Law360 (June 1, 2021, 9:12 PM EDT) -- A California federal judge has sent to arbitration a suit challenging Airbnb's purported failure to properly repay hosts and guests for canceled bookings during the COVID-19 pandemic, pausing rather than dismissing court proceedings in case the home-sharing platform is found to have wrongly withheld funds.
U.S. District Judge Jon S. Tigar's Tuesday order granted Airbnb Inc.'s motion to compel arbitration in lead plaintiff Anthony Farmer's proposed class action, finding that the company didn't violate a section of the California Code of Civil Procedure by failing to timely pay a $1,500 arbitrator compensation fee due to the American Arbitration Association.
Judge Tigar said Farmer himself had initiated arbitration of his claims with the AAA but then later tried to pull out of the proceedings by claiming Airbnb didn't pay the $1,500 fee within 30 days of its due date.
However, Judge Tigar said, the AAA previously ruled that Farmer's notice of withdrawal from arbitration was void and had no effect. And, the judge said, another court in his district has already held that under the California Code section in dispute, Section 1281.97, parties' delegation of arbitrability requires that the question should be decided by the arbitrator.
"Farmer does not dispute that the arbitration agreement in this case delegated questions of arbitrability, including enforcement of the agreement, to the arbitrator," Judge Tigar wrote. "He nonetheless contends that the court should consider in the first instance whether Airbnb has complied with the requirements of Section 1281.97. The court disagrees."
Ben Breit, a spokesman for Airbnb, said in a statement Tuesday, "Airbnb has always been confident that this matter belongs in arbitration, and the court agreed with Airbnb that the arbitrator should decide that procedural issue."
Counsel for Farmer did not immediately respond Tuesday to a request for comment.
As for his order staying the case, Judge Tigar said Farmer asserts that his request for a public injunction is not arbitrable and the parties haven't yet briefed the question.
"This order shall not be considered a dismissal or disposition of this action against any party," the judge wrote. "If further proceedings become necessary, any party may initiate them in the same manner as if this case had not been administratively closed."
Airbnb Inc. and its payments arm argued in their Jan. 21 bid to compel arbitration and dismiss Farmer's suit that the former Texas-based host signed terms of service documents that governed his contractual relationship with the company and effectively assented to the TOS arbitration provisions.
Farmer last summer had already sought the currently pending arbitration against Airbnb before the AAA, seeking $1,000 in compensatory damages, according to Airbnb. But after Airbnb answered his arbitration demand and paid a total of $3,200 to the AAA for filing and arbitrator compensation fees, the company said Farmer improperly attempted to withdraw his claims from arbitration so he could pursue his lawsuit.
"Assent is unquestionably established here," Airbnb said. "Plaintiff admits that he was required under the TOS to arbitrate his claims, and he in fact initially filed a demand in arbitration, thereby conceding that he assented to the TOS and the arbitration agreements contained therein."
Farmer filed suit in federal court on Nov. 5, saying the action's amount in controversy exceeds $5 million, as there are more than 100 members in the proposed class. He claims that he is "one of the hundreds of thousands of hosts" shortchanged by Airbnb when the pandemic hit. Farmer seeks a court-ordered injunction to compel Airbnb to make a full accounting to hosts and pay them what the company has allegedly promised.
When the coronavirus hit U.S. shores last year, Airbnb told guests they could cancel their reservations for a full refund and no cancellation fees, the suit said. The company then passed on the cost to hosts, according to the suit, by saying it was establishing a $250 million fund to help refund them for canceled bookings but actually paying them with their own money as it attempted to burnish its reputation ahead of an initial public offering.
"Airbnb is planning an IPO for later in the year and needed the positive press," Farmer's suit said. "But that press came at the expense of hosts, who had negotiated their own cancellation policies with guests and were hurt as much as anyone by the pandemic's sudden impact on travel."
On Dec. 1, Airbnb launched an IPO, telling regulators that it planned to offer 51.9 million shares at between $44 and $50, raising $2.4 billion at midpoint and valuing the company at more than $30 billion. Based on that projection, Airbnb's offering would be among the largest U.S. IPOs in 2020 by an operating company.
Behind the scenes, according to Farmer's suit, Airbnb did not issue full refunds to guests as it had promised. Instead, the company rejected many guests' refund requests, issued some partial refunds and forced others to accept travel credits that expire in 2021, the suit said.
"Airbnb then kept the remaining funds for itself — ignoring its fiduciary and contractual obligations to remit any such money to hosts," according to Farmer's suit.
An Airbnb spokesperson on Jan. 22 told Law360 that the company stood by a statement it made when Farmer filed suit, saying that when the World Health Organization declared COVID-19 as a pandemic, the company decided to activate its longstanding extenuating circumstances policy and provide full refunds to eligible guests.
According to Airbnb, extenuating circumstances under the policy and the terms of service supersede hosts' cancellation policies, and include "unexpected serious illness," "travel restrictions imposed by a government" and "epidemic disease or illness."
"Public health and safety comes first," Airbnb said in the statement. "While we know [the extenuating circumstances policy] had a significant impact on bookings and revenue for our host community, we still believe firmly that it was the right thing to do. The allegations in this complaint are completely frivolous and without merit."
Farmer is represented by Michael L. Schrag, Geoffrey A. Munroe and Joshua J. Bloomfield of Gibbs Law Group LLP and Enrico Schaefer and Adrianos Facchetti of Traverse Legal PLC.
Airbnb is represented by Jonathan H. Blavin and Hailyn J. Chen of Munger Tolles & Olson LLP.
The case is Farmer v. Airbnb Inc. et al., case number 4:20-cv-07842, in the U.S. District Court for the Northern District of California.
--Additional reporting by Tom Zanki. Editing by Michael Watanabe.
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