Car Dealer Arbitration Agreements: What You Need To Know

Arbitration Agreements: What They Are

An arbitration agreement, sometimes called a contract to arbitrate, is an agreement in which the parties agree to resolve any disputes that may arise between them outside of the traditional court system. When signing an arbitration contract, its up to the parties to decide where to arbitrate, how the procedure will work , and who will decide the outcome. The process can be highly advantageous when compared to proceeding with litigation, as a formal appeal is generally not available. The entire arbitration process is typically much faster and less costly than going to trial. These agreements are often seen in sales contracts, such as those provided by car dealerships to their customers.

Why Do Car Dealers Use Arbitration Agreements?

Car dealers include arbitration agreements for a few main reasons. First and foremost, dealers want to lower the costs of dispute resolution. By agreeing to arbitrate disputes as opposed to litigating them in court, dealerships can save both time and money. Arbitration can be a much faster procedure than the court system, and it usually has a lower monetary cost as well. Furthermore, arbitration is much more private than a court proceeding. Almost every aspect of your arbitration is kept confidential. You pay for this benefit, of course. The dealers save money on their bottom line if they require binding arbitration instead of court litigation. They pass those savings onto you in the form of money savings in your contract. You can get a better interest rate or a lower price on an add-on product or service by agreeing to arbitrate any claims.

How Arbitration Agreements Work and Affect Consumers

While arbitration agreements are often touted as a speedy and cost-effective alternative to litigation, most consumers have a general lack of understanding of how the agreements affect their rights, the potential complications that may arise from them, and when arbitration is really in their best interests. In the end, a large number of cases may be more appropriately suited for the courts. They are exactly the types of cases that consumers should be able to pursue in court and litigate before a jury if they so choose. Car dealer abuse can occur in a number of ways, and litigation in court can help level the playing field. For example, arbitration may not always afford a consumer the proper opportunity to discover the full range of selling, leasing, maintenance, safety and warranty issues that exist in a particular case. As outlined below, many times, it will not even provide for the opportunity to seek full statutory relief from the car dealer. For consumers in Arkansas, the Arkansas Deceptive Trade Practices Act affords protections that allow them to seek attorney’s fees and punitive damages, in addition to other potentially important relief. Consumer cases that implicate those rights obviously cannot be resolved through arbitration. Cases that might otherwise implicate those rights, but do not, are still not always appropriate for arbitration. Much can be lost by relinquishing the ability to seek that full range of relief by agreeing to arbitrate with the defendant.

Are Arbitration Agreements Enforceable in Car Sales?

In most circumstances, arbitration agreements are lawful and enforceable as a contract. Car purchasers should be sure to examine arbitration clauses closely to determine if the agreement is both lawful and properly presented. A common problem that arises with arbitration agreements in consumer transactions is whether the arbitration agreement is unconscionable. While unconscionability is a common law contract defense, consumers facing the practical realities of an arbitration clause, such as non-reimbursement for the costs of the arbitration, may have a difficult time overcoming the presumption. The doctrine of unconscionability provides that a court may refuse to uphold a contract where there are finding that the contract involved terms deemed unfair, undisclosed, unexpected, and imposing a burden on the general public. In the case of an arbitration agreement, even if the terms are disclosed to the general public, there may still be issues of whether the agreement is deemed unconscionable. Other noted issues are failure to disclose the specific rules and procedures under which a consumer must submit his/her claim and the liability of each party for the costs and fees of the arbitrator. Courts have held that arbitration clauses which impose these were either too one sided, or unduly burdens the consumer, rendering the clause unconscionable and thereby unenforceable.

