United States District Court, D. Colorado
ORDER REGARDING PLAINTIFFS' MOTIONS FOR DEFAULT
JUDGMENT (AFFILIATION AGREEMENT MOTION (ECF #223)) &
(APCO DOCUMENTS MOTION (ECF#282))
Gordon
P. Gallagher, United States Magistrate Judge
This
matter comes before the Court on a significant number of
pleadings which are appropriate for joint treatment:
Plaintiffs' motion for sanctions and a default judgment
against certain Marriott Defendants (Affiliation Agreement
motion) (ECF #223)[1] (which was referred to this Magistrate
Judge (ECF #233)), [2] Plaintiffs' request for judicial
notice (ECF #224), Aspen Highland's response (ECF #262),
the Marriott Defendants' response (ECF #273),
Plaintiffs' reply regarding Aspen Highlands (ECF #274),
Plaintiffs' reply regarding the Marriott Defendants (ECF
#278), the Marriott Defendants' sur-reply (ECF #290),
Plaintiffs' motion for sanctions and default judgment
(APCO documents motion) (ECF #282) (which was referred to
this Magistrate Judge (ECF #284)), [3] the Marriott Defendant's
response (ECF #295/296), and Plaintiffs' reply (ECF
#297). The Court has reviewed each of the aforementioned:
documents, responses, replies and any attachments. The Court
has also considered the entire case file, the applicable law,
and is sufficiently advised in the premises. Oral argument
was held on November 20, 2018. For the following reasons, the
Court GRANTS the motions in-part and DENIES the motions
in-part as specifically set forth below.
This
matter involves a dispute over Marriott Vacation Clubs (MVC)
determination to open Aspen Highlands-a Ritz Carlton
Destination Club-to all the members of the MVC.[4] Rather than
rehash what has already been set forth in detail in prior
pleadings in this action, I lift, in toto (footnotes
removed), the summary of events as set forth by the Honorable
Judge Brimmer in ECF #210, pp. 1-8:
I. BACKGROUND[5]
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”) 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 Interests with respect to certain Units
within Aspen Highlands Village. Other than the right of
Declarant . . . and specific assigns . . . to create
Fractional Ownership Interests . . ., 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. The 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 to
dismiss. Docket Nos. 129, 131.
For
purposes of the present motions, Plaintiffs contend that
Marriott “concealed a later agreement (the “2013
Affiliation Agreement”)” (ECF #223, p. 1).
Plaintiffs also contend that Marriott also failed to produce
“an additional set of documents relating to a survey
and focus group performed by APCO Worldwide, Inc. (the
“APCO documents”) that strongly support
Plaintiffs' fiduciary duty and constructive fraud
claims” (ECF #282, p. 1).
The
Affiliation Agreement[6]
On
March 13, 2018, Plaintiffs were provided with the Affiliation
Agreement (ECF #223, p. 3) (Affiliation Agreement at ECF
#223-8). The end game of the production of the Affiliation
Agreement is clear. On March 12, 2018, Michael Reiser
(counsel for Plaintiffs), by cross-referencing with other
documents produced in discovery, determined that the
Affiliation Agreement must exist, yet had not been produced
(ECF #223, pp. 8-9). Mr. Reiser emailed Counsel for Marriott,
Ian Marx, on March 12, 2018 at 10:12 p.m. (ECF #223-7, p. 4
of 6) demanding production of the document. On March 13, 2018
at 9:24 a.m. (some 12-14 hours later-allowing for the
vagaries of time zones) the document was produced (ECF
#223-7, p. 4 of 6). The Marriott Defendants acknowledge that
the Affiliation Agreement was not produced in response to
Plaintiffs' discovery request and argue that the failure
to produce was “inadvertent” (ECF #273, p. 1).
