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RCHFU, LLC v. Marriott Vacations Worldwide Corp.

United States District Court, D. Colorado

March 29, 2018

RCHFU, LLC, a Colorado limited liability company, et al., Plaintiffs,
v.
MARRIOTT VACATIONS WORLDWIDE CORPORATION, et al., Defendants.

          ORDER

          PHILIP A. BRIMMER, United States District Judge

         This matter is before the Court on Defendant Aspen Highlands Condominium Association's Motion to Dismiss Plaintiffs' Fifth Amended Complaint [Docket No. 129] filed by defendant Aspen Highlands Condominium Association, Inc. (the “Association”) and the Marriott Defendants' Motion to Dismiss Fifth Amended Complaint [Docket No. 131] filed by defendants Marriott Vacations Worldwide Corporation (“MVW”), Marriott Ownership Resorts, Inc. (“MVCI”), The Ritz-Carlton Management Company, LLC (“RC Management”), The Cobalt Travel Company, LLC (“Cobalt”) and The Lion & Crown Travel Co., LLC (“Lion & Crown”) (collectively, the “Marriott defendants”).

         I. BACKGROUND[1]

         This action arises out of a dispute regarding the management of the Ritz-Carlton Club, Aspen Highlands (“Aspen Highlands”), located in Aspen, Colorado and its affiliation with Marriott Vacation Club Destinations (“MVC”). MVC is a timeshare program with more than 400, 000 members operated by MVCI that sells points, which can be used to stay at various resorts owned by MVCI or affiliated with the program. Docket No. 119 at 11, ¶ 5.

         Plaintiffs own deeded 1/12 fractional interests in condominiums at Aspen Highlands (the “fractional units”)[2] that entitle them to use of the condominium for four weeks per year. Docket No. 119 at 11, ¶ 3 n.1. Owners could exchange their time for the ability to stay at other Ritz-Carlton Vacation Club properties through its exchange program. Id. at 71, ¶ 35. Between 2001 and 2013, plaintiffs paid prices averaging over $200, 000.00 for their fractional units. Id. at 12, ¶ 6.[3]

         On October 13, 1998, non-party Hines Highlands Limited Partnership (“Hines”), the developer of the broader development of which Aspen Highlands is a part, made and recorded the Declaration for Aspen Highlands Village (the “Master Declaration”). Docket Nos. 49-1, 49-2, 49-3. The Master Declaration sets forth various aspects of a planned community and includes a section entitled “No Timeshare, ” which states:

Each Owner acknowledges that Declarant intends to create Fractional Ownership lnterests with respect to certain Units within Aspen Highlands Village. Other than the right of Declarant . . . and specific assigns . . . to create Fractional Ownership lnterests . . ., no Unit shall be used for the operation of a timesharing, fraction-sharing, or similar program whereby the right to exclusive use of the Unit rotates among participants in the program on a fixed or floating time schedule over a period of years.

Docket No. 49-3 at 13, § 8.25. On January 10, 2001, Hines and RC Development made and recorded the Declaration of Condominium for Aspen Highlands Condominiums (“Declaration of Condominium”). Docket No. 109-8 at 9. The Declaration of Condominium sets forth various aspects of the plan for Aspen Highlands and includes a section entitled “Limit on Timesharing” stating:

Other than the right of [Hines and RC Development] or a Successor Declarant and their respective officers, agents, employees, and assigns to create Fractional Ownership Interests . . . no Unit shall be used for the operation of a timesharing, fraction-sharing, interval ownership, private residence club, membership program, vacation club, exchange network or system or similar program whereby the right to exclusive use of the Unit is alternated or scheduled among participants in the program on a fixed or floating time schedule over a period of years whether by written, recorded agreement or otherwise.

Docket No. 109-8 at 70, § 19.8. The Court refers to the “No Timeshare” and “Limit on Timesharing” provisions together as the “restrictive covenants.”

         The Declaration of Condominium also sets the terms of membership and management of the Association. Docket No. 109-8 at 26, Art. 6. The Association is a Colorado non-profit that serves as the official owners association for owners of fractional units. Docket No. 119 at 66, ¶ 16. It was organized to “manage, administer, operate and maintain” the Aspen Highlands condominiums. Id. at 67, ¶ 22.

