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Daniels v. Diamond Resorts Financial Services, Inc.

United States District Court, S.D. West Virginia, Charleston

March 18, 2019

STEPHEN LOWELL DANIELS and LORI LEE DANIELS, Plaintiffs,
v.
DIAMOND RESORTS FINANCIAL SERVICES, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          JOHN T. COPENHAVER, JR. SENIOR UNITED STATES DISTRICT JUDGE.

         Pending is defendant's motion to compel arbitration, filed May 18, 2018. Also pending is defendant's motion for oral argument on its motion to compel arbitration, filed May 25, 2018.

         I. Background

         On June 17, 2016 and November 27, 2016, plaintiffs Stephen Lowell Daniels and Lori Lee Daniels, both citizens of West Virginia, Not. Removal, ECF No. 1, at ¶ 7, entered into separate contractual agreements with defendant Diamond Resorts Financial Services, Inc. (“DRFS”), a Nevada corporation with its principal place of business in Nevada, Id. at ¶ 8, for the “purchase and sale of certain property in the nature of a timeshare.” Compl., ECF No. 1-1, at ¶¶ 3-4. The June 17, 2016 purchase agreement concerned the purchase of a timeshare in Virginia, and the November 27, 2016 purchase agreement concerned the purchase of a timeshare in Tennessee. See ECF No. 7, Exs. A, B, at 1.

         Plaintiffs initiated this action in the Circuit Court of Kanawha County, West Virginia on March 5, 2018. Not. Removal, ECF No. 1, at ¶ 1. The plaintiffs allege that after their attorney sent a formal demand letter to defendant, invoking the consumer protections of 15 U.S.C. § 1692c(a)(2)[1] and the West Virginia Consumer Credit and Protection Act (“WVCCPA”), W.Va. Code § 46A-1-101 et seq., defendant proceeded to call the plaintiffs forty-four times seeking to collect a debt. Compl., ECF No. 1-1, at ¶¶ 7-8, 54-58. The plaintiffs seek relief for unlawful debt collection under the governing state Act and request that “this Court cancel the debt owed to the Defendant or its principal pursuant” to the WVCCPA. Id. at 7.

         Not mentioned in the complaint is the fact that the purchase agreements were entered into with Diamond Resorts U.S. Collection Development, LLC (“Developer”), a Delaware limited liability company with its principal place of business in Nevada. See ECF No. 7, Exs. A, B, at 2. Developer is an indirect subsidiary of Diamond Resorts International, Inc. (“DRI”), a company with a network of more than 400 vacation destinations. Def.'s Mem. Supp. Mot. Compel Arbitration (“Def.'s Mem.”), ECF No. 8, at 1-2. DRFS is also an indirect subsidiary of DRI and affiliate of Developer. Id. at 2.

         Defendant removed this action to this court on April 12, 2018, pursuant to 28 U.S.C. § 1332. Not. Removal, ECF No. 1, at ¶ 5. Defendant subsequently moved to compel arbitration of this matter pursuant to the identical arbitration provisions set forth in the purchase agreements of June 17, 2016 and November 27, 2016. Def.'s Mem., ECF No. 8, at 2-3. According to the defendant, “arbitration is appropriate because a valid arbitration agreement exists and the issues in this case fall within its purview.” Def.'s Mot., ECF No. 7, at 1.

         The purchase agreements detail that the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, will govern the arbitration provision and that Nevada law “shall govern to the extent that state law is relevant under the FAA in determining the enforceability of this Arbitration Provision.” ECF No. 7, Exs. A, B, at ¶ 18(e).

         The arbitration provision includes three relevant subsections. First, the purchase agreements contain an opt-out provision that permits a purchaser to notify the seller within thirty days if the purchaser does not want the arbitration provision to apply by sending a letter to the seller “STATING THAT THE ARBITRATION PROVISION DOES NOT APPLY.” Id. at ¶ 18(a).

         Next, the arbitration provision states that “[u]nless Purchaser has exercised his or her opt-out right pursuant to Section 18(a), upon the election of Purchaser or any Company Party, any Claim between Purchaser and such Company Party shall be resolved by binding individual (and not class) arbitration.” Id. at ¶ 18(c).

         Finally, the arbitration provision defines several of the terms used in Paragraph 18(c). “Company Party” is defined as “Seller and/or the Association, their affiliates and the agents, representatives, members, employees, officers and/or directors of such entities, if and to the extent that any Claim is asserted by or against such entity or person.” Id. ¶ 18(b). “‘Claim' means any legal claim, dispute or controversy between any Company Party and Purchaser, including statutory, contract and tort disputes of all kinds and disputes involving requests for declaratory relief, injunctions or other equitable relief.”[2]Id.

         The plaintiffs have filed a response in opposition to defendant's motion in which they object to the enforcement of the arbitration provision on several grounds. The defendant has since filed its reply.

         II. Standard of Review

         The FAA was enacted in 1925 and codified as Title 9 of the United States Code in 1947. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991). Its purpose was to “reverse the longstanding judicial hostility to arbitration agreements ... and to place [them on] the same footing as other contracts.” Id. Additionally, the Gilmer court noted:

statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA . . . . In these cases we recognized that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.”

Id. at 26 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). The FAA provides that arbitration clauses in contracts concerning interstate commerce are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA reflects “a liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). “Accordingly, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.” Adkins v. Labor Ready, Inc., 303 F.3d 496, 500 (4th Cir. 2002) (internal citations and quotations omitted). Thus, a district court must grant a motion to compel arbitration when “a valid arbitration agreement exists and the issues in a case fall within its purview.” Id. (citing United States v. Bankers Ins. Co., 245 F.3d 315, 319 (4th Cir. 2001)).

         In this circuit, a party may compel arbitration under the FAA if it can demonstrate:

(1) the existence of a dispute between the parties,
(2) a written agreement that includes an arbitration provision which purports to cover the dispute,
(3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and
(4) the failure, neglect or refusal of the defendant to arbitrate the dispute.

Id. at 500-01 (quoting Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991)).

         The Adkins court also observed that “‘even though arbitration has a favored place, there still must be an underlying agreement between the parties to arbitrate.'” Id. at 501 (quoting Arrants v. Buck,130 F.3d 636, 640 (4th Cir. 1997)). “Whether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation.” Id. at 501 (citing First Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 944 (1995)); see also Sydnor v. Conseco Fin. Servicing Corp.,252 F.3d 302, 305 (4th Cir. 2001) (citation omitted). “Generally applicable contract defenses, such as fraud, duress, or ...


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