The
Affiliation Agreement formalizes the relationship, the
affiliation, between the Marriott Vacation Club Destinations
(MVCD) and the Lion and Crown Program (LC). See
Affiliation Agreement (ECF #223-8, p. 4 of 53). Plaintiffs
assert the import of the Affiliation Agreement is that it
speaks to the breach of fiduciary duty by the Aspen Highland
Condominium Association in that the Association had to agree
to the affiliation. See generally Plaintiff's
motion for sanctions (ECF #223, pp. 2-3). Marriott has
vigorously litigated the fiduciary duty issue under a variety
of theories. See, e.g., Marriott's motion to
dismiss (ECF #131, pp. 8-13).[7]One of Marriott's many
arguments against the fiduciary duty claim was that
“[a]ffiliating with MVC was not within the
Association's power” (ECF #131, p. 12). Plaintiffs
believe that the Affiliation Agreement is the main piece of
evidence belying that argument-essentially that it was the
missing link. Plaintiffs assert that they were prejudiced in
that: (1) they did not have the Affiliation Agreement when
conducting certain “critical depositions”; (2)
Plaintiffs were forced to respond to both Marriott's (ECF
#131) and the Affiliation's (ECF #129) motions to dismiss
the fiduciary duty claims without the benefit of the
Affiliation Agreement;[8] and (3) Plaintiffs claim they were
prejudiced in both the Petrick and Reiser
actions by the failure to produce the Affiliation
Agreement.[9] Additionally, during the hearing held on
this matter, Plaintiffs argued that their clients had been
financially disadvantaged by the delay caused due to the
failure to disclose the Affiliation Agreement because of the
increase in discovery costs and because Plaintiffs continue
to pay monthly Association assessments over the course of
this protracted litigation.[10]
Plaintiffs
assert that Marriott “concealed” the Affiliation
Agreement (ECF #223, p. 3). Once the existence of the
agreement was discovered, Plaintiffs contend that Marriott
first denied that the Affiliation Agreement had ever been
requested and then stated that the failure to provide was
inadvertent error.
Defendants
view the import of the Affiliation Agreement differently.
According to Marriott, the Affiliation Agreement was entered
into for the benefit of Ritz Carlton Club (RCC) members, as
“a voluntary way to allow RCC members to go to other
places” (Marriott response (ECF #273, p. 13) (original
citation removed). The Aspen Highland Defendants similarly
“disagree[] with Plaintiffs' interpretation of the
significance and relevance of the 2013 Affiliation
Agreement” (Aspen Highland's response (ECF #262, p.
3)). A fair assessment of the import of the Affiliation
Agreement-at least as expressed by the parties-is that
Plaintiffs view it as the missing link, supra, while
Marriott and Aspen Highlands believe it to be of much more
minimal significance.
Plaintiffs
essentially present an Occam's razor[11] argument
tying in Plaintiffs' view of the importance of the
Affiliation Agreement to the case to the failure to produce.
Plaintiffs assert that the evidence establishing intentional
concealment of the Affiliation Agreement is
“overwhelming” (Plaintiffs' reply to Marriott
(ECF #278, p. 1)). Plaintiffs believe that the Court should
look at the pre-litigation conduct of Marriott regarding the
Affiliation Agreement in combination with the failure to
produce during discovery. Id. Plaintiffs argue that
Marriott intentionally withheld the Affiliation Agreement
from one or more boards and instead had those boards execute
an Acknowledgement of and Joinder (See
Plaintiffs' reply for the argument to this effect (ECF
#278, p. 2); and see Marriott's sur-reply (ECF
#290-2) for the actual Acknowledgement of and Joinder).
Basically, Plaintiffs assert that Marriott did not want the
Board(s) to see the Affiliation Agreement so they found a
work-around, creating a way for the Affiliation Agreement to
be executed without actually being reviewed. As set forth
supra Marriott has a different opinion as to the
significance of the Affiliation Agreement.
Plaintiffs
also outline in their motion, see generally ECF
#223, pp. 5-8, how they believe deposition conduct appears
suspiciously like a continued attempt to conceal the
agreement based on “changed testimony, ”
“confusing testimony, ” and a
“woodshedding” of deponent Lee Cunningham.
Id. pp. 6-7.
Plaintiffs
also assert that the course of conduct in the
Petrick and Reiser actions, both discovery
and dispositive motion practice, are indicative of a
continued intent to conceal the Affiliation Agreement.
See sanctions motion (ECF # 223, p. 9, fn 4). With
regard to the dispositive motion practice, both in the
California actions and in this one, Plaintiffs conflate
Marriott's opposition to the fiduciary duty claims with
concealment of the Affiliation Agreement. Essentially
Plaintiffs' point can be stated as follows: Defendants
knew they were breaching their fiduciary dut[y][ies]; the
Affiliation Agreement serves as proof of such breach[es];
thus, the Affiliation Agreement was concealed to hide those
breaches until after the conclusion of dispositive motion
litigation on the subject. Plaintiffs argue ...