Wednesday, June 10, 2015

Manhattan Club Case Approaches One-Year Anniversary with No End in Sight


Manhattan Club ongoing legal troubles

The Developers Fight Back: Seek a Court Hearing June 22 to Partially Lift Injunction and Dismiss Eichners from Case, Claiming that Investigation by New York Attorney General has "Essentially Destroyed" Timeshare Business 

By Jeff Weir, Chief Correspondent for RedWeek.com


MANHATTAN --- If you like heavyweight fights, shootouts in old Westerns, or bare-knuckle courtroom dramas, you should covet this upcoming showdown in the Big Apple.

And if you are a timeshare owner at The Manhattan Club, this is what you've been waiting for.

After laying low and saying nothing of substance for many months, the embattled developers of the Manhattan Club are fighting back, with a vengeance, against New York Attorney General Eric Schneiderman's highly publicized investigation of alleged fraud and misrepresentation in timeshare sales at the mid-town resort.  The primary target of the inquiry, New York developer Ian Bruce Eichner and his wife, Leslie, and brother, Stuart, now claim in court papers that they are victims of an "overbroad" and overlong investigation that has "caused severe financial and reputational harm." That's a lawyerly way of saying the case has already cost them millions and damaged their
reputations.

"The Attorney General's investigation ad infinitum has become an investigation ad absurdum," said Gerald Shargel, the Eichners' lead attorney, in a new court filing.  During an interview with RedWeek over the weekend, the soft-spoken but defiant Shargel added: "There comes a time when this has to stop.  If they have a case against the Eichners, file it, and you can count on the fact that we will defend it."

In a blistering blizzard of motions and memoranda filed since May 28, Shargel is petitioning the New York Supreme Court to jettison parts of the July 29, 2014 injunction that shut down the club's $400 million timeshare business and threw thousands of owners into limbo and turmoil.  The court order also froze the club's assets and blocked foreclosures, which pinched the club's operating capital.  A hearing on the motions and arguments is scheduled for June 22. But given the history of the case,
postponements are possible.

Eichner's legal team is making four basic requests, including one that will probably make many Manhattan Club owners cringe.  First, they want a judge to dismiss the Eichners from the case on grounds they committed no personal wrongdoing.  Second, they want to lift the ban on sales for 21 buyers (out of 64) whose purchases were halted by last July's court order.  Third, they want an Aug. 1, 2015 cut-off date for further discovery and depositions (legal Q and A interviews conducted under oath).  Finally, Eichner's attorneys are asking the court to prohibit the AG from sending "mass mailings" to Manhattan Club owners (for a survey about their experiences at the club).

"The Attorney General's investigation...and the related preliminary injunction have essentially destroyed the Manhattan Club's ability to operate as a viable business.  They have forced the termination of 90 of 93 employees and independent contractors (97 percent of the staff) and have pushed one of New York City's premier timeshare organizations into an almost-insurmountable financial deficit," Eichner's motion stated.

It did not take long for the AG's office to respond in kind.  "Although the investigation is ongoing, to-date we have found evidence indicating a widespread pattern of wrongdoing including but not limited to sales misrepresentations, numerous practices that violate the terms of the Manhattan Club's statutorily-required offering plan, the failure to properly register as broker-dealers of securities, and the misclassification of employees." This summary of the investigation comes from one of New York's top timeshare regulators, Andrew H. Meier, deputy bureau chief for the AG's Real Estate Finance Bureau, in a June 5 letter to Justice Jeffrey K. Oing.

The outcome of this slugfest will impact the vacations, and pocketbooks, of thousands of Manhattan Club timeshare owners.  Maybe a political career or two, as well, since Schneiderman, a Democrat, is frequently mentioned in the media as a likely candidate to challenge Gov. Mario Cuomo in 2018.

Welcome to the OK Corral of Timeshare Legal Disputes


The Manhattan Club case is a painful example of things gone wrong in the timeshare industry, which relies on high-pressure sales tactics, including first-day discounts, incentives and gifts (shows and meals) to persuade customers to buy weeks or points in vacation clubs. In this case, however, the overall buyer experience soured when hundreds of owners started complaining publicly, including in RedWeek.com forums, that they could not get reservations to use their high-value timeshares. Instead, they discovered that many intervals were simultaneously available for rent online to non-
owners --- and at prices that were LOWER than their annual maintenance fees, which
average $2,000 or more per unit.

