SB697

SECTION 1. The purposes of this Act are to:

(1) Provide consumer protections and ensure responsible operations of destination clubs;

(2) Prohibit unregistered activity and require every operator of a destination club that:

(A) Sells or offers for sale destination club memberships to persons in this State; or

(B) Provides club services in this State for use by destination club members, to register biennially with the director of commerce and consumer affairs and be subject to this chapter;

(3) Require full and fair disclosures to members and prospective members of destination clubs; and

(4) Establish financial responsibility requirements regarding club operators' financial obligations to destination club members.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

DESTINATION CLUBS

§ -1 Applicability of this chapter. This chapter shall apply to all destination clubs that provide club services in this State or that offer for sale destination club memberships to persons in this State.

§ -2 Definitions. Unless the context otherwise requires, the following terms shall mean as follows:

"Accommodation" means any apartment, residence, condominium or cooperative unit, cabin, lodge, hotel or motel room, boat, or any private or commercial structure that is real or personal property and suitable for overnight use by one or more individuals.

"Additional fees" means any fees other than annual dues, a membership deposit, and an initiation fee payable by a member to a club operator in connection with a destination club membership. Fees may include but are not limited to optional services and amenities, consumables, daily accommodation, or usage fees as outlined in the membership agreement.

"Advertising material" means any written, oral, or electronic communication that is directed to or targeted at persons within this State or relating to accommodations or other club services located in this State and contains a promotion, inducement, or offer to obtain a destination club membership. Advertising material include but are not limited to brochures, pamphlets, radio and television scripts, electronic media, telephone, and direct mail solicitations, and other means of promotion.

"Annual dues" means any fee paid on an annual or more frequent basis to the club operator pursuant to the membership agreement for the right to use club services during such year or portion thereof.

"Club operator" means the person legally responsible for providing club services to members and for performing all other obligations pursuant to the destination club membership agreement, including any refund of the membership deposit. Club operator shall include any affiliate operations or third parties that offer for sale destination club memberships.

"Club services" means the services provided by the club operator to members, pursuant to the priorities, restrictions, and limitations set forth in the membership agreement, and may include but are not limited to accommodations, reservations for temporary use of accommodations, and associated services.

"Conspicuous type" means a statement in boldface and conspicuous type of at least ten points, such statements always being larger than all other statements adjacent to or surrounding it in the body of the document in which the statement is contained.

"Destination club" means a program offered by a club operator to its members where:

(1) Members pay a membership deposit and annual dues and may be required to pay an initiation fee or additional fees, or both;

(2) The member or the club operator, subject to the terms and conditions of the membership agreement, may terminate the membership at any time;

(3) Members have rights to temporary use of accommodations and other club services provided by the club operator pursuant to the terms and conditions of the membership agreement, which may be on a first-come first-served, random, priority, and/or other basis and need not be the same for each member;

(4) Members receive no ownership interest in either the club operator or the club operator's assets, including any accommodations made available for temporary use to members. A security interest to secure any contractual obligations to members shall not be deemed an ownership interest; and

(5) The membership deposit will be refunded upon termination of membership in accordance with the terms and conditions of the membership agreement.

"Destinations" means the geographic areas available from time to time at which temporary use of accommodations are offered.

"Director" means the director of commerce and consumer affairs.

"Initiation fee" means a non-refundable fee assessed to a member by a club operator at the commencement of membership in the destination club. Any initiation fee payable by a member to a club operator shall not exceed the membership deposit amount paid by such member.

"Member" means a person who enters into a membership agreement with a club operator for the non-commercial use and enjoyment of club services.

"Membership" means that which represents a member's participation in a destination club in accordance with the terms and conditions of the membership agreement. Each membership shall solely represent the right to receive club services and a refund of the membership deposit from the club operator in accordance with the terms and conditions of the membership agreement.

"Membership agreement" means the agreement establishing the legal relationship between a member and a club operator regarding:

(1) The member's rights and obligations to receive club services and a refund of the membership deposit from the club operator;

(2) The club operator's obligations to provide the club services and refund the membership deposit; and

(3) The terms and conditions by which the relationship may be terminated by either the member or club operator.

