Contract of Adhesion

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

I posted early in the points/rentals debates that RCI's contract with members may fail under the theory that it was a contract of adhesion, where there was effectively only one seller in the exchange market for many resorts, no opportunity to negotiate contract terms, and a 'take it or leave it' situation.

Later that same argument was picked up in Street Talk on the Timeshare Beat.

Now, we may see a test of that theory. From what I have learned, the complaint in the Chace case (one of the class actions against RCI) argues that RCI's contract with members is an invalid contract of adhesion. The Murrillo complaint may raise the same issue, but I do not have enough info on that one to know.

The upshot is that if the class actions are succesful, they may impact members rights vis-a-vis RCI in much broader areas than just the rentals.

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

You never know, but maybe this will go down the same path as the long distance telephone companies. If you recall, when they were first created in the divestiture agreement in 1984, there was a concept called equal access the forced local telephone companies to make it clear that subscribers had a choice of long distance carriers. It certainly helped the other long distance carriers for a while. Tons of them were created. But you know what? A funny thing happened on the way to the open market. AT&T died. And, so did every other long distance carrier. The market decided that long distance carriers were not needed. It was better for the local operators to create their own long distance service. Subscribers asked the question, why do I need to have a Bellsouth local service and an AT&T long distance service with 2 bills and many fees? Why not just have a Bellsouth service that provided me both local and long distance service?

Be careful what you wish for. Today, the purchase of a timeshare is integrally linked to the ability for an owner to exchange. Because whether or not we agree with it, many people don't want to go back to the same place every year. They want that dream vacation and they want to travel the world.

If a new set of regulations are passed and timeshare developers are forced to offer their customers equal access to exchange companies, then just like the death of AT&T was decreed on Jan 1, 1984, that will be the beginning of the end for RCI and II. And, it will happen much faster than the 20 years it took for AT&T to die and be reincarnated in one of it's children.

Substitute the names RCI and II for AT&T and MCI. Substitute the names Bellsouth, Southwestern Bell, Nynex, Bell Atlantic with Marriott, HGVC, Hyatt, Bluegreen, Trendwest, Fairfield, Disney, SVO, SVC, Club Intrawest and apply the analogy.

What will happen is that as these vacation clubs grow in size, they will begin to ask themselves why they need these big exchange companies. They are already supporting internal reservations, they can do direct exchanges between the other big players. Why should they cede an $89 annual membership fee, $149 exchange fee and the rental revenue these exchange companies are deriving when they can simply do it themselves and retain that revenue? They are already thinking it now. Look at Orange Lake and Marriott moving in the direction of internal exchange.

Now, let's go back to this theory of contract of adhesion. Let's say that Chace wins the case and all timeshare developers are required to fully disclose a customer's option for exchange. The first thing that each of the major resort developers will do is create their own interal exchange program. Why? Because the timeshare sale is an emotional, impulse sale. You can never close an impulse sale based on emotion by trying to share facts, details and options. If you do, then the buyer will need to "think about it" and that process of thinking about it will kill the sale for that day, the owners will discover the resale market and resort sales will plummet. The resort developers know this, so their only defense will be to NOT offer 3rd party exchange as an option. They will allow that as an after market sale AFTER the 10-day recission period.

So, be careful of what you are asking, you may be asking for the death of the very thing you are trying to save.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

I think you may be confusing two different legal issues.

Winning on the contract of adhesion issue doesn't require resorts to do anything. All it would do is say that RCI cannot enforce the terms of its contract (it's T&C's) against its members.

What you are talking about are anti-trust issues. The mini-systems are too provincial, with no global presence, to offer a real substitute for exchange companies. Remember, it was a mini-system, and points-based at that, which started timesharing, Hapimag, but that didn't stop the explosive growth of weeks-based resorts and exchange companies from leaving them in the dust. Indeed, the most global of the mini-systems, Sunterra, may soon become much less so. Its largest shareholder is demanding they sell their European operation, which is in serious trouble. The rumored buyer is Club La Costa, a European mini-system that is supposed to already have its loan in place for the purchase.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

...The mini-systems are too provincial, with no global presence, to offer a real substitute for exchange companies. ...

I agree with this. Pulling out the book and showing all of the global exchange opportunities is still a key selling point for the mini-systems, and they aren't going to give that up.

In fact, the mini's like to say that because of the desirability of their resorts, they are able to cut special deals with the exchange companies to give their owners preferences in completing exchanges. This is really useful when they are dealing with people who currently own Weeks timeshares and are frustrated with the uncertainties of the Weeks exchange system.

If the mini is connected to RCI Points and exchanging is a prospect "hot button", the sales pitch also includes showing the owner how to use Points to convert their single ownership week into multiple weeks, fractional stays, or upgraded units.

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

I think you may be confusing two different legal issues.

Winning on the contract of adhesion issue doesn't require resorts to do anything. All it would do is say that RCI cannot enforce the terms of its contract (it's T&C's) against its members.

