SAN DIEGO (CN) — The Omni La Costa Resort and Spa in Carlsbad is one of Southern California’s most fawned-over luxury hotels, but on Monday a federal judge in San Diego granted class certification to a group that claims the brokerage firm they use to rent out their properties is actually an alter ego of Omni Hotels, which instead steers guest into hotel rooms.
Built in the mid 1960’s with a spa facility, the resort has hosted two PGA tours, and has been the playground for many famous faces, like Jackie Kennedy and Earl Warren, and some more infamous ones, like Richard Nixon.
Rather than having only hotel rooms which are rented out by the day for guests, 137 of the resort’s 600 rooms are what they refer to as “villas" — fully furnished, one to three bedroom units that are advertised as being for longer-term guests of the resort or multigenerational families. The villas are not owned by Omni Hotels, but by people and other outside parties, which are then rented out to guests.
A majority of villa owners rent out their property through a firm called LC Brokerage, which, in exchange for managing the properties, setting rental rates, collecting rent and doing other bureaucratic work, gets 50% of the cut of the revenue from rentals of the villas. The other 50% goes to the villa owners. When people rent a hotel room directly from Omni Hotels though, the hotel gets all of the revenue.
A married couple who owns a villa claim that the brokerage firm broke their contract and is violating its fiduciary duties for not maximizing the couple’s returns and rentals for their property, but that Omni Hotels is also violating the Racketeer Influenced and Corrupt Organizations Act because the brokerage company is an alter ego and funnels guests to hotel rooms instead of the villas.
The plaintiffs say the small number of villa owners who rent their properties outside of a rental management agreement agreement with the brokerage firm are also affected because Omni's control over the villa’s homeowner’s association essentially forces villa owners to participate in the rental management agreement.
Because of Omni Hotel’s actions, villa owners say they have been deprived of tens of millions of dollars in revenue.
“The common questions in this case focus on defendant’s conduct. Such are: (1) whether defendants were fiduciaries to lead plaintiffs and the class, (2) whether defendants mispriced the villas in violation of the RMA, (3) whether defendants failed to maximize rental rates for the class members, and (4) whether LC Brokerage breached its duty of loyalty to class members in favor of Omni,” U.S. District Judge Anthony J. Battaglia, a Barack Obama appointee, wrote in his order granting class certification. “These common issues predominate over the single individual issue identified by defendants — that is, whether defendants exercised appropriate ‘business judgment’ in setting each class member’s villa rates.”
Battaglia added that consolidating the common issues of the plaintiffs into one case “furthers judicial economy such that class treatment is superior.”
There are currently 77 participants in the class, all of whom are villa owners who had a rental management agreement with LC Brokerage beginning at most four years before the suit was filed.
The villa owners themselves live all over the country, including Alabama, Arizona, California, Colorado, Florida, Hawaii, Illinois, Maryland, Michigan, Missouri, Nevada, New Mexico, New York, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia, Washington state and Wisconsin. Some live out of the country in Canada, the U.K. and the Netherlands.
Neither attorneys for the plaintiffs nor Omni Hotels responded to requests for comment by press time.
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