Typically, a corporation seeks to enforce an arbitration clause in connection with a consumer dispute, while the consumer seeks to avoid arbitration and instead have a jury trial in court. However, in a recent Third Circuit case, the tables were turned, with the consumer seeking to enforce the arbitration clause and the corporation refusing to arbitrate.
In Edmondson v. Lilliston Ford, Inc., No. 14-1415 (3rd Cir. Nov. 25, 2014) (click here for a copy of the decision), the underlying dispute involved a consumer purchase of a used Ford Focus from a dealership. The consumer alleged that the dealership sold her a defective car and also refused to apply a credit or voucher in connection with the sale.
The consumer filed a demand for arbitration with the American Arbitration Association (AAA) pursuant to an arbitration clause in the sales agreement that governed the purchase of the car. However, the dealership refused to pay the required arbitration fees, and as a result, the AAA refused to arbitrate the case.
The consumer then filed an action in federal court for fraud and misrepresentation as well as federal warranty claims, and the dealership asked the court to dismiss the action on the basis of a purported settlement agreement (there had been a prior state court lawsuit between the two parties, but it is unclear how the state court litigation had ended. The dealership claimed there was a settlement of the state lawsuit, but the consumer claimed the parties withdrew the state lawsuit so that they could arbitrate their dispute). After the dealership asked the federal court to dismiss on the grounds of the alleged prior settlement, the consumer asked the federal court to order the dealership to submit the dispute to arbitration.
The federal district court dismissed, without prejudice, the consumer’s motion to compel arbitration so that the federal court could first rule on the dealership’s motion to dismiss on the grounds of the alleged prior settlement of the state court action.
On appeal, the Third Circuit held it was error for the district court to delay its ruling on the consumer’s motion to compel arbitration because the Federal Arbitration Act leaves no place for exercise of discretion. There was a broad arbitration clause covering all claims relating to or arising out of the sale of the car, and arguably, the arbitration clause covered some of the issues in the litigation. The Third Circuit therefore reversed the district court’s decision and directed the district court to consider the consumer’s motion to compel arbitration.
What I find interesting is the dealership’s decision not to pay the arbitrator’s fees, which can be viewed as an abusive stalling tactic in some situations. Arbitration clauses can sometimes make it difficult for a consumer or employee to find legal representation. I have met some attorneys who refuse to represent a consumer or employee when an arbitration clause is involved in the transaction. (Interestingly, the consumer in this case appears to be a pro se party, at least before the Third Circuit and also in connection with the motion to compel.) If a consumer or employee does choose to commence an arbitration against a corporation, a corporation sometimes will refuse to pay the arbitrator’s fees as a stalling tactic. The corporation’s refusal to pay will then place pressure on the consumer or employee. The consumer or employee may feel forced to pay the arbitrator’s fees themselves, or possibly the consumer or employee will have to turn to a court for help. These delays and additional costs are unfortunate burdens for a consumer or employee. Corporations often portray arbitration as a cheaper, more efficient way to resolve disputes, but corporations can abuse arbitration clauses and the arbitration process as a way to suppress claims, cause delays, and make dispute resolution more challenging and costly for a consumer or employee.