Welk Out of Time to Force Time-Share Arbitration

SAN DIEGO (CN) - Time-share owners do not have to arbitrate claims over mold damage in the resort originally opened by television's Lawrence Welk in 1964, a federal judge ruled, noting that the Welk Group has actively participated in the class action for over two years.

In 2009, Hermengildo "Jay" Martinez filed a class action on behalf of consumers who owned timeshare interest in the luxury housing development Welk Resort San Diego.

Martinez has filed four amended complaints in that time, claiming the Welk Group and its three partners concealed water leaks that led to a serious mold and fungus problem.

Now that the parties have finally achieved an operative complaint, however, the defendants said the court must compel arbitration because of agreements that time share owners sign.

Though the agreements do contain valid arbitration clauses that are enforceable under the Federal Arbitration Act, U.S. District Judge Anthony Battaglia ruled that the defendants have waived their right to compel such action.

Since the Welk Group and its partners drafted the arbitration clauses at issue, "it is indisputable that they knew of their right to seek arbitration," Battaglia wrote.

Yet, the class points out that they pursued this relief only after receiving an "unwelcome" order from the court. It also claimed that forced arbitration would be prejudicial since Martinez has already spent two years for a class action.

Though the defendants said previous attempts at arbitration would have been futile,

Battaglia did not agree. Even if Martinez had proposed several classes that would not all have been subject to arbitration, the defendants could have pursued those parties to whom arbitration was applicable.

"By waiting two years to bring this motion, the prejudice caused to Mr. Martinez and the putative class is enough to create waiver," he wrote.

Battaglia also refused to apply the Supreme Court's recent holding in Concepcion v. AT&T Corp., a close opinion that defends arbitration clauses against bans enacted by some states.

"Defendants make much of AT&T Mobility, decided in 2011, but that case dealt with the enforceability of class action waivers, which are not present in the arbitration clauses at issue," he wrote.

"The purpose of the FAA, and arbitration in general, is to promote quick, informal, and streamlined resolution of issues between parties," Battaglia added, referring to the Federal Arbitration Act. "It is not to be used as a back-up plan for litigation strategies."

The court also rejected the defendants' bid to deny class certification, a motion that Battaglia criticized as neither timely nor appropriate.

Martinez has not yet filed for class certification, and discovery has not been conducted, but the Welk Group claimed that class certification should be denied based on an alleged conflict of interest among the counsel for the class and Wade Brent, a former engineer whom the Welk Group is pursuing with counterclaims.

Adequacy of representation is one of four factors in the class-certification analysis, but Battaglia said the defendants did not address any of the other factors in their motion.

"To that end, defendants are encouraged to file a motion to disqualify counsel as the proper means of resolving this issue," he concluded.

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