Eleventh Circuit Addresses Timeshare Defendants’ Arbitration Gamesmanship

The Eleventh Circuit today weighed in on a matter involving the increasingly frequent scenario of a corporate defendant refusing to comply with the terms of the arbitration agreement it foisted upon consumers.

Three consumers who had bought timeshares through Wyndham Vacation Resorts filed claims for breach of contract and fraudulent inducement with the American Arbitration Association, pursuant to the forced arbitration clause contained in their timeshare contracts. AAA declined the cases, noting that Wyndham’s forum selection clause and damages clause conflicted with AAA’s rules. AAA stated that Wyndham could submit a revised arbitration clause for vetting if it wanted to enforce such a clause moving forward.

The three consumers, joined by five additional consumers, then filed a putative class action in federal district court. Wyndham then moved to compel arbitration before the AAA, or, in the alternative, a substitute arbitrator. The district court refused, and an appeal followed.

On appeal, the Eleventh Circuit that all of the plaintiffs that had arbitration agreement with Wyndham itself could not be compelled to arbitration, as Wyndham’s “failure to comply with the rules of its chosen arbitral forum renders the remedies specified in Sections 3 and 4 of the FAA unavailable to it.” In so doing, it rejected a variety of arguments about the authority of both the AAA administrator and the district court. The court further found it lacked jurisdiction to review the district court’s refusal to compel arbitration before a substitute arbitrator under section 5 of the FAA.

The court vacated the district court’s order as to two plaintiffs who had arbitration agreements with different, related entities, noting that there was no evidence that AAA had rejected claims to arbitrate against those entities (even though the relevant contractual clauses were identical).

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