Brenda Gibbs v. Capital Resorts Group, LLC ( 2020 )

02/24/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
December 5, 2019 Session
BRENDA GIBBS v. CAPITAL RESORTS GROUP, LLC, ET AL.
Appeal from the Chancery Court for Sevier County
No. 18-10-262 Telford E. Forgety, Jr., Chancellor
___________________________________
No. E2019-00295-COA-R3-CV
___________________________________
This appeal involves the denial of a motion to dismiss and to compel mediation and
arbitration. The Trial Court determined that the plaintiff had properly challenged the
mandatory arbitration provisions of the contract, including the delegation clause, on the
basis of fraudulent inducement of the contract including the delegation clause. The Trial
Court, therefore, denied the defendants’ motion to dismiss and to compel mediation and
arbitration. Discerning no reversible error, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which JOHN W.
MCCLARTY, and THOMAS R. FRIERSON, II, JJ., joined.
Janet Strevel Hayes and Preston A. Hawkins, Knoxville, Tennessee, for the appellants,
Capital Resorts Group, LLC, and Capital Resorts Management, LLC.1
Matthew A. Grossman, Kevin A. Dean, and Brittany K. Coss, Knoxville, Tennessee, for
the appellee, Brenda Gibbs.
1
Janet Strevel Hayes submitted an appellate brief on behalf of the appellants. Thereafter, Preston A.
Hawkins participated in oral arguments on behalf of the appellants and subsequently filed a notice of
appearance. The notice of appearance did not state that Mr. Hawkins was substituting Ms. Strevel Hayes
as counsel for appellants. Therefore, we have included both attorneys as counsel for appellants.
OPINION
Background
The plaintiff, Brenda Gibbs (“Plaintiff”), and the defendant, Capital Resorts Group,
LLC, entered into the “Capital Resorts Club Purchase Agreement” (the “Contract”) in
August 2018. The Contract states as follows in relevant part:
34. Governing Law, Venue, and Jurisdiction. This Agreement shall
be construed in accordance with the laws of the State of Florida; excepting,
however, the provisions relating to the Purchaser’s right to cancel this
Agreement and the escrow of Purchaser deposit payments made prior to
closing, which provisions shall be construed, interpreted and enforced in
accordance with laws of the state where Purchaser executes this Agreement.
***
38. Mandatory Arbitration. In the event of any bona fide dispute,
claim, question, or disagreement arising from or relating to this Agreement
in any manner or the breach thereof, the parties hereto shall use their best
efforts to amicably settle the dispute, claim, question or disagreement. To
this effect, and prior to filing a lawsuit or lodging any complaint with a
governmental or non-governmental agency or other third party, the parties
shall participate in at least (3) hours of mandatory mediation in Clearwater,
FL, or such other location as may be mutually agreed upon by the parties,
before a mediator mutually agreed upon by the parties, during which they
shall consult and negotiate with each other in good faith and, recognizing
their mutual interests, attempt to reach a just and equitable solution
reasonably satisfactory to both parties. Each party shall bear its own costs,
except that the costs of the mediator shall be split equally between the
parties. Any complaints or litigation initiated by a party hereto without first
participating in mandatory mediation shall be subject to immediate
withdrawal and/or dismissal and the party initiating same shall be
responsible to pay all attorney costs, fees and expenses of the other party in
obtaining such withdrawal and/or dismissal. If the parties do not reach a
mutually agreeable solution to the dispute at mediation, then, upon notice
by either party to the other, all disputes, claims, questions or differences
shall be finally settled by binding arbitration administered by the American
Arbitration Association (“AAA”) in accordance with its commercial
arbitration rules, including the optional rules for emergency measures of
protection, and judgment on the award rendered by the arbitrator(s) may be
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entered in any court having jurisdiction thereof. Disputes under this clause
shall be resolved by arbitration in accordance with Title 9 of the US Code
(United States Arbitration Act2) and the Commercial Arbitration Rules of
the American Arbitration Association. In addition to the foregoing,
PURCHASER EXPRESSLY WAIVES ANY RIGHT OR AUTHORITY
TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS
MEMBER ON ANY CLASS CLAIM OR ACTION, INCLUDING ANY
RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF
INDIVIDUAL ARBITRATIONS. Arbitrators shall be appointed as
provided in the AAA Commercial Arbitration Rules. The arbitration shall
be conducted in Atlanta, Georgia. Face-to-face proceedings should be
conducted at a location which is reasonably convenient to both parties with
due consideration of their ability to travel and other pertinent
circumstances. If the parties are unable to agree on a location, the
determination should be made by the arbitrator(s). The arbitrator(s) may
grant any remedy or relief that the arbitrator(s) deems just and equitable
within the scope of this Agreement. The arbitrator(s) will have no authority
to award punitive or other damages not measured by the prevailing party’s
actual damages, except as may be required by statute. Each party shall bear
its own costs and expenses and an equal share of the arbitrators’ and
administrative fees of arbitration. Except as may be required by law,
neither a party nor an arbitrator may disclose the existence, content or
results of any arbitration hereunder without the prior written consent of
both parties. Within thirty (30) days of receipt of any award (which shall
not be binding if an appeal is taken), any party may notify the AAA of an
intention to appeal to a second arbitral tribunal, constituted in the same
manner as the initial tribunal. The appeal tribunal shall be entitled to adopt
the initial award as its own, modify the initial award or substitute its own
award for the initial award. The appeal tribunal shall not modify or replace
the initial award except for manifest disregard of law or facts. The award
of the appeal tribunal shall be final and binding, and judgment may be
entered by a court having jurisdiction thereof.
(Footnote added.)
On October 19, 2018, Brenda Gibbs (“Plaintiff”) filed an action in the Sevier
County Chancery Court (“Trial Court”) against Capital Resorts Group, LLC, and Capital
Resorts Management, LLC (collectively, “Defendants”), as well as a representative of the
2
The United States Arbitration Act is also referred to by the parties as the “Federal Arbitration Act” and
“FAA.”
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defendant companies, Sean K. Hornbeck.3 In her complaint, Plaintiff alleged fraud in the
inducement of the Contract, a violation of the Tennessee Time-Share Act of 1981, a
violation of the Tennessee Vacation Club Act of 1995, and a violation of the Tennessee
Consumer Protection Act. Relying on these allegations, Plaintiff requested rescission of
the Contract and monetary damages.
Concerning the factual allegations in her complaint, Plaintiff stated that she
intended to sell her interest in a Capital Resorts timeshare due to financial concerns and
the rising cost of maintenance fees. Plaintiff met with the defendant, Sean Hornbeck,
who was an agent or representative of Defendants, and he offered to place her timeshare
on the sales “Marketplace.” Mr. Hornbeck informed Plaintiff that she should act quickly
and that he needed to file the documents that day.
According to Plaintiff, Defendants and Mr. Hornbeck presented documents to
Plaintiff for her signature, which they had represented to her was documentation relating
to the sale of her timeshare. Plaintiff was not given sufficient time to read the
documentation. Although Plaintiff believed she was selling her timeshare, the
documentation provided to her actually operated to trade her existing timeshare as an
equity credit toward the purchase of another timeshare through Capital Resorts. Plaintiff
stated that she was unaware that she was purchasing another timeshare. According to
Plaintiff, Defendants and Mr. Hornbeck further “misled and/or fraudulently induced”
Plaintiff into opening a new credit card account with Bank of America “by presenting her
with credit application documents to sign without disclosing that these documents were
not for the sale of her Capital Resorts timeshare, but were, in fact, a credit card
application and other documents incident to the purchase of a timeshare, and that
Defendants intended to charge $7,000.00 in fees for that purchase to the Bank of America
credit card.” Plaintiff also alleged that Defendants and Mr. Hornbeck activated that
credit card against Plaintiff’s wishes or consent and charged $7,000 to the credit card.
Additionally, Plaintiff alleged that when she discovered that she had been led to purchase
another timeshare, she attempted to meet with Mr. Hornbeck during the statutorily
prescribed ten-day rescission period, but he refused to meet with her.
