The Third District Court of Appeal of the State of Florida recently reversed a trial court's denial of a car dealership's motion to compel arbitration, holding that because there was no evidence that the buyers, who did not read or speak English, attempted to learn or have explained to them what they were signing, or that the dealer's representatives prevented them from doing so or misrepresented the terms, the trial court erred by finding there was no valid agreement to arbitrate.
A copy of the opinion is available at: Link to Opinion
A car dealership sold cars to three individuals who did not read of speak English. The buyers signed two documents at the time of purchase, a purchase order and a financing agreement, both of which contained arbitration clauses that were not identical.
The buyers filed a putative class action against the dealership and its finance director, alleging that they violated the Florida Deceptive and Unfair Trade Practices Act ("FDUPTA"), the Florida Motor Vehicle Retail Sales Finance Act, and were unjustly enriched, because blank spaces in the purchase documents were allegedly filled in after the buyers' execution, adding extra fees and products without the buyers' consent.
The dealership moved to compel arbitration and, after an evidentiary hearing, the trial court denied the motion, finding that because the dealership's sales staff never tried to explain the arbitration clause to the buyers. Moreover, the trial court held that because the arbitration clauses in the two documents conflicted, there was no meeting of the minds to arbitrate. The dealership appealed this non-final order.
On appeal, the Third District recited that "[t]he trial court's entry of an order denying a motion to compel arbitration 'presents a mixed question of law and fact. … We review the trial court's legal determination and interpretations of contract de novo … and presume that the trial court's findings of fact are correct unless they are clearly erroneous. … '[T]here are three elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.'"
The Court then addressed the first element, whether a valid written agreement to arbitrate existed. First, it rejected the trial court's reliance on the Florida Supreme Court's 2014 decision in Basulto v. Hialeah Auto. because that case involved buyers who were rushed into signing without being given an opportunity to ask questions or get help interpreting the documents and the dealership's staff allegedly made misrepresentations to the buyers regarding what they were signing. The Appellate Court noted that these allegations were not present here.
Having concluded that Basulto was inapposite, the Third District applied "the general and longstanding legal principles regarding contract formation." First, it pointed out "the well-established principle that one who signs a contract is generally bound by the contract[,]" citing Florida Supreme Court precedent for the proposition that "[n]o party to a written contract in this state can defend against its enforcement on the sole ground that he signed it without reading it."
The Appellate Court cited two Florida Courts of Appeal rulings holding that "[i]f a person cannot read the instrument, it is as much his duty to procure some reliable person to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do so."
The Third District concluded that because the buyers had the burden of seeking clarification of the terms of the purchase documents and failed to do, and there was no evidence that the dealer's staff mispresented the terms or prevented them from reading the documents, "the trial court erred as a matter of law by invalidating the arbitration agreement on this basis."
The Appellate Court then turned to whether the alleged conflict between the arbitration clauses in the purchase order and financing agreement rendered it impossible for the buyers to understand them.
First, the Third District explained that "it is well-settled law that a single term in an arbitration clause cannot be interpreted in isolation, but must be read together with the rest of the contract." In addition, "'[a] primary rule of contract construction is that where provisions in an agreement appear to conflict, they should be construed so as to be reconciled, if possible.'"
After examining the text of each arbitration clause, the Appellate Court found that no actual conflict between the two existed. First, the Third District reasoned that the fact that the purchase order waived the right to a jury trial, while the financing agreement "could be read to allow for a jury trial if the dispute is not submitted for binding arbitration[,]" was irrelevant because the dealership had already demanded arbitration and both documents required the parties to "resolve their claims by binding arbitration, which obviously precludes any consideration of a jury trial."
The Third District also noted that there was no irreconcilable conflict between the purchase order's requirement that the parties submit to non-binding mediation before submitting their claims to binding arbitration because they didn't asked the trial court to compel it.
The Appellate Court then turned to examine the choice of law provisions, which the trial court found were in irreconcilable conflict. The purchase order required that arbitration be "in accordance with the Florida Arbitration Code" (FAC), while the financing agreement gave the buyers, subject to the dealer's approval, the option to choose from several arbitration organizations and provided that arbitration would be governed by the Federal Arbitration Act (FAA).
The Court again found that had the trial court engaged in the required attempt to reconcile, it would have discovered that no irreconcilable conflict existed because the Florida Supreme Court had already ruled twice that "an arbitration clause in a contract involving interstate commerce is subject to the FAC, to the extent that the FAC does is not in conflict with the FAA."
The Court found that there was no need to determine whether a conflict actually existed between the two laws and the federal preempted the state because the relevant provisions either did not apply or were "virtually identical" and thus no irreconcilable conflict existed.
