Attorney General accuses vacation membership club of cheating customers of up to $20 million

By Lizzy Fitzsousa | Mar 27, 2014

NEW ORLEANS – The Louisiana Attorney General's Office is going after a sprawling vacation rental organization, accusing it of operating a business scam and bilking customers out of up to $20 million dollars.

The State of Louisiana, through James D. “Buddy” Caldwell, Attorney General, filed suit against Zealandia Holding Company Inc., Festiva Hospitality Group Inc., Patton Hospitality Management LLC, Festiva Resorts Adventure Club Members’ Association and other Festiva entities, as well as Donald K. Clayton, Herbert H. Patrick Jr. and Richard Hartnett in the Orleans Civil District Court.

According to the suit, the organization, known as Festiva, operates as a property management service for vacation resorts through a points based club membership program. Clayton and Patrick founded the venture in June 2000, where Hartnett works as an officer in the company. In early 2009, Festiva opened a sales center in New Orleans, where it began an aggressive sales marketing to locals and tourists. Festiva allegedly entices consumers to attend sales presentations by promising free gifts and insinuating that individuals have won a prize. However, the suit claims that it becomes impossible to retrieve the gift for free and inevitably consumers must put money up in order to redeem their "free" prize. Individuals are pressured into signing membership contracts on the spot, without being able to read all the paperwork, and often not offered the full paperwork of the contract to which they are agreeing, the suit claims. These members were allegedly told that they would lose this one-time offer or discounted price if they waited to sign the papers.

The Louisiana Department of Justice Consumer Protection Division has received 98 complaints against Festiva, and the Better Business Bureau in New Orleans has received 24 complaints. Festiva allegedly has an extensive record of complaints with attorney generals from other states as well.

Caldwell claims that the sales pitch is only the beginning of unfair and deceitful practices by Festiva. Once a member, it is incredibly difficult to schedule vacations using points, and many members have belonged to Festiva for years and have yet to successfully schedule a trip. It is very difficult to break the contract for any reason and despite Festiva’s assertions that one can resell their membership to others or back to the company, there is no market for these memberships and individuals remain stuck with the contract.

The attorney general is seeking an immediate temporary restraining order enjoining defendants from depleting, transferring, withdrawing or encumbering any assets gained as a result of their activities related to the operation of Festiva. The suit requests that Festiva be barred from advertising or contracting for any new business in Louisiana. Furthermore, the suit is seeking eventual restitution to all consumers who have incurred a loss as well as the payment of any civil penalties incurred.

Currently there is movement to develop a class or mass action lawsuit, given that the Louisiana Attorney General has charged Festiva with 18 Unfair Trade Practices violations and there are around 3,380 Festiva members in the state of Louisiana. Given these figures, the suit claims the amount in question could reach more than $20 million.

Defendants are represented by Miles C. Thomas of New Orleans-based Lugenbuhl, Wheaton, Peck, Rankin & Hubbard.

Case is assigned to Division G Judge Robin M. Giarrusso.

Case no. 2013-11830.

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