We've seen articles and blogsites about owners suing The Manhattan Club, a luxury timeshare development in Manhattan. What can you tell us about this case, and what does it mean for owners or renters trying to book nights at the Manhattan Club?
The Manhattan Club, which opened in 1997 amid much fanfare in New York City, is indeed the subject of a bitter lawsuit filed by owners who claim that, despite their ownership, they cannot book reservations at the resort. Their class-action case alleges that the developers deliberately oversold ownership shares and then --- adding insult to the alleged injury --- rented out many of those same units to non-owners. The developers categorically deny all of the allegations. They also say owners actually benefit from the rental program because rental income helps keep down maintenance fees.
It's an ugly legal case and a cautionary tale for would-be timeshare owners and developers alike. It's a sorry situation for many existing flex-time owners who have difficulty getting reservations --- and can't sell their units on the resale market. It's also a stark warning to would-be owners that the Manhattan Club is a high-risk investment because it has been plagued by chronic reservation issues for at least six years. For potential renters, however, there is good news. You can get on the club's Web site today, or other commercial travel sites, and book rooms throughout the year. So, even if owners can't get in to their favorite timeshare, so-called "transients" can reserve rooms at rates equal to similar first-class hotels in Manhattan.
But of course, there's a lot more to this story...
The Lawsuit: Sales Pitches vs. Detailed Contracts
Most lawsuits have lives of their own, frequently turning on legal technicalities that have little to do with the underlying merits of the claims. The Manhattan Club case, filed in July 2013, could turn on both. It pits ten owners against the original developer, Ian Bruce Eichner, the management company that controls reservations, the Manhattan Club Timeshare Association and its president, Stuart P. Eichner, and three companies affiliated with the developer. The owners, suing on behalf of themselves and fellow owners who live in New York state, claim they were assured by overactive sales people that they could book their dream vacations in the Big Apple for days, weekends, or full weeks, as long as they made their reservation requests nine or 12 months in advance. The defendant developers, meanwhile, say they fully disclosed all the risks of ownership --- including, the possibility that owners might never get the reservations they want --- in the black and white contracts and accompanying documents that owners signed following sales presentations (that several current owners have described as overwhelming). The public offering documents from the Manhattan Club also reveal that "a small percentage of suites" would be rented to the general public.
Owners Out, Non-Owners In
According to the lawsuit, that "small percentage" amounts to 25 percent. What's worse, according to the plaintiff timeshare owners, is that the Manhattan Club's management company, which controls all reservations, pockets 20 percent of the rental income.
"That's what's running this engine," said Steven Blau, attorney for the plaintiff-owners. "The management company is in charge of reservations. It's in their best interest to rent the units because they get 20 percent of the new rental income."
While it is common for timeshare owners to complain about the difficulty of getting weeks at their favorite resorts, only a few have banded together to take on the developers who sold them their "dream vacations." In the special circumstances of the Manhattan Club, the litigation has become a cause as much as a case.
The Manhattan Club is a wildfire on Internet chat rooms and discussion forums, from RedWeek.com to Yahoo to Facebook. Owners have their own discussion sites where dozens, if not hundreds, have posted messages about their strongly negative experiences. The result? On RedWeek.com, you can buy a Manhattan Club week for $99, $100, $200, $499, $500, $1,000 on up to $23,500. When we asked the owner of the $23,500 unit to explain his asking price, he said simply: "Make me an offer. Please." It's a buyer's market.
-----------------
The Manhattan Club, amply supported by lawyers and public relations companies, has a robust Internet presence as well. The company still offers timeshares, solicits owners for referrals, and aggressively rents one-bedroom and junior executive studio suites year-round. The company's rentals are featured on all major Internet travel sites and are available through exchange companies. The Club is also spending money on itself: refurbishing units, elevators and interiors to keep pace with the traffic in Manhattan.
The contrasts are stark. The Manhattan Club appears to be a thriving concern. But at the same time, it is a business under siege from an expanding group of owners who are educated, angry and vocal. They are a middle-aged, middle-class group who talk about pickets, protests and propaganda. On the flip side, there are many Manhattan Club owners --- interested but uninvolved bystanders to the litigation --- who say they're generally happy with their ownership. Owners with fixed weeks (approximately 25 percent of all owners) have no reservation complaints.
