Diamond Resorts threatens with bankruptcy for Royal Palm Beach Club

POSTED: 07/11/11 12:31 PM

Judge orders company to restore power in Macdonald-apartment

St. Maarten / By Hilbert Haar – Tempers flared in the courtroom friday afternoon but after the dust settled, Judge mr. R.W.J. van Veen had ordered Diamond Resorts to reconnect the electricity in the apartment of Arthur Macdonald, a whole-owner at the Royal Palm Beach Club Timeshare Resort in Simpson Bay and to give him unhindered access to his property. The controversy about the excessive maintenance fees Diamond want to charge Macdonald will be dealt with in a separate procedure. “Until there is a ruling, my client won’t pay a penny,” mr. Jelmer Snow said after the hearing, which became tense when Diamond attorney mr. Lucas Berman said that the resort has a $10 million deficit and threatens to go bankrupt without an increase in maintenance fees.

Macdonald’s electricity was cut off on the first of this month after he refused to pay an outrageous increase in annual maintenance fees from $6,000 to more than $50,000. Diamond Resorts, the owner of the Royal Palm Beach Club, has locked out many more owners who find themselves in similar situations. One owner, who found herself locked out upon arrival this week, had to call the police to get access to her place.

Macdonald bought the full ownership of his condo in April of last year. The previous owner, who had used the apartment for twenty years, had during all those years paid a maintenance fee of $500 per month. Macdonald however, received a $46,678 invoice for the 2011 maintenance fee, plus another bill of $4,927 for a so-called replacement reserve. When he did not pay, the resort cut off his electricity.

Judge van Veen said yesterday towards the end of at times emotional exchanges between the parties’ attorneys that cutting off the electricity was a disproportionate measure. mr. Lucas Berman, the lead attorney for Diamond Resorts said power would be restored on Monday after Macdonald had paid his electricity bill, but Macdonald’s attorney mr. Jelmer Snow objected. “It has to be restored immediately. My client uses medication that needs to remain refrigerated.”

Judge van Veen decided that the electricity had to be restored immediately and that Macdonald would have to pay the invoice for energy-consumption within a week.

While the summary proceeding centered on Macdonald’s right to have his power restored, the arguments parties exchanged ran much deeper and gave an insight in the way Diamond Resorts operates. Next to lead attorney Berman, mr. Tony Engelsma was in court. Diamond also fielded its executive vice president Elisabeth Brennan and its chief accountant Daisy Wheeler, who had both come over from Las Vegas to attend the court case.

Macdonald’s legal team consisted of mr. Snow and mr. Camiel Koster.

Koster pleaded the first term and started off by calling Diamond’s action a typical case of taking the law into one’s own hand. “Who still wants to buy timeshare in St. Maarten after this? This is unlawful and we demand that the resort lifts the measure immediately.”

Koster addressed the matter that is at the root of the controversy: Diamond’s decision to slam Macdonald with a dramatic increase in maintenance fee. He said that the budget Diamond bases its operational costs on contains many double entries. “There is even an entry for electricity, while the owners pay this separately. Corporate and administration costs have gone up $400,000, and housekeeping is suddenly $200,000 more expensive. The costs for maintenance have gone down from $166,000 to $134,000 but still the maintenance fee goes up.”

Koster said that Macdonald is prepared to talk about a reasonable increase in his maintenance fee, while, according to the attorney, Diamond claims that it is not bound by Macdonald’s contract. “In December Diamond has confirmed in a letter that the maintenance fee is $500 per month,” he said, adding that “nowhere in St. Maarten are maintenance fees higher than $1,000.”

Koster demanded that electricity be restored within three hours after a ruling under threat of a penalty of $50,000 per day for non-compliance.

Berman countered that the maintenance fees are the joint operation costs of the resort. “If the fees no longer cover the costs, an increase is required, and that is reasonable,” he said.

Berman pointed out that maintenance fees are paid per timeshare week. “The plaintiff has bought a timeshare title, but he bought 52 weeks,” he said. “The maintenance fee per week should be $1,300. If that is not paid, by the whole-owners, the timeshare owners are duped. The consequence will be that the resort will go bankrupt. The Royal Palm is currently kept afloat by the parent company Diamond Resorts. If they pull the plug, bankruptcy is the result.”

Berman said that currently Royal Palm is faced with a $10 million deficit for the year 2011. “During the past twenty years whole-owners have paid far too little. That is why Sunterra (the previous owner – ed.) went bust

Diamond is entitled to stop rendering services if they are no longer paid for, Berman said. He asked the court to dismiss Macdonald demand to have his power restored. .The question here is whether Diamond can be forced to render services without getting paid for it.”

In the second round the gloves went off and mr. Jelmer Snow ripped right into the arguments brought forth by Diamond. “The whole world is watching and everybody sees that things are not going well in the timeshare industry in St. Maarten. They see that people are being cheated afterwards. To increase maintenance fees from $6,000 to $52,000 without a contract – that comes down to vigilante justice. Cutting off electronic keys, cutting off electricity, one would expect some consultation and when that has no result, that one would revert to a regular court procedure.”

Snow said that Diamond Resorts was “well-known in my file cabinet,” and that the court had on previous occasions “explained to Mrs. Brennan that she cannot take the law into her own hands. I have had more lawsuits against this company. It almost looks like they are lawsuit-eager.”

Snow also blasted Diamond for using a myriad of legal entities for its business activities. “Show us who you really are,” he said.

Returning to the issue of the increased maintenance fee, Snow said that it was impossible to bring up this kind of money. “Diamond pretends that Royal Palm is on the brink of bankruptcy but I have the feeling that they simply need money in Las Vegas. They throw up some figures without substantiating them. This is not good for St. Maarten, not good for the timeshare industry and not good for my client.”

Berman persisted that a $1,300 weekly maintenance fee has been ruled reasonable by the courts in the recent past, then conceded that, if Macdonald wanted to stay in his condo without services until there is a ruling in the normal court procedure, Diamond has no problem with it.”

So in the end, after Judge Van Veen indicated that according to him cutting off the electricity was a disproportionate measure, parties took a break to negotiate. Diamond’s VP Brennan left the courtroom muttering that she would stick to her guns, but when they returned there was an understanding: Macdonald gets his power restored, and Royal Palm will get paid for the electricity.

Both Judge Van Veen and Macdonald’s attorney Snow remained available throughout this weekend in case, as the Judge expressed it, “something goes wrong with the execution of this arrangement.”

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Comments (1)

 

  1. Phoebe haase says:

    I would like to no if I have any recourse with diamond resorts they took back my 22year timeshare I was in the hospital and then going thru a divorce with my accounts frozen . Thousands of dollars were paid fifteen hundred dollars is a little excessive for a week ………can you link me to anyone facing same issues Phoebe