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Spearman v. Wyndham Vacation Resorts, Inc.

United States District Court, N.D. Alabama, Western Division

November 10, 2014

WILLIAM M. SPEARMAN, et al., Plaintiffs;

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[Copyrighted Material Omitted]

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For William M Spearman, individually and as Trustee of the Spearman Family Trust, Young-Rang Spearman, Plaintiffs: Robert F Prince, LEAD ATTORNEY, R Matt Glover, Prince, Glover and Hayes, P.C., Tuscaloosa, AL; Brannon J Buck, Brett Andrew Ialacci, W Percy Badham, III, BADHAM & BUCK LLC, Birmingham, AL; Kent M McCain, McCAIN LAWYERS LLC, Pelham, AL; Kevin M McCain, Pelham, AL.

For Wyndham Vacation Resorts, Inc., Wyndham Vacation Ownership, Defendants: Eugene J Podesta, Jr, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ PC, Memphis, TN; Sara M Turner, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ PC, Birmingham, AL.

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Before the Court is Defendants Wyndham Vacation Resorts, Inc. and Wyndham Vacation Ownership's motion for summary judgment. (Doc. 78). Also pending is a motion to strike portions of the Plaintiffs' undisputed fact section and certain exhibits admitted in support of the Plaintiffs' response to Defendants' motion for summary judgment. (Doc. 129). For the reasons stated below, the motion for summary judgment is due to be granted in part and denied in part, while the motion to strike is due to be denied as moot.

I. Facts[1]

Defendants Wyndham Vacation Resorts, Inc. and Wyndham Vacation Ownership

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(collectively " Wyndham" ) are one of the largest timeshare companies in the world.[2] Wyndham develops and sells vacation ownership interests, which are reflected by an allocation of " points" proportionate to each owner's interest. These points can be used to make reservations at various resorts.

Plaintiffs William M. Spearman (" Mr. Spearman" ) and Young-Rang Spearman (" Mrs. Spearman" ), together with a trust created by the Spearmans known as the Spearman Family Trust (" Spearman Trust" ), own approximately 15,600,000 Wyndham points. They are among the largest Wyndham point holders in the world and are Platinum VIPs, the highest level of a three-tiered VIP benefit program. Plaintiffs purchased some of their points directly from Wyndham, but accumulated most of their points through purchases from third-party owners.

Plaintiffs made an initial timeshare purchase from Defendants in 2001, but rescinded the contract because Mr. Spearman believed he had been tricked into making the purchase by the salesperson. After later discussing the possibility and mechanics of running a timeshare rental operation using Wyndham points, Mr. Spearman began to purchase Wyndham points from third parties in August of 2003.

Mr. Spearman made his first purchase directly from Defendants on September 4, 2003. The 2003 purchase was made from Wyndham salesman Stan Banks at the Fairfield Glade resort in Tennessee. While making the sale, Stan Banks represented to the Plaintiffs' that they could rent out their points; that they could make enough money renting their points to cover their expenses; that they could start a rental business using points; and that they could use Wyndham's systems to run their rental business. In 2005, the Plaintiffs' made another purchase of points directly from Wyndham, at which time the two Wyndham sales personnel involved in the sale made these same representations to the Plaintiffs. On February 16, 2006, another Wyndham sales person made these same representations to the Plaintiffs while making a sale of Wyndham points. The Plaintiffs' final purchase of points directly from Wyndham occurred on June 10, 2006, where the sales personnel again made the same representations to the Plaintiffs concerning the ability to rent points, run a rental business, and do so using Wyndham's systems. While they no longer purchased any points directly from Wyndham after this point, the Plaintiffs did continue to purchase points from third parties. Plaintiffs' final purchase of Wyndham points of any kind came on April 18, 2011.

