A defendant was not aggrieved by the plaintiffs’ failure to arbitrate, and thus was not entitled to an order staying litigation and compelling arbitration, where the plaintiffs sought arbitration but the AAA refused to take their cases because of the defendant’s noncompliance with AAA rules. Bedgood v. Wyndham Vacation Resorts, Inc., 2023 WL 8722023 (11th Cir. 2023).
Timeshare purchasers entered into purchase agreements with Wyndham Vacation Resorts (“Resorts”) or two other companies—Wyndham Resorts Development (“Development”) and WorldMark, The Club (“WorldMark”)—affiliated with Resorts. All the agreements include nearly identical arbitration provisions, designating the AAA as the administrator; calling for individual arbitration; and incorporating the AAA’s “Consumer Arbitration Rules,” which in turn incorporate the AAA Consumer Due Process Protocol. The agreements also specify Orange County, Florida as the sole venue for arbitration absent agreement otherwise, and limit a buyer’s damages to the total amount paid under the agreement.
Three buyers, alleging breach of contract and fraudulent inducement, sought to institute arbitration proceedings against Resorts. Before appointing an arbitrator, the AAA refused to administer the claims because Resorts “failed to comply with the AAA’s policies.” The AAA letter did not specifically identify those failures, but in their district-court briefing, the defendants said that the AAA took issue with the arbitration agreements’ forum-selection and limitation-of-damages provisions. The AAA said it might consider handling future Resorts disputes, but that Resorts would have to register its arbitration clause with the AAA before that would happen. So the plaintiffs sued in federal court, bringing their case as a putative class action against Resorts, Development, and WorldMark.
The defendants moved to stay the litigation and compel arbitration. The district court denied the motion as to all three defendants, holding that (i) it lacked authority to stay the case under 9 U.S.C. § 3 because the defendants were “in default” with the AAA; (ii) the plaintiffs hadn’t “fail[ed], neglect[ed], or refus[ed] to arbitrate,” as required by 9 U.S.C. § 4; and (iii) the defendants were not entitled to appointment of a substitute arbitrator under 9 U.S.C. § 5 because the AAA would have been available “if not for [d]efendants’ negligent failure to follow the AAA’s rules.” The defendants filed an interlocutory appeal pursuant to 9 U.S.C. § 16(a), which permits an appeal from an order refusing to grant a stay under § 3 and/or denying a petition under § 4.
The Eleventh Circuit, in an opinion written by Judge Newsom, affirmed as to Resorts. The court began by affirming the district court’s determination that Resorts was “in default” in proceeding with arbitration within the meaning of 9 U.S.C. § 3. Resorts claimed that that question had to be decided by an arbitrator, rather than by an AAA administrator, and that the district court therefore erred in relying on the rejection letter written by an AAA administrator. But the AAA’s Consumer Rules, which Resorts had incorporated into its agreement, expressly delegated policy-compliance determinations to the AAA’s administrator. Those rules also distinguish between the administrative aspects of an arbitration and merits determinations reserved to arbitrators. While the administrator’s determination of non-compliance was not a legal opinion or a determination of the enforceability of the arbitration agreement, the district court did not err in relying on the administrative decision in concluding that Resorts was “in default” with the AAA. This was unchanged by the fact that the arbitration agreement included a delegation clause reserving questions of “enforcement, interpretation, or validity” of the agreement to the arbitrator, because—again—the administrative determination was a matter of compliance with AAA rules: “the AAA merely determined that the arbitration clause—irrespective of its ‘enforcement, interpretation, or validity’—violated AAA policies and thus declined to open its forum to the parties.” Accordingly, though the district court was not required to accept the AAA’s determination that Resorts’ clause violated AAA rules, there was no reversible error in its doing so.
For many of the same reasons, the court affirmed the district court’s determination that Resorts was not “aggrieved by [another party’s] failure, neglect, or refusal” to arbitrate, as required by 9 U.S.C. § 4. One group of plaintiffs had tried, unsuccessfully, to arbitrate. Other plaintiffs, who had not attempted arbitration but had joined the litigation later, had arbitration agreements with Resorts identical to those which the AAA had deemed non-compliant. As such, if Resorts was “aggrieved,” it was by the failure of its clause to meet AAA requirements.
As for Resorts’ argument that the district court should at least have appointed a substitute arbitrator under 9 U.S.C. §5, the court determined that it lacked appellate jurisdiction to review that issue. 9 U.S.C. § 16 authorizes interlocutory appeals of orders under Sections 3 and 4, but says nothing about Section 5, and the Section 5 decision was not “inextricably intertwined” with the appealable decisions so as to bring it within the court’s pendent appellate jurisdiction.
But the court reversed the district court with respect to Development and WorldMark. While those companies’ arbitration agreements were similar (but not identical) to Resorts’ agreement, and “common sense suggests that the AAA would reject” claims against those companies, too, “there is no solid evidence to that effect.” Accordingly, and in view of “the Supreme Court’s emphasis on the liberal enforcement of arbitration agreements,” the district court erred in denying the motion to stay and compel arbitration as to Development and WorldMark.