The auto finance industry has spent a great deal of time and energy defending the use of arbitration clauses that preclude consumers from filing class actions and waive jury trials.
The CFPB's anticipated regulation prohibiting the use of class action waivers in consumer finance agreements is likely to be overruled and repealed by the Congress and President Trump under the Congressional Review Act. This is a law that empowers Congress to consider administrative regulations under an expedited review process and send a repeal resolution to the President for signature. If signed by the President, the regulation is repealed and the agency is prohibited from reissuing the rule or issuing a new rule that is substantially the same.
That being said, a recent New Jersey Supreme Court case illustrates the importance of a dealer following its obligations to cause a consumer lawsuit to be dismissed in favor of an arbitration proceeding. In Roach v. BM Motoring, LLC, (No. 0777125 N. J. Sup. Ct March 9, 2017), the plaintiffs purchased vehicles from the defendant dealer and signed dispute resolution agreements that required arbitration in accordance with American Arbitration Association (AAA) rules before a retired judge or an attorney.
Two months later, one of the consumers filed a demand for arbitration with the AAA alleging violations of the New Jersey Consumer Fraud Act for treble damages and other relief based on overcharges and misrepresentations. Despite repeated demands by the plaintiff, the dealer did not respond nor did it advance the filing fees that the dispute resolution agreement required it to pay. The AAA dismissed the arbitration claim for non-payment of fees.
The other plaintiff filed a complaint in New Jersey Superior Court alleging similar violations six months after her car purchase. The dealer filed a motion to dismiss based on the arbitration provision and the court dismissed the suit in favor of arbitration. This plaintiff then filed an arbitration demand with the AAA which dismissed the claim because the dealer had previously failed to comply with the AAA's rules and procedures by not paying the fees in the other arbitration. The dealer did not respond to the new arbitration demand.
Both plaintiffs then filed this case against the dealer who moved to dismiss in favor of arbitration. The dealer claimed it did not contemplate using the AAA as the forum for arbitration because of the excessive filing and administrative fees the AAA charges. In opposition, the plaintiffs claimed that the dealer had materially breached the dispute resolution agreement by failing to advance the arbitration fees and thereby waived their right to arbitration.
The trial and intermediate appeal courts ruled the parties intended to arbitrate and should refile with the AAA and comply with AAA rules. The AAA reinstated the arbitrations and the courts dismissed the plaintiffs' lawsuit. The intermediate court found there was sufficient factual dispute on the forum for arbitration and the dealer's conduct did not constitute a material breach nor a waiver of the right to arbitrate.
The New Jersey Supreme Court reversed holding that the dealer's non-payment of filing and arbitration fees amounted to a material breach of the dispute resolution agreements, that the dealer was therefore precluded from enforcing the arbitration provisions and the case would proceed in the courts.
The Supreme Court cited a familiar contract principle that if one party breaches a material term of a contract, then the non-breaching party is relieved of its obligations under the contract. The arbitration provision was material because it went to the essence of the dispute resolution agreements. Since the AAA roster of arbitrators includes retired judges and attorneys, the Court ruled the plaintiffs had properly filed with the AAA and consenting to AAA rules was consistent with consenting to AAA-administered arbitrations. The Court went on to say that the dealer's failure to pay the AAA fees or respond to the arbitration demands also violated standards of good faith and fair dealing which are implied provisions of every contract.
The Supreme Court reversed the lower courts and remanded the cases to the trial court for further proceedings.This case shows the importance of meeting your obligations in the event of a consumer dispute that you want and have the right to go to arbitration. Missing a deadline, failing to advance fees, or not meeting some other procedural requirement could put you back in the court system and probably with the likelihood of a jury since it is arbitration agreements that most typically waive the right to a trial by jury.
Make sure you know in advance the rules and requirements for the arbitration procedures your retail installment sales contracts or dispute resolution agreements provide. Create a checklist for convenience so you are not scrambling at the last minute to figure out what to do. Then follow the requirements meticulously so your right to arbitration is not forfeited like this dealer in New Jersey.