What you are talking about are anti-trust issues. The mini-systems are too provincial, with no global presence, to offer a real substitute for exchange companies. Remember, it was a mini-system, and points-based at that, which started timesharing, Hapimag, but that didn't stop the explosive growth of weeks-based resorts and exchange companies from leaving them in the dust. Indeed, the most global of the mini-systems, Sunterra, may soon become much less so. Its largest shareholder is demanding they sell their European operation, which is in serious trouble. The rumored buyer is Club La Costa, a European mini-system that is supposed to already have its loan in place for the purchase.

Yeah, I'm not a legal expert. I am sure you are right on this point. Would that mean that the agreement is simply null and void? If it is, what practically happens to the deposits? Who's rules govern the system? I don't understand what it means that not all of it's T&Cs can be enforced.

I agree that the mini's aren't large enough to live up to a global exchange vision. Funny thing is, neither are the major exchange companies. I claim that they would change their sales pitch to eliminate that element from their pitch. They would simply sell it primarily to reserve internally and use a nebulous concept called a direct exchange organization that has strategic partners all over the world to get you virtually anywhere you want to go. It would be hollow, mind you, but it would be much preferable than risking the requirement of disclosure on the various exchange alternatives. In timesharing sales from the developer, the less you talk about the product, the higher your chance is of making the sale. They want to discuss emotion and that great experience you had with your father when you were a kid and how we work too much and give them a fear of loss of life or deal or love. Not trading power formulas or supply and demand.

[timeos2 Senior Member Find all posts View Profile Close timeos2]

OK - they will settle

Of all the possible major outcomes of the suits mentioned having parts of the contracts declared unenforceable may be the most likely and best anyone could hope for. Since the members already get to opt out if they want removing some exclusive language between RCI and the resorts would hurt no one and RCI would most likely agree to it in a heartbeat. It wouldn't impact anything else they are doing and certainly wouldn't be the basis for any monetary setttlement. Why don't we just say thats a winner and save the next 5-7 years of litigation on all this? Case(s) settled. Move on.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

These are members suing RCI, not resorts, and the contract that they are seeking to invalidate at least parts of is NOT the contract between resorts and RCI; it is the contract between individual members and RCI.

Of all the possible major outcomes of the suits mentioned having parts of the contracts declared unenforceable may be the most likely and best anyone could hope for. Since the members already get to opt out if they want removing some exclusive language between RCI and the resorts would hurt no one and RCI would most likely agree to it in a heartbeat. It wouldn't impact anything else they are doing and certainly wouldn't be the basis for any monetary setttlement. Why don't we just say thats a winner and save the next 5-7 years of litigation on all this? Case(s) settled. Move on.

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

These are members suing RCI, not resorts, and the contract that they are seeking to invalidate at least parts of is NOT the contract between resorts and RCI; it is the contract between individual members and RCI.

So, I still don't understand. What if parts of the member agreement is invalidated. What rights to members reclaim that they didn't have prior to the removal of this contract of adhesion?

Do they get better exchanges? Can they rent their spacebank weeks? Do they get lower fees? I don't get why this matters? Can you help explain?

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

So, I still don't understand. What if parts of the member agreement is invalidated. What rights to members reclaim that they didn't have prior to the removal of this contract of adhesion?

Do they get better exchanges? Can they rent their spacebank weeks? Do they get lower fees? I don't get why this matters? Can you help explain?

I wish I had a full copy of the complaints in both Murrillo and Chace and I could tell you more specifics. All I have read are accounts in the timeshare media. It is probably a certainty that one aspect they are going after with the contract of adhesion theory is the T&C provisions that might allow RCI to rent out inventory to the general public. How much more they may be attacking is less certain, but once it is established that the T&C are a contract of adhestion, it makes it much easier for anyone else to go after other parts.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

I wish I had a full copy of the complaints in both Murrillo and Chace and I could tell you more specifics. All I have read are accounts in the timeshare media. It is probably a certainty that one aspect they are going after with the contract of adhesion theory is the T&C provisions that might allow RCI to rent out inventory to the general public. How much more they may be attacking is less certain, but once it is established that the T&C are a contract of adhestion, it makes it much easier for anyone else to go after other parts.

I would think that if you were going attacking this as a contract of adhesion, you would focus on issues where the leverage of the superior party is most apparent and onerous or unfair.

Following that logic, I would look at the disparity between RCI claiming that they can rent your unit, but you can't rent a unit you get from them.

If RCI continues to claim that you (or your resort) are liable for making them whole after depositing a week with them if the resort is damaged (or the unit is otherwise unavailable), I think that would also be a target area. As I understand that situation, it appears that RCI is asserting for itself all of the benefits of ownership while forcing the nenber to retain all of the risks. That type of construction seems to me to be almost classic evidence of one-sidedness in terms of a contract.

