Hospitality Lawg

Hospitality Lawg

Commentary on Hospitality Law and Developments

The Federal Trade Commission Organizes a Multinational Taskforce to Combat Travel and Timeshare Resale Scams

Posted in Shared Ownership

The Bureau of Consumer Protection division of the Federal Trade Commission (“FTC”), the U.S. Federal agency responsible for preventing fraudulent, deceptive, and unfair trade practices, announced yesterday that it will undertake a multinational effort to stop travel and timeshare resale scams.  The announcement is part of the FTC’s ongoing effort to stop timeshare scams. 

The FTC will crack down on deceptive travel and timeshare resale scams by partnering with various Federal, state, and international law enforcement partners.  The FTC is already working with the Florida Office of the Attorney General and the Florida Department of Agriculture and Consumer Services. Last year, the FTC and Florida Attorney General Pam Bondi brought legal action against a timeshare resale telemarketing business and its owner for allegedly deceiving thousands of consumers throughout the country into paying up to $2,000 based on promises that the reseller had buyers lined up for consumers’ timeshare properties, and then failing to deliver promised refunds.

Earlier this year, the U.S. District Court for the Middle District of Florida entered a final judgment against several telemarketing companies charged by the FTC with operating a timeshare resale scam.  The judgment entered by the Court imposed a $6.3 million fine and permanently banned the defendants from the timeshare business. 

Multinational efforts of this kind are significant; the last time the FTC announced a concerted action of this kind, it resulted in nearly 70 judgments and settlements against companies engaged in business scams that falsely promised jobs and opportunities for consumers to “be their own boss.”

The FTC will host a press conference on Thursday, June 6, 2013 at 1:00 p.m. ET to announce the multinational timeshare crackdown.  Those persons interested in listening to the broadcast of the press conference should call toll-free to 800-230-1766, and enter the confirmation ID number 294434

New Reasons to Protect Trademarks Through Registration

Posted in Management

Taking the proactive step to register trademarks,
whenever possible, is vital in today’s online world.

Given the proposed release of countless new generic top level domains by ICANN (the governing board of the Internet), having trademark registrations not only in the United States, but in various different regions of the world, likely will greatly assist the brand owner in protecting its rights in this new space.

ICANN has announced certain Rights Protection Mechanisms for this new dotcom regime. Each of these mechanisms will largely rely on information from a Trademark Clearinghouse, which will collect information about trademark rights from trademark owners, authenticate those rights, and notify participating trademark owners when new domain names matching a Clearinghouse record are registered with a top level domain during the start-up period. It will be critical for brand owners to register their rights with the Clearinghouse to allow for maximum protection of their brand.

To register rights in the Clearinghouse, the brand owner must submit a valid trademark registration from a national or regional registry, or proof of a court-validated word mark, or own a word mark that is protected by statute or treaty. If a brand owner intends to participate in registering a new domain name with a top level domain, the owner must also submit validation for proof of use of the mark, through both a declaration of use and an example of how the mark is used (such as marketing materials, labels, or manuals). However, validation for proof of use is not required for recording data in the Clearinghouse or for participation in the Trademark Claims – two key aspects designed to help trademark owners monitor their brand. Registration with the Clearinghouse will require payment of a fee. Further details regarding the implementation of the Clearinghouse are expected in the coming months.

We highly recommend that brand owners take steps to register their trademarks now to secure rights that will have the greatest possibility of being recognized for inclusion in the Clearinghouse. Registration has several other benefits for brand protection that extend beyond the impending changes with the implementation of the Trademark Clearinghouse.

Registrations also help protect against abuse of the names on social networking sites. Facebook required proof of registration, for example, when it gave owners of trademark registrations a limited time to identify marks they controlled as off limits to others selecting their user names.

In addition, a trademark registration is also useful in policing unauthorized uses of marks in sponsored links triggered through keyword purchases from search engines. Submission of the trademark registration information through the search engines’ trademark abuse reporting forms is an easy way to identify the exclusive rights claimed in the marks.

