GUEST SPEAKER
Arbitration Clauses Are a Dealership’s Best Friend By Patricia E.M. Covington HUDSON COOK, LLP
W
e track litigation in the
his vehicle for a new Silverado.
auto sales, finance, and
Among the documents Green
lease areas each month,
and we’ve done so for nearly 30 years. In the beginning, we saw a lot of cases based on claims of fraud, improper disclosures, and violations of state and federal consumer protection laws and regulations. A very unscientific study—basically an informed guess by me—indicates that the theories of the cases we have tracked over the years have changed and that the overall volume of cases has dropped. A reduction in the number of cases is due, in my view, to improved vehicle quality—car buyers whose cars are performing well tend not to
signed as part of the purchase transaction was a Buyer’s Order,
argument that the arbitration
Green that it was unable to obtain
provision was unconscionable
financing for him and asked him to
because the argument was directed
return the vehicle.
at the arbitration provision itself,
Green allegedly asked for his 2014 vehicle back, but Kline had already sold it. Green sued Kline for violating the Truth in Lending Act and the Fair Credit Reporting Act. Kline moved to compel arbitration pursuant to the arbitration provision in the Buyer’s Order. The federal trial court granted Kline’s motion. language in the arbitration provision
in the reduction of reported cases,
clearly delegated power to the
however—the growing use by dealers
arbitrator to decide “gateway”
and finance sources of arbitration
issues of arbitrability. Green argued
agreements in their deal documents.
that he was fraudulently induced
courtrooms. Here’s an example of an arbitration clause in action. Darryl Green went to Kline Chevrolet Sales Corp., d/b/a Priority Chevrolet, to service his 2014 Chevrolet Silverado. While Green was at the dealership, he traded in
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NMEDA Circuit Breaker
not the court. The court did address Green’s
believe that there is another factor
buyer-dealer disputes out of the
must be decided by the arbitrator,
provision. Kline later informed
First, the court concluded that the
be working pretty well at getting
of the Buyer’s Order as a whole
which contained an arbitration
voice complaints and hire lawyers. I
Those arbitration clauses seem to
found that the issue of the validity
to enter into the Buyer’s Order containing the arbitration provision because of Kline’s representations that it had secured financing for the vehicle. Because Green contended that he was fraudulently induced into entering the Buyer’s Order generally, not the arbitration provision specifically, the court
not the Buyer’s Order as a whole. The court found that the arbitration provision was part of a contract of adhesion, which suggested a degree of procedural unconscionability. However, the court found that the arbitration provision was not substantively unconscionable (a $10 lawyer word that essentially means “really unfair”). Among other things, the court found that the terms of the arbitration provision did not unfairly favor one party over the other and did not impose an undue burden on one of the parties. Finally, the court rejected Green’s argument that the arbitration provision was substantively unconscionable because it waived his federal claims and thus violated public policy. The court found that nothing precluded the arbitrator from considering potential violations of federal law. The takeaway from this one? I see several.
