Welk Resort Group v Reed Hein & Associates

Case Number: 3:17-cv-01499

Last Updated: May 5, 2021

Status

Resolved – 11/18/2019

Location

USDC, Southern District of California (San Diego)

Presiding Judge

Judge M. James Lorenz

Date Filed

07/25/2017

Highlights

Court dismissed law firm pursuant to California’s Anti-SLAPP statute with fees awarded to defendant; settled as to other defendants.

Case Posture

Claims:

In the lawsuit, Plaintiffs claim Defendants Reid Hein & Associates, LLC,  operate as a “Timeshare Exit Team” (“TET”).  TET used illegal and unethical business practices to defraud vacation owners and disrupt Plaintiffs’ contractual relationships with its vacation owners using fraudulent advertising, making false statements and unrealistic promises to unsuspecting vacation owners to extract exorbitant fees. 

Posture:

Case is resolved.

Summary:

Plaintiffs allege the TET Defendants lure unsuspecting vacation owners into breaching their contracts and payment obligations to Plaintiffs by use of false advertising and false promises.  According to the complaint, TET Defendants falsely advertise vacation owners can be released from their obligations to the resorts without any consequences, including damage to their credit.   Plaintiffs allege TET Defendants lead vacation owners to believe TET has a relationship with Plaintiff and works with Plaintiff to dissolve the vacation owners’ contracts and to repair negative credit reporting information.  Vacation owners then pay TET up to $5,000 for these services.

TET is not a law firm but works with Defendants Ken B. Privett, PLC and Schroeter Goldmark & Bender, P.S. (collectively as the “Attorney Defendants”).  Plaintiffs allege the Attorney Defendants do not represent the vacation owners and do not meet or speak with the vacation owners.  The Attorney Defendants falsely represent that they represent the vacation owners in letters sent to Plaintiffs requesting that the vacation owners be released from their contractual obligations.  The letters instruct Plaintiffs to only communicate with Attorney Defendants and not the vacation owners thereby preventing Plaintiffs from communicating with the vacation owners to resolve their concerns.

Plaintiffs prayed for injunctive relief to enjoin Defendants from falsely advertising and soliciting Welk vacation owners and offering to assist them in breaching their vacation ownership obligations; for punitive damages, treble damages pursuant to 18 U.S.C. 1964(c); attorneys’ fees; restitution; and disgorgement of profits.

Selected Events:

2/4/2020 – Order Granting in Part and Denying in Part Motion for Attorneys’ Fees and Costs of Defendant Schroeter Goldmark and Bender (“SGB”) [129]:  The Court granted SGB’s motion for attorney’s fees in the amount of $170,212.50 and costs in the sum of $182.62.  SGB prevailed on its Anti-SLAPP Motion which resulted in a dismissal of all claims against it as the California Civil Procedure Code provides for mandatory attorney fees if a defendant prevails on an anti-SLAPP motion.  The Court found that due to the complexity of the case which required a high level of skill, the attorneys’ level of qualifications and the billing rates in the District that the hour rates of $450 per hour were reasonable.   Plaintiffs claimed that the 215.5 hours that SGB billed to prepare the anti-SLAPP motion which also included hours to prepare the first anti-SLAPP motion prior to Plaintiffs filing a Second Amended Complaint instead of opposing the motion were excessive.  Plaintiffs also claimed SGB’s time entries were vague, and the attorneys engaged in double billing.  The Court rejected all of Welk’s claims.  Using the lodestar method, the Court awarded SGB $121,725 for attorneys’ fees and $182.62 for costs.

11/18/2019 – Order Granting Joint Motion for Order of Dismissal With Prejudice [128]:  The joint motion for order submitted by Welk and Defendant Reed Hein & Associates, LLC dba Timeshare Exit Team ws granted.  Parties were further ordered to bear their own costs, fees, and expenses.

11/15/2019 – Joint Motion for Order of Dismissal Without Prejudice [127]:  Plaintiffs and Defendant Reed Hein & Associates, LLC dba Timeshare Exit Team (the “Parties”) moved the Court for an entry of dismissal of the entire action, including all claims between the Parties.  

6/18/2019 – Notice of Joint Settlement and Request to Withdraw Defendant Ken V. Privett, PLC’s Anti-SLAPP Motion [117]:  Plaintiffs and Defendant Ken V. Privett, PLC (“Privett”) notified the Court that a settlement had been reached and requested the Court take Privett’s pending Anti-SLAPP motion off calendar in light of the settlement.  

3/18/2019 – Order Granting Defendant Schroeter Goldmark & Bender’s SGB Special Motion to Strike (Anti-SLAPP); Denying as Moot Attorney Defendants’ Motion to Dismiss; Granting in Part Defendant Ken B. Privett PLC’s (Privett Defendant) Motion  to Dismiss; and Granting in Part Defendant Reed Hein & Associates, LLC’s Motion to Dismiss [80]. 

SGB’s Anti-SLAPP Motion:  

The Court granted SGB’s Anti-SLAPP motion based on the following:  SGB’s complaint is based upon the demand letters SGB sent on behalf of Reed Hein customers who wanted to terminate their timeshare contracts with Welk.  Welk did not dispute that generally, demand letters pertaining to a consumer protection matter are a protected activity under California Code of Civil Procedure section 415.16(e)(2) or (4).  Both prongs of the Anti-SLAPP statute must be met in order for a cause of action to survive being stricken under the statute.  SGB contended that the demand letters were protected speech under the litigation privilege pursuant to California Civil Code section 47(b). SGB denied that the demand letters were hollow threats.  The demand letter was shortly followed by “an avalanche of litigation.”  The Court also rejected Plaintiffs’ argument that litigation privilege did not apply to the demand letters as Plaintiffs claim the letters falsely claimed the SGB represented the vacation owners at the time the letter was sent.   All claims against SGB were dismissed.