Further, having a trademark registration in place also greatly assists in taking action against cyber squatters who incorporate trademarks into domain names. Brand owners frequently use ICANN’s Uniform Dispute Resolution Proceedings to seek an assignment or cancellation of the offending domain name. Many of the arbitrators who decide these cases, however, are located outside of the United States. If the mark is not well known in other countries, having a federal trademark registration can go a long way to demonstrating protectable rights. A registration is also useful for proving bad faith registration and use of the mark in the domain name because the registration provides constructive notice to the domain registrant that the trademark owner claims exclusive rights in the term. The domain registrant thus cannot claim it had no idea that the complainant had established trademark rights in the term.

Deadline for Compliance with ADA Pool Lift Requirements Extended

Posted in Construction, Hotel, Shared Ownership

As we reported previously, new ADA accessibility construction standards and reservation requirements took effect last week on Thursday, March 15, 2012.  One of the primary issues of concern with these new regulations is the requirement for all swimming pools, wading pools and spas to have an accessible means of entry and exit.  Due to confusion and misunderstanding regarding these specific requirements, the Department of Justice adopted a Rule extending the compliance date for the pool lift requirements to May 15, 2012.  At the same time, the Department of Justice also published a Notice of Proposed Rule Making concerning a possible six-month extension of the pool lift requirements to allow more time for the lodging industry to clear up its confusion and misconceptions regarding these requirements.  Despite the extension, lodging establishments should continue moving forward with complying with the new pool lift requirements, but can take comfort in knowing that they have a bit more time to complete the required work.

It is important to note that all other requirements scheduled to take effect on March 15, 2012 are unaffected by the extension of the compliance date for pool lift requirements.  If you have specific questions about how these new requirements apply to your place of lodging please contact Rosemary O’Shea or me for additional information.

No Day at the Beach: New Jersey Court Rules on Misclassification of Employees

Posted in Uncategorized

We previously reported on Whitehead v. Vacation Charters, Ltd., where Vacation Charters, the owner and operator of the Split Rock timeshare resort, was found liable for a class action judgment in excess of $2.2 million for misclassifying sales employees as independent contractors during a three-year period.  We concluded that post by saying:

This case illustrates that attempts to limit expenses by re-classifying employees as independent contractors can often backfire in a big way when even one former employee attempts to recover unemployment benefits.

Last week, the United States District Court for the District of New Jersey arrived at a similar conclusion.  In William Zanes, et al. v. Flagship Resort Development, LLC, the Plaintiff, and other former employees of the Defendant, initiated a collective action lawsuit pursuant to the Fair Labor Standards Act (“FLSA”). The Plaintiff (and others in the class) were former employees engaged in the sale of timeshare and related products and services on behalf of the Flagship Resort Development (d/b/a Fanta Sea Resorts), located near Atlantic City, New Jersey. 

The Plaintiffs alleged violations of the FLSA and New Jersey State Wage and Hour Law by asserting that they regularly worked in excess of 40 hours each week without receiving overtime compensation.  The Defendant responded by filing a Motion for Summary Judgment on the claims, arguing that the Plaintiffs are independent contractors and not “employees” within the purview of the FLSA (under section 7(a) of the FLSA, employees are generally required to be paid overtime for all hours worked in excess of 40 hours per work).

In evaluating the Defendant’s motion, the Court emphasized on three of the six factors used to determine whether a person is considered an “employee” of the FLSA: (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; (2) the worker’s opportunity for profit and loss depending upon his managerial skill; and (3) the degree of permanence of the working relationship (the three factors the Court did not consider are: (4) the worker’s investment in equipment or materials required for the task; (5) whether the service requires a special skill; and (6) whether the service rendered is an integral part of the alleged employer’s business). 

The Court found that the Defendant did control the overall manner of the Plaintiff’s work since the Defendant (i) set the overall compensation structure, (ii) established working hours and approval of vacation days, and (iii) required the Plaintiffs to adhere to the Defendant’s policies in performing work. 

