Gillespie v. St. Regis Residence Club

• Decision Date: 28 September 2018
• Docket Number: 1:16-cv-9390-GHW
• Citation: 343 F.Supp.3d 332
• Parties: Flora GILLESPIE, et al., Plaintiffs, v. ST. REGIS RESIDENCE CLUB, New York Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

343 F.Supp.3d 332

Flora GILLESPIE, et al., Plaintiffs,

v.ST. REGIS RESIDENCE CLUB, New York Inc., et al., Defendants.

1:16-cv-9390-GHW

United States District Court, S.D. New York.

Signed September 28, 2018

Melissa Riess, Seena Forouzan, Tyler Roberts Meade, Sam Ferguson, The Meade Firm P.C., Berkeley, CA, Isabella Martinez, Matthew Whitacre Reiser, Lilia Bulgucheva, Michael Joseph Reiser, Law Office of Michael J. Reiser, Walnut Creek, CA, Linda Lam, Michael L. Schrag, Pro Hac Vice, Gibbs Law Group, LLP, Oakland, CA, Matthew Conor Ferguson, The Matthew C. Ferguson Law Firm, Aspen, CO, Gibbs Law Group, LLP, Oakland, CA, for Plaintiffs.

Chris Michael LaRocco, William Jonas Hibsher, Bryan Cave Leighton Paisner LLP, New York, NY, for Defendants.

ORDER

GREGORY H. WOODS, United States District Judge

I. INTRODUCTION

The Beaux-Arts landmark building at the corner of Fifth Avenue and East Fifty-Fifth Street in Manhattan provides a temporary home for guests of the exclusive St. Regis New York Hotel. Beginning in 2006, individuals were invited to become part of what was known as the St. Regis Residence Club: for the average price of about $455,000, members of this exclusive club could own an interest in "Club Units"—luxury suites located on a floor that was specially reserved for members of the club, and in which those members were entitled to spend a certain amount of time annually. The interests sold well for approximately two years. In 2008, however, when the country entered an economic recession, sales began to plummet.

In response, the entities that controlled the St. Regis New York Hotel decided to take the Residence Club in a different direction—without the knowledge or input of its members. Rather than struggling to sell what was, in effect, a luxury timeshare during the greatest economic downturn in recent memory, they abandoned their efforts to sell the Club Interests, and, instead, decided to rent out the Club Units to the public for overnight use. This proved successful, drawing an influx of short-term renters to the Club Units and reducing their resale value, much to the chagrin of the Residence Club's members, who assert that it reduced the resale value of their Units.

Plaintiffs, who are members of the Residence Club, bring this action alleging breach of contract and unjust enrichment. A subgroup of the Plaintiffs also seek to rescind their purchase agreements. Defendants now move to dismiss all of Plaintiffs' claims. For the reasons set forth below, the motion is granted in part and denied in part.

II. BACKGROUND¹

A. The Fifth and Fifty-Fifth Residence Club

Plaintiffs are the purchasers of fractional timeshare interests in a landmark building on the corner of Fifth Avenue and East 55th Street in Manhattan. First Am. Compl. ("FAC") (Dkt. No. 41) ¶ 1. The building is the site of the St. Regis New York Hotel (the "St. Regis"). Id. In 2006, Starwood Hotels and Resorts Worldwide, LLC ("Starwood"), as part of a joint venture with other entities, filed a condominium map on the St. Regis, dividing it into four components: the "Hotel Unit," the "Retail Unit," the "Suite Units," and the "Club Units." Id. ¶ 3. This action concerns the Club Units and the Suite Units, as they relate to ownership of the Club Units.

The Suite Units and the Club Units are each "governed by an offering plan filed with the New York State Department of Law." Id. ¶ 4. The offering is known as the Fifth and Fifty-Fifth Residence Club (the "St. Regis Residence Club" or "Residence Club"). Id. ¶ 1. The St. Regis Residence Club, New York, Inc. is the Residence Club Sponsor (the "Sponsor"). Id. ¶ 18.

"The Suite Unit offering allows Defendants to market and sell Suite Units, which are wholly-owned condominiums ...." Id. ¶ 4. The Club Unit offering, governed by the Fractional Offering Plan for the Residence Club (the "Plan") (Dkt. Nos. 41-7 through 41-22), allows Defendants to market and sell fractional "Club Interests" in the Club Units. Each purchaser of a Club Interest owns a 1/13^th undivided portion of a specific Club Unit as a tenant-in-common with all other owners of Club Interests in the same Club Unit. Id. ¶ 130. When a purchaser acquires a Club Interest in a Club Unit, the purchaser is entitled, subject to certain terms and conditions, to "use and occupy a Club Unit for four weeks annually." Id. Persons who "hold fee title, of record, to one or more Club Interests" are known as "Club Members." Plan, at 19.