Defendants filed their “Motion to Dismiss and to Compel Mediation and
Arbitration” and their memorandum of law in support of their motion, in December 2018
and February 2019 respectively. In their motion, Defendants argued that Plaintiff and
Capital Resorts Group, LLC, entered into an agreement in the Contract that “all claims
arising from or related to the Contract would be resolved through good faith negotiation
and mandatory mediation and through mandatory arbitration governed by the [Federal
Arbitration Act (“FAA”)] in the event the parties were unable to resolve their disputes
3
Although named as a defendant in the action, Mr. Hornbeck has not filed an appellate brief or otherwise
participated in the appeal.
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through mediation.” Defendants asserted that Plaintiff had filed the instant action
“without using her best efforts to settle her disputes, without offering to participate in the
required mediation and without attempting to negotiate a resolution of her claims in good
faith.” Defendants argued that the arbitration agreement in the Contract is valid,
irrevocable, and enforceable. According to Defendants, the incorporation of the
Commercial Arbitration Rules of the American Arbitration Association (“AAA Rules”)
required that the arbitrator determine the validity and enforceability of the arbitration
agreement, not the court. This type provision is referred to as a delegation provision. In
their memorandum of law, Defendants argued that the amended complaint contains no
factual allegations regarding fraudulent inducement of the arbitration provision or
delegation provision. Defendants further argue that Plaintiff had not specifically
challenged the delegation provision of the arbitration agreement. Defendants argued in
their motion that because “the parties agreed to mediate and arbitrate Plaintiff’s claims in
accordance with the FAA and the AAA’s Commercial Arbitration Rules,” the Trial Court
should enforce the agreement, dismiss or stay the court proceedings, and compel
mediation and arbitration. Defendants also requested an award of attorney’s fees and
expenses associated with the action.
In January 2019, Plaintiff filed a response to the motion to dismiss and to compel
mediation and arbitration. In her response, Plaintiff argues that Defendants’ motion
ignores Plaintiff’s allegations pled in the complaint for fraudulent inducement as to the
Contract. According to Plaintiff, the FAA does not require arbitration “where the
arbitration clause itself was specifically fraudulently induced.” Therefore, Plaintiff
asserted that the Court must consider Plaintiff’s claim of fraudulent inducement before
compelling her to litigate her claims in arbitration. Plaintiff requested that the Trial Court
deny Defendants’ motion.
Also in January 2019, Plaintiff filed an amended complaint with the allegation that
Defendant induced Plaintiff into entering into the mandatory arbitration provisions
contained in paragraph 38 of the Contract. Plaintiff’s claims regarding fraud in the
inducement of the contract were as follows:
44. Plaintiffs incorporate all paragraphs found above as though set forth
herein verbatim.
45. As set forth above, Defendants and their representatives and agents
made representations regarding the sale of Plaintiff’s Capital Resorts
timeshare. Most notably, Defendants represented that the voluminous
documentation presented to Plaintiff to sign were for the sale of her Capital
Resorts timeshare, and that executing those documents would result in the
sale of that timeshare and the end of her payment obligations toward any
timeshare.
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46. These representations induced Plaintiff to sign the voluminous
documentation attached hereto as Exhibits 1-7.
47. These representations specifically induced Plaintiff to enter into the
“Mandatory Arbitration” clause at paragraph 38 of the Contract.
48. These representations made by Defendants and their representatives and
agents were false.
49. The Defendants’ representations to the Plaintiff regarding the sale of
her Capital Resorts timeshare was material to her signing the voluminous
documentation attached hereto as Exhibits 1-7.
50. Plaintiff relied upon Defendants’ misrepresentations regarding the sale
of her Capital Resorts timeshare in her decision to sign the voluminous
documentation attached hereto as Exhibits 1-7.
51. Plaintiff has suffered substantial stress and anxiety as a result of
Defendants’ conduct which has adversely affected Plaintiffs physical health
and well-being, among other damages outlined herein because of
Defendants’ misrepresentations.
52. Defendants’ misrepresentations set forth in this Complaint were
malicious, reckless, fraudulent and/or intentional, entitling Plaintiff to an
award of punitive damages.
Defendants’ motion to dismiss was heard by the Trial Court on February 1, 2019.
