Attorney Disclaimer Ordered by the United States District Court:
I am an attorney who was admitted to represent some of the objectors in a class action pending in the United States District Court for the District of New Jersey. Any statements by an attorney, including myself, should be considered to be the personal opinion of the attorney and are not approved by the Court. As such, my statements contained herein are not approved by the Court. More information is available at www.weeksprogramsettlement.com, the Court-approved website.
The following objection to the propopsed settlement agreement ("the Agreement") was filed Friday, November 20, 2009, on behalf of my clients.
1. THE AGREEMENT DOES NOT IMPOSE ADEQUATE RESTRICTIONS ON THE PRACTICES ON WHICH THIS LAWSUIT IS BASED.
This suit was brought by the named Plaintiffs, inter alia, because weeks deposited by paying members for exchange with other members are taken from the inventory by RCI and rented out through various sources. This practice results in substantial profits for the Defendant but compromises the integrity of the exchange process and reduces the availability of desirable exchanges for the members of the Class.
The Agreement not only does not impose adequate safeguards against this practice but it requires only minor changes in the Defendant's practice, and only for a very limited time (little more than half as long as the period from when the first papers were filed in this suit until the current court appearance).
Plaintiffs' attorneys have repeatedly claimed that this Agreement poses no deterrent to future litigation, but obviously the prospect of undertaking another four-year battle to obtain minor relief which might last only two years is daunting, to say the least.
2. THE AGREEMENT FAILS TO ENSURE THAT WEEKS WITHDRAWN FROM RCI AND PLACED WITH OTHER ENTITIES REMAIN AVAILABLE FOR EXCHANGE BY CLASS MEMBERS.
The Plaintiffs' attorneys have claimed that the Agreement protects class members requiring that weeks rented by RCI will simultaneously remain available for exchange. However, the Agreement actually requires simultaneous availability for exchange only for weeks that are rented through RCI itself. There is no mention whatsoever of what will happen to weeks that RCI/Wyndham chooses to remove from RCI's inventory completely and rent or otherwise dispose of through its other companies or affiliates, which are only vaguely referred to elsewhere in the Agreement.
Plaintiffs' attorney have contended that the meaning of the settlement is that these weeks withdrawn and placed with other entities will continue to be available to RCI members for exchange, but a request that clarifying wording be inserted into the Agreement was ignored by the Defendant.
3. THE AGREEMENT ALLOWS THE DEFENDANT RCI FREE USE OF ALL WEEKS WITHIN 90 DAYS OF THE START DATE, TO THE PARTICULAR DETRIMENT OF MEMBERS WHO HAVE "LOW TRADE POWER" WEEKS.
It has long been RCI'S policy to "drop" or ignore the elements of "trade power" within 45 days of the start of a week offered for exchange, so that any deposited week (regardless of desirability) is able to obtain in exchange any week from the spacebank which is still available a month and a half in advance of its start date. This policy has for many years allowed members who own low-demand time to make good exchanges by waiting until the last minute to make an exchange, and being flexible about the location they will accept. This 45-day window is also used by members whose weeks were assigned low trade power by RCI because of cancellation of a prior exchange, or because the weeks were deposited too close to the start date to be assigned full trade power.
This Agreement allows RCI unrestricted use of all inventory within 90 days of the start date, thereby allowing RCI to eliminate this important aspect the exchange system. There are no requirements that other time be substituted for withdrawals within this time period, no requirement that these weeks be made simultaneously available for exchange, and no requirement that RCI even account for the number of weeks withdrawn within this period.
The Plaintiffs' attorneys have given no reason for this inventory to be excluded from the safeguards negotiated for other inventory, or any indication that the needs of members with low "trade power" time were even considered.