The CFPB's anticipated regulation prohibiting the use of class action waivers in consumer finance agreements is likely to be overruled and repealed by the Congress and President Trump under the Congressional Review Act. This is a law that empowers Congress to consider administrative regulations under an expedited review process and send a repeal resolution to the President for signature. If signed by the President, the regulation is repealed and the agency is prohibited from reissuing the rule or issuing a new rule that is substantially the same.
That being said, a recent New Jersey Supreme Court case illustrates the importance of a dealer following its obligations to cause a consumer lawsuit to be dismissed in favor of an arbitration proceeding. In Roach v. BM Motoring, LLC, (No. 0777125 N. J. Sup. Ct March 9, 2017), the plaintiffs purchased vehicles from the defendant dealer and signed dispute resolution agreements that required arbitration in accordance with American Arbitration Association (AAA) rules before a retired judge or an attorney.
Two months later, one of the consumers filed a demand for arbitration with the AAA alleging violations of the New Jersey Consumer Fraud Act for treble damages and other relief based on overcharges and misrepresentations. Despite repeated demands by the plaintiff, the dealer did not respond nor did it advance the filing fees that the dispute resolution agreement required it to pay. The AAA dismissed the arbitration claim for non-payment of fees.
The other plaintiff filed a complaint in New Jersey Superior Court alleging similar violations six months after her car purchase. The dealer filed a motion to dismiss based on the arbitration provision and the court dismissed the suit in favor of arbitration. This plaintiff then filed an arbitration demand with the AAA which dismissed the claim because the dealer had previously failed to comply with the AAA's rules and procedures by not paying the fees in the other arbitration. The dealer did not respond to the new arbitration demand.
Both plaintiffs then filed this case against the dealer who moved to dismiss in favor of arbitration. The dealer claimed it did not contemplate using the AAA as the forum for arbitration because of the excessive filing and administrative fees the AAA charges. In opposition, the plaintiffs claimed that the dealer had materially breached the dispute resolution agreement by failing to advance the arbitration fees and thereby waived their right to arbitration.
The trial and intermediate appeal courts ruled the parties intended to arbitrate and should refile with the AAA and comply with AAA rules. The AAA reinstated the arbitrations and the courts dismissed the plaintiffs' lawsuit. The intermediate court found there was sufficient factual dispute on the forum for arbitration and the dealer's conduct did not constitute a material breach nor a waiver of the right to arbitrate.
The New Jersey Supreme Court reversed holding that the dealer's non-payment of filing and arbitration fees amounted to a material breach of the dispute resolution agreements, that the dealer was therefore precluded from enforcing the arbitration provisions and the case would proceed in the courts.
The Supreme Court cited a familiar contract principle that if one party breaches a material term of a contract, then the non-breaching party is relieved of its obligations under the contract. The arbitration provision was material because it went to the essence of the dispute resolution agreements. Since the AAA roster of arbitrators includes retired judges and attorneys, the Court ruled the plaintiffs had properly filed with the AAA and consenting to AAA rules was consistent with consenting to AAA-administered arbitrations. The Court went on to say that the dealer's failure to pay the AAA fees or respond to the arbitration demands also violated standards of good faith and fair dealing which are implied provisions of every contract.
The Supreme Court reversed the lower courts and remanded the cases to the trial court for further proceedings.This case shows the importance of meeting your obligations in the event of a consumer dispute that you want and have the right to go to arbitration. Missing a deadline, failing to advance fees, or not meeting some other procedural requirement could put you back in the court system and probably with the likelihood of a jury since it is arbitration agreements that most typically waive the right to a trial by jury.
Make sure you know in advance the rules and requirements for the arbitration procedures your retail installment sales contracts or dispute resolution agreements provide. Create a checklist for convenience so you are not scrambling at the last minute to figure out what to do. Then follow the requirements meticulously so your right to arbitration is not forfeited like this dealer in New Jersey.
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