Perils Of Conflicting Arbitration Clauses
Perils Of Conflicting Arbitration Clauses
A recent Florida Supreme Court decision may provide ammunition to non-English speaking consumers seeking to preclude the enforcement of arbitration clauses contained in consumer contracts written in English. In Roberto Basulto, et al. v. Hialeah Automotive, etc., et al., No. SC09-2358, 2014 WL 1057334 (March 20, 2014) a 5-2 majority of the Florida Supreme Court held that arbitration clauses contained in various agreements signed by the Spanish-speaking petitioners relating to their purchase of a Dodge Caravan from a car dealership were unenforceable. The Florida Supreme Court upheld the trial court’s ruling that the arbitration clauses could not be enforced because they were conflicting and unconscionable. In doing so, the Florida Supreme Court quashed the Third District Court of Appeal’s (DCA) opinion in Hialeah Auto., LLC v. Basulto, 22 So.3d 586 (Fla. 3d DCA 2009), because the appellate court failed to apply the proper standard enunciated by the court in Seifert v. U.S. Home Corp., 750 So.2d 633 (Fla. 1999) when ruling on a motion to compel arbitration.
Factual and Procedural Background
The Basultos – a married couple from Cuba who did not speak English – purchased a 2005 Dodge Caravan from Hialeah Automotive in 2004. When they purchased the vehicle, they signed various agreements all of which were in English. A dispute arose between the parties when the Basultos attempted to return the vehicle to Hialeah Automotive. The Basultos later filed an action against Hialeah Automotive in Miami-Dade Circuit Court asserting claims for fraud in the inducement and violation of the Florida Deceptive and Unfair Trade Practices Act. In response, Hialeah Automotive moved to compel arbitration pursuant to the arbitration clauses contained in the agreements signed by the Basultos.
An evidentiary hearing was held in which the trial court heard testimony from various witnesses, including the Basultos and certain sales representatives of Hialeah Automotive who were directly involved in the sale of the vehicle. Following the hearing, the trial court concluded that there was no valid agreement to arbitrate. In support of its decision, the trial court noted that there were several inconsistencies between the agreements signed by the Basultos. For example, one agreement called for arbitration by a single arbitrator while another required arbitration by a panel of three arbitrators. Additionally, the agreements contained jury waiver clauses, which implied a right to litigate disputes in court. The trial court also found that the sales representatives did not understand the arbitration process and therefore could not have been able to adequately explain arbitration to the Basultos nor the rights that they were waiving by signing the agreements, such as their waiver of the right to seek punitive damages or class action status. The trial court also found that the agreements were unenforceable because they were unconscionable.
On appeal, the Third District affirmed in part, and reversed in part, the trial court’s decision. The Third District affirmed the trial court’s decision to compel arbitration of the Basultos’ claims for declaratory and injunctive relief, but held that arbitration was mandated for their claims for monetary relief under one of the agreements.
The Florida Supreme Court quashed the Third District’s decision and remanded the case with instructions to reinstate the trial court’s judgment based on controlling precedent. Specifically, the Court found that the Third District failed to properly apply the following elements set forth in Seifert that courts must consider when ruling on a motion to compel arbitration: (1) whether a valid agreement to arbitrate exists, (2) whether an arbitrable issue exists, and (3) whether the right to arbitration was waived. The Florida Supreme Court held that the Third District failed to address the first prong of the Seifert test, which the trial court considered and found was lacking because the subject arbitration clauses were unenforceable for the reasons explained above.
The Florida Supreme Court also exercised its discretionary authority to clarify the unconscionability defense to prevent the enforcement of an otherwise binding arbitration agreement. The Court held that procedural unconscionability (which is concerned with the manner in which a contract is entered into) and substantive uncionscionability (which focuses on the fairness of a contract’s terms) must be established to prevail on the defense. However, procedural and substantive unconscionability do not need to be present to the same degree in order to prevail on the defense. Rather, the Court agreed with the balancing test adopted by several Florida appellate courts under which both components of unconscionability must be evaluated interdependently “allowing one prong to outweigh another provided there is at least a modicum of the weaker prong.” Basulto, 2014 WL 1057334 at * 18 (citing VoiceStream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So.2d 34, 39 (Fla. 4th DCA 2005)).
What Lessons Can Be Learned From Basulto?