"Membership deposit" means the refundable amount assessed to the member by the club operator at the commencement of membership in the destination club. All terms and conditions related to the refund of the membership deposit shall be contained in the membership agreement.

§ -3 Registration requirement. (a) No person may sell or offer for sale memberships to any person in this State, or offer to provide or provide club services in this State to any member, or otherwise hold oneself out as a club operator or destination club without a valid registration previously obtained under and in compliance with this chapter and its rules. A valid registration obtained by a club operator under this chapter shall also include the club operator's authorized agents and employees.

(b) Notwithstanding subsection (a), a club operator that provided club services in the State to members while holding a valid registration from the director, and subsequently fails to receive a valid renewal of registration from the director, may continue to provide club services until all reservations made for temporary use of accommodations in the State by members of the destination club during the period when the club operator held a valid registration are honored.

(c) Any person who violates this section, or who uses any word, title, or representation to induce the false belief that the person is validly registered under this chapter and its rules, shall be subject to a fine of $500 to $25,000 per violation, and each day's violation shall be deemed a separate offense.

(d) In addition to any other remedies or sanctions provided in this chapter, any person who violates this section or who uses any word, title, or representation to induce the false belief that the person is validly registered under this chapter and its rules, shall be guilty of a misdemeanor.

§ -4 Registration process. (a) The club operator shall provide biennially a completed application as part of its registration with the director. No application shall be deemed complete, nor shall the same be accepted for registration, unless the required information is provided separately tabbed and numbered in the exact order as follows:

(1) An application for registration on a form prescribed by the director. The information contained in the application shall include but not be limited to the following:

(A) The club operator's legal business or trade name, mailing address, and business location;

(B) The name of the destination club;

(C) The full names, business addresses, and business telephone numbers of the club operator's five most senior executive officers responsible for its management, and its registered agent for service of process in this State;

(D) A statement whether the club operator is a domestic or foreign person, its state and date of creation, and if a foreign person, the date it registered to do business in this State; and

(E) The date on which the destination club registered any fictitious name, if the destination club is operating under a fictitious or trade name;

(2) A description of club services available, including identification of destinations and the number of accommodations at each destination, and the location of any accommodations opened and available for member use that are included as part of the destination club;

(3) If membership in the destination club is limited to a specified number of members, the number of memberships available for sale at the time of registration;

(4) A copy of the disclosure statement as described in section -9;

(5) A certification that the club operator has the accommodations and nights available for temporary use to meet the total number of nights committed to all members that have yet to terminate their membership and receive a refund, across all membership plans during the year;

(6) A certification that the club operator complies with section -10;

(7) A statement of the club operator's ownership, control, or legal right to use each accommodation available for member use;

(8) A certificate of good standing issued by the business registration division of the State that shall be dated not more than thirty days before the date of submission of the application;

(9) A copy of the escrow agreement, if applicable, meeting the requirements of section -7;

(10) A certification that the destination club is in compliance with section -11 governing destination club destinations;

(11) An irrevocable appointment of the director to receive service of any lawful process as required by section -22; and

(12) The registration fee.

(b) All applications for registration required by this section shall be deemed accepted if the director has not acted upon the applications within sixty days following receipt of the same; except that this subsection shall not apply to any application which is incomplete and does not contain all of the information required to be submitted to the director under this section.

(c) No person shall be granted a registration unless the appropriate fees have been paid. Unless otherwise provided by law, the director shall establish the amount for all fees and expenses by rules adopted pursuant to chapter 91. The fees to be established by the director may include but not be limited to an application fee, filing fee, registration fee, renewal fee, compliance resolution fund fee, and other reasonable and necessary fees related to the director's administrative costs. Unless otherwise provided by law, the fees shall be deposited with the director to the credit of the compliance resolution fund established pursuant to section 26-9(o).

(d) A registration under this chapter shall not be assignable and the club operator shall not be permitted to conduct business under more than one name except as registered, or as otherwise disclosed as a fictitious or trade name in accordance with this chapter. A club operator desiring to change its name other than upon renewal of a registration shall promptly notify the director of any such change.