Of course, the solution to the rental question might not be stopping RCI from renting from units, but allowing members to also rent the exchanges they receive from RCI. That wold truly open up an interesting free market for timeshares, as investors can then value timeshares based on their value in obtaining units for rental.

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

I would think that if you were going attacking this as a contract of adhesion, you would focus on issues where the leverage of the superior party is most apparent and onerous or unfair.

Following that logic, I would look at the disparity between RCI claiming that they can rent your unit, but you can't rent a unit you get from them.

If RCI continues to claim that you (or your resort) are liable for making them whole after depositing a week with them if the resort is damaged (or the unit is otherwise unavailable), I think that would also be a target area. As I understand that situation, it appears that RCI is asserting for itself all of the benefits of ownership while forcing the nenber to retain all of the risks. That type of construction seems to me to be almost classic evidence of one-sidedness in terms of a contract.

That was what I was thinking. It seems that what would logically follow from this approach is that depositers would potentially gain the rights to rent spacebank weeks or exchanges since they are doing a like kind exchange. And, if RCI can rent their weeks, then the depositers can rent the exchanges.

If that is the net result of these class action lawsuits, I would be tremendously in favor of that outcome.

It seems to me then, that an approach that attempts to nullify a contract of adhesion is one in which someone is trying to get out of obligations they had as a result of an agreement that was forced upon them. I still don't see how the member benefits from the agreement being nullified.

If anything, shouldn't the members claim that they made a deposit and got an exchange credit that was worthless because the rental activities of RCI were so extensive that there was nothing available for exchange. Wouldn't that be what the case is based on?

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Your first suggestion is close enough to the subject matter of the lawsuit, that it might well be included.

The second is a mixed issue involving both the contract between RCI and the member and also RCI and the resort. It might well also be fertile ground, but I suspect too far afield from the subject matter of the lawsuit to likely be included. A win in this lawsuit would certain make a future suit on this issue much easier to win.

I would think that if you were going attacking this as a contract of adhesion, you would focus on issues where the leverage of the superior party is most apparent and onerous or unfair.

Following that logic, I would look at the disparity between RCI claiming that they can rent your unit, but you can't rent a unit you get from them.

If RCI continues to claim that you (or your resort) are liable for making them whole after depositing a week with them if the resort is damaged (or the unit is otherwise unavailable), I think that would also be a target area. As I understand that situation, it appears that RCI is asserting for itself all of the benefits of ownership while forcing the nenber to retain all of the risks. That type of construction seems to me to be almost classic evidence of one-sidedness in terms of a contract.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

Your first suggestion is close enough to the subject matter of the lawsuit, that it might well be included.

The second is a mixed issue involving both the contract between RCI and the member and also RCI and the resort. It might well also be fertile ground, but I suspect too far afield from the subject matter of the lawsuit to likely be included. A win in this lawsuit would certain make a future suit on this issue much easier to win.

I'm not a lawyer, so bear with my ignorance and hypothesizing here.

For the moment I"m going to assume that the plaintiffs get over the first hurdles of establishing that the contract meets even minimum requirements to merit hearing. To my non-legal mind, that means establishing that the plaintiffs couldn't have reasonably simply refused to sign or the contract, or, having signed the contract, simply cancelled membership or used other alternatives without incurring damages.

So now we're working on the presumption that this looks as if it's a contract of adhesion, and now the plaintiffs need to show that it smells like a contract of adhesion. So we start to look at whether there are terms and conditions in the contract that are:

1. outside the reasonable expectations of the person signing the contract; or
2. so one-sided and unfair that they would not be reasonably and honestly offered and accepted in a true arms-legnth negotiation among equals.

If plaintiffs accomplish that, they've shown that it looks like a contract of adhesion and it smells like a contract of adhesion.

So now we ask if it actually is a contract of adhesion. And since we're talking equitable relief here, for it to actually be a contract of adhesion, don't the plaintiffs now need to establish they were actually harmed by the application of those terms and conditions? Because if they weren't harmed, then what is the rationale for asking equitable relief? What are you asking to be relieved from if you haven't been harmed?

And that leads me to the main question I have here. What are the areas where plaintiffs could reasonably make a claim to be harmed? I can see the rentals issue I raised above, but I'm hard pressed to come up with much else.

I can possibly see an argument over the requirement that issues be litigated in Indiana, though again I wonder about being able to attach harm resulting from that. (But if I were a plaintiff's attorney, I would certainly press that hard to make the argument that this particular claim offers the only real opportunity for the plainrtiffs to obtain equitable relief.)

I'm with you Steve. It would be interesting to see the complaint.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Since Cendant took over, they now require actions against RCI to be filed in New Jersey, where both Chace and Murrillo are, rather than Indiana.

It would be nice if someone like the TimeshareBeat could scan copies of the Complaints in both actions, as well as RCI's responsive pleadings, and post them on their site.