At the conclusion of oral arguments, the Trial Court stated as follows in pertinent part:
Counsel, the question to me is whether the [AAA] Rules are
incorporated. The question to me is whether paragraph 38, which contains
the arbitration provision and the [AAA] Rules, whether there was ever an
agreement formed in the first place as to paragraph 38 containing both the
arbitration provision and the [AAA] Rules.
I take your argument, by the way -- if you look at paragraph 47 of
the amended complaint, your argument is that, look, it just refers back to
the same allegations that apply to the whole contract, and to some extent it
does, but I tell you, they have specifically and, you know, these
representations specifically induced plaintiff to enter into the, quote,
mandatory arbitration clause at paragraph 38 of the contract. So they have
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challenged it. They have challenged it with that sentence. They do
challenge it. And honestly I think that’s enough. I think that’s enough.
The Trial Court thereafter entered an order on February 12, 2019, denying
Defendants’ motion. In its order, the Trial Court stated: “Upon consideration of the
Motion, Plaintiff’s response in opposition thereto, Defendant’s Memorandum in Support
of Motion to Dismiss and to Compel Mediation and Arbitration, the statements of counsel
present, and the record in this cause as a whole, the Court will deny the Motion.”
Defendants timely filed a notice of appeal to this Court.4
On appeal, briefing was completed. Plaintiff subsequently filed a motion to
dismiss the appeal on the basis that this Court does not have subject matter jurisdiction.
According to Plaintiff, “(1) federal procedural statutes do not govern procedure in
Tennessee State Courts and thus cannot confer additional jurisdiction upon this Court,
and (2) the contract at issue in this case expressly adopts only the Federal Arbitration Act
(“FAA”) with respect to arbitration, adopts Florida law generally, and does not provide
for the application of the Tennessee Uniform Arbitration Act in any event.”
Defendants filed a response to the motion to dismiss the appeal and argued that
this Court has subject matter to hear this appeal because Tennessee Code Annotated § 29-
5-319 is applicable to this case. According to Defendants, when a matter concerning an
arbitration agreement is governed by the FAA and filed in a Tennessee Court, the
procedural pre-arbitration rules in the Tennessee Uniform Arbitration Act will apply.
This Court deferred the issue of subject matter jurisdiction to the panel in this matter.
Discussion
Although not stated exactly as such, Defendants raise the following issue for our
review on appeal: Whether the Trial Court erred by denying Defendants’ motion to
dismiss and to compel mediation and arbitration. Our review is de novo upon the record,
accompanied by a presumption of correctness of the findings of fact of the trial court,
unless the preponderance of the evidence is otherwise. Tenn. R. App. P. 13(d); Kelly v.
Kelly, 445 S.W.3d 685, 692 (Tenn. 2014). A trial court’s conclusions of law are subject
to a de novo review with no presumption of correctness. Kelly, 445 S.W.3d at 692.
We first address Plaintiff’s motion to dismiss the appeal for lack of subject matter
jurisdiction. In Plaintiff’s motion to dismiss, it is unclear exactly which forum’s
procedural rules Plaintiff is asserting should be applied to this action or just that neither
4
Although the motion hearing occurred on February 1, 2019, the court’s order was not entered until
February 12, 2019. Defendants’ notice of appeal incorrectly states that they are appealing from the Trial
Court’s February 1, 2019 order.
-7-
the procedural law of the FAA or the Tennessee Uniform Arbitration Act should apply.
However, Plaintiff’s counsel acknowledged during oral arguments that Tennessee
procedural law should apply to this action. Plaintiff, however, argues that the appropriate
remedy for appeal would have been through an interlocutory appeal pursuant to
Tennessee Rule of Appellate Procedure 9 and that none of the provisions of the
Tennessee Uniform Arbitration Act are applicable to this case. We disagree.
The Tennessee Supreme Court has provided that “if Tennessee’s appellate courts
have subject matter jurisdiction to hear appeals from orders [regarding arbitration], the
grant of jurisdiction must be found in the Tennessee Uniform Arbitration Act, not the
Federal Arbitration Act.” Morgan Keegan & Co., Inc. v. Smythe, 401 S.W.3d 595, 607
(Tenn. 2013). The Tennessee Uniform Arbitration Act provides an immediate appeal for
the denial of a motion to compel arbitration at Tennessee Code Annotated § 29-5-
319(a)(1).