         On January 12, 2001, the Association and RC Management entered into The Ritz-Carlton Management Company, L.L.C. Management Agreement (“Management Agreement”). Id. at 69, ¶ 26; see also Docket Nos. 49-5, 49-6.[4] The Management Agreement charges RC Management with responsibility for day-to-day management of Aspen Highlands and delegates various of the Association's powers to RC Management. Docket No. 119 at ¶ 69-71, ¶¶ 26-36. One of the powers granted to RC Management is the power to:

Engage a Program Manager through an affiliation agreement, who shall manage and administer the reservation procedures and exchange program for the Ritz-Carlton Club Membership Program (the ‘Membership Program') through which Owners of Residence Interests reserve the use of accommodations at a Club as defined in and pursuant to The Ritz-Carlton Club Membership Program Reservation Procedures (‘Reservation Procedures').

Docket No. 119 at 71, ¶ 35 (quoting Docket No. 49-5 at 7, § 4. (S)). In relation to this grant, the Association, RC Management, RC Development, and Cobalt entered into The Ritz-Carlton Club Membership Program Affiliation Agreement (“Affiliation Agreement”). Id. at 72, ¶ 39; see also Docket No. 109-2. Under the Affiliation Agreement “Cobalt is the Program Manager of the Ritz-Carlton Club Membership Program and also operates the reservation system through which Ritz-Carlton Aspen Owners obtain use of their allotted number of days at the Ritz Aspen Highlands and obtain access to the sister Ritz-Carlton Destination Clubs in the Ritz-Carlton Club Membership Program.” Docket No. 119 at 73, ¶ 41. The Affiliation Agreement provides that, in addition to the Ritz-Carlton Club Membership Program, Cobalt “may, in its sole discretion, elect to affiliate other locations with the Membership Program as Member Clubs or Associated Clubs from time to time.” Docket No. 109-2 at 12, § 7.2.a. The Association and RC Management are not “entitled to participate in or consent to the Program Manager's decision in this regard.” Id.

         The main events at issue in this case began when Cobalt's general manager sent a letter dated July 17, 2012 to the Aspen Highlands owners stating that, “[b]ased on the Ritz-Carlton Destination Club member feedback, additional benefits and experiences will be available through a new affiliation with Marriott Vacation Club Destinations.” Docket No. 119 at 75, ¶ 48. Similar letters were sent to members of other Ritz-Carlton Destination Clubs, some of whom, and their various boards, reacted with concern. Id. at 76, ¶¶ 50-51. On August 17, 2012, Lee Cunningham of MVC sent a letter on Ritz Carlton Destination Club letterhead reassuring members that “nothing that you originally purchased has changed or will change as a result of the announcement” in the prior letter. Docket No. 109-6 at 1; see also Docket No. 119 at 77, ¶ 52. By contrast, on the same day, the Association sent a letter to its members expressing “concerns” about the impact of the announcement, including that the “nature of our club will change by opening the club to [MVC] timeshare/points members who have a much lower cost of entry, ” and stating that “there are specific provisions in our Association documents which the Board believes does [sic] not permit MVW to conduct a separate program as they currently intend.” Docket No. 109-7 at 1-2.

In September 2012, the Association retained an attorney to evaluate whether the governing documents allowed the proposed affiliation with MVC, which resulted in the attorney sending a cease and desist letter to the Marriott defendants on behalf of the Association on November 21, 2012. Docket No. 119 at 80, ¶ 60 and at 82, ¶ 65. T he letter demanded that the Marriott defendants refrain from pursing an affiliation with MVC and stated, in part, that In addition to violating the [restrictive covenant in the] Declaration [of Condominium], any practice of allowing the use of the Tourist Accommodation Units at the Aspen Highlands Condominiums by the MVC Members may constitute, among other things, one or more breaches of the fiduciary duties of the HOA Manager [RC Management] to the Association under the HOA Management Agreement as a result of self-dealing among the HOA Manager, the Program Manager, the Marriott licensor entity and their respective affiliates to the detriment of the Association and its members. By permitting MVW and/or the Program Manager to utilize the Tourist Accommodation Units in clear violation of the Declaration, the HOA Manager would be enriching its affiliates and the Marriott licensor entity by creating an attractive offering for the MVC Members, which would increase sales and license fees under Marriott's arrangement with MVW, all at the expense and burden of the Association and its members.