Lawsuits Begetting Lawsuits
This is the third lawsuit brought by unhappy owners against the Manhattan Club. The first two cases, dating back to 2011, were dismissed prior to trial in federal court. The current case, in New York State Supreme Court, has already survived one dismissal challenge from the developer defendants. It is headed for a crucial hearing to determine whether it will be certified as a class-action lawsuit. If so, the list of plaintiffs would grow from an initial list of 10 owners to include all owners who are also New York residents --- that's 3,826 owners out of the approximate 18,000-plus who own timeshare interests in the club. The next hearing is scheduled for April 14, 2014.
"I could sign up 300, but I only want 10 plaintiffs," said Blau, lawyer for the timeshare owners.
"There are only 286 units at the Manhattan Club, they have 18,500 timeshares and they continue to sell new timeshare interests. So they are overselling and there's not enough room to satisfy timeshare owner requests for reservations," Blau said.
Simple math, the lawsuit says, shows that the Club would need 355 timeshare units to satisfy all owners --- meaning the club has a minimum shortage of 69 units per week. What's more maddening for owners, Blau added, is that the Manhattan Club always seems to have rooms available for members of the public.
"People pay taxes and maintenance fees of $2,000 to $4,000 a year but they're not able to use their timeshares. I can go on Travelocity today and book a room cheaper and get it immediately," he said.
The Manhattan Club, according to occupancy rates filed with the New York court, has always set aside a portion of its rooms for sale to the public and distribution to other travel companies (Disney, Wyndham) or exchangers (II, RCI). Between 2008 and 2013, on average, 11.2 percent of all Manhattan Club rooms were rented to the public. Owners occupied 74.2 percent of the units ---while 14.6 percent went empty (Exhibit 24).
The owners say, in layman's language, that they were never told about the extent of the rental program; nor were they warned, adequately, about the possibility of being unable to reserve their favorite dates. Had they known, they say, they would not have invested $20,000 to $50,000 in Manhattan Club timeshares. In legal terms, they are alleging deceptive acts and business practices, breach of the implied covenant of good faith and fair dealing, and violations of New York business law. They are seeking injunctive relief and class-action certification for all owners who have had similar if not identical experiences with the club. If the owners succeed in court, the defendants presumably would have to pay damages to all members of the class. However, this case is nowhere near the finish line.
According to RedWeek's research, the owners' problems with reservations started in the mid-to-late 2000s, at a time when their maintenance fees were also increasing dramatically year to year. A maintenance fee record posted on a widely read owner Web site (tmcnyowners.com) shows that annual fees for an executive suite studio jumped from $1,161 in 2007 to $1,612 in 2008 (and the 2014 fees are $2,162). The annual maintenance fee for a one-bedroom suite, meanwhile, rose from $1,176 in 2006 to $1,887 in 2007 (the 2014 fees are $2,585). The fees increased, according to the minutes of an association board meeting, after the lead developer, Ian Bruce Eichner, stopped subsidizing maintenance fees. This action, which had been intended all along, transferred the real operating costs of all units, including those still unsold, to all of the existing owners.
The reservations squeeze is more acute at the Manhattan Club, compared to other timeshares, because owners can't bank their weeks for use in a future year. They either use them every year, or lose them.
The Manhattan Club defendants, meanwhile, are tight-lipped about all of the issues in the lawsuit. In fact, they are still trying to get the entire case thrown out of court. In their recent filing for a dismissal, the defense asserted: "The complaint contains only conclusionary allegations and illogical allegations that are inherently incredible on their face."
No mincing words about what they think about the owners' allegations.
The Manhattan Club and its representatives declined to discuss the lawsuit. However, their lawyer, Joel Weiss, issued the following statement:
"This is the third, virtually identical lawsuit brought by the same plaintiffs' lawyer with the exact same allegations and claims. This plaintiffs' lawyer has been engaged in forum shopping, trying to find a receptive judge for his meritless claims. The two prior lawsuits were summarily dismissed by the Manhattan federal court as having absolutely no merit. We moved to dismiss this third lawsuit on the same grounds that led the federal court to dismiss the first two cases. Although the state court recently denied that threshold motion to dismiss, it did not find that the claims are valid; we believe the state court's reasoning in allowing the case to continue past this preliminary stage is entirely incorrect; and our clients are appealing that decision.
"The Manhattan Club's practice of renting a small percentage of its suites to the general public, which has been the focus of the three lawsuits, has been fully disclosed to owners and prospective buyers of timeshare interests in the Offering Plan and in the annual budgets. This practice actually benefits owners by helping to keep down maintenance fees and confers no benefits on the defendants to the lawsuit.
