[Marriott] loses lawsuit against owners of RC San Francisco

[FractionalTraveler]

The plaintiffs in the lawsuit, 11 residential unit owners at The Ritz-Carlton Club and Residences, San Francisco, questioned the adequacy of disclosures made prior to 2008, when the Company’s business was part of Marriott International, Inc., regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 and their payment obligations with respect to such bonds.

While the Company disagrees with the findings in the tentative decision including the theories of relief, on November 30, 2012, an agreement dated as of November 29, 2012 was entered into by the defendants and the plaintiffs to settle, without admission of liability, all claims asserted or which could have been asserted in the lawsuit.

Pursuant to the settlement reached with the plaintiffs, the Company will repurchase units owned by certain of the plaintiffs at The Ritz-Carlton Club and Residences, San Francisco.

As a result of the settlement, the Company expects to record a charge of $25 million to $40 million in the quarter ended December 28, 2012.

Two other lawsuits are pending in which 11 other owners at the same property assert similar claims.

 

[dioxide45]

Hey hey, perhaps those repurchased units will get conveyed to the DC trust.

 

[FractionalTraveler]

Hey hey, perhaps those repurchased units will get conveyed to the DC trust.

You were reading my mind. I hope so too. Oh but that means my Trust MF will surely go up next year also. Oh well, I'm sure us trust owners will eventually have to pay for those charges.

 

[swaits]

You were reading my mind. I hope so too. Oh but that means my Trust MF will surely go up next year also. Oh well, I'm sure us trust owners will eventually have to pay for those charges.

Those were going up anyway. :annoyed:

 

[WBP]

Hey hey, perhaps those repurchased units will get conveyed to the DC trust.

Those units were whole ownership residences not fractional Club homes.

 

[dioxide45]

Those units were whole ownership residences not fractional Club homes.

Premier members can already book nightly reservations with DC points. I don't see any reason they can't convey the entire units to the trust. They did this for fractionals in Vail.

 

[BocaBoy]

Premier members can already book nightly reservations with DC points. I don't see any reason they can't convey the entire units to the trust. They did this for fractionals in Vail.

These are not all the units at the property. They are all full ownership units and most are still owned by others. I am sure the building's documents prohibit turning units into timeshares to protect the full-time owners. I know that is the case with our condominium building.

 

[FractionalTraveler]

I think that Marriott will convey these units to the Trust.

These are owners who can longer afford to pay or no longer desire to own these units because of the new economy. Sending attorneys to review contracts and finding any mistakes or loopholes in documents has been the best way to get out of bad deals in recent years since the housing meltdown.

Here in Florida, attorneys have made millions from such new business opportunities.

 

[SueDonJ]

I think that Marriott will convey these units to the Trust.

These are owners who can longer afford to pay or no longer desire to own these units because of the new economy. Sending attorneys to review contracts and finding any mistakes or loopholes in documents has been the best way to get out of bad deals in recent years since the housing meltdown.

Here in Florida, attorneys have made millions from such new business opportunities.

But like Boca says it's possible that the set-up is similar to non-RC/Marriott developments where a certain number are designated whole-ownership condos and a certain number as fractionals. If that's the case here, wouldn't Marriott have to comply with any legal stipulations, if they even exist, to change whole-ownerships to fractionals?

Does anybody know if there are still whole ownerships available to purchase at any of the RC Residence Clubs?

 

[dioxide45]

These are not all the units at the property. They are all full ownership units and most are still owned by others. I am sure the building's documents prohibit turning units into timeshares to protect the full-time owners. I know that is the case with our condominium building.

They are already operating a certain number of units as a timeshare in that they are able to be booked using DC points for nightly reservations.

I do agree that there could be some type of rules in the governing documents that prevent units being converted to timeshare. However, these documents were initially drawn up by Marriott International, so I suppose it is possible that they also could have written in a lot of leeway to do as they please as the property manager.

There are a total of 52 units at the property, with 11 already being repurchased by MVW. Another 11 still in litigation. When all is said and done, they could own almost half of the units. Their best way to monetize these is through selling the points since I doubt they could get out of them what they are paying to repurchase.

 

[BocaBoy]

They are already operating a certain number of units as a timeshare in that they are able to be booked using DC points for nightly reservations.

I do agree that there could be some type of rules in the governing documents that prevent units being converted to timeshare. However, these documents were initially drawn up by Marriott International, so I suppose it is possible that they also could have written in a lot of leeway to do as they please as the property manager.

