By Irene Parker, MBA

The Eleventh Circuit Court of Appeals issued their opinion in ADAM U. STEINES; MIRANDA L. STEINES v. WESTGATE RESORTS, et. al. Case 6:22-cv-00629-RBD-DAB on September 5, 2024, upholding the lower Florida District Court’s ruling that military timeshare buyers are “covered borrowers” under the Military Lending act (MLA).  Oral Arguments took place on April 18, 2024. Consumer protection law firms involved in the case  included Varnell & Warwick, Rothburd, Jeeves Mandel Law Group and appellate counsel Gupta Wessler.   

This ruling affirms Judge Roy B. Dalton Jr.'s order in the Middle District of Florida, denying Greenspoon Marder's motion to compel active duty servicemembers to arbitrate their MLA claim against Westgate. Westgate must now respond to the timeshare owners' second amended complaint and to a prospective motion to certify class.

According to the lawsuit: Credit agreements that violate the MLA are void from their inception pursuant to statute. This lawsuit seeks injunctive relief to void the credit agreements of Plaintiffs and the Class, as well as restitution damages to recover the money paid to Westgate by Plaintiffs and the Class, and other actual damages caused to Plaintiffs and the Class by Westgate’s violations of the MLA.

The lawsuit, filed on February 2, 2022, accused Westgate of violating the Military Lending Act. A core issue was whether a timeshare stay is more like a residential stay or a transient stay because residential mortgages are exempt from the MLA. Of utmost importance, the MLA prohibits arbitration, arguably biased against the consumer. 

PUBLIC CITIZEN  details reasons why arbitration is unfair to consumers and discriminatory:   

In addition to the denial of consumers’ and employees’ rights to seek remedies in court, arbitration between two parties with unequal bargaining power is too often a discriminatory and one-sided process, benefiting the corporations mandating it.

https://www.citizen.org/article/mandatory-arbitration-clauses-are-discriminatory-and-unfair/

I attended oral arguments at the Florida District Court. Judge Dalton’s comments included, “When I check out of a timeshare, I can’t leave my underwear and toothpaste,” meaning a timeshare stay is more like a hotel stay than a residential stay. Carl Staples and Taya Fissix attended oral arguments with me at the Eleventh Circuit Court of Appeals in Atlanta, GA. Taya served 11 years with the Army National Guard and currently serves in the Army. Taya is disputing a Wyndham contract. Carl is a former Westgate owner.      

The Florida district court had jurisdiction over the question of whether the MLA supersedes the Federal Arbitration Act (FAA), overriding the delegation clause in Westgate's arbitration agreement. Referencing the FAA, Westgate argued that the arbitrator and not the court should decide if the case should be compelled to arbitration. The appellate court correctly found that the MLA did supersede the FAA. 

The bottom line: A timeshare loan is not a "residential mortgage" loan.

From the September 5th Opinion of the Eleventh Circuit Court of Appeals

"[T]he text of the MLA unambiguously establishes Congress’s intent to override the FAA and make unlawful any agreement to arbitrate, including the delegation clause. Finally, we agree with the district court that the MLA applies in this case because the timeshares are more like transient lodgings -- like hotel rooms -- than dwellings, and thus do not fall into the MLA’s exception for 'residential mortgages.'”

The Steines lawsuit was filed on February 2, 2022. As of February 1, 2022. Westgate owners cannot access their World of Westgate (WOW) benefits without agreeing to arbitration. https://www.westgateresorts.com/loyalty/terms-conditions/#arbitration

The courts ruled against BB&T for adding an arbitration clause after-the-fact.

Related pending Varnell & Warwick Military Lending Act cases: 

Angelique Lingard et al. v Holiday Inn Club Vacation fka Orange Lake. Middle District of Florida, Case No. 6:23-cv-323-PGB-RMN Judge Sneed - pending ruling on motion to recon order denying 12b6 motion - Stearns Weaver on Defense.