The Pros and Cons of Arbitration in Car Dealer Contracts

The Pros and Cons of Arbitration in Car Dealer Disputes
Pros
An arbitration agreement with a car dealer can have many pros. First, it provides for a contractually agreed on method to solve disputes that arise. It provides certainty to the parties before they have any problem that a resolution will take place and in what manner.
Second, because an arbitrator is usually familiar with the industry the arbitrator has experience in, there is no need to educate someone about things such as "what is a lemon?" or other industry specific terms.
Third, the arbitration process is generally quicker than the court system. The court system is notoriously slow. In the Michigan Supreme Court, for example, there are over 3,000 years worth of cases that have not yet been decided. And while a consumer’s case will not be in the Supreme Court, litigation between a company and a consumer can go through many layers of both the state and federal court systems. Whereas, an arbitration process will be heard by one person or a small panel of people and the decision will be made much sooner.
Fourth, almost all arbitrator decisions are binding on the parties . This prevents the potential for endless litigation in the courts.
Cons
An effective arbitration clause must be mutual and equal for all parties. If it is unreasonable for the consumer, it will render the clause unenforceable.
Another downside is that when an arbitration clause is invoked, your case will be heard by a single arbitrator instead of a panel of judges where you can receive a different outcome depending on the panel assigned to your case. The downside to this, of course, is that you may not receive a fair outcome.
One other downside is that consumers do not have the same appeal rights as companies. Most arbitration clauses will have an "iron clad" sort of waiver of appeal. With most court decisions there can be an appeal to the state supreme court and in some cases – an appeal to the U.S. Supreme Court. There is no such appeal right with most arbitration clauses. And an arbitrator’s decision stands as the final say on the matter. There is a limited set of circumstances where a decision can be overturned, and even then, the decision cannot be retried and is only decided by a panel of judges. Thus, unlike courts, an arbitrator’s decision is usually conclusive.

What To Do if You Have a Car Dealer Dispute

If you have a dispute with a car dealer that has a pre-dispute arbitration agreement there are a couple of things you should look into before making a claim for damages against that dealer.
The first thing you want to do is see if you have any other claims against this dealer that may fall outside the arbitration. Typical claims that can be brought in state or federal court include, but are not limited to, violations of the Magnuson-Moss Warranty Act, violations of the Federal Odometer Act, violations of the Florida Deceptive and Unfair Trade Practices Act, as well as violations of the Florida Sale of Motor Vehicles Act.
Next, you want to decide if you are willing to accept your dispute being resolved by a 3rd party arbiter that has no legal rules that may help you obtain a more favorable outcome than if left to the dealers discretion.
After determining whether you would like to arbitrarily arbitrate or include other claims as ancillary reasons why the dispute is outside the scope of the arbitration agreement you ultimately will need to send a demand for arbitration to the dealership who will typically have 30 days to respond with their response. After a response is sent arbitration is conducted similar to trial, however, the process is much more informal. The parties present their cases to a single arbitrator who listens and evaluates each side of the dispute. Once the hearing is completed the arbitrator will then decide who he/she believes should win based on the merits of the case.

Alternatives to Arbitration Agreements in Car Dealer Contract

Arbitration provisions are not the only way to handle disputes which arise between consumers and car dealers. For example, most car dealer arbitration agreements have an escape hatch clause which provides that if a consumer does not wish to subject his/her disputes against the car dealer to arbitration, they can proceed to sue on those claims in small claims court. In the most recent decision cited below, the Court of Appeal enforced the vehicle finance agreement arbitration provision, but limited its application to that dispute. The plaintiff was not precluded from pursuing his claims for breach of fiduciary duty as against the car dealer in court in his small claims action. Thus, consumers may bring both their claims against the car dealer to small claims in court, as well as their claims against the bank to arbitration.
Consumers may also wish to negotiate for a provision in their purchase or lease contract which provides that any disputes arising between them and the car dealer are to be handled in small claims court. Some car dealers fear small claim actions because they may be more cumbersome for the car dealer to handle than arbitration. Filing in small claims court also has the advantage of providing the consumer with a verdict that may be enforceable in court without a transmittal needed to the American Arbitration Association or other arbitration forum.

Latest Trends in Arbitration Agreements in the Auto Industry

Recent trends in the use of arbitration agreements in the context of car dealership contracts have focused in two areas-which auto dealer personnel can make the agreement, and the recognition by auto manufacturers that consumer arbitration can be a valuable tool in increasing customer satisfaction. Dealers have begun to offer workers from their internal bodies, such as the accounting department or even managers from different departments such as service, the ability to enter into arbitration agreements for better compensation packages . There has also been recognition on the part of auto manufacturers, some of whom are offering their own in-house programs to accede to a customer’s request for ADR. This is an important development for consumers as auto manufacturers are beginning to assist in consumer protection litigation, thereby increasing the number of complaints and issues that are formally investigated and addressed. We anticipate that we will begin to see arbitration support and development broaden out from the manufacturers’ Legal Department, and into other corporate departments, such as Marketing or Customer Relations.