Tennessee Code Annotated § 29-5-319 provides in relevant part: “(a) An appeal may be
taken from: (1) An order denying an application to compel arbitration made under § 29-
5-303 . . . .” Tennessee Code Annotated § 29-5-319 is a procedural statute and applies to
the current matter before us. As such, we hold that this Court has subject matter
jurisdiction over this appeal, and Plaintiff’s pending motion to dismiss the appeal is
denied.
We next address whether the Trial Court erred by denying Defendants’ motion to
dismiss and to compel mediation and arbitration. Defendants argue that the delegation
clause is unchallenged and that the facts in the complaint are insufficient to support a
challenge to either the delegation clause or the arbitration agreement. Upon review of the
record, the Trial Court relied on the United States Supreme Court’s opinion in Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). In that case, the Court
applied the rule of severability and held that an arbitration agreement remained valid
when the plaintiff had challenged the contract as a whole and not the arbitration
agreement within the contract. Id. at 403-04. In that case, the Court stated as follows:
Under [section 4 of the FAA], with respect to a matter within the
jurisdiction of the federal courts save for the existence of an arbitration
clause, the federal court is instructed to order arbitration to proceed once it
is satisfied that ‘the making of the agreement for arbitration or the failure to
comply (with the arbitration agreement) is not in issue.’ Accordingly, if the
claim is fraud in the inducement of the arbitration clause itself—an issue
which goes to the ‘making’ of the agreement to arbitrate—the federal court
may proceed to adjudicate it. But the statutory language does not permit
the federal court to consider claims of fraud in the inducement of the
contract generally.
-8-
Id.
The United States Supreme Court thereafter reaffirmed its decision in Prima Paint
Corp. holding that “regardless of whether the challenge is brought in federal or state
court, a challenge to the validity of the contract as a whole, and not specifically to the
arbitration clause, must go to the arbitrator.” Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 449 (2006). As such, a plaintiff must challenge the making of the
arbitration agreement specifically, and not just the contract generally, in order for the
court to adjudicate the fraudulent inducement claim.
Additionally, the U.S. Supreme Court subsequently applied the severability rule
from Prima Paint Corp. and enforced a delegation provision to arbitrate threshold
matters relevant to the arbitration agreement when the contract consisted of a stand-alone
arbitration agreement. See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 71-72 (2010).
The Court determined that because the plaintiff had not challenged the delegation
provision of the arbitration agreement contract, the Court would treat that provision as
valid pursuant to section 2 of the FAA. Id. In Rent-A-Ctr., W., Inc., the Court provided
as follows:
Here, the “written provision . . . to settle by arbitration a
controversy,” 9 U.S.C. § 2, that Rent-A-Center asks us to enforce is the
delegation provision—the provision that gave the arbitrator “exclusive
authority to resolve any dispute relating to the . . . enforceability . . . of this
Agreement[.]” The “remainder of the contract,” Buckeye, supra, at 445,
126 S. Ct. 1204, is the rest of the agreement to arbitrate claims arising out of
Jackson’s employment with Rent-A-Center. To be sure this case differs
from Prima Paint, Buckeye, and Preston, in that the arbitration provisions
sought to be enforced in those cases were contained in contracts unrelated
to arbitration—contracts for consulting services, see Prima Paint, supra, at
397, 87 S. Ct. 1801, check-cashing services, see Buckeye, supra, at 442, 126
S. Ct. 1204, and “personal management” or “talent agent” services, see
Preston [v. Ferrer], [552 U.S.346,] 352, 128 S. Ct. 978 [(2008)]. In this
case, the underlying contract is itself an arbitration agreement. But that
makes no difference. Application of the severability rule does not depend
on the substance of the remainder of the contract. Section 2 operates on the
specific “written provision” to “settle by arbitration a controversy” that the
party seeks to enforce. Accordingly, unless Jackson challenged the
delegation provision specifically, we must treat it as valid under § 2, and
must enforce it under §§ 3 and 4, leaving any challenge to the validity of
the Agreement as a whole for the arbitrator.
Id. (footnote and other internal citations omitted).
