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Marriott Ownership Resorts, Inc. v. Flynn

United States District Court, D. Hawaii

December 11, 2014


For Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, Marriott Resorts, Travel Company, Inc., Marriott Resorts Hospitality Corporation, Plaintiffs: Ian S. Marx, Louis Smith, Philip R. Sellinger, LEAD ATTORNEYS, PRO HAC VICE, Greenberg Traurig, LLP, Florham Park, NJ; Joseph A. Stewart, Lex R. Smith, Maria Cecilia Wang, LEAD ATTORNEYS, Kobayashi Sugita & Goda, Honolulu, HI.

For Michael Kevin Flynn, Marla Kay Flynn, Defendants: Joseph M. Matthews, Latoya C. Brown, LEAD ATTORNEYS, PRO HAC VICE, Colson Hicks Eidson, Coral Gables, FL; Michael K. Livingston, LEAD ATTORNEY, Davis Levin Livingston, Honolulu, HI; Seth Rubinson, LEAD ATTORNEY, PRO HAC VICE, Houston, TX.


J. Michael Seabright, United States District Judge.


Between 2004 and 2013, Defendants Michael Kevin Flynn and Marla Kay Flynn (" Defendants" or " the Flynns") purchased from Plaintiff Marriott Ownership Resorts, Inc. (" MORI") multiple weekly timeshare interests in two Hawaii resorts, Marriott's Maui Ocean Club in Lahaina, Maui (" Maui Ocean Club"), and Marriott's Ko Olina Beach Club in Kapolei, Oahu (" Ko Olina Club"). In June 2010, MORI made changes to the timeshare program. The Flynns, individually and on behalf of a potential class, claim that these changes breached the timeshare agreements and violated state law. The changes allegedly made it more difficult to use their interests and diminished their value. The Flynns submitted an August 6, 2014 Arbitration Demand (" Arbitration Demand") of their claims based on arbitration provisions in the timeshare documents.

MORI and its affiliates co-Plaintiffs Marriott Vacations Worldwide Corporation; Marriott Resorts, Travel Company, Inc.; and Marriott Resorts Hospitality Corporation (collectively, " Plaintiffs" or " Marriott"), contend that the Flynns' claims are not subject to mandatory arbitration. Marriott brought this action for declaratory and injunctive relief, seeking a ruling that the dispute is not subject to arbitration and/or an order enjoining the Flynns' Arbitration Demand.

Currently before the court are (1) Plaintiffs' Motion for Summary Judgment or, in the Alternative, for Preliminary Injunction, Doc. No. 6; and (2) Defendants' Motion to Compel Arbitration, Doc. No. 10. Based on the following, the court GRANTS in part and DENIES in part Plaintiffs' Motion and GRANTS in part and DENIES in part Defendants' Motion. At the threshold, an arbitrator must determine whether the primary dispute is subject to mandatory arbitration, and whether class arbitration is allowed. Some aspects of the Arbitration Demand, however, are clearly not arbitrable.


A. Factual Background

Between 2004 and 2007, the Flynns purchased four separate " weeks ownership" timeshare interests in two- and three-bedroom units at the Ko Olina Club and the Maui Ocean Club. Doc. No. 7, Pls.' CSF ¶ 1. In 2013, the Flynns purchased an additional weeks ownership timeshare interest at the Ko Olina Club. Under the purchase agreements, the Flynns' weeks ownership interests entitle them to reserve and use their weeks at the Maui Ocean and Ko Olina Clubs during the respective " use year" associated with each ownership interest. See Doc. No. 1, Compl., Pls.' Exs. A - D, Purchase Agreements; and Pls.' Exs. F & G, Maui Ocean Club Vacation Ownership Program Declaration of Covenants, Conditions and Restrictions, and Ko Olina Beach Club Vacation Ownership Program Declaration of Covenants, Conditions and Restrictions (collectively, the " Timeshare Agreements"), Ch. 1 ¶ E.2, Ch. 3 ¶ 3.7.[1]

In June 2010, MORI (and/or other of the Plaintiff Marriott affiliates) created a " points-based" timeshare model. This new model encompasses numerous Marriott Vacation Club resorts and an exchange program through which both new owners of beneficial interest points through the new model and existing weeks use owners -- who opt to exchange their use weeks for an allotment of points -- use those points to book vacations. The Flynns opted not to exchange their use weeks for points ( i.e., not to enroll in the new program). They contend that the creation of this new points-based model caused them increased difficulty in exercising their use weeks rights at the Maui Ocean and Ko Olina Clubs, and has resulted in substantial devaluation of their timeshare interests.

In their August 6, 2014 Arbitration Demand, the Flynns allege that, prior to 2010, MORI owned tens of thousands of unsold timeshare interests in various timeshare resorts, for which it was obligated to pay a share of the maintenance costs. Marriott transferred this unsold inventory to a Florida land trust (the " MVC Trust") and began selling timeshare interests from this trust. The Flynns contend that MORI established the points-based timeshare model in order to sell these less desirable interests, and to avoid certain financial obligations and additional costs related to development of current and new properties. The Arbitration Demand alleges that the Flynns, and other similarly-situated weeks owners, have difficulty reserving their weeks at their home resorts because they now compete with owners in the new programs, who receive preferential treatment and superior reservation and use rights. Doc. No. 1, Compl. Ex. E ¶ ¶ 42, 49, 53-56. Marriott has " exponentially increas[ed] [the] number of" timeshare owners who may reserve nights, such that the number of owners " exceed[s] the number of nights available for use by those owners[.]" Id. ¶ 102. In short, " Marriott has substantially diminished the value" of weeks owner's interests. Id. ¶ 60. They claim MORI has violated a Hawaii state law that prohibits timeshare companies from selling more weeks or nights than are available in a timeshare plan. Id. ¶ ¶ 52, 100-102.

