Lawsuit Claims Diamond Resorts Overcharged Timeshare Owners by ‘Massive Amounts’ to Cover Overhead Costs

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A proposed class action alleges Diamond Resorts, Inc. (DRI) has unlawfully passed the burden of its operating expenses onto timeshare owners in the form of inflated annual fees.

Filed against Diamond Resorts, Inc.; ILX Acquisition, Inc.; Diamond Resorts Management, Inc.; and several executives, the sprawling 91-page lawsuit claims the defendants never disclosed that the annual budget costs shared between thousands of Premiere Vacation Collection Owners Association members would include Diamond Resorts’ overhead expenses to manage its empire of resorts.

“Year after year, the Association’s controlling Directors, acting in concert with DRI’s principal executives and property management company, secretly shifted massive amounts of DRI’s internal corporate overhead expenses to the timeshare owners under the guise of legitimate common expenses of the Association,” the complaint reads. “The Defendants concealed such illicit hidden subsidies by means of false and misleading annual Budgets disseminated to members electronically and through the mail.”

The plaintiff is among thousands of current and former members of the Premiere Vacation Collection Owners Association, which encompasses a group of resorts in Arizona, Colorado, Indiana, Nevada and Baja, Mexico that make up one of DRI’s resort “collections,” the case begins. To become a member, a consumer must make an initial payment “in the neighborhood of $20,000” to acquire a “Points Certificate,” after which they are responsible for paying annual assessments typically in excess of $2,000 per year, the lawsuit states.

The points acquired by members serve as DRI’s internal currency, which can be exchanged for room reservations, and are used to calculate a member’s voting rights in the Association, the case continues. The number of points a member has also determines the amount of their annual assessments, which are based on an annual budget set by the association’s board of directors and divided among members according to their share in the association, the suit explains.

According to the complaint, however, DRI and its subsidiaries, including ILX Acquisition and property manager Diamond Resorts Management, maintain “absolute power” over the Premiere Vacation Collection Owners Association’s fiscal affairs by loading the organization’s board of directors, who are supposedly elected democratically, with DRI executives and exercising the majority of voting power given their vast points ownership in the association. As the case tells it, the defendants’ total membership share, which includes points from all unsold timeshares, is multiplied by nine to determine the companies’ voting power, leading to a “stranglehold” that allows DRI to control the association’s finances.

Per the complaint, the association is “a sham” that operates merely as a proprietary arm of DRI and not in the best interests of its members.

More specifically, the lawsuit says the association’s board of directors, in collaboration with Diamond Resorts Management, determines an annual budget purported to represent a reasonable approximation of the common expenses to be incurred in the upcoming year and the expense of which is divided among the association’s members in the form of annual assessments.

The case charges, however, that the budget has never meaningfully disclosed the subsidies paid to DRI to cover its overhead expenses, “with the result that each of the Budgets was materially misleading.”

The lawsuit argues that although the association disclosed the amounts to be charged for “assessment, billing and accounting fees” and “general and administrative expenses,” the amounts actually charged to members for such were “materially greater.” Per the suit, the budgets included “indirect corporate costs” that were “deliberately kept secret” from Association members and only later disclosed as part of a court order in a related lawsuit filed by the plaintiff in Maricopa County Superior Court in April 2015.

Moreover, even the annual reports, which are only accessible to members who “persistently explor[e] a labyrinth of vaguely-labeled hyperlinks on DRI’s website,” do not “fully, understandably, or meaningfully” disclose the true amount of the annual subsidy granted to DRI, and only “generically describe” corporate subsidies as “administrative costs” and “administration” while understating the actual amounts paid, the lawsuit says.

The case, which alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO), claims timeshare owners have been overcharged by “massive amounts” every year between 2011 and 2019.

Originally filed in Maricopa County Superior Court in August, the lawsuit was removed to Arizona’s District Court on December 1, 2020.

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