Vacation Charters, Ltd. v. Textron Fin. Corp.
| Decision Date | 28 January 2016 |
| Docket Number | CIVIL ACTION NO. 3:14-CV-2083 |
| Parties | VACATION CHARTERS, LTD., Plaintiff, v. TEXTRON FINANCIAL CORPORATION Defendant. |
| Court | U.S. District Court — Middle District of Pennsylvania |
(JUDGE CAPUTO)
Presently before the Court is Defendant Textron Financial Corporation's ("Textron") motion to dismiss (Doc. 25.) Plaintiff Vacation Charters, LTD's ("Vacation Charters") Amended Complaint (Doc. 21.). Textron moves to dismiss Vacation Charters's amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Because Vacation Charters has failed to state a claim upon which relief can be granted and because their claims are legally barred by res judicata, or in the alternative, a release signed by the parties, Textron's motion to dismiss will be granted.
Vacation Charters commenced this action against Textron by filing a complaint on October 29, 2014. (Doc. 1.) Textron moved to dismiss all claims on February 9, 2015. (Doc. 19.) On March 2, 2015, Vacation Charters filed an amended complaint as a matter of course. (Doc. 21.) The Amended Complaint asserts claims against Textron for unjust enrichment, promissory estoppel, fraud in the inducement and economic duress or business compulsion. On March 30, 2015, Textron filed a motion to dismiss for failure to state a claim (Doc. 25.) along with a supporting brief (Doc. 26.). On May 15, 2015, Vacation Charters filed a brief in opposition. (Doc. 27) On June 5, 2015, Textron filed a reply brief. (Doc. 30.) The motion has been briefed and is ripe for disposition.
The facts as set forth in the Amended Complaint are as follows:
Vacation Charters is a family business organized in 1978 by W. Jack Kalins ("Kalins") and his wife. Vacation Charters was organized to develop and operate timeshare resorts in the Pocono mountain region of Pennsylvania. (Id.) The timeshare resorts, including Willowbrook at Lake Harmony, Galleria at Split Rock Resort and Mountain Laurel Resort and Spa, were highly-amenitized and integrated and located on various parcels of property. (Id. at ¶¶ 8-9.) There were approximately five-hundred and forty (540) units configured in one (1), two (2) and three (3) bedroom units with overnight capacity for approximately three thousand (3,000) people. (Id. at ¶ 9.) There were numerous amenities on the properties, including year round recreational, dining, lodging, meeting and group facilities. (Id. at ¶ 10.) The product offered to purchasers by Vacation Charters consisted of the timeshare interests, the units, and the amenities. (Id. at ¶ 11.)
Approximately twenty thousand (20,000) consumers have purchased vacation license interests in, or to the timeshares, from Vacation Charters. (Id. at ¶ 12.) The vacation licenses entitled purchasers to future vacations at the timeshares and extended between twenty (20) and ninety-nine (99) years from the date of purchase with the right to exchange the future vacations as timeshare interests. (Id.) Purchasers typically paid a down payment of ten (10) to twenty (20) percent on timeshare interests and financed the remaining unpaid balance, plus interest, over five (5) to seven (7) year terms under installment contracts. (Id. at ¶ 13.) Approximately fourteen thousand (14,000) purchasers fully complied with their payment obligations, while approximately six thousand (6,000) purchasers were still obligated to remit scheduled installment payments. (Id. at ¶ 15.) Vacation Charters used the regularly scheduled installment payments to pay timeshare sales and marketing expenses; to maintain the timeshare properties, including the amenities; and to fund repairs, refurbishments, replacements, taxes, insurance, housekeeping, and maintain certaincommon areas for the benefit of the purchasers of the timeshare interests. (Id. at ¶ 14.)
Vacation Charters's primary asset was the timeshare receivables that originated with the purchaser finance agreements. (Id. at ¶ 17.) Vacation Charters's operation and management of the timeshare properties, interests and amenities relied on the financing of the receivables. (Id. at ¶ 18.) Vacation Charters's ownership and financing of the receivables benefitted Vacation Charters because they were able to invest monies into the timeshare properties. (Id. at ¶ 19.) Vacations Charters's secondary source of revenue, as provided for in a "Reservation Agreement", was the annual maintenance fees collected from every purchaser, including those who had paid-in-full. (Id. at ¶ 20.) These maintenance fees were used to maintain the timeshare properties and the resort amenities and to fund repairs, refurbishment, replacements, taxes, insurance, housekeeping, and the maintenance of certain common areas, benefitting all purchasers of timeshare interests. (Id. at ¶¶ 21-22.)