Schneiderman's office started investigating the club two years ago --- cautiously at first, aggressively in the last year --- after receiving more than 100 formal complaints from owners who said, in effect, that they had been defrauded and/or duped into buying expensive timeshares they could not use.

By July 2014, Schneiderman's team had collected enough potential evidence, including undercover video-taped transcripts of wildly misleading sales presentations at the club, to secure a court order that shuttered the timeshare operation, immediately, while the AG continued investigating the club's sales practices, rental policies and public offering statements.

Now, 11 months later, the investigation has turned into a tortured legal battle pitting some of the smartest lawyers in Manhattan against each other.  Eichner's legal team specializes in white collar criminal defense and negotiating complicated business litigation.  Schneiderman's team, representing New York taxpayers, appears to have unlimited resources to pursue the Eichners, indefinitely.  If someone made a TV crime drama out it, they'd call it "CSI: Manhattan."

Like most TV and real-life dramas, the Manhattan Club investigation is all about following the money.  Disgruntled owners want their purchase money back; the AG's Office wants to find out where the club's money is, or went; and the Eichners want to lift an injunction that, for now, prevents the club from using its bank accounts.

In an odd twist --- again, perfect for a reality TV script --- the Eichners claim to be the injured parties of an overzealous investigation from the AG that should never have been approved by a New York judge on July 29, 2014.  Their court pleadings are silent, however, on the underlying question --- who are the real victims in this case?

Straight from the Court Files: the Eichners Plead Their Case

Here are excerpts from the Eichners' pleadings, drafted and filed by Shargel's team, as they seek to overturn big chunks of the 11-month-old injunction.  Some of the excerpts merit an introduction.  Others speak for themselves.


  • "There was no proper basis for a preliminary injunction.  There was no allegation that the three Eichner respondents personally engaged in any wrongful conduct."

  • "The Attorney General has had ample time to investigate Ian Bruce Eichner, Leslie H. Eichner, Stuart P. Eichner and Urban (the company that manages the Manhattan Club's HOA) after the order was issued.  Yet no further action has been taken.  Rather, a preliminary injunction remains in place, and the business interests and personal and professional reputations of these respondents continue to (unjustly) suffer.

    "Urban" is legal shorthand for New York Urban Ownership Management LLC, which is majority owned by Ian and Leslie Eichner.  The company has managed all aspects of the Manhattan Club since its inception.

  • "The Attorney General's primary allegations relate to a single group of salespeople at the Manhattan Club. Each of the alleged misrepresentations was made by one sales representative and the sales team he supervised.  There is no allegation that this alleged course of conduct went beyond that sales team." (The sales person is named in the Eichner pleadings --- which are public documents --- but RedWeek sees no public benefit in publishing the man' name.)

    "There is not one drop of evidence, or proof, to suggest the Eichners had any knowledge of that (sales) conduct," Shargel added, when questioned by RedWeek.  "You cannot blame the general for the unsupportable conduct of privates that are engaged in conduct not known to the general."

  • Sixty-four timeshare purchases were under contract but not finalized when the AG's court order terminated all timeshare sales at the club last summer. Forty-three subsequently rescinded their contracts. Purchase deposits from the remaining 21, ($423,793 - an average of $20,180 per timeshare) were put into an escrow account. These owners, while aware and informed of the AG's investigation, have chosen to keep their Manhattan Club timeshares. As a result, the Eichners are asking the court to allow those sales to proceed. Just as important, they also want permission to use the money from those sales, including deposits and maintenance fees, to fund ongoing operations at the club (including, presumably, the legal fees for this case).

  • The Eichner pleadings about discovery limits and mass mailings are straightforward but strange.  They're also related. "On May 19, 2015, the Attorney General demonstrated that the reasonable and productive lifespan of its investigation has reached an end.   On that date, the Attorney General caused a mass-mailing email to be sent to hundreds of current and former Manhattan Club timeshare owners from a company named 'SurveyMonkey.' The email contained a link to a customer satisfaction survey with 36 suggestive questions clearly intended to provoke after-the-fact complaints from owners."

