Timeshare Scam Claims Headed for Arbitration

(CN) - An arbitrator must resolve claims from senior citizens who say they were fleeced for hundreds of thousands of dollars in a timeshare scam, a federal judge ruled.

Thomas and Donna Cook were the lead plaintiffs in the San Francisco class action, alleging that Wyndham Vacation Resorts and its employees intentionally target seniors with misleading timeshare contracts.

The Cooks say they have entered into 11 timeshare agreements with the company since 2001 for properties in Hawaii, Colorado, San Francisco and other states.

They claimed that Wyndham employees Anita Howell and Linda Turner did not accurately represent the terms for several of those agreements, resulting in further investments.

One deception allegedly occurred when the Cooks complained that Wyndham billed them for $30,000 of timeshare interests without their knowledge.

Howell said Wyndham would buy back their timeshares if the Cooks paid another $49,000 to upgrade to the "Presidential Reserve level," according to the complaint.

The Cooks said they paid up, on top of their initial $100,000 investment, but that Wyndham nevertheless blocked them from exercising the buyback option.

Another time, Howell allegedly offered to transfer the Cooks' deeds to San Francisco without telling them it would cost another $66,000.

Though Wyndham said specific contracts contain dispute-resolution clauses that obligate clients to arbitrate, the Cooks argued that the clause is unenforceable because the entire February 2011 agreement was "fraudulently obtained."

They also called the clause "unconscionable" and thus invalid, and claimed that it does not "encompass their claim."

U.S. District Judge William Orrick disagreed and compelled arbitration Monday.

"The plaintiffs do not claim that the specific dispute resolution clause itself was fraudulently obtained," the order states. "Instead, they claim that the entire February 2011 agreement and all of their prior agreements with Wyndham were procured by fraud. Therefore, these claims are for the arbitrator, not the court."

Determining whether the dispute-resolution clause is limited to actions in which a buyer has defaulted or whether the merger provision excludes plaintiffs' fraud claims requires interpretation of the February 2011 agreement and is subject to arbitration, Orrick found.

"Contrary to plaintiffs' arguments, the [American Arbitration Association's] rules provide detailed procedures for consumers to initiate disputes," he wrote. "For all these reasons, interpretation of the scope of the agreement must be submitted to arbitration."

On Friday, Orrick clarified that his previous order stayed, rather than dismissed, the case.

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