Smith Duggan Prevails in Significant Federal Court Case Involving COVID-19 Tour Cancellation
In a case of great significance for tour operators with trips scheduled during the COVID-19 pandemic, the Smith Duggan Travel Group, Rodney E. Gould, Melissa B. Paradis and Robert C. Mueller, secured a major victory for their client – Thomas P. Gohagan & Company – from the U.S. District Court for the Northern District of California in the form of an order granting their client’s motion to compel arbitration.
In 2019, the plaintiff – a California resident and nationally-recognized class action attorney – purchased a deluxe European cruise from Thomas P. Gohagan & Company (“Gohagan”), an Illinois-based travel company.
In May 2020, the plaintiff brought a putative class action in San Francisco federal court against Gohagan, asserting various claims all predicated upon a purported failure to refund monies to tour participants. He alleged that Gohagan cancelled the cruise in March 2020 because of the COVID-19 pandemic, and then offered him travel credits instead of a cash refund.
As part of the travel reservation process, the plaintiff was required to complete a reservation form which provided for binding arbitration in Chicago, Illinois in the event a dispute of any kind arose between the parties. Based upon the binding arbitration provision agreed to by the plaintiff, Gohagan filed a motion to compel arbitration of the dispute. The plaintiff opposed the motion, arguing that the contract and arbitration provision are procedurally and substantively unconscionable.
On August 4, 2020, the Court ruled in favor of Gohagan and granted the motion to compel arbitration. The Court found that Gohagan had presented undisputed evidence that the plaintiff had signed the agreement containing the arbitration provision. More importantly, the Court also found that the arbitration provision contains a valid and enforceable delegation clause giving an arbitrator (and not the Court) the power to determine whether the contract or arbitration provision are unconscionable and unenforceable.
Finally, the Court found that requiring a Chicago forum for the arbitration – be it for arbitrating arbitrability or for arbitrating the underlying merits of the plaintiff’s claim – served Gohagan’s legitimate purpose of consolidating disputes in a single forum.
This case and decision serve to highlight the critical importance of a well-drafted arbitration clause for those located in venues where juries generally are perceived to be hostile to corporate defendants.