  • "The Attorney General's reliance on 'SurveyMonkey' to build a case that has already consumed nearly a year demonstrates that this case will clearly drag on into the indefinite future and beyond any reasonable bounds...Many of the questions, taken together, were structured to suggest that a recipient may have been the victim of fraudulent sales practices by the Manhattan Club...This is not an appropriate or effective method for New York State's highest law enforcement agency to gather information.  We intend to move at an appropriate time (if necessary) to exclude the results of the Attorney General's SurveyMonkey and any leads generated by the survey."

    Shargel, in his interview with RedWeek, said the AG's questionnaire to owners is full of leading questions that would not stand up in court.  "They are just flailing around trying to make a case out of no case," he said.

  • In addition to challenging the AG's communications with owners --- many of whom had voiced frustrations, for months, about their inability to get direct information from the AG about the investigation --- Eichner's legal papers shed light on the raging financial successes of the Club's timeshare operation.

  • "Before the order was issued in this case, the Manhattan Club and the Timeshare Association had enjoyed 17 years of success.  Between 1997 and 2014, the Manhattan Club realized a sales total of approximately $400,000,000...Since the order was issued...lost revenue opportunities are estimated in the tens of millions of dollars."

The AG's Not Talking, But Others Are, Including Owner Advocates


Representatives from the Attorney General's Office declined to talk about the case, choosing, instead, to let their own voluminous court filings speak for themselves. Other interested parties, however, are not so reticent.  Owner forums on RedWeek.com and other online discussion groups are on fire with generally hostile commentaries about the club's owner services and reservation problems, the Eichners, escalating maintenance fees and, in some cases, the AG's office (over the pace of the inquiry).

Douglas F. Wasser, a New York attorney hired by a group of Manhattan Club owners to work directly with the AG's office, scoffed at the Eichners' attempt to get themselves out of the case.

"I can't imagine that the court will take this seriously," Wasser said.  "The subjects of an investigation by the New York Attorney General should not get to dictate the scope, length and people subject to the investigation. The law doesn't work that way."

Warming up to the subject, Wasser added: "Eichner's attoneys may brag in their memo of law that over $400 million in TMC units have been sold to the public between 1997 and 2014. But we simply view that assertion as an admission that $400 million in publicly owned equity has been wiped out by TMC operations.  What purpose does the New York Attorney General serve but to police against such a grievous public harm?

"The sheer number of TMC owners who, prior to the New York Attorney General's current proceeding, tried to simply surrender their units to TMC for little or no money begs the question as to the current value of TMC units,"  Wasser said.

Greg Crist, CEO of the National Timeshare Owners Association, has monitored the case for many months, and written about it in trade publications.  While aware of the details of the investigation, he'd rather focus on its significance for owners and the overall industry.

"I don't want to see another Manhattan Club scenario anywhere," said Crist. "This case is quite unusual, but it does not bode well for the good operators in the industry, ecause it disturbs consumer confidence about the industry's sales practices. Fortunately, there's no real pattern to this kind of activity."

Shargel, for now, gets the last word.

"We look forward to a hearing," Shargel said. "The discovery is substantially complete. We have no more to give them.  The Eichners did not engage in any acts of wrongdoing. There is no case against the Eichners.  If they (the AG) think the resolution here is to bring a complaint, then bring it.  But I am frustrated, because this should come to an end.  At some point, this has to end."

One thing is certain.  Barring a miraculous change in strategy and tactics, the case will go on.  Beyond the June 22nd court hearing, both sides have already agreed to participate in another private status conference on July 10.  So it goes.

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Interested in following this case? Visit RedWeek.com for much more information on the Manhattan Club investigation and how you can get involved.

8 comments:

  1. I am a Manhattan Club timeshare owner. As such, I own nothing but debt and ongoing "maintenance" fees which do not correlate with this property. Eichner's assertion that he "has lost tens of millions of dollars" in sales since the AG's filing of an injunction in 2014 is testament to the unbelievable degree of fraud we are victims of. Our timeshares have already been oversold 3x-4x and are continuing to be sold as "hotel stays" every day on Orbit, Travelocity, etc. while we cannot get reservations for ourselves! Eichner's admission that he intended to take in "tens of millions of dollars" more in sales further substantiates his scheme to continue to re-sell our ownerships beyond their usefulness, having been sold out long ago.