(e) The club operator registration shall be subject to renewal by the director by June 30 of the year immediately following the end of the biennial registration period, provided that this subsection shall not relieve the club operator from the obligation to notify the director promptly upon the discovery of any material errors or omissions in any information submitted to the director as of the date the registration was made, nor shall it relieve the club operator of its obligation to promptly file material amendments as a result of the material errors or omissions to the disclosure statement and to promptly supply such material amendments to purchasers.

§ -5 Consultant review of filing. The director may contract with private consultants in connection with the review of the filing required of a club operator pursuant to sections -4 and -10. The cost of contracting private consultants shall be borne by the club operator. The consultant shall thoroughly review the filing for the purpose of examining its compliance with the requirements of this chapter and any rule adopted by the director, including the documentation and other provided materials. Upon completing the review, the consultant shall provide a written analysis of the filing and an opinion of the nature and extent to which it complies with this chapter and adopted rules. The director may adopt rules pursuant to chapter 91 to further delineate the duties of the consultant in undertaking the review and analysis required pursuant to this section.

§ -6 Rescission. (a) A member may cancel a membership agreement before midnight of the seventh calendar day after the date the member signs the membership agreement or the date the member receives the required disclosure statement, whichever is later.

(b) The club operator shall furnish each member at the time the membership agreement is signed the following cancellation notice which may be used to cancel a member's membership:

NOTICE OF CANCELLATION OF

DESTINATION CLUB MEMBERSHIP AGREEMENT

___________________________

Date Membership Agreement Signed

____________________________

Date Disclosure Statement Received

YOU MAY CANCEL THIS TRANSACTION WITHIN SEVEN (7) CALENDAR DAYS AFTER SIGNING THE MEMBERSHIP AGREEMENT OR AFTER YOUR RECEIPT OF THE DESTINATION CLUB DISCLOSURE STATEMENT, WHICHEVER OCCURS LATER. YOU SHALL BE ENTITLED TO A FULL REFUND OF ANY MONEY PAID BY YOU WITHIN FIFTEEN (15) BUSINESS DAYS AFTER THE DATE THE NOTICE OF CANCELLATION IS RECEIVED.

TO CANCEL THIS TRANSACTION, PLEASE SEND BY FACSIMILE, OVERNIGHT COMMERCIAL DELIVERY, U.S. MAIL, OR HAND-DELIVERY A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR ANY OTHER WRITTEN NOTICE TO:

_____________________________________________

(Name of Club Operator)

at ___________________________________________

(Address of Club Operator)

NO LATER THAN MIDNIGHT OF: _______________________________________.

I HEREBY CANCEL THIS TRANSACTION.

__________________________________ __________________________

Purchaser's signature Date

(c) A member may not waive the right of cancellation under this section. A membership agreement containing a waiver is voidable by the member.

(d) If a member elects to cancel a membership agreement before the end of the seven-day cancellation period, the notice of cancellation is effective upon the date sent by facsimile, overnight commercial delivery, United States mail, or hand-delivered to the destination club at the address or facsimile number provided in the membership agreement.

(e) Cancellation is without penalty, and all payments made by the member before the seven-day cancellation period shall be refunded in whole on or before the fifteenth business day after the date on which the club operator receives a timely notice of cancellation.

(f) The club operator shall not negotiate, transfer, sell, or assign a member's note or other evidence of indebtedness to a third party prior to midnight of the seventh calendar day following the day the membership agreement was signed or the day the member receives the required disclosure statement, whichever is later.

(g) Upon cancellation by the member in accordance with this section, the club operator shall cancel and return any negotiable instrument executed by the member in connection with the membership and take any action necessary or appropriate to terminate promptly any security interest created in the transaction.

§ -7 Escrow during rescission. (a) Unless otherwise provided in this chapter, the club operator shall establish an escrow account with an independent escrow agent for the purpose of protecting any payments made in connection with memberships sold in Hawaii during the seven-day cancellation period in connection with the obtaining of a membership. The escrow agent shall be a bank, savings and loan association, or a trust company authorized to do business in the State under an escrow arrangement or a corporation licensed as an escrow depository under chapter 449.

The club operator or escrow agent of the destination club shall deposit in an escrow account in a federally insured depository one hundred per cent of all funds received from the member during the member's cancellation period.

The escrow agent and the club operator shall execute an agreement outlining the responsibilities of each party regarding the escrow of funds pursuant to this section.

