Ask RedWeek / September, 2017

What are the details of the new Manhattan Club legal settlement?

I just heard the news that a big settlement came out of the Manhattan Club case in New York. As an owner there, I have been very frustrated over the last few years. Can you explain what is happening now and how that will impact me and other owners?

During the past few weeks, RedWeek has been inundated with questions about the Manhattan Club case. Who won, who lost, when will owners get refunds? We consulted with Manhattan attorneys who know the legal system well, and requested additional information from the Attorney General's office. Here is our newest report.

New York Attorney General announces $6.5 million settlement of Manhattan Club case; hundreds of owners (out of thousands) will share restitution funds

The longest running timeshare case in the United States came to a screeching halt in mid-August when New York Attorney General Eric Schneiderman announced that the Manhattan Club will pay $6.5 million in restitution to hundreds of timeshare buyers.

The surprise settlement capped a four-year investigation that included undercover audio and video recordings of sales presentations at the club, which is located right off Broadway and near Central Park at 200 W. 56th Street.

"The owners of the Manhattan Club lured thousands of timeshare buyers with false promises and shady sales tactics that violated New York law," Schneiderman declared. "While timeshares can be legitimate enterprises, scams like this are common. To avoid becoming a victim, always be wary of high pressure sales tactics."

The key issue now, for owners, is how the AG's office handles the restitution program. So far, they have provided no answers, which just means that owners will continue to hang in limbo until the program is unveiled. The settlement announcement, which was approved by both the AG and the Manhattan Club principals, said that "hundreds" of people will be eligible for restitution. If that wording is accurate, it means that thousands of Manhattan Club buyers will NOT be eligible for the restitution program. Why? According to private attorneys familiar with the case, the statute of limitations may preclude longer-term owners from seeking damages.

Other operational questions must also be addressed as a result of the settlement: who will run the club? Will owners in good standing now be able to get reservations, as a first priority, over travelers who use online sites (Expedia, etc.) to secure rooms? Can owners who stopped making maintenance fees get their memberships reinstated? Can owners sell their timeshares?

So far, no one at the club or the AG's office is providing concrete answers. We will update you as soon as we know more.

Manhattan Club was a favorite timeshare destination in the US

In its heyday, when timeshare sales were booming in the late 90s and early 2000's, the Manhattan Club was considered one of the most desirable timeshare destinations in the country. Its owners, real estate developer Ian Bruce Eichner and his family, are high-profile Manhattanites who have a Trump-like flair for developing huge residential high rises in Manhattan and Miami. (In 2015, the onetime assistant district attorney in Brooklyn put his Miami penthouse up for sale at a mere $50 million.)

For the past four years, however, the Manhattan Club has been a pariah within an industry that is hyper-sensitive to allegations of high pressure sales tactics at timeshare pitches. Its prime location, smack in the middle of the nation's media capital and Wall Street analysts who cover public timeshare companies (Marriott, Hilton, Disney, Wyndham, etc.), gave the club a level of visibility that no other stand-alone timeshare company could come close to matching.

Things started souring at the 286-room club when hundreds of its 14,000+ owners filed complaints with Schneiderman's office about misleading sales pitches, inability to secure reservations, and rising maintenance fees. Schneiderman dispatched undercover officers to the club in the spring of 2014. Then, in July, the AG obtained a court order to halt sales and freeze club assets while his investigators pursued allegations of potential civil and criminal wrongdoing. In the meantime, online owner forums exploded with complaints and questions as owners discovered that their timeshares were also frozen by the AG's action against the club.

The AG's triumphant announcement of a settlement included several barbs at the owners and operators of the club: "Under terms of the settlement, the operators acknowledge that they repeatedly misled shareowners about the club's reservation process, their ability to sell back their shares, and the details of the club's state-approved offering plan."

Club will be sold to a third party

In addition to paying restitution, the club's owners and operators agreed to the following terms:

  • They are barred from the timeshare industry.
  • They will sell their stakes in the club to a third-party purchaser and relinquish management control.
  • They will remove all sponsor-related current officers and directors from the timeshare association's board of directors.

The $6.5 million restitution fund, which amounts to a fine, won't put much of a dent in the Eichners' pocketbooks. That is the same amount that the Eichners paid themselves annually, through affiliated companies, to manage day to day operations of the club. The restitution fund also won't come close to compensating thousands of owners who saw maintenance fees climb from hundreds to thousands of dollars a year while their reservation problems increased.

The AG said a "claims administrator" would be installed (at a later date) to disburse the restitution funds. But as of September 5, the agency had not provided any additional details about how, or when, the claims program would be administered. Individual owners who called the AG have been told that they will be contacted by the claims administrator, but they have not been told when.

A key part of the AG's case focused on so-called "bait and switch" sales tactics. According to the AG's public announcement, "prospective purchasers were baited by a relentless sales pitch that included a number of misleading promises, including that ownership in the Manhattan Club is better than money in the bank. Prospective purchasers were also told that the club does not rent rooms to the general public, that reservations were easy to make, and that few restrictions apply to reservations by owners."

"But these promises were false," the AG said. "Contrary to the club's explicit promises in its offering plan, room availability to owners was greatly limited because rooms were being rented out to the general public. Owners, in some cases, were unable to use any of the time they purchased."

On average, Manhattan Club owners paid $10,000 to $40,000 to purchase their units. During the past 10 years, their maintenance fees increased 200 percent to an average of $2,000 for the smaller units. At the same time, disgruntled owners discovered another downside to ownership – they could not sell their shares on the resale market. The notoriety of the AG's four-year pursuit of the club depressed resales even further.

RedWeek.com, the largest online listing site for timeshare resales and rentals, has 16 Manhattan Club timeshares posted for resale at the time of writing. Three sellers are willing to sell their one-bedroom units for $0 (and a maintenance fee of $2,500). The asking prices for the other 13 ranged from $100 to $14,999.

Here's another number to put the case into perspective. According to court filings, the Manhattan Club claims $400 million in timeshare sales from 1997 to July 2014, when the AG secured the court order to shut down timeshare sales.

Finally, RedWeek contacted several large timeshare chains to gauge their interest in buying the Manhattan Club. While none professed an interest, officials at Marriott Vacation Club, which is in the midst of a major push to expand operations in Manhattan, conceded that they had looked at the club. They also said, after checking out title issues at the club, that they were NOT interested in turning the Manhattan Club into a Marriott.

For past articles on The Manhattan Club, please see our Manhattan Club Outreach page.

About the author

This answer was provided by RedWeek's Chief Correspondent, Jeff Weir. Jeff is a California-based journalist who has covered California, Congress, and the White House. He also has roots in Silicon Valley, where he directed public relations and marketing programs for high-tech companies. He is also a timeshare owner and member of RedWeek.com.

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    carlp44
    Sep 18, 2017 (2 days ago)

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