| Consumer advocates continue to challenge dealers’ arbitration agreements, with mixed results. From where we sit, dealers (and finance companies) win a lot more of these challenges than they lose, and when they lose, it’s usually because they deserve to lose. Let’s see what this month’s arbitration patrol turned up. | |
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“I Signed What?” Buyers who don’t read the sale documents and who rely on a salesman’s “imperfect” understanding of how arbitration works can’t later claim that they wouldn’t have agreed to arbitration if they had known what they were getting into, at least in Florida. Robert Wilson, Eric Kline, Jami McCoy, and Tara McKay sued Bill Heard Chevrolet Corp., Orlando, alleging violations of the Florida Deceptive and Unfair Trade Practices Act, for false advertising and fraud arising from the plaintiffs’ automobile purchases from Bill Heard. Bill Heard moved to compel arbitration based on an “Alternative Dispute Agreement” signed by each of the plaintiffs. The trial court refused to compel arbitration. The Florida Court of Appeals reversed and remanded the case to the trial court, stating that the trial court's reliance on the plaintiffs’ assertions that they would not have waived a jury trial had they bothered to read the documents they were signing and their reliance on the imperfect understanding on the part of a Bill Heard representative of the “procedural niceties and finality of the arbitration procedure” were both misplaced. |
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The appellate court held that it is the intention of the parties as expressed in the documents that controls, not the after-the-fact testimony of the parties.
While this is a nice final result for the dealer, it came at the cost of a lawsuit and an appeal. The legal bill for those proceedings was probably stiff. Perhaps the dealer could have avoided this scenario by spending an equivalent amount on better training of the sales personnel and tighter documentation.
Bill Heard Chevrolet Corp., Orlando v. Wilson, 877 So.2d 15 (Fla. App. May 7, 2004)
Dealer Entitled to Hearing on Motion to Compel Arbitration. State legal procedural rules vary. In some states, judges can decide motions, including motions to compel arbitration, without holding a hearing. In Ohio, as this case demonstrates, judges must hold a hearing.
Kimberly Benson sued Spitzer Management, Inc., alleging claims arising from her purchase of a 2000 Dodge Intrepid. She claimed that before she bought the car it had been “car-jacked” from a Spitzer employee, damaged, and repaired. She also claimed, among other things, that the repairs were such that they should have been disclosed to her.
Spitzer moved to stay the proceedings and compel arbitration based on two arbitration agreements – one in Benson’s retail installment sales agreement and the other in her buyer’s order. The trial court denied Spitzer’s motion without a hearing or opinion.
Spitzer appealed. The Ohio Court of Appeals reversed and remanded for further proceedings on the ground that the trial court failed to hold a hearing to determine whether there was a legitimate challenge to the validity of the arbitration clauses. Keep in mind that this result – like many you’ll see us report – may well vary from state to state, but if you’ve received a bad decision on your motion to compel arbitration, it’s one more possibility for your lawyer to check on.
Benson v. Spitzer Management, Inc., 2004 WL 2002503 (Ohio App. September 9, 2004) Pigs Get Rich, Hogs Get Slaughtered. If we’ve said it once, we’ve said it a million times, the more one-sided an arbitration agreement is, the less likely a court will be to enforce it. There’s always someone who doesn’t get the word, as this case illustrates. Sharon Taylor bought a car from City Auto Sales, in the process signing a buyer’s order containing an arbitration agreement. She also signed a spot delivery agreement. Unable to find financing for Taylor, City Auto unwound the deal and when Taylor did not return the car as required by the terms of the spot delivery agreement, repossessed the car.
Taylor sued, asserting several state law claims, and City Auto moved to dismiss the case and compel arbitration. The trial court granted City Auto’s motion, and Taylor appealed. The intermediate appellate court reversed the trial court’s decision, holding that a party cannot be compelled to arbitrate a claim pursuant to an arbitration provision that was fraudulently induced. On further appeal to the Supreme Court of Tennessee, Taylor also raised the issue of whether the arbitration agreement was unconscionable because it reserved to City Auto the right to pursue judicial remedies while limiting all of her claims to arbitration. The Tennessee high court held that Taylor’s claim of fraudulent inducement was appropriate for the arbitrator to decide (even though Tennessee law prohibits arbitration of fraudulent inducement claims) because the Federal Arbitration Act governed in this case. The high court might have refused to address the merits of Taylor’s unconscionability claim, on the ground that she did not raise it before the trial court. The dealer’s luck had run out by this point, however, because the high court went on to hold that the one-sided arbitration agreement in this case was unconscionable and, therefore, void. One judge dissented in part, finding that Taylor waived the issue of unconscionability because she failed to raise it in the pleadings, or before the trial court or intermediate appellate court. The lesson: use an arbitration agreement that is at least balanced, and preferably one that is even biased toward the consumer. That is, if you want one you can enforce. Taylor v. Butler, 2004 WL 1925423 (Tenn. August 31, 2004)
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Tom Hudson
Contributor
Thomas B. Hudson Esq. was a founding partner of Hudson Cook LLP and is now of counsel in the firm’s Maryland office. He is the CEO of CounselorLibrary.com LLC and a frequent speaker and writer on a variety of consumer credit topics.
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