(b).
Plaintiffs’ third category of purported predicate racketeering activity is Defendants’ “fraudulent” buy-back offers—that is, offers to buy back the TMC timeshare interests from TMC.
Plaintiffs complain that, from 2011 to 2020, they were often unable to make same-day or short-notice reservations at TMC but instead often had to make reservations nine, sometimes twelve, months in advance. Notably, the Offering Plan appears to encourage owners of timeshare interests to “make a reservation during the priority period,” which is “12 months preceding the requested check-in date if the request is for seven consecutive nights or 9 months preceding the requested check-in date if the request is for less than seven consecutive nights,” and warns that a TMC member who fails to make a reservation during that period “may not be able to obtain the requested reservation.”
Plaintiffs misunderstand the word “fraudulent”: not every breach of an agreement or a law is fraudulent. Even if the Court were to assume that the buy-back offers are prohibited by the Assurance of Discontinuance, that a conduct is prohibited by an agreement or by the law does not in itself make the conduct a “scheme to defraud,” though the alleged non-compliance may form the basis for an enforcement proceeding by the NYAG based on the Assurance of Discontinuance.
Second, Plaintiffs assert that the buy-back offers were “fraudulent” because the Sponsors of TMC28 failed to disclose certain information, including that the buy-back offers would benefit the Sponsors but not TMC. As already discussed in the context of the maintenance fee statements, this asserted failure to disclose fails to plead the existence of a “scheme to defraud”
While the alleged “fraudulent” statements forming the basis of Plaintiffs’ RICO claim are the maintenance fee statements, implementation of the timeshare reservation system, and offers to buy back Plaintiffs’ timeshare interests, any actual misrepresentations and omissions appear to have occurred during sales presentations of the TMC timeshare interests.
But “fraudulent” does not mean any type of misconduct—and because (TMC) Plaintiffs fail to specifically plead that Defendants engaged in any type of deception to cause injury to Plaintiffs, their RICO claims must fail.
The Court also notes that the Offering Plan explicitly warns, in a section titled “Special Risk Factors,” that “there is no established market for the rental or resale of Ownership Interests and the rental and resale value, if any, is uncertain.” 2012 Offering Plan at 3. The Offering Plan also explicitly disclaims the existence of any “formal program pursuant to which Sponsor agrees to buy-back any Ownership Interest.”
Plaintiffs allege that they continued to have difficulties making reservations during BlueGreen’s tenure as a Sponsor, but Plaintiffs do not allege anything BlueGreen actually stated or did in relation to the reservations.
Plaintiffs also allege that BlueGreen failed to replace Urban as TMC’s management company or reduce Urban’s management fees. But Plaintiffs do not identify any promise or representation by BlueGreen to take such action, much Urban denied Plaintiffs’ TMC reservation requests, and that Urban sent buy-back offers to Plaintiffs.
For the reasons detailed above, Plaintiffs’ RICO claim is dismissed for failing to plead the existence of a RICO enterprise. Because Plaintiffs have failed to plead a RICO violation, Plaintiffs’ RICO conspiracy must also be dismissed.
Plaintiffs also seek the Court’s exercise of supplemental jurisdiction over the remaining state law claims. The Court declines to do so. While the Court accepts as true Plaintiffs’ allegations for the purposes of this analysis, Plaintiffs’ failure to plead any facts related to BlueGreen with particularity and simply asserting that BlueGreen continued the same conduct as the Eichner Defendants is especially puzzling given that BlueGreen is an unaffiliated third party approved by the NYAG to replace the Eichner Defendants.
BlueGreen in fact appears to have replaced the majority of TMC’s Board of Directors, including Defendants Stuart Eichner and Mr. Lager, in 2018, upon becoming a Sponsor, (BlueGreen purchase agreement dated March 15, 2018), and entered into an arbitral dispute against Urban in October 2019 over the management fee and management contract for TMC.
Here, the Court denies leave to amend the complaint. The problems with Plaintiffs’ RICO claims are substantive, so amendment would be futile.
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FantaSea Timeshare class action: SUPERIOR COURT OF NEW JERSEY MIDDLESEX COUNTY – CIVIL ACTION DOCKET NO. ATL-L-1515-19
FantaSea Resorts was ordered to pay plaintiff’s $1,688,423.88 rather than $1,069,284 initially awarded. A Final Judgment was filed on May 19, 2023. The amount included Trebel (triple) Damages to be paid to each Plaintiff. The amount awarded for attorneys’ fees and costs increased from $772,714 to $996,013 for interesting reasons. A breakdown of the amounts paid to each Plaintiff is below.
The Manhattan Club, November 9, 2021
The 2017 $6.5 million New York Attorney General’s settlement with The Manhattan Club developers, Ian Bruce Eichner, Scott Lager, and a maze of at least five corporate entities, was anything but a win for those who purchased a timeshare from TMC.
https://tarda.org/why-a-65-million-fine-was-a-win-for-tmc-developer
December 10, 2021 by Irene Smalls
Defendants Ian Bruce Eichner, Scott Lager and related entities received more than $100 million over 20 years (20% of annual maintenance fees), paid to Defendant Eichner’s New York Urban Ownership Management, LLC. Urban had no employees until learning of the investigation. The figure of $100 million does not include profits made from renting to the general public.
https://tarda.org/a-pro-se-manhattan-club-lawsuit---quest-for-justice