There are a total of 52 units at the property, with 11 already being repurchased by MVW. Another 11 still in litigation. When all is said and done, they could own almost half of the units. Their best way to monetize these is through selling the points since I doubt they could get out of them what they are paying to repurchase.

You could be right, but I would think (I could be wrong of course) that sophisticated buyers paying megabucks for a full ownership Ritz Carlton residence would not have bought if there were no protection against converting the full ownership units to fractional ownerships. And of course if Marriott ends up owning most of the full ownership units they could likely change the condominium Declaration to allow it (which would likely spawn further litigation). Condominium Declarations can often be changed by two-thirds of the ownership.

 

[FractionalTraveler]

But like Boca says it's possible that the set-up is similar to non-RC/Marriott developments where a certain number are designated whole-ownership condos and a certain number as fractionals. If that's the case here, wouldn't Marriott have to comply with any legal stipulations, if they even exist, to change whole-ownerships to fractionals?

Does anybody know if there are still whole ownerships available to purchase at any of the RC Residence Clubs?

Whole ownership at RC DC properties is still available through the resale market. I toured a few on sale in Jupiter back in October of this year.

 

[ral]

Whole ownership at RC DC properties is still available through the resale market. I toured a few on sale in Jupiter back in October of this year.

I think I read that Trump has purchased and taking over management at the Jupiter property. How does that affect those who purchased thinking they were purchasing Ritz-Carlton management?

 

[FractionalTraveler]

I think I read that Trump has purchased and taking over management at the Jupiter property. How does that affect those who purchased thinking they were purchasing Ritz-Carlton management?

That's interesting news. Thanks for sharing.

I don't know how others who purchased in Jupiter will react but I personnaly don't get too worked up about these things, I just take it in stride since I have seen a lot of management agreements come and go over the years at many properties. Its just a fact of life that these things can and will change over time.

I have the same outlook for Marriott DC Trust portfolio of properties. Some will come and some will go over the years.

 

[fraction101]

Any more info on this lawsuit

We own a fractional at the RC Residence in San Francisco, we are curious as to whether this ruling might apply to fractional units as well. Is anybody aware of who are the attorneys who represented the Residence owners in this case or what the case number in SF Superior Court for this lawsuit might be?

 

[SueDonJ]

We own a fractional at the RC Residence in San Francisco, we are curious as to whether this ruling might apply to fractional units as well. Is anybody aware of who are the attorneys who represented the Residence owners in this case or what the case number in SF Superior Court for this lawsuit might be?

A google search didn't come up with anything other than similar notices to the one quoted in the first post of this thread, and the search links on sfsuperiorcourt.org don't appear to be working for either docket numbers or names. Maybe you can hold onto that link and check it occasionally to see if they fix it?

Although some Ritz-Carlton info is shared here on the TUG Marriott board, most of the fractional ownership discussions take place on the Non-traditional Interval Ownership board. You might want to look through that to see if the lawsuit had been previously discussed by other RC owners.

Good luck, and welcome to TUG!

 

[fraction101]

More info on Fractional at the RCC San Francisco

I finally located the case number and law firm that handled the litigation for the 11 Residences as posted by FractionalTraveler. The case is called the Del Grande case and was handled in San Francisco Superior Court CPF-09-509429 by the firm of Niven and Smith in San Francisco. If you bought a fractional in San Francisco in December 2007 you might have a claim and it might be worth your while to call Stan Smith at Niven and Smith since he knows all the ins and outs of the Del Grande case.

 

[SueDonJ]

This might require some balancing but I'd appreciate it if the Ritz-Carlton issues that are discussed here on the Marriott forum pertain only to the Vacation Club-related benefits/usage of RC resorts, and that any discussions related to RC-specific issues continue to take place on the fractionals Non-traditional Interval Ownership forum. Thanks for the effort.

With the Points Destination Club usage now allowing for the timeshare owners to be more interested in the RC properties it's inevitable that there might be some crossover in the forums. We'll all have to watch to see how things develop and whether at some point we'll have to figure out in more detail where things belong.

Interesting happenings, no doubt, for both the RC and timeshare owners.

 

[DB-Wis]

Not to be persnickety, but based on the description of the lawsuit and the settlement in the original posting, it does not appear that the new MVC is even involved in the dispute. The article indicates that the Marriott entity involved in the litigation is Marriott International. So, I think Sue is right that this matter doesn't involve Marriott timeshares.