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Shortly after the United States Supreme Court’s decision in Rent-A-Ctr., W., Inc.,
the Court issued its opinion in Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287,
299 (2010), emphasizing that “[a]rbitration is strictly ‘a matter of consent’ and thus ‘is a
way to resolve those disputes—but only those disputes—that the parties have agreed to
submit to arbitration’ (internal citations omitted).” The Supreme Court clarified the
holding in its previous opinions as follows:
[O]ur precedents hold that courts should order arbitration of a dispute only
where the court is satisfied that neither the formation of the parties’
arbitration agreement nor (absent a valid provision specifically committing
such disputes to an arbitrator) its enforceability or applicability to the
dispute is in issue. Where a party contests either or both matters, “the
court” must resolve the disagreement.
Id. at 299-300 (internal citations omitted).
In the present case, the contract consisted of a timeshare agreement, which
contained a “Mandatory Arbitration” clause at paragraph 38 of the Contract. Paragraph
38 of the Contract reads as follows:
38. Mandatory Arbitration. In the event of any bona fide dispute,
claim, question, or disagreement arising from or relating to this Agreement
in any manner or the breach thereof, the parties hereto shall use their best
efforts to amicably settle the dispute, claim, question or disagreement. To
this effect, and prior to filing a lawsuit or lodging any complaint with a
governmental or non-governmental agency or other third party, the parties
shall participate in at least (3) hours of mandatory mediation in Clearwater,
FL, or such other location as may be mutually agreed upon by the parties,
before a mediator mutually agreed upon by the parties, during which they
shall consult and negotiate with each other in good faith and, recognizing
their mutual interests, attempt to reach a just and equitable solution
reasonably satisfactory to both parties. Each party shall bear its own costs,
except that the costs of the mediator shall be split equally between the
parties. Any complaints or litigation initiated by a party hereto without first
participating in mandatory mediation shall be subject to immediate
withdrawal and/or dismissal and the party initiating same shall be
responsible to pay all attorney costs, fees and expenses of the other party in
obtaining such withdrawal and/or dismissal. If the parties do not reach a
mutually agreeable solution to the dispute at mediation, then, upon notice
by either party to the other, all disputes, claims, questions or differences
shall be finally settled by binding arbitration administered by the American
- 10 -
Arbitration Association (“AAA”) in accordance with its commercial
arbitration rules, including the optional rules for emergency measures of
protection, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Disputes under this clause
shall be resolved by arbitration in accordance with Title 9 of the US Code
(United States Arbitration Act) and the Commercial Arbitration Rules of
the American Arbitration Association. In addition to the foregoing,
PURCHASER EXPRESSLY WAIVES ANY RIGHT OR AUTHORITY
TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS
MEMBER ON ANY CLASS CLAIM OR ACTION, INCLUDING ANY
RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF
INDIVIDUAL ARBITRATIONS. Arbitrators shall be appointed as
provided in the AAA Commercial Arbitration Rules. The arbitration shall
be conducted in Atlanta, Georgia. Face-to-face proceedings should be
conducted at a location which is reasonably convenient to both parties with
due consideration of their ability to travel and other pertinent
circumstances. If the parties are unable to agree on a location, the
determination should be made by the arbitrator(s). The arbitrator(s) may
grant any remedy or relief that the arbitrator(s) deems just and equitable
within the scope of this Agreement. The arbitrator(s) will have no authority
to award punitive or other damages not measured by the prevailing party’s
actual damages, except as may be required by statute. Each party shall bear
its own costs and expenses and an equal share of the arbitrators’ and
administrative fees of arbitration. Except as may be required by law,
neither a party nor an arbitrator may disclose the existence, content or
results of any arbitration hereunder without the prior written consent of
both parties. Within thirty (30) days of receipt of any award (which shall
not be binding if an appeal is taken), any party may notify the AAA of an
intention to appeal to a second arbitral tribunal, constituted in the same
manner as the initial tribunal. The appeal tribunal shall be entitled to adopt
the initial award as its own, modify the initial award or substitute its own
award for the initial award. The appeal tribunal shall not modify or replace
the initial award except for manifest disregard of law or facts. The award
of the appeal tribunal shall be final and binding, and judgment may be
entered by a court having jurisdiction thereof.
(Emphasis added.)
