343 F. Supp. 3d 332
S.D. Ill.2018Background
- In 2006 Starwood and related entities created the St. Regis Residence Club: fractional (1/13) timeshare interests ("Club Interests") in Club Units at the St. Regis New York; purchasers bought via a Purchase Agreement and a 748‑page Offering Plan (the "Plan").
- Plaintiffs purchased Club Interests and expected the Sponsor to market and sell a sufficient number of interests to make the offering viable and to limit public access to Club Units; the Plan, however, warned of "Unsold Club Interests" and cautioned purchasers not to expect appreciation.
- During 2007–2009 Defendants converted many Suite Units into Club Units, raised prices/fees, withdrew seller financing, closed the sales office, and (starting ~2009) began renting unsold Club Units to overnight guests.
- Plaintiffs allege these actions (conversion, abandonment of sales, large‑scale rentals) breached contract (express and implied), unjustly enriched non‑Sponsor defendants, and entitle a subset of plaintiffs to rescission; Defendants moved to dismiss.
- The court (Woods, J.) dismissed some claims and allowed others to proceed: it dismissed express‑breach claims for failure to identify an express obligation to sell or to prohibit rentals; it sustained a claim for breach of the implied covenant to sell a sufficient number of units; it dismissed the rental‑based implied‑covenant/expression breach (Count Three) with prejudice; it denied dismissal of rescission claims as to duly filed amendments (but dismissed rescission claims grounded on so‑called "de facto" amendments); and it dismissed plaintiffs’ unjust enrichment claim against non‑Sponsor defendants without prejudice for improper group pleading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sponsor breached an express contractual obligation to sell Club Interests | Plaintiffs: Plan and Purchase Agreement created an obligation (or reasonable expectation) that Sponsor would timely sell all or a sufficient number of Club Interests | Defendants: No express covenant exists to require sales; Plan expressly contemplates Unsold Club Interests | Court: No express obligation alleged; express‑breach claim dismissed. Implied‑covenant claim to sell a sufficient number of units survives. |
| Whether Sponsor breached implied covenant by abandoning sales and renting units | Plaintiffs: Sponsor’s conduct frustrated the contract’s purpose and deprived purchasers of the fruits of the bargain (viability of offering) | Defendants: Conduct (including rentals) is permitted or contemplated by the Plan; no implied duty to refrain from renting | Court: Implied covenant to sell sufficient units adequately pleaded (Jennifer controlling); but no implied duty not to rent because Plan expressly contemplates rentals; rental‑based implied claim dismissed. |
| Whether Plaintiffs can rescind purchase agreements for (alleged) material amendments | Plaintiffs: Conversions, expense reallocations (Seventh/Eighth Amendments) and de facto rental policy were substantial/material amendments triggering rescission rights | Defendants: Rescission right applies only to purchasers "under contract" and/or to duly filed amendments; de facto practices not covered | Court: Rescission provision ambiguous ("Purchaser"/timing); rescission claim as to duly filed amendments survives; rescission claims based on de facto amendments dismissed. |
| Whether unjust enrichment claim against non‑Sponsor defendants survives | Plaintiffs: Defendants collectively profited from rental income at plaintiffs’ expense | Defendants: Plaintiffs use impermissible group pleading and fail to allege specific enrichment by non‑Sponsor defendants | Court: Dismissed unjust enrichment claim as pled (group pleading); dismissal without prejudice and leave to replead. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must nudge claims from conceivable to plausible)
- 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 (N.Y. 2002) (implied covenant may require sponsor to timely sell sufficient units to create a viable offering)
- Provident Life & Accident Ins. Co. v. 310 F.3d 84 (2d Cir.) (implied covenant protects against conduct that destroys the contract’s fruits)