(b) The funds or property constituting the escrow or trust account may be released from escrow to:

(1) The member, if the member cancels in accordance with section -6; or

(2) The club operator, upon the expiration of the cancellation period in the event a cancellation notice has not been submitted as provided in section -6.

(c) If there is a dispute relating to the funds in the escrow account, the escrow agent shall maintain the funds in the escrow account until:

(1) The escrow agent receives written directions that have been agreed to and signed by all parties; or

(2) A civil action relating to the disputed funds is filed.

(d) If a civil action is filed under subsection (c), the escrow or trust account agent shall deposit the funds with the court in which the action is filed.

(e) A club operator is not required to comply with the requirements of this section if it does not require and receive payment of the membership deposit and any other required fees until after the expiration of the seven-day cancellation period.

§ -8 Availability of accommodations. A club operator shall not sell or offer for sale a membership unless it has the accommodations and nights available for temporary use to meet the total number of nights committed to all members that have yet to terminate their membership, across all membership plans, for use during the year.

§ -9 Required destination club disclosures. (a) A club operator shall file with its registration or renewal with the director a disclosure statement. The disclosure statement shall consist of the membership agreement and any other documents necessary to provide a prospective member with the disclosures required by this section.

(b) Prior to the execution of a membership agreement, the club operator shall:

(1) Provide the prospective member with the disclosure statement; and

(2) Give the prospective member an opportunity to read the disclosure statement.

(c) Each prospective member shall certify in writing to the receipt of the disclosure statement on a form prescribed by the director.

(d) The disclosure statement shall include the following information:

(1) The legal name and address of the club operator;

(2) A description of the destination club, including the following:

(A) Type of memberships being offered in the destination club and, if membership in the destination club is limited to a specified number of members, the number of memberships available for sale at the time of registration;

(B) The rights to club services associated with each type of membership offered as part of the destination club, including the number of nights of use of accommodations associated with each type of membership;

(C) The destinations, number of accommodations available for temporary use, and other club services offered by the destination club. If the destinations, number of accommodations, or other club services is subject to change, a description of how and when such changes may occur and any rights a member has as a result of any such changes;

(D) The latest estimated availability dates (by quarter) for any accommodations at destinations that are under construction, in development, or otherwise not available to members at the time of registration or renewal but are advertised to become available to members at some point in the future;

(E) The procedure and rules for reservation and use of accommodations and other club services;

(F) The procedure to cancel a reservation for accommodations or other club services and any penalties associated with cancellations;

(G) The ratio, as of December 31 of the year prior to registration or renewal of registration, of the actual number of accommodation nights promised to members across all membership plans to the number of accommodation nights available to members; and

(H) The rules or standard of conduct requirements related to a member's use of club services, including any restrictions on such use, and the consequences of a breach of such rules;

(3) Description of all payments due from members to the club operator, including:

(A) Pricing for the membership plans offered by the club including the amount of the membership deposit and, if applicable, the initiation fee;

(B) The amount of annual dues associated with each membership plan and how any increases to such annual dues are determined; and

(4) A description of the member's and the club operator's membership termination rights;

(5) The process and requirements for a member to obtain a refund of the member's membership deposit pursuant to the membership agreement and a description of the club operator's refund obligation. This disclosure shall also include:

(A) The number of members, if any, that have terminated their memberships and have yet to receive a refund of their membership deposit, pursuant to the terms and conditions of the membership agreement, as of December 31 of the year prior to registration or renewal of registration, and the maximum length of time the members have been waiting to receive the membership deposit refund;

(B) The maximum time during the past three years that a member, upon termination of the member's membership, has waited or is currently waiting for the club operator to perform on its membership deposit obligations;

(C) Effect of bankruptcy of the club operator on the member's ability to receive a refund of the member's membership deposit; and

(D) A statement containing the following: "Refund of your Membership Deposit is subject to the terms and conditions of the Membership Agreement. As a result, you are advised to read carefully your Membership Agreement as the refund of the Membership Deposit may be conditioned upon a certain number of new members joining the Destination Club or otherwise may not be refunded in full";

(6) A description of any rights to assign, transfer, sell, or convey membership rights to any other persons or if none, a clear explanation that membership is not transferable;