The Court also found that the Defendant limited the Plaintiff’s opportunity for profit and loss (which is indicative of an employer-employee relationship) because the Plaintiff’s compensation structure was based on fixed schedule set by the Defendant, and the volume of clients that the Plaintiffs could see depended solely on the Defendant’s ability to attract potential customers to the resort in the first place. 

Finally, in evaluating the degree of permanence of the working relationship, the Court analyzed the “exclusivity, length and continuity” of the worker and alleged-employer relationship.  The Defendant pointed out that they had a very high turnover rate amongst its sales persons, indicating a low level of permanence (and therefore suggestive of an independent contractor relationship).  However, the Court focused on the “Independent Contractor Sales Coordinator Agreement” that certain Plaintiff/salespersons had executed, which agreement prevented the salesperson from “competing directly or indirectly [with the Defendant] during the course of [the salesperson’s] employment and for one year after.”  The Court found that this factor favored an employer-employee relationship. The Court ultimately denied the Defendant’s Motion for Summary Judgment. 

In light of this case, and our earlier report, we caution our readers to tread lightly when it comes to determining whether a worker is classified as an employee or independent contractor.  Remember, in addition to FLSA claims, the IRS imposes severe penalties for misclassification: you may be liable for employment tax, interest, and penalties.

Caveat Jurista Y’all: Is the Mortgage Securing your Property in South Carolina Enforceable?

Posted in Hotel

The South Carolina Supreme Court’s ruling in Matrix Financial Services Corp v. Frazer, et al, may have a significant impact on lenders and borrowers operating directly or indirectly within the State.  In Matrix, the Court confirmed that a lawyer is required in all loan closings “for the protection of the public,” and the failure to use a South Carolina licensed attorney constitutes the unauthorized practice of law and will result in the lender not being able to foreclose a recorded mortgage. 

The Matrix court considers the following items to constitute the practice of law, and therefore requires a South Carolina licensed attorney:  

  • Performing a title search,
  • Preparing title and loan documents (deeds, notes, and other instruments)
  • Closing a loan
  • Recording the instruments
  • Disburse proceeds 

In Wachovia Bank, N.A. v. Coffey, the South Carolina Court of Appeals came to the same result as the Matrix court, where a lender engaged in the unauthorized practice of law will result in its inability to enforce any rights under the transaction. In Wachovia Bank, the bank processed a line of credit secured by a mortgage on real estate without the involvement of a lawyer. The bank later sought to foreclose the mortgage. Finding the bank’s actions to be the unauthorized practice of law, the Court of Appeals held that the bank could not pursue any legal or equitable remedies arising out of the transaction.

Given the sweeping ruling of the Matrix and Coffey courts, we caution our readers – whether they’re lenders, borrowers or any party having a secured interest – to avail themselves of a South Carolina licensed attorney when dealing with a financing in the state. 

Thank you Morris Ellison, Esq. Womble, Carlyle, Sandridge & Rice PLLC for bringing to our attention the subject matter of this post.

Getting Prepped for ICANN’s Domain Rush

Posted in Hotel, Management, Shared Ownership

By now, you likely know that ICANN is accepting applications for new gTLDs through April 12, 2012.  This post is intended to help those in the hospitality industry charged with monitoring the opportunities and risks associated with ICANN’s initiative.    

What’s Going On Now?

After 7 days, ICANN announced that there were “25 successful registrants in the online TLD Application System.”  However, that same press release stated that ICANN would not provide a running total of applicants or reveal the gTLD’s being applied for. 

But this being the Internet, others are trying to provide the information ICANN won’t.  These include .nxt and www.newgtldsite.com.  Both indicate that there has been an application for .hotel, but no specific hospitality brand has applied for a .brand according to these sites. 

What is Going to Happen in the Next Several Months?