Wyndham has an internal sales compliance manual that establishes standards for sales presentations. That manual explicitly describes a variety of prohibited sales practices, including promoting the rental of points as a reason for purchasing additional timeshare units. The manual contained specific provisions stating that:

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o Discus-sing the likelihood of an owner being able to rent the product or the amount an owner could expect to receive for the rental of the product is prohibited.
o Providing examples, third party experiences, opinions regarding the amount an owner could expect to receive, or indicating that owners typically receive a certain amount of money when renting their timeshare is prohibited.
o Suggesting that an owner can rent their timeshare to cover their maintenance fees or that an owner can pay for their purchase by renting out their timeshare is prohibited.
o Recommending or endorsing a particular rental company is prohibited.

(Doc. 123-3 at 3.[3]

Notwithstanding these prohibitions, Plaintiffs have introduced evidence to show that Wyndham sales personnel regularly promoted the potential income from the rental of points when encouraging customers to make purchases. This evidence includes the testimony of several former Wyndham employees who testified that, with encouragement from management, sales representatives would discuss the promise of rental income in " the thousands of dollars," (Doc. 123-4 at 26,) the likelihood of renting out properties, (Doc. 123-8 at 9,) success stories from other Wyndham owners who had used their points to rent out properties, ( Id. at 18,) and the idea that rental income could offset the cost of purchasing and owning a timeshare interest. ( Id. at 11.) Former Wyndham employees testified that the " rental pitch" was used extensively by Wyndham salespeople and that " higher ups" in the company were well aware of the practice, ( Id. at 14,) and that salesmen were specifically instructed to use the " rental pitch" and promises of rental income when speaking to buyers. (Doc. 123-4 at 26.)

Wyndham owners who accumulate a certain amount of points are eligible for membership in the FairSharePlus VIP Program (" VIP Program" ),which offers special benefits. Each successive membership level offers greater benefits than are available at lower levels. VIP benefits are particularly advantageous to owners like the Plaintiffs who use their points to operate vacation rental businesses, and the continued existence of the VIP membership benefits has a tangible effect on the profitability of such businesses.

Wyndham published a yearly members directory, which detailed the benefits available to Wyndham owners and the membership rules for the program. The members directory is a lengthy publication with hundreds of pages. Included within each directory is a table outlining the VIP Program benefits available to VIP owners. In 2003, Wyndham placed a small-print disclaimer at the bottom of the VIP Program benefits table which provided that benefits were subject to change without notice. This was again modified in 2006 to say that benefits were subject to change or elimination without notice. Mr. Spearman has acknowledged receipt of the member directory every year.

Wyndham was aware that the Plaintiffs were using their points to operate a for profit rental business, and the Plaintiffs' situation was discussed among several upper level Wyndham employees. However, when making purchases from Wyndham, Plaintiffs signed documents stating that the purchases were made " for our own personal vacation use and enjoyment," (Doc. 77-36 at 4; Doc. 77-37 at 7; Doc. 77-38 at 5; Doc. 77-39 at 4,) and that Wyndham did not guarantee to assist in

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the rental of Plaintiffs' points. (Doc. 77-36 at 4; Doc. 77-37 at 7; Doc. 77-38 at 5; Doc. 77-39 at 4.) The contract documents also provided that any representations made outside of a delineated list of documents could not be relied on and were not part of the purchase agreement. (Doc. 77-36 at 4; Doc. 77-37 at 7; Doc. 77-38 at 5; Doc. 77-39 at 4.)

As early as 2005, Wyndham began to notice problems associated with allowing a group of large point owners, sometimes referred to as " Megarenters," [4] to run large rental businesses using Wyndham points. A Wyndham internal presentation from 2005 noted that the company supported owners running rental businesses at the time, but recommended limiting transactions and tightening rules because of the negative effects Megarenters were having on Wyndham's business. A March 2006 presentation recommended altering many of the VIP Program benefits, such as limiting the number of free guest confirmations available to VIPs, changing the VIP cancellation policy, and limiting the ability of VIPs to upgrade their rooms, in order to deal with the problems created by Megarenters.