Plaintiffs purchased Club Interests pursuant to a standardized Purchase Agreement (the "Purchase Agreement") and the 748-page Plan, which was expressly made part of each Purchase Agreement. FAC ¶ 131. As set forth below, Plaintiffs assert that the St. Regis Residence Club is a "fractured" offering—meaning that "(a) the developer failed to sell many of the units, and (b) the value of the units has collapsed"—because of Defendants' conduct. Id. ¶ 2.

B. Conversion of Suite Units Into Club Interests

Defendants began selling Club Interests in August 2006, and sales continued at a "steady pace" through 2007. Id. ¶ 5. In mid-2007 and 2008—including shortly after the collapse of Bear Stearns and the beginning of the recession—Defendants increased the inventory of Club Units (and therefore, of Club Interests), by converting a number of the Suite Units into Club Units. See id. ¶ 134. Although such conversion is permitted by the Plan, Plaintiffs maintain that Defendants were acting in bad faith to "secretly flood" the Residence Club with new inventory that they never intended to sell. Id. ¶ 5, 127. According to Plaintiffs, "but for" these conversions, "the offering would have been fully sold by the middle of 2008 ." Id. ¶ 135(a) (emphasis in the original).

C. Abandonment of Sales Efforts

Plaintiffs also allege that Defendants took other steps to impede the success of the offering. First, Defendants increased the price of the Club Interests and Club Members' annual fees. Id. ¶ 142. Then, in mid-2009, they withdrew a seller financing option that had previously been offered to purchasers, and closed the Residence Club sales office. Id.² Defendants sold only a few Club Interests over the course of the next six and a half years. Id. According to Plaintiffs, Defendants abandoned their sales efforts in order to pursue a large-scale rental program that, while detrimental to Plaintiffs' interests, has been lucrative for Defendants.

D. Rental Program

In or around 2009, Defendants began renting to the general public the approximately 100 unsold Club Interests over which they retained ownership. Id. ¶ 140. Although Plaintiffs concede that they knew the Sponsor would offer "some rentals," they maintain that the Plan "made clear that these [rentals] were a very limited aspect of the fractional offering," id. ¶ 152 (citing Plan, Club Reservation Procedures, at 90), and that they "reasonably expected that access to the Club would be restricted to Club Members and their permitted users"—not the Sponsor's tenants. Id. ¶ 149 (quoting Plan, Special Risk Factors, at 3 § 1(c) ("[u]se of the Club Units is limited solely to the personal, recreational and other use by a Club Member and Club Member's Permitted Users.") ).

III. PROCEDURAL HISTORY

Plaintiffs filed the initial complaint in this action on December 5, 2016. Dkt. No. 1. The FAC was filed on March 6, 2017. Defendants seek to dismiss the FAC's allegations of breach of express and implied contract (Counts One and Three), Rescission (Count Six), and Unjust Enrichment (Count Seven).³ Plaintiffs submitted supplemental authority in support of their opposition to the motion on August 1, 2018, Dkt. No. 84, to which Defendants responded the following day. Dkt. No. 85.

IV. LEGAL STANDARD

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). It is not enough for a plaintiff to allege facts that are consistent with liability; the complaint must "nudge[ ]" claims "across the line from conceivable to plausible." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient ‘to raise a right to relief above the speculative level.’ " ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

Determining whether a complaint states a plausible claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. The court must accept all facts alleged in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Burch v. Pioneer Credit Recovery, Inc. , 551 F.3d 122, 124 (2d Cir. 2008) (per curiam). However,

[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.’ A complaint must therefore contain more than ‘naked assertion[s] devoid of further factual enhancement.’ Pleadings that contain ‘no more than conclusions ... are not entitled to the assumption of truth’ otherwise applicable to complaints in the context of motions to dismiss.

DeJesus v. HF Mgmt. Servs., LLC , 726 F.3d 85, 87–88 (2d Cir. 2013) (alterations in original) (quoting Iqbal , 556 U.S. at 678–79, 129 S.Ct. 1937 ). Thus, a complaint that offers "labels and conclusions" or "naked assertion[s]" without "further factual enhancement" will not survive a motion to dismiss. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (alteration...