Docket No. 109-14 at 2.

         In April 2013, the Association sent letters to its members stating that, after discussions with the Marriott defendants, “Ritz Marriott representatives agree that unless a majority of Aspen Highlands Members (excluding the Marriott interests and Members not in good standing) vote in favor of doing so, Ritz/Marriott will not include Aspen Highlands in the Marriott Vacation Club affiliation/exchange/point program.” Docket No. 119 at 84, ¶ 68.

         Similar actions were being taken by other Ritz-Carlton Clubs, some of which decided against affiliation with MVC through member votes. For example, on June 2, 2013, the president of the Bachelor Gulch Club's association emailed the president of Aspen Highlands Association's Board stating that “MVW/Ritz has interfered significantly with the [Bachelor Gulch] Board's efforts to conduct a clean, straightforward vote” and confused its members by offering a “‘Survey Vote' on Ritz Letterhead asking whether or not [Butler Gulch] Members wanted to have affiliation to the Marriott Vacation Clubs or not.” Docket No. 119 at 85-86, ¶ 72. On July 6, 2013, the Bachelor Gulch president followed up and stated that 89% of its members who voted in the election voted to terminate the club's relationship with the Marriott defendants. Id. at 87, ¶ 75; see also Id. at 76, ¶ 51 n.4 (alleging that Ritz-Jupiter Club's members also voted to terminate their relationship with the Marriott defendants to avoid the MVC affiliation).

         On November 19, 2013, the Association and the Marriott defendants sent a letter to the members stating that they were conducting a “survey . . . to understand the Aspen Highlands Member's interest in this voluntary exchange program, which would allow Members to exchange a week of their reserved allocated time for points within the Marriott Vacation Club Destinations exchange program.” Docket No. 119 at 88, ¶ 77. The letter did not mention that the “survey” was related to, or was a substitute for, the member vote referred to in the previous letters. Id.

         On April 17, 2014, the Association entered into a Memorandum of Understanding stating that a majority of Aspen Highlands members who responded to the survey desired to “participate on a voluntary basis in the [MVC] Exchange Program” and set out various terms on which Aspen Highlands members would be able to do so. Docket No. 108-2 at 3, ¶ 4; see also Docket No. 119 at 91, ¶ 83 (alleging the MVC affiliation). The same month, the Association sent a letter to its members announcing the MVC exchange program. Docket No. 109-16 at 2. Plaintiffs allege that, due to the MVC affiliation opening up access to Aspen Highlands to MVC members who can pay approximately 20% of what they paid, plaintiffs' fractional units are worth less than 20% of the original purchase price, while the Marriott defendants have reaped financial rewards. Docket No. 119 at 13-14, ¶ 10.

         On December 31, 2015, plaintiffs filed this lawsuit as a class action in the District Court for Pitkin County, Colorado. Docket No. 1 at 3, ¶ 1. On May 27, 2016, the Marriott defendants removed the case to federal court pursuant to the Class Action Fairness Act of 2005, 28 U.S.C. §§ 1332, 1446, 1453. Docket No. 1 at 2. On March 31, 2017, plaintiffs filed the operative complaint. Docket No. 119. The complaint does not contain any class action allegations. Id. Plaintiffs bring five claims: (1) breach of fiduciary duty against the Association, RC Management, and Cobalt; (2) constructive fraud against the same defendants; (3) aiding and abetting a breach of fiduciary duty and constructive fraud against all defendants; (4) conspiracy against all defendants; and (5) unjust enrichment against RC Management, Cobalt, MVW, MVCI, and Lion & Crown. Id. at 92-100. Plaintiffs seek monetary damages and disgorgement of all monies they have paid. Id. at 101-102.

         On April 14, 2017, the Association filed its motion to dismiss and the Marriott defendants filed their motion ...


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