Many of these changes were actually implemented on July 15, 2006. Among these changes were a change in the upgrade policy from allowing VIP owners to upgrade a reserved unit to the largest available unit to only allowing an upgrade to the next larger unit available. Another change was that VIPs would only receive free guest confirmations if the guest was actually traveling with a VIP member. After hearing about the potential change to the guest confirmation policy, Mr. Spearman created the Spearman Trust in order to have additional " owners" of his Wyndham Points available to check guests into resorts, and in order to " protect himself" if Wyndham " successfully put [him] out of business with one of these rule changes." (Doc. 77-1 at 13.) However, after outcry from owners Wyndham ultimately decided not to implement the rule change regarding guest confirmations. ( Id. at 12.)

Wyndham continued to implement rule changes that had the effect of restricting rental activity. In 2007, Wyndham changed the rule giving VIP owners unlimited free guest certificates to one providing a tiered system for VIP owners, starting out with 5 free guest confirmations per year and topping out with 15 free guest confirmations per year for every million points owned for VIP Platinum owners. In 2008, Wyndham made further changes, including a significant increase in the guest confirmation fee for confirmations in excess of the limited complimentary amount, changed the cancellation policy from same day to 15 day, and created a " Do Not Sell" list so that Megarenters would not be taken on tours and marketed to by Wyndham sales personnel. A Wyndham employee noted in an internal e-mail that these changes were " implemented to impact the profitability of the Megarenter's rental activity." (Doc. 123-31 at 3.)

Sometime in 2010, Wyndham began work on a new computer software system known as " Voyager." The program, which has not yet been implemented, is apparently intended to more strictly enforce the existing rules and close what Wyndham views as loopholes, such as the ability to cancel and then immediately re-book a reservation. (Doc. 123-53, at 4-5.)Wyndham

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added a provision to the 2011-2012 member directory which stated that " The Program is for a Member's own personal use and enjoyment and not for any commercial purposes." (Doc. 123-75 at 3.) Additionally, an enforcement provision was added, stating that " manipulation of the program rules and/or Wyndham employees to gain an unfair advantage" could result in refusal of services or access to Wyndham services and employees for a duration of time determined at Wyndham's sole discretion. ( Id. at 4.)

The final relevant change came in 2012. Wyndham points contracts designate a " use year," which is the year long term in which points could be used. Megarenters would intentionally purchase contracts with different use years, so that they would still be able to make use of points gained at the end of one contract's use year on a contract with a different use year. In 2012, Wyndham changed the rules so that all owners who had contracts with different use years would have all of their contracts converted to a single use year. In Plaintiffs' case, their contracts were all converted to a January-December use year. All of the contracts that Plaintiffs had purchased directly from Wyndham already had a January-December use year, but several of the contracts that the Plaintiffs had purchased from third parties originally had different use years.

Mr. Spearman was not one to suffer in silence what he saw as negative changes. Throughout the period when Wyndham was making these changes to the VIP program benefits, he regularly complained and asserted his distrust of Wyndham through e-mails with Wyndham employees and online message board postings. On Dec. 25,2008, Mr. Spearman posted that then Wyndham VP Deanne Gabel (" Gabel" ) had " lied at least three times" about guest certificates, and said he could only recall one thing in the recent past about which Gabel had been completely truthful. (Doc. 77-17 at 6-7.) On Feb. 27, 2009, Mr. Spearman made an online post about " Wyndham taking draconian measures to limit your ability to rent" points. (Doc. 77-13 at 3.) On Jan 22, 2009, he posted that Wyndham was " trying to eliminate their competition to rent timeshares." (Doc. 77-15 at 2.) On Feb. 28, 2009, Mr. Spearman posted that " Wyndham is destroying what we own." (Doc. 77-18 at 2.) In 2008, he wrote in an e-mail to Gabel that he was " starting to join the conspiracy theory that there are elements within Wyndham that are purposely trying to make large [owners'] lives difficult," (Doc. 77-29 at 2), and in another e-mail that he " would be hiding as well if I were an honorable person who was the fall guy for a crooked company." (Doc. 77-32 at 2.) Mr. ...

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