Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Timeshare owners’ claims must be arbitrated, (Nov 12, 2013)

By Jody Coultas, J.D.

A dispute resolution clause contained in a timeshare purchase contract was valid and enforceable in a timeshare owners’ consumer protection suit against Wyndham Vacation Ownership, Inc., the federal district court in San Francisco has held (Crook v. Wyndham Vacation Ownership, Inc., November 7, 2013, Orrick, W.). Thus, a motion to compel arbitration filed by Wyndham was granted.

The timeshare owners alleged that Wyndham targeted senior citizens and intentionally misled them about the terms of their time share purchase contracts to increase its sales. Specifically, a Wyndham sales representative allegedly said that she would restructure the owners’ agreements to lower their interest rate, but in fact billed them for $30,000 of timeshare interests without their knowledge. The representative informed them that upgrading would give them the option to have Wyndham buy back their time shares. As a result, the owners bought additional timeshare interests in order to reach the Presidential Reserve level, believing that they could later recover the full amount through the buyback option. However, Wyndham rejected their request to use the buyback option.

The owners argued that the dispute resolution clause contained in the agreements with Wyndham was not valid because the entire February 2011 agreement was fraudulently obtained, that the dispute resolution clause was unconscionable, and that the provision was limited in scope and did not apply.

Based on a dispute resolution clause contained in the timeshare contracts, the court could not hear the owners’ claims. The owners asserted that any contracts they had with Wyndham were void because they were fraudulently obtained, and cited a case where the California Court of Appeal held under state law that a dispute resolution clause giving an arbitrator exclusive authority to decide enforceability was unconscionable. However, that case was decided before the Supreme Court held that, under the Federal Arbitration Act (FAA), a challenge to the enforceability of an agreement as a whole, as opposed to a challenge to the arbitration clause within the agreement, is to be submitted to the arbitrator. Wyndham’s motion was governed by the FAA, and the owners did not claim that the specific dispute resolution clause itself was fraudulently obtained. Instead, they claim that all of their agreements with Wyndham were procured by fraud. Therefore, the claims were for an arbitrator.

The dispute resolution clause is therefore only slightly procedurally unconscionable, according to the court. The owners argued that the dispute resolution clause was: (1) found in an adhesive form contract; (2) never explained or mentioned by Wyndham employees; (3) presented on a “take it or leave it” basis; and (4) silent about the right to a jury trial. The owners claimed that the dispute resolution clause was part of a contract of adhesion—and thus presumptively unconscionable—and that they were never given the choice of accepting or rejecting the dispute resolution clause. However, several aspects weighed against finding the clause unenforceable. The dispute resolution clause is set forth in a separate paragraph titled Dispute Resolution, and the entire contract was only five pages long. The owners signed eleven time share agreements with Wyndham. Finally, the FAA prohibits courts from refusing to enforce an arbitration clause because it disallows an ultimate disposition by a jury.

None of the owners’ arguments presented a case that the dispute resolution clause was substantively unconscionable, according to the court. The clause stated that Wyndham would advance the fees necessary to initiate the dispute or claim resolution process and incorporated the American Arbitration Association Rules.

Finally, the court found that interpretation of the scope of the agreement must be submitted to arbitration.

The case is No. 13-cv-03669-WHO.

Attorneys: Barbara Emily Cowin Figari (Equality Lawyers LLP) for Thomas Crook. Sarah Diane Youngblood (Schiff Hardin LLP) for Wyndham Vacation Ownership, Inc.

Companies: Wyndham Vacation Ownership, Inc.

Cases: StateUnfairTradePractices CaliforniaNews