"The overwhelming number of The Manhattan Club's owners have been exceedingly happy with their timeshare ownership and are obtaining the benefits they were promised. Our clients categorically deny any assertion to the contrary," Weiss concluded.
While the case charts its own course, others are watching as well. The New York Attorney General's Office has received many complaints from Manhattan Club owners, but refuses to talk about how many or what they are doing in response.
"I can confirm that we have received complaints about the property being oversold," said Matt Mittenthal, press secretary for New York Attorney General Eric Schneiderman. "But we cannot comment on potential or ongoing investigations."
One Owner's Story: Robert Massi
For Robert Massi, a recently retired airline pilot from Connecticut, the litigation is all too much to bear. He is washing his hands of his $28,000 investment in the Manhattan Club and deeding his penthouse unit back to the Manhattan Club for $100. He figures it's a good deal, since his maintenance fees are $3,100.
"I can't wait around for lawsuits," he said.
"At the beginning it was great and their pitch was so good, but the longer you own, the more onerous it becomes," Massi said in an interview. "Finally you realize, there is no end in sight and no mechanism to appeal the increase in maintenance fees. And the maintenance fees cost more than what it costs me to rent a good room for a week in Manhattan.
"I only used my unit a half-dozen times in how many years because I could never get the days I wanted," Massi said. "So I am out."
Massi has come full circle on the Manhattan Club. Initially happy with his investment, he upgraded his one-bedroom suite to a penthouse unit, then referred his neighbors and relatives, who also bought into the timeshare.
Today, he's too embarrassed to talk to his relatives about what happened, and apologizes to his neighbors when they see each other. To him, the Manhattan Club is not only a financial nightmare, but a personal embarrassment.
Still Easy to Book Rooms at the Club
While exasperating for many owners, Manhattan Club reservations are easy to get for non-owners at virtually any time of year. For example, through the Manhattan Club's own Web site, a 4th of July week in a studio-sized junior executive suite rents for $3,647.39. A prime-time Christmas week reservation costs $4,299.17 for the junior executive suite and $4,700.79 ($672 per night) for a four-person one-bedroom villa, taxes included.
Rental prices are even lower on RedWeek.com, whose rentals are all offered by owners lucky enough to snag the time. In March, the average per night rate was in the $300 range. One owner is asking $2,499 for a one-bedroom, two-bath suite that is available from Dec. 27 to Jan. 3, 2015. That's $357 per night.
Owners also use RedWeek.com to post resales. At last count, the site offered 32 Manhattan Club resales: from $99. An annual fixed week in a one-bedroom suite for New Year's is available for $4,000 OBO.
The resale market for Manhattan Club timeshares appears to have gone the same direction as owner attitudes about the Club's value --- south. Many owners, frustrated by lack of activity on the resale market, are simply turning their units back to the Manhattan Club --- if the club will take them.
The Man Behind the Development
Ian Bruce Eichner, a onetime assistant district attorney, is well known in New York real estate circles. His company, Continuum Co. LLC, claims to have developed $6 billion worth of properties in New York, Miami and Las Vegas, with the Manhattan Club being just one of nine major developments in the Big Apple. The Manhattan Club is touted on Continuum's web site as the first Manhattan timeshare and the innovator of "flex-time" timeshare usage, which enables owners to split a week into seven different usage days. The idea was to allow owners to spend individual nights or, more likely, weekends in town, while business travelers occupied the suites during the work-week.
Seemed like a smart idea, back in 1997, when Eichner opened the Manhattan Club in the former Park Central Hotel at 7th Avenue and 56th Street. Located just three blocks from Central Park and a block from Carnegie Hall and Broadway, it offered a perfect "boutique hotel" style holiday for people more comfortable with timeshare-sized accommodations.
The New York press greeted news of the development with open arms and flattering reviews. Sales followed suit as owners sought refuge from high-priced hotel rooms in Manhattan.
Leonard Bisk, the lead defendant in the owner lawsuit, may be a typical buyer. From Ithaca, New York, he bought two flexible gold timeshare weeks in 2001 for $51,000. In 2003, he purchased a silver week for $20,536. Today, his maintenance fees are $7,170 for all three units.
For the past three years, despite following all of the advance reservation rules of the club, Bisk says he's been unable to get the rooms he wants. As a result, he lost two usage days in 2010, 14 days in 2011 and 21 days in 2013.