Heather Huskey et al v Travel & Leisure, Wyndham, Florida Middle District, Case No. 6:23-cv-601 Judge Mendoza - stayed at pleadings stage pending the Steines ruling - Carlton Fields on defense. 

Excerpts from Florida District Judge Roy B, Dalton Jr’s District Court’s order: 

On the one hand, Defendants’ Arbitration Addendum contains an express delegation provision that commits to an arbitrator the threshold determination of whether the agreement to arbitrate is enforceable. This delegation provision divests the court of jurisdiction to review any challenge other than to that provision. On the other hand, if the MLA applies, it would render the delegation provision in Defendants’ Arbitration Addendum void ab initio and unenforceable. 

The central issue here is whether Plaintiffs’ timeshare loans constitute “a residential mortgage” exempt from the MLA’s coverage. The Department of Defense (“DOD”) defines a residential mortgage as “any credit transaction secured by an interest in a dwelling[.]”2 See 32 C.F.R. § 232.3(f)(2)(i). 

Timeshare loans are repeatedly reported to credit reportng agencies as a mortgate loan, despite the words of Fannie Mae and the NCUA

FNMA: A timeshare account should be treated as an installment debt regardless of how it is reported on the credit report or other documentation (that is, even if reported as a mortgage loan). https://selling-guide.fanniemae.com/

The National Credit Union Administration doesn’t define a timeshare as a residential mortgage if a military buyer. 

Complying with Recent Changes to the Military Lending Act Regulation

(NCUA) What consumer credit is not covered? The Final Rule does not apply to five categories of transactions (including): 

A residential mortgage transaction, which is any credit transaction secured by an interest in a dwelling;11 

“11 A dwelling-secured transaction includes a transaction to finance a dwelling’s purchase or initial construction; a refinance transaction; a home equity loan or line of credit; and a reverse mortgage. It does not include a timeshare interest.”

In support of the Steines Military Plaintiffs, an AMICUS CURIAE was filed in SUPPORT OF PLAINTIFFS-APPELLEES Steines AND AFFIRMANCE by the CONSTITUTIONAL ACCOUNTABILITY CENTER 

The Constitutional Accountability Center is a think tank and public interest law firm dedicated to fulfilling the progressive promise of the Constitution’s text.

Westgate also argued that an arbitrator—not a court—should decide the initial question of whether the MLA applies. ECF No. 37, at 9. The court below rejected both arguments and ruled in the Steines’ favor. See J.A. 235-73. 

Westgate appealed. Westgate now argues that the district court should have compelled arbitration because of the Delegation Clause in the parties’ agreement. 

Congress passed the MLA in response to concerns that servicemembers were being forced to arbitrate with lenders at all, not that they were being forced to arbitrate the merits of certain claims. Lawmakers were especially concerned that military borrowers were burdened by the expense, travel, and inconvenience involved in participating in mandatory arbitration.

In sum, the MLA plainly overrides the FAA (Federal Arbitration Act). It prohibits arbitration of disputes that arise in connection with the extension of consumer credit to military borrowers. Notwithstanding this plain language, Westgate argues that it can still force the Steines to arbitrate the question of arbitrability. This is wrong.

Louis vs Bluegreen CASE NO. 21-CV-61938-RAR

The Eleventh Circuit Court of Appeals in Jacksonville, Florida held oral arguments in the MLA case of Louis v. Bluegreen on October 7, 2023. Those arguments were about whether the military plaintiffs suffered actual damages, but this case did not address the bigger issue, which is whether timeshare loans are exempt from the MLA. The Appellate Court upheld Bluegreen’s argument that plaintiffs did not suffer actual damages. This ruling seemed at odds with a security clearance in jeopardy, a down payment paid, and other aspects of the transaction. 