(7) A description of the club operator's use of membership deposit funds;

(8) A statement of whether the club operator leases accommodations for member use and, if so, the percentage of leased versus owned accommodations;

(9) A statement regarding whether the club operator reserves the right, in its sole discretion, to alter destinations and add, sell, lease, substitute, or otherwise dispose of the accommodations and other club services. The disclosure shall clearly state whether the members have any right to force, limit, modify, curtail, or halt any such actions;

(10) A statement with the following disclaimers set out in conspicuous type:

(A) Membership in the destination club is being offered exclusively for the purpose of permitting persons acquiring membership to obtain temporary use at identified destinations, subject to the destination club's reservation policies, of available destination club accommodations and other club services;

(B) Membership in the destination club should not be viewed or acquired as an investment;

(C) Membership in the destination club does not provide the member with nor does a membership constitute any ownership interest in real property or in the club operator, the destination club, or the accommodations or other club services; and

(D) The club operator has certified that in accordance with Hawaii law, it has available financial resources necessary to meet at least two-thirds of all membership deposits received and not refunded. These financial resources are not insured or bonded. In addition, the value of the club operator's financial resources may be subject to fluctuations in the value of real estate. The club operator has an obligation to inform promptly each member should it not be able to provide the State with the annual certification that its financial resources are equal to at least two-thirds of all its membership deposit refund obligations. A club operator is not required to make this disclosure if the club operator complies with section ‑10(a)(2);

(11) A statement set out in conspicuous type and placed immediately above the member's signature line in the membership agreement that discloses substantially the following:

"Purchaser's Right to Cancel During Rescission Period:

BY SIGNING THIS MEMBERSHIP AGREEMENT YOU ARE INCURRING AN OBLIGATION TO PURCHASE A MEMBERSHIP FROM [NAME OF DESTINATION CLUB]. YOU MAY, HOWEVER, CANCEL THIS AGREEMENT WITHOUT PENALTY OR OBLIGATION BEFORE MIDNIGHT OF THE SEVENTH (7TH) CALENDAR DAY AFTER THE DATE YOU SIGN THE MEMBERSHIP AGREEMENT OR THE DATE YOU RECEIVE THE REQUIRED DISCLOSURE STATEMENT, WHICHEVER IS LATER. IF YOU ELECT TO CANCEL THIS AGREEMENT DURING SUCH PERIOD, ANY MONEY PAID BY YOU TO [NAME OF DESTINATION CLUB] DURING THIS TIME WILL BE FULLY REFUNDED TO YOU.

IF YOU DECIDE TO CANCEL YOUR MEMBERSHIP DURING THIS PERIOD, YOUR NOTICE OF CANCELLATION IS EFFECTIVE UPON THE DATE SENT BY FACSIMILE, OVERNIGHT COMMERCIAL DELIVERY, U.S. MAIL, OR HAND-DELIVERED TO [NAME OF THE DESTINATION CLUB] AT THE ADDRESS OR FACSIMILE NUMBER PROVIDED IN THE MEMBERSHIP AGREEMENT";

(12) A disclosure of any bankruptcy filings involving the club operator, any pending or, to the club operator's actual knowledge, threatened lawsuits against the club operator that are material to the destination club or accommodations, any judgment entered against the club operator in any action brought by the director pursuant to applicable state law, any material litigation affecting club operations or services, or any prior material violation of the financial responsibility requirements under section -10;

(13) A statement that there is a seven-calendar-day cancellation period; and

(14) Other disclosures required by the director, as provided by rules adopted pursuant to chapter 91.

(e) A club operator shall amend the disclosure statement to report any material errors or omissions in the information submitted at the time of registration. In the event material errors or omissions are discovered by the club operator, the club operator shall submit to the director an amended disclosure statement within twenty days after the material errors or omissions become known to the club which shall specify, in detail, the material change or changes that have occurred as a result of the material errors or omissions.

