Arbitration Agreements: To Use or Not to Use

Arbitration Agreements: To Use or Not to Use


Arbitration Agreements:

I have spoken at length with many auto dealers regarding the use of arbitration agreements as part of the sales or leasing transaction with a customer. The question they all ask is, whether or not they should use them. My answer is, and always will be, YES!!!!

I have personally represented clients that DO use these agreements and I have never lost.

Litigious Customers:

Whether or not you believe it, the public views car dealers are viewed with a certain level of suspicion. That suspicion kicks in at the time that the customer first makes contact with your sales team. Unfortunately, it has become a natural phenomenon.

That being said, one of the considerations that a dealer should always keep in mind is that there are consumers out there who are just looking for a reason to sue a dealership. Often, we don’t recognize this and conduct ourselves in a manner that can further exacerbate the situation with customers and give them ammunition to sue the dealer. You can avoid this!

Use a Stand Alone Form.

First and foremost, while many contracts and Buyer’s orders contain an arbitration clause buried in the “small print” that a customer must sign in order to purchase a vehicle, it is still amazing how many dealerships don’t use these agreements at all. This is all fine and good. However, my advice to my clients is: use a stand alone form.

Many of my dealerships simply purchase a form from somewhere like KADA or NADA. While this is a step in the right direction, these form arbitration agreements are not tailored to each individual state. This results in the document having no force or effect. Leading to the agreement being set aside as not complying with state law. You, as a dealer, do not want that!

Useful Tips:

Here are a few tips I can give in crafting an arbitration agreement:

1.     Use a separate document containing the arbitration clause. If, for some reason you cannot use a stand alone document, then make sure the provision in your other documents are present in bold type and  attract the attention of the Buyer. Explain the agreement to them and make sure that there is a separate signature line for the customer to sign within that agreement. This should be separate from any other signature line found in the contract, buyer’s order, etc.;

2.    Make sure that the arbitration agreement specifies where the arbitration is to take place. For example, if in Kentucky, set forth in the agreement that “any arbitration that takes place must occur in _____________ County , Kentucky, pursuant to the laws of the Commonwealth of Kentucky.” If you do not include this language and the lawyer suing you knows what they are doing, the lawyer will assert that the arbitration agreement is void and the court will most likely agree;

3.    MAKE SURE THAT YOU HAVE THE AGREEMENT SIGNED BY BOTH THE CUSTOMER AND THE DEALERSHIP!!! I cannot emphasize this enough. I cannot tell you how many times I have reviewed documents where F&I has not had the customer sign the agreement. If the agreement isn’t signed, it isn’t worth the paper it is written on:

4.   Most importantly, if you are sued, MAKE SURE that your legal counsel asks the Court to compel arbitration in their response to the suit.  If you don’t ask, no one is going to give it to you.

These are but a few tidbits for the dealer to take into consideration when dealing with arbitration agreements. I cannot emphasize enough the importance of using arbitration agreements in your practice of selling or leasing vehicles. The cost it will save is enormous. Like lawyers, a car dealership’s worst nightmare is to have the case be presented to a jury. This has to be avoided if at all possible.  Also remember that standard exclusions in most dealer’s insurance policy will include language excluding claims of fraud. In 21 years of practice, I have never seen a complaint that didn’t include allegations of fraud.

Most dealerships don’t like spending money on document review. I can assure you that the money you spend up front on this issue will save you money on the back-end.

Your job is to sell cars and service for the customer, not be bogged down in litigation.  A few simple things can help prevent you from being bogged down in the middle of a dangerous situation that could have enormous implications for the dealerships.

If you have any questions, please call me at 859-270-1255. Most dealerships take care of the customer. But there are always customers and lawyers looking to make a quick buck and lawyers love to go after dealerships.

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