Auto Fraud and Arbitration Agreements

A while back, we were contacted by a client with a repossession issue.  The case seemed pretty simple, a repossession agent entered the property, grabbed a piece of machinery, almost ran over an employee, and finished the repossession.  This seemed like a case of disturbing the peace to us, so we brought a suit for an improper repossession.  After pages and pages of documents, the Defendant was successful in pointing out a small provision in the finance agreement that required the parties to go to mandatory binding arbitration.  Those words are a nightmare to consumer attorneys.

Mandatory binding arbitration is an alternative dispute process that avoids real litigation in a court of law.  The American Arbitration Association (“AAA”) is the leading binding arbitration company.  The AAA hires ex-judges and attorneys to sit in the place of a jury in an informal trial and decide who wins.  The process is meant to be streamlined and quick,  it isn’t supposed to cost the consumer as much money, and it is meant to be an alternative to the intimidating and long court system.  In theory, it sounds like a good idea.

However, over the years, industry has taken control of the AAA.  Through large money donations and support, industry has gained an ability to control who sits as the trier of fact.  This has tainted the AAA with influential people who tend to side against the consumer, like you.

Car dealerships quickly got wind of the AAA and started throwing Arbitration Agreements in their car sales.  Every time a vehicle was purchased, the dealership would require the buyer to sign an Arbitration Agreement.  Then, if the buyer tried to sue the dealership for auto fraud, the dealership would simply pull out the Arbitration Agreement, get the case kicked out of court, and force the buyer to pay more money to re-file the case in the AAA, where the buyer was almost guaranteed to lose.  These agreements were REALLY hard to beat until recently.

In 2013, the Superior Court of Pennsylvania handed down Knight v. Springfield Hyundai, 81 A.3d 940.  This case basically said that when a vehicle is financed, anything outside of the finance agreement is invalid.  If it isn’t in the finance agreement paperwork, it cannot be enforced.  Initially, this was great news to consumer attorneys because most finance agreements didn’t include arbitration language.  As such, it didn’t matter if our clients signed separate Arbitration Agreements.  After a while, dealerships learned about this case and started adding arbitration language.  However, not every finance agreement has such language, and not all are enforceable.

Most consumers do not even know about Arbitration Agreements or what they mean for limiting constitutional right to a trial by jury.  When you contact our law firm with an auto fraud claim, we have to see your finance agreement.  If there is an arbitration agreement, you need to understand what you are getting into by filing a lawsuit.  In an ideal world, we could tell our clients to never sign an agreement that contains arbitration language.  However, until the Federal Government makes them illegal, companies will continue to add them to non-negotiable form contracts.