§ -10 Financial responsibility. (a) No later than June 30 of each year, a club operator shall include with its biennial registration or renewal or, in a year when a registration or a renewal is not due, as a separate submission to the director a certification by the club operator's chief executive officer or chief financial officer that the club operator has, as of December 31 of the prior year, the appropriate financial resources to pay, when due, a refund of not less than two-thirds of all membership deposits received and not refunded. The chief executive officer or chief financial officer shall demonstrate its compliance with this section by indicating in its certification adherence to one of the following:

(1) Net asset test. The club operator certifies that it has net assets in excess of its aggregate membership deposit refund obligations, as determined by the following net asset test calculation;

(A) Club Assets plus

(B) Cash and Marketable Securities minus

66.66% of

(D) Membership Deposits

The components of the net asset test calculation are defined as follows:

Club assets: Fair value of all real estate, investment in real estate ventures, other related assets (including but not limited to furniture, fixtures, equipment, and other personal property) and deposits or other instruments for the acquisition of real estate, owned or controlled by the club operator as of December 31 of the year prior to when the certification is made. The fair value shall be the appraised value of such assets (with appraisals for real property conducted by unrelated licensed appraisers in accordance with Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board or, for those appraisals conducted outside the United States, in accordance with a similarly recognized uniform appraisal standard) that were conducted not more than twenty-four months before the date of the certification, with appraisals for other assets based on generally recognized standards, or, if appraisals have not been performed for certain assets, the cost for such assets excluding depreciation.

Cash and marketable securities. As reflected on the audited consolidated financial statements of the club operator as of December 31 of the year prior to when the certification is made.

Debt secured by club assets. As reflected on the audited consolidated financial statements of the club operator as of December 31 of the year prior to when the certification is made.

Membership deposits. As reflected on the audited consolidated financial statements of the club operator as of December 31 of the year prior to when the certification is made.

In calculating the value of club assets, the club operator may include commitments by third parties to honor the club operator's membership deposit refund obligations (or a portion thereof), including but not limited to commercial guarantees and similar financial obligations, in a form and amount acceptable to the director.

(2) Third party commitments. The club operator has commitments from third parties to meet the requirements of this section. These resources may include but are not limited to a commercial guarantee, insurance, letter of credit, or other irrevocable commitments by third parties to pay membership deposit refund obligations. The adequacy of the commitments is subject to the approval of the director. A determination by the director shall be made within sixty days of submission by the destination club and approval shall not be unreasonably withheld.

(3) Other. Any other form of financial assurance acceptable to the director that provides reasonable commercial assurances that the club operator will be able to meet the requirements of this section.

(4) Combination of (1), (2), and (3). At the discretion of the director, any combination of paragraphs (1), (2), and (3) that in the aggregate meet the requirements of this section.

(b) The certification required in subsection (a) must specify all of the following:

(1) If the club operator has not been in compliance with this section since its initial registration in this State, the club operator shall provide a statement indicating the period of noncompliance and an explanation of the circumstances.

(2) On the date of the certification, the club operator demonstrates its compliance with one or more of the provisions in subsection (a).

(c) In the event the club operator is unable to provide certification in accordance with this section, it shall notify the director no later than the deadline to submit the certification. The notification shall explain why the club operator is unable to make the certification and provide detailed actions the club operator shall take to come into compliance with this section and provide certification. The director may determine whether the club operator has proposed an acceptable plan to comply with this section, and if so, may provide the club operator an additional period of time to provide certification. If the director makes such a determination, the club operator will not be deemed to be in violation of this section during this period. If the director does not make such a determination, the club operator shall not be registered as of the date the director notifies the club operator that its plans are not acceptable and the club operator shall be prohibited from engaging in club business activities in accordance with section -3 until the registration is again declared effective.

(d) In the event the club operator is unable to provide the certification for any reason, regardless of whether its registration is deemed effective pursuant to subsection (c), the club operator shall notify its members, and if the registration remains effective, its prospective members, that the club operator is not currently meeting the financial responsibility requirements of this section and the details regarding the circumstances. Upon notifying the director that it is not in compliance with the requirements of this section, the club operator must include the proposed form of notice that is to be sent to members or prospective members. The director shall determine whether the form of notice is acceptable, and once approved, the notice shall be issued no later than fifteen days after the director approves the form of notice.

§ -11 Destination club destinations. A destination club shall not operate in any community, resort, or project in violation of any public or private land use or zoning restrictions that expressly prohibit destination clubs or transient or short term use of accommodations for periods of less than thirty consecutive days.