ICANN anticipates that some new gTLDs will be ready for delegation in early 2013. Between the close of the application window and the end of the year, ICANN’s schedule looks like this:

  • The Big Trickle – In May, ICANN will begin posting the “public portions of all applications considered complete and ready for evaluation within two weeks of the close of the application submission period.”  However, the “big reveal” will actually be a “big trickle” as the posting process may stretch over 8 weeks or more. 
  • Comment Period Opens – Once an application is publicly posted, ICANN will open a 60-day comment period.  During this period, comments may be submitted on the posted application for review by the applicable evaluation panel. These comments are generally limited to concerns regarding whether: (a) the applied-for gTLD string may cause security or stability problems, including problems caused by similarity to existing gTLDs or reserved names; and (b) the entity applying for the gTLD has the requisite technical, operational, and financial capabilities to operate a registry. The comment period may be extended “should the volume of applications or other circumstances require.” 
  • Formal Objection Period – Separate from the open comment period, a formal objection process will also be available to trademark owners.  Formal objections may be made on the following grounds: String Confusion Objection, Legal Rights Objection, Limited Public Interest Objection, Community Objection. The objection filing period will open after ICANN posts the application “and will last for approximately 7 months.”

What May Change? 

  • It is hoped that the Trademark Clearinghouse service provider will be identified before the end of February. This mechanism is intended to provide clear notice to the prospective registrant of the scope of a trademark holder’s rights and could prove to be an effective alternative to a formal objection.
  • In January, ICANN appeared confident in proceeding according to its plan despite opposition from various governmental and business groups. However, it could still bow to pressure and revise its procedures to address concerns about cybersquatting and the cost of defensive action.  For example, ICANN may follow the Commerce Department’s reasonable request to phase in new gTLDs after the application window closes.

Worthy Read – Dashboard or Dartboard: How Much Do You Really Know About Your Marketing Analytics?

Posted in Hotel, Management, Shared Ownership

Before the resort real estate depression, there was a broad concensus that shared ownership companies were allocating a significant portion of their sales revenue to marketing and sales expenses without clearly understanding what actually “worked.”  

With things improving, this article in Perspective Magazine explains simply and concisely how the industry can get a handle on the ROI of marketing dollars:

  • Get real – your customers are looking at your website no matter how you initially contacted them
  • Take advantage of this fact and realize efficiencies by integrating website analytics into a campaign plan
  • Manage your lead generation efforts across all channels so that they yield actual information that helps you identify both the hits and misses

The author, Steve Tassler, gets into more detail as to strategies that will help timeshare and fractional developers manage cash flows and budgets through the sales process.  However, developers should also consider how the suggested techniques can yield management efficiencies after the customer becomes an owner. Nothing like stretching the useful life of an investment.  

Fight Fire with Fire: Major Hotel Chains Respond to OTA Tax Inequity by Launching Room Key Website

Posted in Hotel

As we reported previously, the relationship between online travel agencies (“OTA”s) and hotels has been a strained one.  Hotel owner and operators argue that they are at a significant competitive and fiscal disadvantage by exempting OTAs from paying taxes to state and local governments on the total guest room revenues they receive for online bookings.  In fact, the uncertainty involving taxation of OTAs in Florida recently led to Florida State Representative Jason Brodeur and Senate Majority Leader Andy Gardiner filing identical bills (HB 1393 and SB 1888) that would make clear that OTAs do not have to pay a disputed portion of bed taxes.

Earlier this month, Choice Hotels International, Wyndham Hotel Group, Marriott International, Hyatt Hotels, Hilton Worldwide and InterContinental Hotel Group joined together to form the Room Key website.  The stated mission of Room Key is to “offer travelers direct access to a broad network of hotels around the globe, provide accurate and comprehensive information, make it easy for travelers to discover what’s right for them.”  Essentially, Room Key cuts out the OTA middleman and drives consumer traffic to the six partner hotel websites. 

Apparently, the idea isn’t a novel one, as several hotel chains previously looked into forming a similar platform.  The idea was dismissed, however, because of the purported appearance that the hotel participants would be engaged in anti-competitive price-fixing activities.  According to The Room Key model avoids anti-competitive behavior, apparently, by requiring the customer to finalize reservations on each hotel’s website, rather than on the Room Key platform. 