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  2. Anonymous8:10 AM

    After reading the above complaints from Eichner's attorney the next thing they will ask for is for the state to reimburse TMC for any said and actual monies lost to include legal and court fees.
    They also stated that TMC has 21 buyers waiting in the wings to complete their timeshare purchase.
    Who in their right mind would want to pay money to enter this hornet's nest of legal problems. Also would a judge believe this part of TMC's case ?

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  3. chris8:39 PM

    i believe that if eichner had 21 "purchasers" they were "planted" by him. i would think that, if they weren't plants, out of the 21, some of them would have known of the lawsuit and would steer clear of this fraudulent sham. perhaps if they were foreign purchasers, they might have not known of the lawsuit, but that's a far-fetched notion.
    eichner, company family members, and others in his profitable circle are running scared. his new attorney is acting the way many attorneys do: WITH FALSE BRAVADO. is he trying to frighten the judge, or have him believe that this case is not worthy of further continuance? his honor sees quite clearly what is occurring and will put shargel in his place. "You cannot blame the general for the unsupportable conduct of privates that are engaged in conduct not known to the general." eichner (the general) is clearly responsible for any and all activities, including the sales pitches and conduct of his personnel (privates). eichner knew full well what the sales department schemes and false sales pitches were. after all, he trained these sales people, or had some other company man do his dirty work for him. HE IS IN CHARGE; THEREFORE, HE IS ULTIMATELY AND TOTALLY RESPONSIBLE FOR ALL SALES AND OTHER INCENTIVES TO PURCHASE, AS MUCH AS A FRAUD AND SCAM AS THEY MAY BE.

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  4. The buck stops with the Eichners. If they were not aware of the fraudulent sales techniques, shame on them. I doubt that when the millions were coming in in sales and maintenance fees that they were in the dark . No judge should let them out of an obvious scam and Ponsey scheme in overselling times and memberships. Thanks to the NYAG for protecting the public from these crooks. My $26,000.00 ( investment) is worthless and the tens of thousands of dollars in maintenance fees seem to not have been correctly accounted for.. I have only been able to stay in my (unit) by paying and reserving with RCI. Justice please prevail!

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  5. Update on the case. AG attorneys filed motion requesting postponement of June 22nd hearing to July 13th so they could file additional assertions of potential wrongdoing against Eichners. Manhattan Club attorneys responded with same-day brief June 15 claiming that AG should, in effect, put up or shut up rather than continue to drag out an investigation that already has consumed a year. Stay tuned for more....

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  6. I am so glad that my wife and I got to stay for two weeks at the Manhattan Club. It is just across the street and down a 1/2 a block from Radio City. The room was great. Too bad that management may have taken such a nice timeshare and turned it into a scam.

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  7. Cliff Tabor10:06 AM

    I purchased my first Manhattan Club timeshare in 1996, a junior suite with a maintenance fee of around $1300-1400 per year. I purchased because at the time, the maintenance fees were lower than that of staying in a hotel in NYC. I since purchased a full 1bd/1ba unit and a Penthouse suite years later and have watched maintenance fees run to exorbitant amounts. Every time I ask owners service about the high cost of maintenance fees, they tell me some story that at first the owners/directors of MC subsidized these low maintenance fees to get it off the ground. It is no longer subsidized by them, is why the cost has gone up. So, they get all of us suckers to buy-in, then extremely raise maintenance fees where we now have zero value for our hard-earned money that we spent. We were able to "give back" our junior suite and one bedroom unit that were completely paid off, because it simply had no value to us. The escalating MF make it less expensive to stay in a nice hotel. Even as hotel rates were coming down during the deep recession, MF continued to rise. The Eichners $400M in timeshare sales now have zero value to all of the Manhattan Club timeshare owners. It just a transfer of wealth and dollars from the public to the Eichners. Of course, the AG needs to investigate this, Who is protecting the public if the AG does not oversee this?

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  8. ONeill of Portland11:36 AM

    As an owner in the Fall 2015 when I provided my credit card number at check in time, I discovered that after my visit I had been charged my maintenance fees for the upcoming year. This strikes me as odd business. I didn't discover it until my next month's credit card bill showed it. The amount was greater than for the previous year and an amount I had not been notified of before I was charged. Is this a grievance against bank credit card rules?

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