§ -12 Prohibited acts. A registrant shall not:

(1) Provide club services, including accommodations, within this State or offer for sale memberships to persons within this State without registering with the director in accordance with section -4;

(2) Violate this chapter or any rule or order of the director;

(3) Fail to perform its membership deposit refund obligation in accordance with the terms and conditions of the membership agreement and this chapter;

(4) Sell or offer for sale destination club memberships unless the club operator has the accommodations and nights available to meet the total number of nights committed to all current members, across all membership plans, for use during the year;

(5) Misrepresent a material fact or create a false or misleading impression regarding the destination club or promotion thereof;

(6) Promote in advertising materials any destination, accommodation, or other club service as being available to members in the future but currently unavailable for member use unless the future accommodation or other club service is labeled "PROPOSED", "FUTURE", "PLANNED", "IN DEVELOPMENT", or other term of similar meaning as approved by the director and an estimated time for when the accommodation or other club service shall be available for member use;

(7) Make any misleading or deceptive representation or material omission with respect to the club operator's refund obligations, including the amount thereof or any conditions thereto;

(8) Include in advertising materials any club services, including accommodations, over which the club operator does not have ownership or other rights to provide to its members;

(9) Misrepresent the size, nature, extent, qualities, or characteristics of the offered accommodations or other club services;

(10) Misrepresent the amount or period of time during which the accommodations or other club services at any destination will be available to any member or prospective member;

(11) Misrepresent a material fact with respect to the contents of the membership agreement or the rights, privileges, benefits, or obligations of the member or prospective member under the membership agreement or this chapter;

(12) Misrepresent the conditions under which a member or prospective member may reserve or otherwise use the club services, including accommodations;

(13) Misrepresent the availability of the membership deposit refund offered by or on behalf of the club operator;

(14) Misrepresent the term or duration of membership in the destination club;

(15) Make an offer or inducement in advertising materials to acquire a membership which purports to be limited as to quantity or restricted as to time unless the numerical quantity or time limit applicable to the offer or inducement is clearly stated;

(16) Imply that an accommodation or other club service is available for the exclusive use of members if the accommodation or other club service will actually be used by non-members unless otherwise appropriately disclosed;

(17) Misrepresent the value of any prize, gift, or other item to be awarded in connection with any prize or gift promotional offer. The term "prize or gift promotional offer" means any advertising material wherein a prospective member may receive goods or services other than membership in the destination club itself, either free or at a discount, including but not limited to the use of any prize, gift, award, premium, or lodging or vacation certificate;

(18) Use membership deposit funds in a manner that does not comport with the disclosure made by the club operator in section -9(d);

(19) Fail to meet or maintain the requirements for registration as provided by this chapter or its rules; or

(20) Fail to satisfy a civil fine or penalty arising out of any administrative or enforcement action brought by any governmental agency or private person based upon conduct involving fraud, dishonest dealings, or any violation of this chapter.

§ -13 Authority of the director. (a) The director may adopt, amend, or repeal rules and forms as necessary to effectuate this chapter. All rules shall be adopted pursuant to chapter 91 and shall have the force and effect of law.

(b) In addition to any other acts or conditions provided by law, the director may refuse to renew, reinstate, or restore, or may deny, revoke, suspend, fine, reprimand, or condition in any manner, a registration issued under this chapter, for any cause authorized by law, including but not limited to one or more violations of this chapter.

(c) The director may refuse to renew, reinstate, or restore or may deny, revoke, suspend, fine, reprimand, or condition in any manner, a registration issued under this chapter based upon a determination that the club operator's executive officers or owners with greater than twenty per cent ownership interest failed to satisfy a civil fine or penalty arising out of any administrative or enforcement action brought by any governmental agency or private person based upon conduct involving fraud, dishonest dealings, or any violation of this chapter; or, in any criminal, administrative, or enforcement proceeding in any jurisdiction, had been convicted or found in violation of any rule or law involving fraud, dishonest dealings, or any other act of moral turpitude.

