What is a Car Dealership Arbitration Clause?
A car dealer arbitration agreement, also known simply as a dealer arbitration agreement, is a contractual term that is often included in the paperwork buyers sign after they reach a deal to purchase a vehicle from a dealership. By signing this type of document, motorists agree to resolve any future disputes regarding the transaction through arbitration.
The purpose of such a provision is to make the process of resolving consumer complaints more efficient and cost-effective. If a buyer later encounters an issue with the car and determines there is an issue with the vehicle that stems from something the dealer forgot to disclose, for example, they typically have a limited time in which to pursue arbitration — usually 120 days. They can file a demand for arbitration with the private arbitration organization that will oversee the process and await a response.
There are several leading consumer arbitration organizations in the U.S. that dealerships can consider using, and they typically charge a fee that buyers must pay to open a case. Typically , these fees are lower than those required for the courts and the resolution process is quicker. Some dealers even offer to pay the arbitrator fees, provided buyers agree to accept any award rendered by the arbitrator.
Although many buyers appreciate the efficiency offered by car dealer arbitration agreements, some lawmakers believe that they are unfair for consumers. In such instances, buyers are essentially agreeing to waive their right to take legal action in court, opting for binding arbitration instead. Such arbitration does not allow buyers to appeal decisions made in their cases or proceed with class action suits against the dealers.
Many states have passed legislation declaring that such provisions are unenforceable, even if the buyers agree to them and even if the arbitration organizations also note that the waivers are not binding. In Florida, for example, the courts have ruled that car manufacturers may not require buyers to arbitrate lawsuits that are filed against the manufacturers.
Why Dealerships Insist on Arbitration Clauses
Many car dealerships have now instituted arbitration clauses within their franchise sales contracts. This means that should a dispute arise between the buyer and the dealership over his/her purchase of a car, the dealer simply arbitrates the matter rather than go to a courtroom. The key here is that the dealer gets to pick the arbitrator.
Car dealers generally benefit from including an arbitration clause in their franchise sales contract. First, the process saves time and money. Arbitration has the reputation of being quicker than a formal lawsuit proceeding within the court system. Since there are costs associated with lawsuits, the efficiency of arbitration as compared to a lawsuit could result in significant cost savings for the dealer. Second, dealerships choose the arbitrator. By picking the arbitrator, the dealer gets to choose someone they are familiar with and know will rule in their favor. Without a neutral decision-maker in place, the dealer may be at risk of choosing an arbitrator who feels uneasy to rule against them.
Pros and Cons of Arbitration Clauses for Buyers
Pros
Buyers are on the hook for a considerable amount of money when entering into a vehicle purchase and finance agreement. Once the process is complete, they often do not have anywhere to turn if something goes wrong with the car, other than to go back to the dealership that sold it and work through the same process as anyone else who walks into the door. An arbitration agreement provides an opportunity for a buyer who has a problem with a car to avoid going to court and facing a judge. It can be entered into voluntarily and can sometimes be cheaper and quicker than going to trial. This is especially true if cases are filed quickly and the choice is made early in the process. And, an arbitration agreement can provide an individually tailored solution that can resolve problems that traditional lawsuits do not. In arbitration, there is no jury to account for and the arbitrator can award any kind of remedy they see fit. Arbitration is also much more flexible than traditional lawsuits. For example, even if you miss a deadline that a court would have enforced with a dismiss, an arbitrator may grant you relief.
Cons
On the flip side, arbitration agreements can limit a buyer’s recourse. This means that if they have a dispute concerning the arbitration agreement or what happens after, such as refusing to arbitrate or following the arbitrator’s order, that they might not be able to go to court to enforce their rights. Even more, arbitration agreements are typically confidential, meaning that they are not publicly posted. That means that other people cannot benefit from someone else’s experience and mistake with a certain dealership, car or even sales person.
How Arbitration Clauses Impact Legal Rights
Arbitration agreements are intended by the auto dealer to limit your rights, and they often do. While you are certainly not technically ‘giving up’ your rights by signing an arbitration agreement, you are giving up the venue and manner in which you could normally assert those rights in a court of law. Under certain arbitration agreements, you may also be giving up the right to a jury trial and otherwise limiting rights of appeal. These rights exist, and are available to you, under the law. When you are forced into arbitration you are subjecting yourself to the rules of a private company, with the outcome being largely, but not always, out of your control.