The Flynns make such allegations on behalf of a proposed class, defined as " all natural persons who purchased and now own weeks ownership interest(s) in the Marriott Hawaii Resorts; that is Maui Ocean Club, Ko Olina Beach Club, Kauai Beach Club, Kauai Lagoons -- Kalanipuu, and Waiohai Beach Club." Id. ¶ 62. That is, the Flynns seek to represent weeks owners for three other Hawaii-resort Marriott timeshare projects, besides the Maui Ocean Club and Ko Olina Beach Club.

B. The Arbitration Demand's Five Counts and Relief Sought

The Arbitration Demand alleges five Counts, set forth in detail below:

1. Count I -- Breach of the Hawaii Timeshare Agreements

This Count asserts, in part, that " in return for consideration paid" in the form of payment for weeks ownership interests, fees, and taxes, MORI:

promised to provide timeshare interests in the form of weeks ownership, as well as to provide the services necessary in order for [Defendants] . . . to exercise and receive the full benefit of their use rights, such as reservation and exchange services and general operational services by [Plaintiffs].

Doc. No. 1, Compl. Ex. E ¶ 74. It further alleges that MORI " promised to convey its interests in the . . . Resorts and to terminate its financial obligations as an owner in a manner consistent with the Hawaii Timeshare Agreements." Id. ¶ 75. Nevertheless:

[b]y introducing the new point-based timeshare model, [MORI] failed to perform and breached the timeshare agreements by: (1) materially and adversely affecting the Class members' use rights in their weeks ownership interests, (2) no longer operating the weeks ownership timeshare model as the Class members bargained for, (3) not effectively operating the services necessary to ensure that the Class members are able to utilize their weeks ownership interests, and (4) diluting the use and value of the Class members' interests by providing more advantages to Points-Based Owners, utilizing an arbitrary points value system, and actively undermining weeks ownership interests in advertisements.

Id. ¶ 77. Further, although the Timeshare Agreements " specifically enumerate those rights reserved by MORI as developer" including " the right for MORI to convey its interests to the associations, " id. ¶ ¶ 78a-b, " rather than exercising its right . . . MORI conveyed its . . . ownership interests to the MVC Trust in bulk (thus creating an entirely new class of owners that competes with Weeks Owners and leading to the diminution in value of weeks ownership interests) [thereby] breach[ing] the Hawaii Timeshare Agreements." Id. ¶ ¶ 78c-d.

2. Count II -- Breach of the Implied Covenant of Good Faith and Fair Dealing

The Flynns assert that Marriott " rendered imperfect performance and unfairly interfered with the Class members' rights to receive the benefits of the contract, that is, their rights to the full use and enjoyment of their weeks ownership intersts." Id. § 86. As a result, and " as fully illustrated" in the Arbitration Demand, Marriott " breached the implied covenant of good faith and fair dealing." Id. ¶ 82.

3. Count III -- Violation of Hawaii Consumer Protection Statutes

The Flynns assert that Marriott violated Hawaii Revised Statutes (" HRS") § § 481-1, 480-24, and 481A-1, et seq. Id. § 89. More specifically, they assert that Marriott engaged in conduct constituting unlawful business practices and acts and deceptive trade practices by (1) " violat[ing HRS] Chapter 514E['s] . . . one-to-one use-right to use-night requirement, " (2) preventing Class members from " receiving the benefits they bargained for" and " tak[ing] full advantage of their ownership interests, " (3) " misle[ading] the Class members with regards to the product, services, and/or property they were to receive upon purchase of their weeks ownership timeshare interests, " (4) misrepresenting the " characteristics, uses, . . . benefits[, ] . . . standard, quality, or grade" of " advertised services" while " inten[ding] not to supply reasonably expectable public demand, " and (5) fraudulently concealing " [m]aterial facts . . . by [such] inaccurate representations" that were " likely to deceive reasonable consumers." Id. § § 92, 94-95.

4. Count IV -- Violation of Hawaii Timeshare Statute, HRS § 514E-1, et seq .

The Flynns assert that Marriott violated a statutory requirement that it not " offer or dispose of timeshare units or . . . interests . . . unless the one-to-one use-right to use-night requirement is satisfied and continues to be satisfied for the duration of the Hawaii timeshare plans." Id. § 100 (emphasis in original).[2] They assert that by " implement[ing] the new timeshare model[, ] . . . the sum of nights which owners are entitled to use in a given year has exceeded the number of nights available for use by those owners during that year." Id. § 101.

5. Count V -- Unfair and Deceptive Practices in Violation of Chapters 480 and 514E

The Flynns assert that Marriott violated state law by misrepresenting (1) " the amount of time or period of time the timeshare units . . . will be available to any purchaser, " (2) " the size, nature, [and] extent. . . of the timeshare units . . . [and] of services incident to the timeshare unit, " and (3) " failing to honor and comply with all provisions of the contracts or reservation agreements with purchasers." Id. ยง 106. Count Five asserts that these " unfair and deceptive practices" under the Hawaii Time Sharing Plans Act constitute a violation ...

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