Many dealers have long since required their customers to sign arbitration agreements when they sell cars to those customers. These dealers know that having an arbitration agreement (or not) can be the difference between a disagreement with an individual car buyer and being on the pointy end of a very unpleasant and expensive class-action lawsuit.

Many of these early adopters have had the same arbitration agreements in place for years. After all, why revisit arbitration language? The Federal Arbitration Act hasn’t changed, and most of the court cases dealing with arbitration have been favorable to dealers.

Except when they aren’t. A recent Georgia decision provides a cautionary tale for dealers using arbitration agreements or, for that matter, any consumer documents, without occasionally brushing the cobwebs away with an occasional legal review. Let’s take a look at what happened.

Lisa Flagg got a payday loan from First International SRS. In connection with the loan, she signed an Automated Clearing House authorization agreement, which gave the lender authority to electronically debit her account.

First International’s ACH transactions were performed by First Premier Bank, which belongs to the ACH network. Flagg sued First Premier, alleging that it violated the Racketeer Influenced and Corrupt Organizations (RICO) Act by engaging in a scheme to allow payday lenders to make illegal payday loan credits and debits using the ACH network.

Flagg tried to initiate arbitration in accordance with the arbitration provision in her loan agreement. The arbitration provision provided that disputes arising from her loan would be resolved “by and under the Code of Procedure of the National Arbitration Forum.” She got a response from NAF saying it was no longer able to accept consumer arbitration claims and declining to initiate arbitration.

Because the NAF was unavailable, Flagg filed suit in federal court. First Premier moved to compel arbitration and appoint a substitute for NAF. The trial court denied the motion. First Premier appealed.

The U.S. Court of Appeals for the Eleventh Circuit affirmed. Under the Federal Arbitration Act, when the arbitration organization chosen by the parties is unavailable, the court can appoint a substitute arbitrator. However, an arbitration agreement is only enforceable if the choice of organization is not an integral part of the agreement to arbitrate.

In Flagg’s case, the appellate court found that the NAF was designated in the arbitration agreement as the exclusive forum and its Code of Procedure was selected to govern all claims. The arbitration agreement directed Flagg to file claims with and obtain required forms from the NAF. Because the designation of NAF as the arbitration organization was an integral part of the arbitration agreement, the appellate court concluded that the trial court properly refused to appoint a different organization.

The NAF was once a very active player in the world of consumer arbitration, and for many years many creditors and arbitration forms providers named it as the arbitration organization to be used in connection with arbitration proceedings. But the NAF exited the business of arbitrating consumer disputes years ago, leaving behind it these “zombie” references (which we still see regularly when we review dealers’ arbitration agreements) and giving consumers’ lawyers an argument that, because NAF was unavailable, the arbitration agreement is unenforceable.

That argument was successful in this case. In other instances, courts have ruled that the choice of the arbitration provider was not integral to the agreement to arbitrate, and that the language naming the NAF was severable from the rest of the arbitration agreement, which remained enforceable.

But why give that consumer lawyer the chance to make this argument at all, when you can cure the problem with a periodic legal review of your forms?

Thomas B. Hudson is a partner in the firm of Hudson Cook LLP and the author of several widely read compliance manuals. Email him at THudson@autodealermonthly.com.