Hammond v. United States Fire Ins. Co. (Del.)

LYNN K. HAMMOND, et al., Plaintiffs, v. UNITED STATES FIRE INSURANCE COMPANY (DELAWARE), et al., Defendants.

Civil Action No. 4:22-CV-2004

United States District Court, S.D. Texas, Houston Division

February 21, 2023

MEMORANDUM OPINION AND ORDER

GEORGE C. HANKS, JR. UNITED STATES DISTRICT JUDGE

Before the Court is Defendant Vantage Travel Service, Inc.'s (“Vantage”) motion to compel arbitration and to stay or dismiss this case. Vantage's motion (Dkt. 5) is DENIED.

FACTUAL AND PROCEDURAL BACKGROUND

Vantage sells luxury cruises and tours. When a customer books a trip with Vantage, Vantage provides that customer with a “Tour Participation Agreement,” or “TPA.” (Dkt. 5-3 at p. 3). The TPA opens with the following paragraph:

General Terms and Conditions

The terms and conditions contained in this Tour Participation Agreement (the “Agreement") govern the relationship between you (the "traveler") and Vantage Travel Service, Inc d/b/a Vantage Deluxe World Travel and Vantage Adventures (hereinafter "Vantage"). By reserving a trip, you agree to be bound by the terms of this Agreement

Dkt. 5-2 at p. 7.

Just below the opening paragraph, the TPA recommends that the customer purchase a Travel Protection Plan (“TPP”) from Vantage to insure the cost of the trip:

FOR YOUR BENEFIT, WE STRONGLY RECOMMEND THAT YOU PURCHASE TRAVEL PROTECTION. PLEASE SEE A BRIEF DESCRIPTION OF THE VANTAGE TRAVEL PROTECTION PLAN COVERAGE ON PAGE 4 OF THIS AGREEMENT. FOR DETAILS ON CONDITIONS AND LIMITATIONS, VISIT OUR WEBSITE AT WWW.VANTAG ETRAVE LXOM/TPP OR ASK OUR RESERVATIONS SPECIALISTS OR CUSTOMER SERVICE REPRESENTATIVES WHEN YOU CALL.

Dkt. 5-2 at p. 7.

As mentioned at the beginning of the TPA, page 4 of the TPA contains a short explanation of the TPP. By way of illustration, one of the paragraphs comprising that explanation reads:

If you must cancel your Vantage trip prior to departure

If you purchase Vantage's Full-Value Travel Protection Plan and must cancel your trip before your scheduled departure date for 1) a covered reason under the Trip Cancellation Benefit, you will be reimbursed for the unused non-refundable prepaid expenses for travel arrangements; or 2) for any reason under the Cancel for Any Reason Waiver, you will receive a Vantage Travel Certificate for the cancellation fee amount (the balance of the refund, if applicable, will be made either by check or credit card credit). Cancel for any reason and your trip is covered by cash or travel credits.

Dkt. 5-2 at p. 10.

The TPA then directs the customer to the website of the TPP administrator, Defendant Trip Mate, Inc. (“Trip Mate”), for more details about the TPP:

This is only a brief description of the plan. For complete details, you should review the Travel Protection Plan at www.tripmate.com and enter plan number F427V. Please Note This section does not constitute or form any part of the Travel Protection Plan.

The Travel Insurance Benefits of this plan (and for New York residents only, the Travel Arrangement Protection Benefits) are underwritten by United States Fire Insurance Company, 5 Christopher Way, Eatontown, N.J. 07724. All inquiries and claims should be reported to the Plan Administrator: Trip Mate, Inc (In CA, dba Trip Mate Insurance Agency), 9225 Ward Parkway, Suite 200, Kansas City, MO 64114, 1-800-888-7292.

Dkt. 5-2 at p. 10.

The TPA also contains the following arbitration clause:

BINDING ARBITRATION: I agree that any dispute concerning, relating or referring to this Agreement the brochure or any other literature concerning my trip, or the trip itself, shall be resolved exclusively by binding arbitration pursuant to the Federal Arbitration Act 9 U.S.C §§1-16, either according to the then existing Commercial Rules of the American Arbitration Association (AAA) or pursuant to the Comprehensive Arbitration Rules & Procedures of the Judicial Arbitration and Mediation Services Inc. (JAMS). Such proceedings will be governed by substantive (but not procedural) Massachusetts law. The arbitrator and not any federal, state, or local court or agency shall have exclusive authority to resolve any dispute relating to the interpretation, applicability enforceability, conscionability, or formation of this contract including but not limited to any claim that all or any part of this contract is void or voidable.

Dkt. 5-2 at p. 9.

This lawsuit arises out of a failed attempt by Plaintiffs, Lynn Hammond (“Hammond”) and David Horn (“Horn”), to book a trip to Egypt on Vantage's m/s NEBU vessel. According to their live pleading, Plaintiffs booked the trip and paid Vantage the full purchase price (nearly $20,000, though they received a $2,000 refund as part of a magazine promotion) for it. (Dkt. 1-4 at pp. 2-3). To insure the cost of the trip, Plaintiffs also purchased a TPP from Vantage. (Dkt. 1-4 at p. 3). Plaintiffs allege that they initially scheduled their trip for April of 2020. (Dkt. 1-4 at p. 2).