In her amended complaint, Plaintiff alleged that Defendants made fraudulent
representations to Plaintiff to induce her into signing the Contract and that “[t]hese
representations specifically induced Plaintiff to enter into the ‘Mandatory Arbitration’
clause at paragraph 38 of the Contract.” Defendants argue that paragraph 38 of the
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Contract contains a “delegation clause” requiring the parties to submit the issue of
arbitrability to an arbitrator and that that provision is unchallenged by Plaintiff.
Concerning the delegation provision, the Contract reads: “Disputes under this
clause shall be resolved by arbitration in accordance with Title 9 of the US Code (United
States Arbitration Act) and the Commercial Arbitration Rules of the American
Arbitration Association.” The very delegation clause itself refers to paragraph 38 as “this
clause.” We note that this “delegation clause” is buried within a long paragraph
containing the remainder of the arbitration agreement. Although it is incredibly unclear
that this clause is an agreement to delegate arbitrability issues to an arbitrator, we
recognize that the parties’ adoption of the AAA Rules in a contract can provide proof that
the parties agreed to arbitrate the issue of arbitrability. See Reunion W. Dev. Partners,
LLLP v. Guimaraes, 221 So. 3d 1278, 1280 (Fla. Dist. Ct. App. 2017). Although the
mandatory arbitration agreement adopts the AAA Rules, which provide for arbitration of
the issue of arbitrability, we find no proof in the record that Plaintiff was provided with a
copy of these rules. Plaintiff ostensibly was expected to know that the incorporation of
the AAA Rules, without being provided a copy thereof, required her to submit the
threshold issue of arbitrability to an arbitrator.
Despite being much less than a model of clarity as to its being a delegation clause,
we will treat the clause at issue as a delegation clause. Pursuant to Prima Paint Corp.
and Rent-A-Ctr., W., Inc., Plaintiff was required to challenge not only the arbitration
agreement provision within the contract but also the delegation clause. Because a party
must consent to the arbitration agreement, including the delegation provision, the court
must resolve the disagreement if a party contests the formation of the arbitration
agreement and the delegation provision. Granite Rock Co., 561 U.S. at 299-300. Upon
an examination of the Contract, both the arbitration agreement and delegation clause are
included in paragraph 38 of the Contract. We note upon reviewing the Contract that
Defendants essentially have buried the so-called delegation clause within paragraph 38
which is “Mandatory Arbitration.” Plaintiff alleged in her amended complaint that
Defendants’ actions and misrepresentations “induced Plaintiff to enter into the
‘Mandatory Arbitration’ clause at paragraph 38 of the Contract.” Upon a review of the
record, we determine that Plaintiff’s challenge of paragraph 38 of the Contract, combined
with the location of the delegation clause being buried within paragraph 38, is sufficient
to challenge not only the mandatory arbitration agreement but also the delegation clause.
Plaintiff alleged that misrepresentations by the Defendants induced her to agree to
paragraph 38 of the Contract. The delegation clause is contained in and a part of
paragraph 38. The very delegation clause itself refers to paragraph 38 as “this clause.”
Defendants chose to head the entirety of paragraph 38 “Mandatory Arbitration” and
cannot now fault Plaintiff for using the terminology and location of the delegation clause
chosen by Defendants.
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Defendants cite to the United States Supreme Court case of Henry Schein, Inc. v.
Archer & White Sales, Inc., 139 S. Ct. 524 (2019), for the proposition that delegation
clauses are valid and enforceable. That is not in dispute in this appeal. In that opinion,
the Court states that “[w]hen the parties’ contract delegates the arbitrability question to an
arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Id.
at 531. The Supreme Court continues that a court must respect that agreement “even if
the court thinks that the argument that the arbitration agreement applies to a particular
dispute is wholly groundless.” Id. at 529. We, as we must, accept the Court’s holding
that delegation clauses in a contract are enforceable and the court must respect the party’s
agreement. However, the Court in that case also pointed out that “before referring a
dispute to an arbitrator, the court determines whether a valid arbitration agreement exists”
and that “if a valid agreement exists, and if the agreement delegates the arbitrability issue
to an arbitrator, a court may not decide the arbitrability issue.” Although parties to a
contract can delegate the authority to determine arbitrability issues to an arbitrator,
Plaintiff in the present case has sufficiently challenged the validity of the delegation
agreement itself, and according to Henry Schein, Inc., the court is tasked with first
determining the validity of the delegation provision of the Contract. If the Court
determines that the delegation provision is not valid as challenged by the Plaintiff, the
Court then must proceed to determine the validity of the arbitration provision as
challenged by Plaintiff.