When you sign an arbitration agreement you are giving up the right to a jury trial. For a dispute you win in arbitration, there is only limited appeal to the Georgia Court System, and there is no jury trial on appeal. You would be appealing through a review process that takes place in the arbitration forum . That means that ultimately the outcome of the case is to a great extent out of your hands once you have signed an arbitration agreement.
The downside of arbitration, from the consumer’s perspective, is that arbitration is largely a secret process. Typically, the consumer does not know there is an arbitration process until after he or she has become strip-mined for their money in a lawsuit or until the warranty expires. Even then the consumer usually has no idea he or she has signed an arbitration agreement until after he or she has become the victim of rip-off by the car dealer.
Many times, car dealers and others who push arbitration agreements will mislead the consumer. The car dealer might say arbitration puts facts before an unbiased decision maker, however, that is not always true and is frequently false. Then the dealer says arbitration is faster and cheaper, but only because it prevents the consumer from pursuing his or her claims. Make no mistake: the dealer benefits from arbitration by saving money. Arbitration agreements are not fair, balanced or helpful to you.
Tips for Negotiating Arbitration Clauses
When facing a car dealer arbitration agreement, read through the contract to see if the dealer will agree to exclude certain types of claims. For example, ask to carve out tort claims. Any good lawyer will tell you that cross motions on punitive damages would be a pain to arbitrate. Furthermore, negotiation could take the form of providing for discovery. Dealers often like arbitration because they can keep you from asking them tough questions. When discovery is allowed, the benefits of arbitration are lost since you still have to pay the lawyer, could get stuck paying a firm to help with the arbitration hearings, pay arbitrator fees and all that stuff dealers like to throw in the arbitration process. If there is limited discovery, it should be listed in the contract. Remember, do not make your claim too big when you make the demand for arbitration. If you make your claim too big, then the arbitration will still be a headache and you will have given up your right to go to court. If the dealer wants to play the Hail Mary card, then they are stuck negotiating something worthwhile with you. Of course, you do want substantial rights reinstated for you, but it should not be an unfair fight either.
What to Do if You Object to Car Dealer Arbitration Clauses
Making sense of the legalese in the contract is the critical first step for buyers who dispute a car dealer arbitration agreement. If after reading the legalese an opt-out is desired, or the buyer feels the arbitration clause can be completely challenged, the buyer can consult with an attorney or investigate whether there is a loophole within the contract.
In consulting with an attorney, it is important to make the attorney aware that such agreements are subject to the Federal Arbitration Act, 9 U.S.C. §1 et seq, (which overrides any state law requiring judicial proceedings). Any challenges to the arbitration provision must be renewed notwithstanding the state legislature exempting automobile consumer arbitration agreements. It is probable that an attorney with any experience in consumer cases will have contractual challenges to arbitration provisions and consumer class actions against automobile dealers in his or her arsenal. The biggest threat an arbitration clause poses to consumers is that the recovery of attorneys’ fees is unlikely unless a successful challenge on the merits is made . When a successful challenge is made on the merits, the attorneys’ fees awarded generally does not cover the full amount of fees expended by the consumer.
Disputing an arbitration clause also involves searching for a loophole that will allow the dealer agreement to be avoided altogether. Examples include the following: A loophole does not need to be found if the arbitration clause is voided on federal or state public policy grounds. For example, in the recent Illinois case Mendez v. Palm Olive Partnership, 368 Ill.Dec. 207, 715 N.E.2d 34, affd., 196 Ill.2d 22, 251 Ill.Dec. 532, 805 N.E.2d 1156 (2003), the Illinois Supreme Court struck down a provision in a consumer contract that delegated the contract interpretation to the arbitrator. The court ruled that "[n]either the General Assembly nor judicial decisions may delegate judicial authority to resolve disputes to an arbitrator" and thus held that the dealer agreement was void and unenforceable.
