The Power of the Rules of Consumer Arbitration in Timeshare Fraud Disputes

What is Arbitration?

Arbitration is a form of alternative dispute resolution where two or more parties to a dispute conduct discovery, have motion hearings, take depositions of witnesses, and ultimately present their case to a neutral Arbitrator who rules on the case like a judge.

Timeshare Fraud Disputes are Often Subject to Arbitration

If a timeshare developer is operating a business model based on fraudulent and deceptive sales practices, they don't want to resolve disputes with consumers in court, because disputes in court are usually subject to a hearing in front of a jury of the consumer's peers. The timeshare developer anticipates that a jury of a consumer's peers will be sympathetic to that consumer and be appalled at the egregious fraud of the timeshare developer's sales agents. To avoid court, timeshare developers almost always include a clause in their consumer contracts stating that any disputes related to the contract will be subject to arbitration. Avoiding court is a good strategy on the part of the timeshare developer, however there are unintended consequences, which we will get to. For now, here is an example of an arbitration clause pulled from a real timeshare contract:

Organizations that Administer Arbitrations

There are several major organizations that administer arbitrations in the United States. Two that we will consider for our purposes are the American Arbitration Association ("AAA") and Judicial Arbitration and Mediation Services ("JAMS"). I will refer to these types of organizations as "Arbitration Organizations". To start an arbitration, a consumer submits a demand for arbitration to an Arbitration Organization with all the details of the dispute and serves it on the party their dispute is against (the timeshare developer). Then, the Arbitration Organization helps the parties select an arbitrator, collects the arbitrator's fee, schedules hearings, and does any administrative work necessary to conduct an arbitration.

The Rules of Consumer Arbitration

Many Arbitration Organizations have developed specific rules for use in disputes between consumers and businesses which they usually call the consumer rules of arbitration ("Consumer Rules"). This is because Arbitration Organizations recognize that big companies have relatively vast resources compared to consumers. The Consumer Rules are designed to level the playing field. The most important way that they Consumer Rules level the playing field is by limiting the consumer's responsibility for the cost of the arbitration to a small amount, usually around $200 - $300. For example, AAA requires companies (timeshare developers) to pay all but $200 of the cost of the Arbitration. See this snippet from the AAA Consumer Arbitration Factsheet:

JAMS limits the consumer's responsibility for the cost of the arbitration to $250, as shown in a snippet from their consumer rules here:

Why is this Significant?

This is significant because it usually costs at least $10,000 just to conduct the arbitration, and it can cost much more. I have personally handled arbitrations for timeshare fraud disputes that cost over $30,000 to conduct. Keep in mind that the consumer has to pay only $200 of this cost, and the timeshare developer has to pay the balance. That means the timeshare developer is starting $10K-$30K in the hole just for the privilege of getting to show up and defend against an allegation of timeshare fraud.

How Can an Arbitration be so Expensive to Conduct?

The Arbitration Organization's fees can amount to $5K+ alone. But what really runs up a tab are the arbitrator's hourly fees. I have seen arbitrators charge as much as $900 an hour. See this snippet from an arbitrator's resume on how much they charge for their services:

As you can imagine, when the arbitrator is charging $900/hour, the cost of the arbitration can be enormous.

How Does This Help Me?

When a consumer with a viable fraud claim submits a demand for arbitration against a timeshare developer who is subject to this kind of arbitration, they start in a place of immense leverage because the timeshare developer then has to:

• pay their own attorney's $500 - $800+ an hour for countless hours to defend the arbitration;
• pay virtually the entire cost of conducting the arbitration, which is likely tens of thousands of dollars; and
• defend a case against a consumer who is likely in the right and who probably has a good chance of prevailing in the arbitration and winning a monetary award which could be tens or even hundreds of thousands of dollars depending on the circumstances.

The timeshare developer is bleeding money during the arbitration which creates an incentive for them to resolve the case quickly. This gives the consumer leverage in obtaining a favorable result.