It remains to be seen what impact the Basulto case will have on other similarly situated consumers who want to avoid arbitrating their disputes with retail sellers pursuant to arbitration clauses contained in consumer contracts governed by Florida law. However, some lessons can be taken from Basulto that may benefit parties (both in the consumer and non-consumer context) who want to reduce the chances that their arbitration agreements will be declared unenforceable by courts or arbitrators.
- Consistency is Key. If several agreements are drafted for the same transaction and each contains an arbitration clause, make sure that they are consistent with each other. If, as in Basulto, there are multiple agreements containing different arbitration clauses, any conflicting provisions may render the arbitration agreement unenforceable if challenged. If an arbitration clause must be used in multiple agreements, the same clause should be inserted into each agreement. Care should be taken to ensure that the arbitration clause used in each agreement contains the essential terms of the arbitration and does not conflict with other provisions, such as any jury waiver clauses found elsewhere in the agreement.
- Arbitration Clauses Should Contain The Essential Terms. Arbitration clauses should cover the material aspects of the arbitration in order to reduce the chances that a court or arbitrator will fill in the gaps or find that no arbitration agreement was entered into between the parties. An arbitration clause should include, at a minimum, clauses that clearly set forth (i) whether the submission of a dispute to arbitration is required or optional, (ii) what disputes will be arbitrated, (iii) whether a court or arbitrator will decide whether the arbitration agreement is enforceable and other threshold issues, (iv) the rules that will govern the arbitration, (v) whether an institution such as the American Arbitration Association will administer the arbitration, (vi) the place of the arbitration, (vii) whether English or another language should be used in the arbitration (particularly where non-English speaking parties are involved as was the case in Basulto) (viii) the substantive and procedural law that will apply to the arbitration, (ix) the number of arbitrators and the method in which they will be selected, and (x) whether a party may seek emergency relief in court before or during the arbitration.
- Avoid Unfair Arbitration Clauses In Adhesion Contracts. Oftentimes, parties with significant leverage, like the car dealership in Basulto, present their powerless counterparties with “take-it-or-leave-it” adhesion contracts with arbitration clauses that may be successfully challenged if they are inherently unfair. In this context, the arbitration clause, when taken as a whole, should be objectively fair and not too one-sided in favor of the party with all of the bargaining power. Arbitration provisions that eliminate or limit the rights of a party lacking bargaining power (such as a waiver of the right to seek punitive damages) or give one party too much control over the arbitration proceedings increase the risk that the agreement will be declared unenforceable by a court or arbitrator.
- Be Careful With Waivers Of Statutory Remedies. If the arbitration agreement substantially limits or prevents a party from obtaining relief under a statutory claim, the agreement to arbitrate that claim may be rendered unenforceable. That may open the door to the party seeking such relief to pursue the statutory remedies in court, which would defeat the purpose of the having the arbitration agreement in the first place.
- Consider Translating Agreements In Certain Situations. In situations like in Basulto where the party without leverage is not fluent in English, providing that party with copies of the agreements that are translated in their native language would provide a defense to any claims that the agreements are unenforceable due to a language barrier. Given the number of Spanish-speaking consumers in the south Florida market, prudent vendors should take special precaution to ensure that they don’t risk having their contracts (or pertinent provisions thereof) rendered unenforceable solely because they are written in English.
- Avoid Rendering Legal Advice To The Other Party. It is not recommended that any representative of a party attempt to translate, explain or interpret any arbitration clauses to the other party, especially if they are not an attorney. This is particularly true in the case of adhesion contacts where one party has all of the bargaining power. The testimony of the sales representatives in Basulto revealed that they did not understand the concept of arbitration and confirmed the trial court’s suspicions there was no “meeting of the minds” between the parties regarding arbitration. Rather than having their sales representatives attempt to explain arbitration to the Basultos, Hialeah Automotive would probably have been better off if they had provided them with a document to sign in Spanish that informed them that they were waiving important legal rights and should retain an attorney to explain the agreements to them.
There is no “one size fits all” arbitration clause that can or should be used for every type of transaction. Each arbitration clause should be drafted with the client’s goals in mind regarding the dispute resolution process and with a view towards the type of defenses that were successfully raised in Basulto to preclude arbitration.
How We Can Help
If you, a friend or a family member find themselves in a situation such as this, please call the Law Office of Scott A. Ferris, P.A. at 305 670-3330 right away. Scott A. Ferris, Esq. is a licensed civil law attorney who has been practicing law since 1987. He is available whenever you need him to pursue your rights. Please learn about our firm at www.FerrisLawFirm.com.