Lawsuit questions increased fees at North Kona resort

KEALAKEKUA — The right to exclusivity can be expensive. Perhaps that is no more so than at the Hualalai Resort and Four Seasons Resort Hualalai.

The former comprises homes where owners and their families have all the perks of the latter, the top-of-the line resort. But the resort is now charging owners’ guests, outside their immediate families, an additional $250 a night during peak times, atop the nightly rental fee at a minimum of $1,000.

That $250 charge — in addition to the more than $40,000 annually it costs to be a member of the Hualalai Club — has been compared to corrupt company towns in court filings, and to Nazism and apartheid in a Bloomberg Businessweek report.

The case against the North Kona resorts was filed by Hualalai Resort homeowner Christopher J. Zyda, founder and CEO of Mozaic LLC, a financial planning company based in Santa Barbara, California. He was an executive with the Walt Disney Company, Amazon.com and eBay.

Additionally, Zyda has attempted to earn class action status for other residents affected. A decision on that action is scheduled for 8:30 a.m. July 20 in front of Judge Melvin Fujino in Kona.

Zyda’s case makes a number of points, but the core matter is a recent increase in the “unaccompanied guest” fee, which allows guests to use the Four Seasons facilities as a member of the homeowner club can.

This is especially important in the five “peak of peak” weeks, court filings state, where occupancy at the hotel can hit 100 percent and the additional guests at the homes put a strain on the amenities. To help balance the needs of the homeowners and guests, management decided to increase the fee to $250 per day per adult guest during peak of peak times, which covered a ski week in February, Fourth of July, the better part of August, Thanksgiving and Christmas. The old rate was $65 per guest per day.

Resident Mike Sack filed a statement in support of the fee.

He said that the change is “a reasonable response to the increased demand placed upon club facilities and resort facilities, particularly from members’ rental guests.”

Moreover, resort owners shouldn’t look to make money by renting out their places, which he said he assumed was Zyda’s goal.

“It is my belief that Zyda has sought to turn the Hualalai Club and his membership therein into a business for his personal financial and commercial gain, which I believe is contrary to the entire premise of the club,” Sack wrote.

Zyda argues that he was told he could have people stay at his home without fees when he bought land in Hualalai Resort in 2000.

It also cuts into his family’s ability to enjoy his home, he said.

One of his court filings establishes the change will cost him $17,500 a week to have his nephew and nephew’s wife, and eight of their friends, stay at the home.

Zyda listed his damages to include $362,983.23 in club fees and $60,495.33 to the community association he has paid since he purchased the land.

Much of the defense by the resort and business rests on the fact that club members signed a contract. The contract gives the resort the option to create, raise and lower fees.

Zyda’s case attempts to void the contract by alleging extortion, unfair competition, deceptive land sales and other financial misdeeds.

This is in part because the management of the resort and hotel were unified by the holding company, Hualalai Investors LLC.

The company is jointly owned by Michael Dell, founder and CEO of Dell Inc., and Samuel Robson Walton, son of the founder of Wal-Mart, with the two men each controlling 49.975 percent.

Dell decided in 2014 to have the Four Seasons staff administer the club and hotel managed by the same company, according to court filings.

The plaintiffs allege that having the Hualalai Resort and Four Seasons managed by the same company was unfair. They say it led to a conflict of interest as the Four Seasons would have a financial incentive to limit the number of renters from the homes in the resort.

Zyda’s complaint said “when making home and club sales the defendants consistently represented that the Hualalai Resort would provide a world-class experience yet they have failed to and continue to fail to provide adequate facilities, blame homeowners for the defendant’s own shortcomings, favor Defendants interests over those of the Plaintiffs and operate in secrecy, like a classic corrupt ‘company town.’”

Patrick Fitzgerald, president of the holding company, denies that the point of the fee was to drive occupancy to the hotel, since it is already full during peak times. Instead, the goal is to push down the number of people arriving.

Zyda may be in the minority of homeowners, according to a survey conducted by a third-party company hired by the resort management. Of the respondents, 35.6 percent offer their residence for vacation rental.

The word “exclusivity” was “very important” for 77 percent of the respondents, court filings state.

And exclusivity shows up constantly in statements.

After all, Four Seasons is where movie stars come under assumed names. Aware of the attendees’ desire for privacy, the company has fired staff for asking for autographs. Both sides cite it repeatedly in filings as one of the reasons the area is so expensive.

The flood of people fills in the limited number of chaise lounges, crowds one of the two golf courses and fills up the restaurant reservations, according to management. Additionally, the position of the Four Seasons’ limits expansion, Fitzgerald wrote.

Zyda claims the company has continued to provide reservations and sales despite these concerns. A resort presentation included in the case file shows that renter activity increased 56 percent between 2011 and 2015.

A 2013 email from management discussed the problem and included “… the consistent message from the majority of our members and our Four Seasons guests has been the increased number of renters has at certain peak times adversely impacted the Hualalai Member and Four Seasons guest’s experience. In fact, we have heard from a number of Members that they might not return to Hualalai during peak seasons …”

“More than a majority of the (Members Advisory Board) agrees with management that the Hualalai five star experience has slipped and that slippage is most evident at Peak of Peak times,” the board wrote in an email to members.

“We know that for a number of members, renting their homes helps them stay at Hualalai,” it added. The MAB is a group of people who relate with the company management, purely in an advisory role.

That separation between guests and owners led to some harsh words in Bloomberg Businessweek’s “The World’s Smallest Ukulele,” written by Robert Kolker and published on May 12.

“I don’t want to exaggerate,” guest Les Firestein told the magazine, “but it really is an apartheid experience.”

“This may sound like a battle of the 1 percent vs. the .001 percent over a bunch of beach chairs,” Zyda told the magazine, decrying the resort’s “Gestapo tactics.” “But there are very real contract issues at hand. I’ve heard homeowners say the agenda is to drive all the homeowners out.”

The reliefs demanded include an audit, return of fees and replacement of the management team.

Attorneys for the resort and hotel referred to their court filings, quoted above. A call to the attorney for Zyda was not returned.