Defendants also cite to the United States Supreme Court’s case of Rent-A-Ctr., W.,
Inc. arguing that Plaintiff had to specifically state in her complaint that she was
challenging the delegation clause itself, separate from the allegations concerning the
arbitration agreement. We find that Rent-A-Ctr., W., Inc. is distinguishable from the
present case. The contract in Rent-A-Ctr., W., Inc. consisted of a stand-alone arbitration
agreement. Rent-A-Ctr., W., Inc., 561 U.S. at 71-72. In Rent-A-Ctr., W., Inc., the parties’
stand-alone arbitration agreement contained multiple provisions within the arbitration
agreement that the parties would settle controversies between the parties by arbitration.
Id. at 68. One section in the contract was titled, “Claims Covered by the Agreement,”
which provided that all disputes concerning the plaintiff’s employment with the company
would be resolved by arbitration. Id. Another section was titled, “Arbitration
Procedures,” and provided that the arbitrator had the authority to determine any dispute
concerning the enforceability of the arbitration agreement. Id. The defendant in Rent-A-
Ctr., W., Inc. was seeking to enforce the latter section by requiring the arbitrator to
determine whether the arbitration agreement was valid. Id. In Rent-A-Ctr., W., Inc., the
district court concluded, and the appellate court affirmed, that the plaintiff had challenged
only the contract as a whole and had not challenged the delegation provision within the
contract. Id. at 71-72.
Unlike Rent-A-Ctr., W., Inc., Defendants in this case placed the delegation
provision within a long single paragraph 38, referred to as “this clause,” containing the
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arbitration agreement including the delegation clause, which Plaintiff then challenged the
validity thereof by alleging that she had been fraudulently induced into entering.
Defendants choose to bury the delegation clause in paragraph 38 concerning the
arbitration agreement, and they must deal with the repercussions of their action. As the
United States Supreme Court held in Granite Rock Co., a party to a contract must consent
to the arbitration agreement. This reasoning also applies to the delegation provision in
the Contract. Plaintiff’s amended complaint properly challenged both the arbitration
agreement and the delegation provision, both of which are contained in paragraph 38 of
the Contract.
We further disagree with Defendants’ argument that the facts in the amended
petition did not support a claim of fraudulent inducement of either the arbitration
provision or the delegation clause. Plaintiff included in her complaint allegations that she
was attempting to sell her timeshare due to financial concerns but that she was
fraudulently induced into entering into the Contract and the “‘Mandatory Arbitration’
clause at paragraph 38 of the Contract.” According to Plaintiff, Defendants’ agent made
specific false representations to Plaintiff concerning the sale of the timeshare and the
contents of the voluminous paperwork she was provided. Plaintiff further alleged that
due to the agent’s misrepresentation, among others, that time was of the essence, she was
not provided time to properly read the paperwork prior to signing. We find and hold that
Plaintiff’s allegations in the amended complaint were sufficient to challenge the validity
of the arbitration agreement and the delegation clause of the Contract on the basis of
fraudulent inducement.
Although Defendants argue that the delegation provision was unchallenged and
that Plaintiff’s complaint was insufficient to support a claim of fraudulent inducement as
to the delegation clause, we find and hold, as did the Trial Court, that Plaintiff
sufficiently pled in her amended complaint fraudulent inducement not only as to the
entire Contract, but also the mandatory arbitration clause and the delegation clause. As
such, the Trial Court did not err by denying Defendants’ motion to dismiss and to compel
arbitration and mediation.
Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the
Trial Court for further proceedings consistent with this Opinion and for collection of the
costs below. The costs on appeal are assessed against the appellants, Capital Resorts
Group, LLC, and Capital Resorts Management, LLC, and their surety, if any.
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_________________________________
D. MICHAEL SWINEY, CHIEF
JUDGE
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