4. THE AGREEMENT PERMITS RCI TO DO PRECISELY THAT WHICH RCI PROHIBITS ITS MEMBERS FROM DOING.
RCI has long prohibited its members from any "commercial use" of the weeks acquired in exchange for a member's deposit, including rental or sale of the time/unit received in exchange for a deposit. However, RCI itself now claims the right to swap units "acquired from other sources" for weeks deposited by RCI members for exchange with other members, so as to allow RCI to rent out those selfsame weeks RCI prohibits its members from renting out. Defendant RCI staunchly maintains that its rental practices do not compromise the exchange system for members, while simultaneously continuing to prohibit members from renting weeks obtained in exchange. Once again, the Plaintiffs' attorneys have not even commented on this discrepancy.
To highlight the inconsistency of this position, I would take the Court back a few years to a time when RCI had a semi-official presence on internet bulletin boards and made various postings to answer member questions via one or more RCI employees who wrote under the moniker "Madge." In one of these postings, last re-posted in January, 2006 (coincidentally the month in which this lawsuit was first brought), the RCI representative attempted to explain to members why RCI prohibited its members from renting to others the units they received in exchange for their deposits.
The stated reasons for prohibiting members from renting out exchanged units included representations that RCI needed to "support . . .timeshare sales and purchases" by not allowing timeshare weeks to be rented at inappropriately low rates, and acknowledging that "Travelers would not be incented to upgrade their purchases if they could simply buy the 'interest' for a fraction of the purchase price per year."
Madge further stated that the "the demand among RCI members for certain areas and times of year is overwhelming (school breaks, holidays, etc.)" and that this demand "is magnified when non-members can compete for the same space." The posting further encouraged members to cancel a confirmed exchange if they couldn't use it on the basis that "When members rent or swap confirmed exchanges, they undermine RCI's program to the detriment of other members. If a member is waiting for a vacation, he would indeed be upset to think that prime exchange units were being offered to the general public or traded among friends instead of being released."
Peculiarly, although these arguments were made by RCI representatives charged with communicating with its members, and the public, the current generation of RCI policymakers ignores these issues completely – except to continue to prohibit members from renting out exchanges. Furthermore, RCI's current policy of renting out inventory impact the exchange system much more severely than members' rentals because it is such a massive and concerted effort. When members protest RCI rentals, using the same arguments that were previously proffered by RCI, the arguments are summarily dismissed as immaterial.
The Agreement, as interpreted by the attorneys for the Plaintiffs, temporarily restricts RCI from substituting weeks unless a member could make the same exchange. However, even that minor restriction is not permanent, being required only for a period of 24 months. Furthermore, since RCI is the sole arbiter of trade power, and some of the weeks so substituted are admittedly not even timeshare units eligible for ownership by members, the "sufficient trade power" argument is fundamentally flawed. The substituted weeks may not be of lower value, but there is no mechanism for oversight of RCI's valuation, and since no discovery was conducted, there is no way to tell whether the Agreement provides an improvement.
It is posited, however, that if the weeks that RCI substitutes for the inventory it chooses to remove from the spacebank for rental were truly of equal quality and desirability, then RCI could simply rent out its alternate inventory without making the exchange. We submit that the fact that RCI sees a need to withdraw weeks deposited by members for exchange in order to obtain rental income is prima facia evidence that the weeks so withdrawn are more highly desirable than the weeks so substituted.
5. THE AGREEMENT DOES NOT PROTECT MEMBERS FROM RCI'S PREDATORY RENTAL PRICING.
Despite its prior contentions that it has a duty to support timeshare sales, which precluded it from allowing its members to rent exchanged weeks, RCI now frequently rents timeshare units at rates that are lower than even the annual maintenance fee. When this was brought to the attention of RCI management, RCI claimed that it is "not the market maker" and hence should be allowed to rent timeshare weeks deposited for exchange at whatever prices they choose.