§ -14 Club operator liability. Notwithstanding obligations placed upon any other person by this chapter, it is the duty of the club operator to comply with all aspects of this chapter, including to supervise, manage, and to control all aspects of the offering of memberships for the destination club and the delivery of club services and performance of all obligations under the membership agreement. This shall include but not be limited to all written promotion, advertising, contracting, and closing of the sale of destination club memberships. Any violation of this chapter that occurs during those offering activities shall be deemed to be a violation by the club operator as well as by the person actually committing those violations.

§ -15 Member liability. A member, acting in the capacity of a destination club member, shall have no personal liability for any act or omission taken or not taken by or on behalf of the destination club or club operator.

§ -16 Administrative remedies. (a) In addition to any other actions authorized by law, and for any cause authorized by law, including but not limited to a determination by the director that any person has violated any provision of this chapter or any rules adopted by the director pursuant to this chapter, the director may fine any person a sum of not less than $500 nor more than $25,000 for each separate offense; provided that each day of violation shall constitute a separate offense.

(b) If the director makes a finding of fact in writing that the public interest will be irreparably harmed by delay in issuing an order, the director may issue a temporary cease and desist order. Prior to issuing the temporary cease and desist order, the director whenever possible by telephone or otherwise shall give notice to the person of the proposal to issue a temporary cease and desist order. Every temporary cease and desist order shall be effective for a period of ten days and shall include in its terms a provision that a hearing will be held promptly to determine whether or not it shall remain permanently in effect following the expiration of the ten-day period. If the person subject to the temporary cease and desist order is granted a continuance of the hearing, the temporary cease and desist order shall remain in effect throughout the period of the continuance. If the director determines that any person has failed to comply with a temporary cease and desist order issued by the director, then the director may subject the person to the penalties set forth in subsection (a).

(c) The director may inspect and audit the books and records of any destination club operating under this chapter. The club operator shall immediately make available to the director such books and records as may be requested by the director at the club operator's place of business or at a location designated by the director. For that purpose, the director shall have full and free access to the club operator's office and places of business. The director may contract with a consultant to inspect and audit the books and records of the club operator, the cost of which shall be borne by the club operator if a violation of this chapter is established.

§ -17 Private right of action. (a) A person has a right of action against a club operator for damages caused by a violation of this chapter. In an action under this section, the court may award to the prevailing party costs and reasonable attorney's fees.

(b) This chapter shall not restrict any statutory or common law rights, remedies, or defenses of any person under law or equity, including but not limited to section 480-2.

§ -18 Criminal penalties. It shall be unlawful for any person or the person's agent to testify before or file with the director any notice, statement, or other document required under this chapter that is false or untrue or contains any material omission or material misstatement of fact, or contains forgery. In addition to any sanctions or remedies provided in this chapter, any violation of this section shall constitute a misdemeanor.

§ -19 Injunctive relief. (a) Whenever it shall appear to the director, upon complaint or otherwise, that any person has engaged in, or is about to engage in any act, practice, or transaction in violation of this chapter or the rules of the director adopted pursuant thereto, the director may conduct an investigation of the matter. Whenever the director finds that the person has engaged in, is engaged in, or is about to engage in any act, practice, or transaction in violation of this chapter or the rules of the director adopted pursuant thereto, the director may, in addition to any other remedies, bring suit on behalf of the State against such person and any other person or persons concerned in, or in any way participating in, or about to participate in, such act, practice, or transaction in violation of this chapter or rules adopted pursuant thereto, to enjoin such person and such other person or persons from continuing such act, practice, or transaction, or engaging therein, or doing any act or acts in furtherance thereof or in violation of this chapter or rules adopted pursuant thereto.

(b) The court shall give priority to the expeditious processing of suits under this section.

§ -20 Remedies cumulative. Unless otherwise expressly provided, the remedies and penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this State.

§ -21 Application of other laws. The sale or marketing of memberships or the provision of club services in accordance with this chapter shall not require registration under or compliance with chapter 514E.

§ -22 Consent to service of process. Upon application for registration under this chapter, the club operator shall file with the application an irrevocable written consent that in suits, administrative proceedings, and actions growing out of the violation of any provision of this chapter, the service upon the director of a notice, process, or pleading therein, authorized by the laws of this State, shall be as valid and binding as if due service had been made upon the registrant."

SECTION 3. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 4. This Act shall take effect one year after its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	697
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII