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Charles Adams, et al v. Raintree Vacation Exchange

April 28, 2011

CHARLES ADAMS, ET AL., PLAINTIFFS,
v.
RAINTREE VACATION EXCHANGE, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Charles Adams and 249 other plaintiffs (collectively "Plaintiffs") sued Raintree Vacation Exchange, LLC, Raintree Resorts International, Inc., CR Holding and Doug Bech ("Bech") (collectively "Raintree"), Starwood Vacation Ownership, Starwood Vacation Properties, Starwood Hotel and Resorts, Inc., Starwood Resorts and Hotel (collectively "Starwood"), Sergio Rivera, Michael H. Glazer, and Goodwin Proctor, LLP. Plaintiffs alleged fraud from Raintree and Starwood's sale of fractional interests in condominium units for a resort in Mexico. Raintree moved to dismiss the First Amended Complaint for lack of personal jurisdiction and improper venue and the Starwood moved to dismiss only for improper venue.*fn1 For the following reasons, the Court denies Raintree's Motion to Dismiss for Lack of Personal Jurisdiction and orders an evidentiary hearing with respect to Raintree and Starwood's Motion to Dismiss for Improper Venue.

STATEMENT OF FACTS

The following facts are taken from Plaintiffs' First Amended Complaint and are assumed to be true for purposes of these motions to dismiss. Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). The Plaintiffs are U.S. citizens, some residents of Illinois, who purchased joint fractional interests in a resort facility. (First Am. Compl. ¶ 19.) On August 18, 1997, Raintree and Starwood entered into a Joint Operating Agreement, where both parties agreed to work together to develop, obtain, and sell resorts. (Id. ¶ 2.) In the beginning of 2004, Raintree and Starwood announced the sale of fractional condominium ownerships for a resort in Los Cabos, Mexico ("Resort"), the resort at issue in this litigation. (Id. ¶ 5.)

The building and development costs for the Resort exceeded $26 million dollars. (Id. ¶ 6.) These costs were met by selling fractional interests in condominium units to Plaintiffs. (Id.) In 2004, the Plaintiffs and Desarrollos Turisticos Regina S. De R.L. De C.V. ("DTR") entered into a Fractional Trust Beneficiary Assignment Agreement ("Purchase Agreement") documenting the rights and obligations of the parties with respect to the sale of these fractional interests. (Id. ¶ 29.) Plaintiffs allege that when this agreement was entered into DTR was a wholly owned subsidiary of Raintree and also under Starwood's control via the joint venture. (Id.) A provision of this Purchase Agreement stated:

Twelfth. Applicable Laws and Competent Courts.

In case of controversy on the interpretation and compliance with the rights and obligations of this Agreement, the parties hereby agree to submit themselves to the applicable laws and competent courts of the City of Mexico, Federal District, expressly waiving any other forum that may correspond to them by reason of their present or future domiciles.

(R. 67, Ex. 4.)

In the first part of this two-part scheme, Plaintiffs allege that Raintree and Starwood, who "dissipated" the funds in various ways unrelated to the building and maintaining of the Resort, had no intention at the time that Plaintiffs purchased their fractional interests to build the resort. (Id. ¶¶ 7, 25.) Instead, $10,000,000 of the funds were used to pay a pre-existing debt between Raintree and Starwood, as well as commissions or sales incentives to employees. (Id.) This left insufficient funds to complete the Resort project. (Id.)

Raintree and Starwood acknowledged their obligation to repay the Plaintiffs. (Id. ¶ 8.) Regardless, to protect their interests, the Plaintiffs formed a Committee consisting of others who suffered financial loss as a result of Raintree and Starwood's misuse of the contributed funds. (Id. ¶ 9.)*fn2

Counsel for Plaintiffs and Raintree and Starwood met in Chicago on June 10, 2009 to discuss the possibility of settlement. (R. 93, Ormiston Aff. ¶ 3.) All the parties specifically agreed that from June 9, 2011 through June 11, 2009, Raintree and Starwood's attendance at the settlement meeting "shall not confer jurisdiction" over them. (R. 93, Ex. A, ¶ 4.) The settlement meeting did not resolve the dispute, and the parties proceeded forward with mediation in Chicago on October 12, 2009. (R. 93, Ormiston Aff. ¶ 4.) Once again, the parties agreed that Raintree and Starwood's presence in Chicago from October 11, 2009 through October 14, 2009 "shall not confer jurisdiction."

(R. 93, Ex. B, ¶ 7.)

But the alleged fraud did not stop with the misuse of Plaintiffs' funds. Raintree and Starwood made representations that repayment was forthcoming, even though they knew payment could not and would not be made, in order to stall Plaintiffs' attempts to retain counsel and seek legal redress. (Id. ¶ 17.) Specifically, in 2008 and August 2009, outside of the settlement meeting and mediation, Raintree and Starwood contacted multiple Plaintiffs, urging them not to retain counsel and promising a significant settlement offer if they did not move forward with legal action. (First Am. Compl. ¶ 18.) Raintree and Starwood, through the Committee and by directly soliciting the Plaintiffs, made these repayment promises for two reasons. (Id. ¶ 13.) First, even though Raintree and Starwood knew that full or even substantial repayment was not a financial reality, they made these promises so Plaintiffs would settle the case for a fraction of what they initially paid for it, without ...


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