Most advocates of arbitration agreements will tout the value of class
action waivers as a prime reason for their use in automobile dealerships.
If a customer can’t join in a class action for a perceived wrong and
must sue a dealership individually, there is less likelihood that the individual
will file suit. However, a recent
decision in an
Ohio
court has the potential to limit the use of class action waivers in our state.
Utley vs. M.T. Automotive, announced by the Summit County Court of
Common Pleas, found that the use of class
action waivers in arbitration agreements violate the Ohio Consumer Sales
Practices Act. Moreover, the Utley court found that insisting that a
consumer sign the arbitration form in order to purchase a vehicle violated the
CSPA because such action deceives customers into believing they do not have the
right to join a class action.
A summary of the facts surrounding the case are as follows.
In 2006, Mr. Utley, an attorney, and his wife went to the dealership to
purchase a new vehicle. The couple
negotiated the price of a 2007 Toyota Solara and began signing documents for its
purchase when they were presented with an arbitration agreement entitled,
“JURY WAIVER AND AGREEMENT TO BINDING ARBITRATION”.
Mr. Utley and his wife refused to sign the document and were told by the
dealership representatives that they could not sell the vehicle without the
arbitration agreement being signed. Ultimately,
the Utleys left the dealership without purchasing the Toyota Solara.
The next day, the Utleys purchased a 2006 Toyota Solara from a competitor
without being required to sign an arbitration agreement.
The used vehicle cost $2731 more than the newer model offered by M.T.
Automotive. The Utleys then sued M.T.
Automotive alleging CSPA violations and requesting damages as well as an
injunction.
After
trial, the Court did not award the Utleys damages for the difference in price of
the two vehicles, but did award reasonable attorney fees. More damaging to those
dealers who use arbitration agreements, the Court issued a declaratory judgment
that an automobile dealership’s act of
knowingly refusing to sell a consumer good unless the consumer agrees to waive
his rights to act as a private attorney general or join in a class action
violates the CSPA.
The
Utley Court
relied on a 2004 Ninth District Court of Appeals case, Eagle v. Fred Martin
Motor Co., in making its decision. The
Eagle decision provided a step by step approach to determine whether an
arbitration agreement was enforceable and found that even if the parties to the
agreement understood its terms, it could be unenforceable as a matter of public
policy. According to Eagle,
Where an arbitration clause expressly limits a consumer’s right to proceed
through a class action, the consumer protection purposes of the CSPA were
hindered. Utley relied
on this language in its decision and further found that insisting on the
execution of the arbitration agreement as part of the sales transaction violated
the CSPA.
What
does all of this mean to you? This
decision, while not binding on courts outside the 9th District, could
be a tool used by attorneys statewide to persuade their courts to limit the use
of arbitration agreements. Certainly,
dealers in Summit County and the other counties in the Ninth District (Wayne,
Medina, Lorain) need to be aware that jury waiver provisions in non-negotiable
arbitration agreements will make them a target for consumer lawsuits which have
the potential to result in expensive litigation and treble damage awards.
The same is true if customers are unable to negotiate terms or refuse to
sign the agreement. All dealers
should review their arbitration agreements and determine if they are fair to
both parties.