Most timeshare owners purchased their units on the understanding that they were pre-paying for their vacations. Most purchasers invested thousands of dollars in their timeshares. Some invested tens of thousands of dollars. Those same purchasers also pay hundreds of dollars (some few pay a couple of thousand dollars) in annual maintenance fees to maintain their property and their rights. Sometimes, resorts imposed substantial assessments to fund special repair or improvement projects, which members are required to pay. RCI's refusal to even consider just the annual maintenance fees when setting rental prices is a clear indication that RCI is putting current profits ahead of members' interests, and even ahead of its own long-term viability.
The current economy has resulted in overwhelming numbers of timeshares being deeded back to the resorts because of bankruptcies, job losses, and other decreases in income. These "deedbacks" result in no cash for the former timeshare owner, and represent a loss of the entire investment. However, it is deemed by some timeshare owners to be desirable (or at least necessary) because it eliminate the obligation of the annual maintenance fee. These weeks could be resold, but there is virtually no market to sell a property which can be rented for less than the annual maintenance fee. Resorts are finding themselves hard-pressed to make up the loss of income. This raises the inequities of RCI's policies to the level of "fiddling while Rome is burning."
Perhaps most galling to members is the fact that in order to achieve these short-term profits, RCI is actually converting members' property to its own use. If RCI and/or its affiliates acquired units from the resorts for rental purposes, and then rented those units out to RCI members or to the general public, then any resulting detriment to the resort in a decrease in the viability of sales would be attributable also to the resort. However, RCI's policy of swapping units and renting out the owner-deposited weeks causes a detriment to resorts (and their owners) who did not cooperate in this process.
6. THE AGREEMENT DOES NOT IMPOSE SUFFICIENT AND APPROPRIATE RESTRICTIONS ON THE IMPROPER PRACTICES OF RESORT SALES PEOPLE.
RCI has long maintained that it has no responsibility for inappropriate and inaccurate representations made by resort sales staff when that staff is selling timeshare weeks. It does not claim that misrepresentations are not made; just that RCI has no responsibility for the misrepresentations. These misrepresentations frequently overstate the exchange value of the resort weeks being sold.
The Agreement requires RCI to survey new members regarding their experience in buying a timeshare. However, there is no real enforcement mechanism to ensure that only proper information is being given to prospective owners. RCI and resorts in active sales have long played a "blame game," each denying responsibility for the fact that unsuspecting purchasers of timeshares find themselves with much less exchange availability than they were led to believe they would enjoy. For example, it is widely accepted among knowledgeable timeshare owners that resorts in Orlando, FL have a high vacancy rate in the fall. Nevertheless, more timeshares are continually being built. RCI has a policy of rating all weeks in Orlando as "red" (the highest demand) time, with no discernible difference between the fall weeks which have a high vacancy rating and the spring, summer and holiday weeks, which have substantially high demand.
The prospective timeshare buyers are simply told by the resort sales staff that a "red" rating means that the time is in the highest-demand, and the Orlando timeshare buyer is encouraged to buy fall weeks with the promise that they can exchange for any other week of the year through RCI. After purchase, the buyers often find themselves unable to make the exchanges they were led to believe they would be able to make. RCI denies responsibility for the representations of timeshare sales people, and the resorts deny responsibility for RCI's practices and assignment of trade power.
The resorts and RCI could not exist without each other. If people didn't own timeshares and want to exchange them for space at other timeshares, RCI would not exist. Without the ability to exchange for time at other areas, locations and resorts, resorts would not be able to sell many timeshares.
A simple solution (which was proposed, but rejected by RCI) would be to amend the Agreement to include resorts with unsold (or reacquired) weeks in the provision of the Agreement which allows RCI members to obtain the relative exchange power of the weeks they own. This would not force the resort sales staff to actually research the information, but their failure to do so could be used to eventually hold them liable for misrepresentation or for failure to make proper disclosure.
Indeed, we posit that the only reason to deny resorts access to the same information that would be available to members under the Agreement, and to publish the fact that the resorts could access this information, is to assist resort sales staff in any efforts to deny responsibility for misrepresentations and/or lack of proper disclosure.
(Continued on next post)