Because of construction delays, Vantage rescheduled the trip twice, first to September of 2020 and then to 2021. (Dkt. 1-4 at p. 3). Unfortunately, Horn was diagnosed with Chronic Obstructive Pulmonary Disease (“COPD”) in late 2020; and his pulmonologist “advised [him] to substantially limit travel, avoid lengthy air travel, and avoid large groups and unhealthy air environments.” (Dkt. 1-4 at p. 3). After receiving his pulmonologist's advice, Horn decided “to cancel Plaintiffs' reservation and seek a refund of travel costs under their [TPP].” (Dkt. 1-4 at p. 3).

Plaintiffs allege that their “[TPP] (Plan #F427V) guaranteed Plaintiffs a refund of the nonrefundable portion of the cost of the trip” and that Horn's “diagnosis of COPD certainly constitutes a life-long and incurable sickness entitling Plaintiffs to a full refund under the [TPP].” (Dkt. 1-4 at pp. 3-4). Plaintiffs further allege that they submitted a “detailed Trip Mate Claim Form” and “documentary proof from Mr. Horn's pulmonologist” to Vantage and Trip Mate over the course of many requests for a refund under the TPP. (Dkt. 1-4 at p. 4). Vantage offered “a refund in future travel credit, not cash[,]” and Plaintiffs rejected the offer as “contrary to the terms of their [TPP.]” (Dkt. 14 at p. 4).

Plaintiffs retained counsel and sent a demand letter requesting a full cash refund. (Dkt. 1-4 at p. 4). In response, “Defendants informed Plaintiffs that their claims had to be brought before the American Arbitration Association” (“AAA”). (Dkt. 1-4 at p. 5). Plaintiffs attempted to initiate an arbitration with AAA, but they received a letter indicating that AAA was “declin[ing] to administer [Plaintiffs'] claim and any other claims between Vantage Deluxe World Travel and its consumers” because Vantage had not registered its arbitration clause with AAA's Consumer Clause Registry or completed the other steps in AAA's registration process for consumer claims. (Dkt. 1-4 at p. 5; Dkt. 7 at p. 12). The letter noted that, “[a]ccording to R-1(d) of the Consumer Rules, should the AAA decline to administer an arbitration, either party may choose to submit its dispute to the appropriate court for resolution.” (Dkt. 7 at p. 12).

Plaintiffs then sued Vantage and its co-defendants in Texas state court for breach of contract, violations of the Texas Deceptive Trade Practices Act, fraud, fraud in the inducement, negligence, gross negligence, negligence per se, breach of the duty of good faith and fair dealing, and violations of Chapter 541 of the Texas Insurance Code. (Dkt. 14 at pp. 5-9). Defendant United States Fire Insurance Company removed the case to this Court under the diversity jurisdiction statute, 28 U.S.C. § 1332, and Vantage moved to compel arbitration based on the TPA's arbitration clause. (Dkt. 1; Dkt. 5).

LEGAL STANDARDS

In adjudicating a motion to compel arbitration under the Federal Arbitration Act (“FAA”), courts in the Fifth Circuit conduct a two-step inquiry. Webb v. Investacorp Inc., 89 F.3d 252, 257-58 (5th Cir. 1996). The first step is to determine whether the parties agreed to arbitrate the dispute in question, which the Court does by evaluating: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Id. at 258. The second step is to determine “whether legal constraints external to the parties' agreement” foreclose the arbitration of the dispute. Id. For instance, a party may waive its right to enforce a contractual agreement for arbitration when that party is in default in the arbitration proceedings. Folse v. Richard Wolf Medical Instruments Corp., 56 F.3d 603, 606 n.4 (5th Cir. 1995).

When a dispute concerns a maritime contract, federal admiralty law determines whether there is a valid agreement to arbitrate such is the case here.^[1] Jackson v. Royal Caribbean Cruises, Ltd., 389 F.Supp.3d 431, 446 (N.D. Tex. 2019); see also Har-Win, Inc. v. Consolidated Grain & Barge Co., 794 F.2d 985, 986-87 (5th Cir. 1986) (“Because this case concerns the interpretation of maritime contracts, federal admiralty law rather than state law provides the parol evidence rule which must be applied.”); The Moses Taylor, 71 U.S. 411, 425-27 (1866) (“The case presented is clearly one within the admiralty and maritime jurisdiction of the Federal courts. The contract for the transportation of the plaintiff [by steamer on the Pacific Ocean] was a maritime contract.”). “[T]he requisite elements of contract formation in the maritime context are offer, acceptance, and consideration.” Jackson, 389 F.Supp.3d at 446. “The chief consideration when determining the validity of contractual terms-in contracts with or without a nexus to the internet-is whether the party to be bound had reasonable notice of the terms at issue and...