The following organizations filed Amicus Briefs in Support of Military Timeshare Buyers in Louis vs. Bluegreen: 

The Consumer Financial Protection Bureau and the Federal Trade Commission

THE MILITARY OFFICERS ASSOCIATION OF AMERICA, (“MOAA”) is the nation’s largest and most influential association of military officers. It is an independent, nonprofit, politically nonpartisan organization.

THE JEWISH WAR VETERANS OF THE UNITED STATES OF AMERICA, is the oldest active national veterans’ service organization in America. Incorporated in 1924 and chartered by an act of Congress in 1983.

THE BLUE STAR FAMILIES, Inc. was founded in 2009 by military spouses to strengthen and empower military and Veteran families to thrive as they serve. 

JACKSONVILLE AREA LEGAL AID, Inc. (“JALA”) serves an area with multiple military bases, and it frequently represents people in military lending cases that are referred to JALA by the U.S. Navy Judge Advocate General and others. 

THE UNITED STATES ARMY WARRANT OFFICERS ASSOCIATION is a veterans service organization that was incorporated as a nonprofit organization in 1974 devoted to the welfare of army warrant officers—serving, former, and retired—and their families.

THE NATIONAL MILITARY FAMILY ASSOCIATION is a nonprofit organization founded in 1969. It is a voice for military families representing all ranks and services. 

THE FIVE STAR VETERANS CENTER is a nonprofit that provides combat veterans the services and support they need to succeed in civilian life. Indebtedness can exacerbate many of the hardships veterans face, including mental health issues and housing insecurity.

Reasons why we at TARDA feel timeshare marketing, sales and lending practices are unfair and harmful, especially for military buyers, and why a timeshare security agreement should not be categorized as a residential mortgage: 

  • There is no resale value if a timeshare is encumbered with a loan and typically little to no resale, even if fully paid for. Deployments create a risk if the timeshare is unmarketable. A default can place a security clearance in jeopardy,
  • The timeshare product is financed at 12% to 19.99%, The Servicemembers Civil Relief Act (SCRA) caps loans at 6% for high interest rate loans, if funds are borrowed before entering service. There have been lawsuits filed concerning this,
  • Banks will not finance or refinance timeshares,
  • Sales and marketing for timeshares can be 50% or more of the purchase price (free gifts are not free).   
  • It is demanded that the timeshare be purchased the day of the presentation, after an hours-long sales session. 
  • Existing members are often told what they will be attending is NOT a sales presentation, when it is,
  • A recorded closing is used to dismiss complaints, but the buyer is not allowed to record the sales session. There have been many reports of being coached on what to say or not say on the recording. 
  • The oral representation clause, a disclosure that the buyer should not rely on claims made by sales agents, is buried in electronic fine print rather than disclosed at or prior to the sales presentation, 
  • Contract documents are provided on tablets that often do not work, or on a flash drive that often does not contain the appropriate documents. It is unlikely the buyer will be able to obtain a hard copy of the documents while on vacation. 
  • Typically, the buyer does not have access to the booking site until after the rescission period, so they have no way to confirm promised locations,     
  • Predators seek out timeshare buyers desperate for release, 
  • The FTC listed Timeshare Sales at #9 on the Top Ten Scam list in 2020, and Timeshare Resales at #10.

Related articles:

The Timeshare Law Library, Inc., a California Benefit Corporation https://timesharelawlibrary.com/

Timeshare: Credit Score Downgrades and Credit Repair

https://tarda.org/imeshare-credit-score-downgrades-and-credit-repair

Wyndham: Three judges in three states denied Wyndham’s motion to have the court appoint a special arbitration after failing to pay AAA arbitration fees. Two cases settled. Wyndham appealed the third and lost their appeal on December 23, 2023.

https://tarda.org/arbitration-ruling-upheld-by-the-11th-circuit-court-of-appeals

The Finn Law Group settled with Bluegreen in 2015, challenging the term foreclosure.  

https://www.benzinga.com/pressreleases/15/12/b6069709/finn-law-group-settles-consumer-class-action-lawsuit-against-bluegreen-