Vacation Charters's business plan provided that, when approximately eighty-five (85) to ninety (90) percent of available timeshare interests are sold, the maintenance fees and ancillary revenues collected were sufficient to support the timeshare properties and resort amenities for the duration of the timeshare interests. (Id. at ¶ 23.) The selling of additional timeshare interests generated additional maintenance fees and additional receivables, which were essential to the success of the timeshare properties and beneficial to Vacation Charters and the purchasers. (Id. at ¶¶ 24-26.) It was necessary for Vacation Charters to maintain the timeshare properties and amenities in order to sell timeshare interests and to provide the purchasers with their timeshare interests. (Id. at ¶¶ 27-28.) When the timeshare properties and amenities are properly maintained, existing purchasers continued to remit payments in connection with their purchase agreements and also continued to pay maintenance fees. (Id. at ¶ 29.) However, when the properties and amenities were notproperly maintained, purchasers tended to discontinue remitting payments and maintenance fees. (Id. at ¶¶ 30-31.) When the timeshare properties and amenities are properly maintained, prospective purchasers continue to visit and enter into purchase agreements increasing the number and amount of receivables and maintenance fees, but this is not the case when the properties and amenities are not properly maintained. (Id. at ¶¶ 32-33.)
In 1997, Vacation Charters entered into an agreement with Litchfield Corporation where Litchfield advanced funds on Vacation Charters's receivables in the amount of five (5) million dollars. (Id. at ¶ 23.) In 1999, Textron acquired Litchfield and became the successor in interest to the agreement between Vacation Charters and Litchfield. (Id. at ¶ 35.) Textron continued to finance Vacation Charters's receivables through a credit facility called "Hypothecation Loans", which were commercial loans from Textron to Vacation Charters secured by the receivables generated in connection with newly-originated purchase agreements. (Id. at ¶ 36.) Vacation Charters serviced the debts to Textron through purchasers' monthly installment payments. (Id. at ¶ 37.)
In November 2007, Textron combined Vacation Charters's existing Hypothecation Loans into one consolidated fifty (50) million dollar credit facility. (Id. at ¶ 38.) On December 18, 2007, Vacation Charters and Textron entered into a five (5) million dollar revolving loan for two buildings that were being constructed at Willowbrook, one of the timeshare properties. (Id. at ¶ 39.)
Since 1997, Vacation Charters relied on financing of the receivables and the borrowing of reinvestment funds to develop, build and maintain the timeshare properties and amenities. (Id. at ¶ 40.) Textron knew, through the receipt of regular audited financial statements and other reports, that Vacation Charters relied on reinvestment funds to allow Vacation Charters to direct millions of dollars to the timeshare properties and amenities. (Id.at ¶ 41.) Textron knew the reinvestment funds functioned in lieu of reserves for Vacation Charters, that Vacation Charters and the purchasers benefitted from the application of the reinvestment funds to the properties and amenities and that the reinvestment funds were critical and necessary for attracting additional prospective purchasers of timeshare interests. (Id. at ¶¶ 42-44.)
For over a decade, Textron and Vacation Charters enjoyed a mutually profitable relationship and the timeshares and purchasers enjoyed excellent exchange ratings from Interval International, a well-recognized timeshare rating and exchange company. (Id. at ¶ 45.) In August 2009, a Valuation and Appraisal Analysis was prepared, estimating the net worth of Vacation Charters as of 2008 to be twenty-nine million, seven thousand (29,007,000) dollars. (Id. at ¶ 46.) Vacation Charters owned approximately forty-two million, seven hundred thousand (42,700,000) dollars in current, performing receivables from which approximately one million, three hundred and fifty thousand (1,350,000) dollars in monthly reinvestment funds were derived after debt service. (Id. at ¶ 47.) These reinvestment funds were relied on to maintain and improve the timeshare properties and amenities. (Id.)
By letter dated December 23, 2008, Textron advised Vacation Charters that it was exiting the "commercial finance businesses not directly related to the financing of Textron products." (Id. at ¶ 48.) This letter came at a time when Vacation Charters's timeshares were included among some of the top timeshares in the United States; the properties and amenities were well-maintained; the purchasers received the full benefit of their timeshare interests; there were robust sales of timeshare interests, benefitting Vacation Charters, Textron and the purchasers; and Vacation Charters was not in default. (Id. at ¶¶ 49-52.)
Textron began to severely curtail advances on the credit facility to Vacation Charters on their newly-originated purchase agreements which were collaterally assigned to Textron. (Id. at ¶ 54.) The...
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