SGB’s Motion to Dismiss:  

As the Anti-SLAPP motion was granted and all claims against Schroeter Defendants were dismissed, the court denied this motion as moot.

Plaintiffs’ Motion to Amend the Second Amended Complaint (“SAC”):  

As the Plaintiffs already amended the Complaint twice and were aware of the Schroeter Defendant’s Anti-SLAPP Motion prior to filing the SAC, Plaintiffs’ Motion to Amend was denied.

Reid Hein’s and Privetts’ Motions to Dismiss:

Reid Hein and Privett filed Motions to Dismiss asserting pursuant to Federal Rule of Civil Procedure 12(b)(6) Plaintiffs failed to allege facts sufficient to support the causes for intentional interference with contractual relations, civil conspiracy, and violations of the Unfair Competition Law.  As to the Reed Hein Defendant, Plaintiff pled violations of the Racketeer Influenced and Corrupt Organizations Act, The Vacation Ownership and Time-Share Act, The False Advertising Law, and false advertising in violation of the Lanham Act.  Defendant Privett also maintained it is protected by the litigation privilege.

Although Plaintiffs’ allegations against the Privett Defendant were similar to those of the Schroeter Defendant, Privett raised the litigation privilege in the context of a Rule 12(b) Motion as opposed to an anti-SLAPP Motion.  In this context, the litigation privilege is an affirmative defense and a complaint pursuant to a 12(b) motion may be dismissed “only if the defense is clearly indicated and appears on the face of the pleading.”  The Court rejected Privett’s litigation privilege argument on the basis that Privett requested judicial notice of Schroeter’s lawsuits as evidence of privilege in a Reply brief.  The Court need not consider any evidence  if raised for the first time in a reply brief.  The Court also rejected Privett’s litigation privilege argument because Schroeter’s lawsuits, filed shortly after the demand letters were sent,  are no indication as to whether Privett would “do the same on behalf of a different timeshare owner.”

The Court determined that Plaintiffs pled sufficient facts to support its’ causes of action for intentional interference with contractual relations,   Based upon the face of the complaint, it was not apparent that the agent immunity defense applied to Privett or Reid Hein.  As such, Privett and Reid Hein’s motions to dismiss the claim for intentional interference with contractual relations was denied.  The court also denied Privett and Reid Hein’s motions to dismiss the claim for civil conspiracy as the claim was based upon interference with contractual relations.

Reed Hein’s motion to dismiss the cause of action for violation of California’s false advertising law was granted because Welk’s claims in the complaint were not premised upon the truthfulness of Reed Hein’s representations but on the allegations that Reed Hein allegedly defrauded its customers and caused Welk to lose money when the customers terminated their timeshare contracts.  Leave to amend was denied.

Reed Hein also moved to dismiss Plaintiffs’ claims against it for false advertising in violation of the Lanham Act which was granted because Plaintiffs could not allege that Reed Hein is a competitor because it does not offer the same products or services.   However, the Court allowed Plaintiff to amend this cause of action because it may be possible for Plaintiff to allege standing to sue for false association.

Reen Hein moved to dismiss Plaintiffs’ cause of action for violations of the Vacation Ownership and Timeshare act. The Court granted Reed Hein’s motion wihtout leave to amend as to Plaintiff, Welk Resort Group, Inc. (“Welk Resort”) as actions for violation of the Timeshare Act can only be bought by a “time-share interest owner or association.”   The Court  granted the motion as to Welk Resorts Platinum Owners Association (“Welk Association”) with leave to amend.

The Court granted Reed Hein’s motions to dismiss Plaintiffs’ claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and RICO conspiracy without leave to amend on the basis that it could not plead facts sufficient to show Reed Hein caused Plaintiffs’ injuries.   

Finally, the Court granted in part and denied in part Reid Hein and Privett’s motions to dismiss Plaintiffs’ claims under the California Unfair Competition Law (“UCL”).  The motions were denied insofar as Plaintiffs’ allege “unlawful business practices based on interference with contract and the related conspiracy, and to the extent it can sufficiently amend its Timeshare Act and Lanham Act claims against Reed Hein.  In all other respects, the UCL claim is dismissed.”   Leave to amend was denied.

7/27/2017- Order Dismissing Complaint with Leave to Amend [4]: The complaint did not adequately allege federal jurisdiction based on diversity of citizenship and the Complaint  was dismissed on this basis with leave to amend.  

Parties

Plaintiffs: Welk Resort Group, Inc., Welk Resorts Platinum Owners Association

Plaintiffs’ counsel: Benjamin Eliot New, Gabriel G. Hedrick, Jeffrey A Backman, Neil P. Thakor of Greenspoon Marder LLP, James N Godes, Michael Lee Kibbe, Oliver B. Dreger of Godes & Preis, LLP; Richard W Epstein, Greenspoon Marder, P.A.

 

Defendant:  Reed Hein & Associates, LLC dba Timeshare Exit Team

Defendant’s counsel: David Eisen, Gregory K Lee, Marty B. Ready of Wilson, Elser, Moskowitz, Edelman & Dicker LLP; Panda L. Kroll of Panda Kroll, Esq. & Associates

Defendant: Schroeter Goldmark & Bender, P.S.

Defendant’s counsel: Gregor A Hensrude, Robert M. Shaughnessy of Klinedinst PC

Defendant: Ken B. Privett, PLC

Defendant’s counsel: Charles R Grebing, Wingert Grebing Brubaker & Juskie LLP; Paul H. James, Lincoln Gustafson & Cercos; Teresa Beck, Buchanan Ingersoll & Rooney

 

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