"I would not have paid a premium for a timeshare ownership in the Manhattan Club, or agreed to pay annual real estate taxes and timeshare charges, if I had known of the TMC's deceptive business practices," he said in a sworn affidavit for the lawsuit.
The overriding mystery of the Manhattan Club is why the developers and management companies allowed the situation to fester so long that it created a whole subclass of disenfranchised owners who are ripe for solutions and angry -- really angry -- because they feel they were duped into buying a timeshare they cannot use.
The moral of this story, if there is one, appears to be this: believe your contract; don't believe the sales people.
RedWeek.com repeatedly asked representatives of the Manhattan Club, from Eichner to the sales team to the general managers and association board members, to give their sides of this story. The only one who responded to our inquiries, beyond the lawyer (Joel Weiss) was a well-known Manhattan-based public relations executive named Eric Yaverbaum.
RedWeek.com submitted a list of questions to Eichner, the original developer. He only responded to one question: "Would you do it all over again?"
"Bruce would definitely do the Manhattan Club again," said Yaverbaum.
FYI, Yaverbaum is the author of "Public Relations for Dummies" and a frequent talking head on Fox News, where he coined the phrase, "Any tweet is a good tweet." He declined to make any additional comments about the Manhattan Club, Continuum or Eichner. (His company is Ericho Communications; twitter handle is @RealYaverbaum)
The irony of this PR positioning is that, while the corporate executives decline to defend their business practices, the reservation agents at the Manhattan Club are readily available to book reservations for non-owners.
This story reveals a huge gap in the timeshare universe --- a universe that is tilted heavily on the side of developers and hotel chains that promote timeshare sales. Even though there are millions of individual timeshare owners, they do not have an arena, outside of Internet chat rooms and courtrooms, to air their grievances. There is no such thing as binding arbitration in the timeshare world. Even though the industry is heavily regulated, the timeshare companies still hold all the leverage.
What's missing is a huge dose of customer service.
What's Next for Owners?
The next court hearing is scheduled for April 14, 2014. The pending hearing (and ruling) on class-certification will mark a huge turning point in the lawsuit. If the class is certified, the group of plaintiffs will expand to include all New York residents who own timeshares at the Manhattan Club. Members of the purported class would be notified by the plaintiffs attorney and/or the court. If the class-certification is defeated, the case will proceed with the original ten owner-plaintiffs pursuing the Manhattan Club for whatever damages they can obtain. Certification would put enormous pressure on the Manhattan Club to enter settlement negotiations. Why? Because it's much less expensive to settle a case with ten individuals rather than adjudicate a proper remedy and damages for thousands of plaintiffs in a class-action case. Bottom line: all New York owners have a direct interest in the outcome of the class-certification issue. But non-New Yorkers also have a stake, according to attorney Blau, because if the Manhattan Club approves a settlement agreement with New Yorkers, the club would come under pressure to provide similar relief to out-of-state owners. The date for the class-action hearing is still to be determined.
For the time being, unhappy owners who live in New York can contact the plaintiff attorney, Blau, for more information about next steps. Owners in other states, meanwhile, may be better off just monitoring the machinations in New York to determine if there is a good course, legal or otherwise, for them to follow. They can also follow the pattern set by New York owners --- filing complaints with the attorney generals in their own states to get their issues on the record. All owners, regardless of residence, can also educate themselves about the New York case by reviewing all of the legal documents online at https://iapps.courts.state.ny.us/webcivil/FCASSearch?param=I. The case number is 652662-2013. And sign-up for the RedWeek forum on this topic for regular updates - links below.
For more information:
- The resort's official Web site is manhattanclub.com
- The club's official site for owners is tmcny.com
- Manhattan Club owners hotline for sales: 888-692-2121
- New York owners attorney Steven Bennett Blau: 800-320-0403
- New York Attorney General's Office: 212-416-8060
- RedWeek.com has a discussion forum on the Manhattan Club lawsuit. It has been viewed more than 33,000 times: http://www.redweek.com/forums/messages?thread_id=17818
- RedWeek forum for updates specifically related to this article and case: http://www.redweek.com/forums/messages?thread_id=20127
- This Yahoo! discussion group started in October 2007. It has 632 owner members whose discussions are ongoing. The site reported 209 messages posted in February --- the highest one-month total ever --- and 99 more in March. Six more messages were posted April 1. Participation is limited to Manhattan Club owners only. http://groups.yahoo.com/group/manhattanclubowners