The purchase order required all mediation and arbitration proceeding to take place in Miami-Dade County, while the financing agreement provided that arbitration hearings would take place "in the federal district in which the Buyers reside unless [the dealer] "is a party to the claim or dispute, in which case, the hearing will be held in the federal district where the contract was executed." The Court found that these two provisions did not conflict and "are easily harmonized" because "the contracts in question were executed in Miami-Dade County, which is the federal Southern District of Florida, and is where the Buyers filed their lawsuit against [the dealer]."
The Court also found there was no conflict between the financing agreement's delegation to the arbitrator of the power to decide the threshold question of arbitrability and scope of the arbitration clause, and the purchase order's silence on the issue. "More importantly, because there is no dispute in this case that the Buyers' claims fell within the scope of the broad arbitration provisions, there is certainly no 'irreconcilable conflict.'"
The financing agreement barred class actions, while the purchase order was silent on the issue. The Court found that this did not create an irreconcilable conflict because "under the FAA 'a party may not be compelled … to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." The Court concluded that "[b]ecause the financing agreement expressly bars class action proceedings and, in the purchase order, the parties did not expressly agree to permit class actions, then under both documents, class actions are not permitted."
Regarding the cost of arbitration, the purchase order required the cost of mediation and arbitration be shared equally by the parties, while the financing agreement required the dealer to advance the costs, up to $2,500, and gave the arbitrator discretion to order reimbursement. The Court agreed with the dealer that these provisions could easily be reconciled "by requiring the Dealer to advance the fees of arbitration up to a maximum of $2500 before requiring that the Dealer and the Purchaser bear the remaining costs of arbitration equally."
As to the right to appeal the arbitrator's award, the financing agreement provided that "in the event the arbitrator's award is $0 or in excess of $100,000, or it includes an award granting injunctive relief, then a party may request a new arbitration by a three-arbitrator panel." The purchase order was silent on this issue. Accordingly, the Court concluded that "because the purchase order was silent as to this issue, and the parties agreed to this procedure in the financing agreement, then the parties agreed to the procedure. As such there is no 'irreconcilable conflict.'"
Regarding attorney's fees, the purchase order provided that the prevailing party was entitled to recover its reasonable attorney's fees, while the financing agreement provided that "each party shall be responsible for its own attorney's fees 'unless awarded by the arbitrator under applicable law,' and 'the arbitrator shall apply governing substantive law in making an award.'" The Appellate Court found there was no conflict, much less an irreconcilable one, because the "FDUTPA entitles the prevailing party to recover its fees."
Finally, the Third District addressed the trial court's finding that the terms of the arbitration clauses were unconscionable. First, it explained that "the party seeking to avoid arbitration has the burden to prove both procedural and substantive unconscionability. … '[W]hile both elements must be present, they need not be present to the same degree.' … Procedural unconscionability deals with whether, given the totality of the circumstances, the parties had a meaningful choice to refuse the contract terms. … Substantive unconscionability deals with the reasonableness of those terms."
The Appellate Court reasoned that even though the contracts at issue could be characterized as "adhesion contracts," "[i]t is important to inquire into additional surrounding circumstances, such as whether a party could obtain the desired product or services elsewhere, whether one party pressured or rushed the other into signing a contract, or whether the party was otherwise precluded from inquiring into the terms of the agreement."
Because the arbitration clauses were not in irreconcilable conflict, and because the dealer had no obligation to explain the clauses to the buyers in Spanish, and because the buyers had "a full and fair opportunity to inquire into the terms of the documents, and they declined to do so," the Third District refused to allow the buyers "to escape the binding effect of their unequivocal assent to the arbitration clauses by claiming that [the dealer] did not explain the terms."
Given these facts, the Third District held that the fact that the arbitration clauses were "offered on a "take-it-or-leave-it" basis" was not enough to prove that the buyers' assent to arbitration was "procedurally unconscionable."
Because the buyers "failed to prove any degree of procedural unconscionability," the Third District concluded that "the arbitration agreements contained in the purchase order and financing agreement are not unconscionable."
The Appellate Court found that as a matter of law the trial court's reasons for denying the dealer's motion to compel arbitration were "flawed". Accordingly, the Appellate Court reversed and remanded the case for further proceedings consistent with its opinion.
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com
Admitted to practice law in Illinois
Alabama | California | Florida | Georgia | Illinois | Indiana | Maryland | Massachusetts | Michigan | New Jersey | New York | Ohio | Pennsylvania | Texas | Washington, DC | Wisconsin
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates and webinar presentations are available on the internet, in searchable format, at:
Financial Services Law Updates
and
The Consumer Financial Services Blog™
and
and
California Finance Law Developments