At last week’s ALIS conference, several panelists debated whether or not Room Key will be met with any success.  Amongst the main criticisms was the belief that other OTAs have a significant head start and market penetration and the inability for customers to package other aspects of their travel, including rental car and airline tickets.

Worthy Read – ARDA’s Survey of HOA Controlled Timeshare Resorts

Posted in Finance, Management, Shared Ownership

The ARDA International Foundation has recently released an interesting study focused exclusively on resorts controlled by home owner associations.  The three academics behind this first-of-its-kind report were looking to “identify those factors that effectively contribute to success or failure in HOA controlled resorts.”   

The survey focused on the following broad topics for this important timeshare subgroup:

  • Identification of basic resort characteristics
  • Governing Board structures and characteristics
  • Financial metrics (including reserve funds)
  • Rental, resale and exchange

A couple of the more interesting findings:

  1. Financial metrics suggest that, on the whole, resort operations are in fairly good shape. Notably, recent maintenance fee increases were not reported as “significant,” a position which seems to be supported on a historical basis.  However, readers of this section of the report should probably also check out this article in the January edition of Developments:  Benchmarking Study Shows Tough Times Ahead for HOAs.   
  2. Confirming something we touched on previously, owners are generally not getting much assistance with rentals or resales.  Only 54% of participating resorts had a rental program for owners, and the average nightly rate was $90, or less than 60% of the rate reported for the timeshare industry as a whole.  Worse, only 28% had a resale program to help owners sell their timeshares.    

Colorado Breaks New Ground – Timeshare Relief Company Regulation

Posted in Finance, Management, Shared Ownership

Last week, Representative Carole Murray introduced HB 12-1116, which has the title “Concerning Deceptive Trade Practices Related to Timeshare Resale Transactions.”

With respect to regulation of the traditional resale business, the Colorado bill is similar to the Florida timeshare resale bill that we discussed in a prior post (but thankfully without Florida’s “ratio” disclosure requirement).  However, the Colorado bill is unique in that it is the first legislation to specifically regulate timeshare relief companies.  It does so through three basic steps:

  1. Creating specific disclosure requirements for “time share resale transfer agreements”
  2. Specifically applying Colorado’s 5-day cancellation right to these transactions 
  3. Delaying any consumer payment until after the relief company provides its transfer services  

These steps obviously benefit the consumer.  But from a resort management perspective, HB 12-1116 comes just in time as it is becoming increasingly obvious that other efforts regarding relief companies are likely ineffective:

  • Fraudulent Transfer Theories
    • In December, a Colorado Court of Appeals confirmed that, under UFTA, an asset does not include “property to the extent it is encumbered by a valid lien.”  Because most timeshare HOAs benefit from a statutory lien created at the time a project declaration is filed, it follows that an HOA would be foreclosed from using UFTA to challenge relief company transactions.
    • As discussed in this article, approaches using UFTA may create significant problems in collecting past due assessments.
    • An Eagle County timeshare association relying on UFTA as the basis for withholding transfer approval was sued by the company seeking the approvals (Fireside Registry).  The association decided the better course was to settle, and in the end approved the transfers and paid Fireside’s legal costs and expenses.   
  • Deed Acceptance & Delivery Theories:
    • In a petition for declaratory judgment, a Summit County timeshare association has argued that the transfer company did not accept the timeshare deed, or alternatively did not have the requisite capacity to accept the deed.  The petition cites support from decisions in Florida, Arkansas and Illinois, but not Colorado.  Even more curious, the petition does not address the relevant statute under which an acknowledged and recorded deed creates the presumption of effective delivery.
    • The association could simply be pinning its hopes on a default judgement as the transfer company may not want to incur the costs necessary to respond to the petition.  However, what would happen to the association’s arguments if the transfer company simply paid the assessment (which, for this resort, are at the lower end of the spectrum)?