Ask RedWeek / December, 2014

What is going on with the Manhattan Club lawsuit now?

What is going on with the Manhattan Club lawsuit? The Attorney General isn't sharing updates.

CNBC's "Power Lunch," a cable-TV financial news program, dipped into the murky waters of the Manhattan Club litigation late November, offering a fast-forward account of "billionaire developer" Bruce Eichner's embattled timeshare resort in midtown Manhattan. The program's anchor, Andrea Day, described the club as "one deal he (Eichner) may not want to brag about."

Day interviewed five unhappy Manhattan Club owners and lawyer Thomas Melsheimer, presumably an independent authority on timeshare law, about their perspectives on the club's problems with owners and the New York Attorney General's office, which is investigating potential fraud in the Manhattan Club's sales of timeshares, dating back to 1997.

The core issues have not changed for months. Owners have filed complaints with regulators about their inability to secure timely reservations, alleging that Eichner's sales agents deliberately misrepresented terms of the timeshare purchase — and neglected to inform potential buyers that the Manhattan Club reserved the right to rent as many units as it might want to members of the general public, thereby shutting out owners from access to their units.

The Attorney General's office launched an undercover investigation of the club's sales practices in January, then filed suit in July to shut down future sales and foreclosures and limit spending pending the outcome of the AG's investigation. No formal fraud charges have been filed to date.

While that probe continues, with owners and Manhattan Club insiders reporting that subpoenas from the AG have been served upon the Manhattan Club principals, CNBC launched its own look at the club's unresolved troubles two months ago. The AG’s office declined to talk to CNBC, just as it has declined to talk at any length with RedWeek.com. Eichner also declined to talk on camera, but offered a canned statement through an anonymous PR spokesman.

On camera, former owner Bob Grady told CNBC that he bought two penthouse suites under pressure from Eichner’s sales people. "We were never, ever told that it would take a year to reserve something," said Grady, who eventually sold his suites back to the club for $1 each, taking a $90,000 hit on his original investment.

"I'm not going to continue to pay $5,000 a year plus taxes for the privilege of not being able to use the facility," Grady told CNBC.

Anchor Day also interviewed a man identified as a former Manhattan Club executive, cloaked in anonymity and with a disguised voice, about the club's sales practices.

"I told my manager this was unethical, it was immoral," the former executive told CNBC. When asked to identify the biggest lie told to prospective buyers, the executive said: "You'll never have a problem booking a room. That is the biggest lie, number one."

Unbeknownst to owners, CNBC reported, the Manhattan Club "kept half its suites on hold to rent out like a hotel, but that fact was hidden from owners."

"It is never revealed, ever," the anonymous former club executive told CNBC.

Irene Smalls, the unofficial but de facto leader of vocal Manhattan Club owners who are irate over the club's sales and reservations practices, told CNBC that her investment is worthless.

"I was cheated, I was scammed, I was misled and I was lied to," Smalls told CNBC. "We were told we could sell it at a profit (back) to the Manhattan Club."

"If you own this, you can’t get rid of it unless you give it away," echoed the former club employee.

Eichner refused to talk to CNBC about the Manhattan Club, but agreed to issue a statement through his PR team. It echoes prior comments from the Eichner camp. Here it is:

"The Eichners have been fully cooperating for the past two months with the attorney general's office and have turned over thousands of pages of requested materials. The entire issue is moving towards a resolution. In fact, the vast majority of the Manhattan Club's units are used by its owners on a nightly basis... owner satisfaction with the property is excellent overall," the statement said.

Apparently not satisfied with Eichner's response, CNBC posted a clip from Eichner's business website, the Continuum Company, where he discusses the supposed secrets to his success in developing mega-projects from Manhattan to Miami and Las Vegas.

"When a concept works, the next thing I try to do is blow it up," Eichner says on his own website.

After the CNBC report aired, Melissa Graves, a spokeswoman for New York Attorney General Eric Schneiderman, again declined to talk to RedWeek.com about the progress of their investigation, which is moving at what owners would consider a snail's pace.

Owners such as Small are anxious because, while the case proceeds, annual maintenance fees are still coming due for the 2015 usage year. Many owners who've posted comments on RedWeek.com and other timeshare owner sites don’t know whether they should pay pending fees — which average $2,000 or more for one unit's usage for seven nights in 2015 — or withhold them until the AG’s case is resolved or settled. Small and many other owners are asking the AG to push for restitution of sales and maintenance fees, but there is no sign from the AG that restitution is, or could become, part of their settlement talks with the Manhattan Club.

The last court document filed in the case gives no hint of any outcomes. The Oct. 30 filing was a stipulation — an agreement approved by both sides — that continues prior orders in the case. Like others before it, it maintained the original court order barring new timeshare sales and foreclosures, but authorized the Manhattan Club to continue withdrawing money from its bank accounts to pay employees, contractors and medical insurance. One group specifically authorized for continued payment are those employees who handle reservations and collecting maintenance fees.

The current court order directs the club to submit real estate broker and securities dealer registration statements that would authorize the club to sell timeshares. It also commands the club to process existing rescission requests from purchasers in contract. Finally, the court order compels disclosure of terms of a proposed 89th amendment to the Manhattan Club offering plan. This is the document that governs the terms of use, rights and restrictions for owners and potential purchasers. The AG’s office has been seeking supplemental information about the 89th amendment for nearly a year, since it includes references to recent sales of unspecified Manhattan Club timeshare units to other vacation and travel clubs. These sales are relevant because any sale of units to third parties would appear to deplete the number of units available to owners.

Meanwhile, life goes on for owners trying to rent or sell their Manhattan Club suites on RedWeek.com. This week, there are 71 suites for rent-by-owner. Another 21 listed as resales, ranging in price from $1 for a one-bedroom, one-bath unit to $21,000 for a one-bedroom, two-bath. The annual maintenance fee for units posted on RedWeek.com range from $2,200 to $2,800. As with most timeshare contracts, the Manhattan Club retains the Right of First Refusal to buy-back any villas sold on the secondary market.

And, predictably, Manhattan Club suites are still available for rent on popular Internet travel sites, with one exception: according to Travelocity, the club is "sold out" for Christmas week.

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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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