Further, FractionalTraveler's headline for the post ("MVCI loses lawsuit...") isn't really accurate, even putting aside the MVCI issue. It appears the lawsuit ended by way of a settlement, and not a verdict against Marriott International. A settlement is not a loss -- it's a decision by both sides to reach a compromise. It appears the compromise here was very favorable to the property owners, but that doesn't mean Marriott "lost" -- it means that Marriott decided to do the right thing and voluntarily repurchase the units. I don't think a company "loses" by doing the right thing.

Just my two cents.

 

[fraction101]

OK. point taken, anybody interested use the Non traditional ownership thread

 

[SueDonJ]

OK. point taken, anybody interested use the Non traditional ownership thread

I hope you're not feeling as though you've been reprimanded? I'll feel terribly if that's the case because that wasn't my intent.

Like I said, it appears that there will be more discussions on the Marriott forum because Vacation Club Points members are allowed to use select Ritz-Carlton properties, but at the same time there are still issues that pertain to only the owners of RC properties. We'll ALL need to try to keep things separated; it's new ground for all of us.

I'm not moving anything that's already been posted but will try to keep things in order from this point on.

 

[FractionalTraveler]

Not to be persnickety, but based on the description of the lawsuit and the settlement in the original posting, it does not appear that the new MVC is even involved in the dispute. The article indicates that the Marriott entity involved in the litigation is Marriott International. So, I think Sue is right that this matter doesn't involve Marriott timeshares.

Further, FractionalTraveler's headline for the post ("MVCI loses lawsuit...") isn't really accurate, even putting aside the MVCI issue. It appears the lawsuit ended by way of a settlement, and not a verdict against Marriott International. A settlement is not a loss -- it's a decision by both sides to reach a compromise. It appears the compromise here was very favorable to the property owners, but that doesn't mean Marriott "lost" -- it means that Marriott decided to do the right thing and voluntarily repurchase the units. I don't think a company "loses" by doing the right thing.

Just my two cents.

Tell that to the MVCI lawyers.. A settlement is a loss to the corporation of real money and the loss was captured in the MVCI financial statements not Marriott International.

Read it for yourself: http://ir.marriottvacationsworldwide.com/secfiling.cfm?filingID=1193125-13-70988

Page 35 under expenses for litigation settlement.

Also from page 41 under litigation settlement:

In the 2012 fourth quarter we agreed to settle two lawsuits in which certain of our subsidiaries were defendants. The plaintiffs in the lawsuits, residential unit owners at The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”), a project within our Luxury segment, questioned the adequacy of disclosures made prior to 2008, when our business was part of Marriott International, regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 (the “Mello-Roos Act”) and their payment obligations with respect to such bonds. A third lawsuit is pending in which one owner at the RCC San Francisco has asserted similar claims. This lawsuit is distinct from the settled lawsuits, and we believe that we have defenses with respect to the claims asserted in such lawsuit and intend to vigorously defend against it.

As a result of the settlements and the pending lawsuit, we recorded a charge in connection with these matters of $41 million in the year ended December 28, 2012, of which $39 million was recorded in the 2012 fourth quarter. In addition, we repurchased units owned by certain of the plaintiffs in the settled lawsuits which were recorded in inventory at fair value less cost to sell of $13 million. We used Level 3 inputs in a discounted cash flow model to determine the fair value of these assets. While we believe that amounts accrued will be adequate, depending on the outcome of the pending lawsuit, we may be required to record additional charges in connection with the remaining matter.


Not to be persnickety....

 

[DB-Wis]

I stand corrected -- the new MVC was the real party in interest.

But I stand by my statement that a settlement is not a loss. People love to hate businesses, and many times businesses/corporations deserve it. But when a business looks at the accumulating evidence and realizes what they did was wrong, and attempts to make it right by settling (rather than fighting to the bitter end) -- as appears to be the case here -- I view that as doing the right thing. Perhaps they should have resolved the dispute before the lawsuit was filed, but just like there are bad businesses, there are also bad claimants who file lawsuits without good justification. When management rationally decides to settle a claim that looks like it has merit, I don't think its fair to call them loosers. That term should be reserved to when it's deserved, and, sadly, there are too many instances when it is truly deserved. I just don't think this is one.