Florida Litigation Update: Arbitration Clauses are Not Always Enforceable

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In Basulto, et. al. v. Hialeah Automotive, etc., et. al., SC09-2358 (March 20, 2014), the Florida Supreme Court addressed the enforceability of an arbitration clause between a car dealership and purchasers. In the Basulto case, purchasers signed blank contracts for the purchase of a new vehicle and trade-in of their existing vehicle following representations by the dealership that the agreed upon dollar amounts would be inserted into the contracts prospectively. Ultimately, the dealership inserted a value for the purchasers’ vehicle trade-in without the consent or agreement of the purchasers. After several days of negotiations (and the purchasers leaving the dealership with the vehicle), the dealer refused to revise the contracts.  Seeking to rescind the deal, the purchasers requested the return of their trade-in (which they only drove a total of seven miles), only to be advised that the vehicle had been sold. 

The purchasers filed a lawsuit in Miami-Dade County against the dealership alleging Fraud in the Inducement, a violation of the Florida Unfair Deceptive Trade Practices Act, rescission of the arbitration agreements, and rescission of the loan agreement. The dealership moved to compel arbitration (per the terms of the agreements).  During an evidentiary hearing, the following additional facts were unveiled:  (a) despite the fact that the purchasers could only communicate in Spanish, all contracts were in English; (b) dealership employees attempted to explain the arbitration clauses to the purchasers; however, the dealership employees had virtually no understanding as to the meaning of such clauses; (c) the purchasers were never informed that they were actually waiving their rights vis-à-vis the arbitration clauses; (d) the finance manager advised the purchasers that if they refused to sign the form contracts there would be no deal; and (e) the purchasers were compelled to sign all documents in rapid succession without the ability to understand exactly what they were signing.

At this point, you might be thinking, among other things, that the purchasers appear at fault for signing contracts the terms of which were written in a language they did not speak and which included blanks to be filled in at a later time. Thus, because the agreements contained arbitration clauses, the purchasers should be required to arbitrate, right? Wrong. That was not how the courts in Florida ruled. First, in Florida, “there are three elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999). The trial court, relying on Seifert, held that there was no valid agreement to arbitrate because the contracts, when read in unison, contained multiple conflicting dispute resolution provisions which could not be reconciled.  The trial court further reasoned that despite a finding that there was never a “meeting of the minds,” the agreements would have been deemed unenforceable being both procedurally and substantively unconscionable. The dealership then appealed to Florida’s Third District Court of Appeal, which held that one of the arbitration clauses was enforceable. However, the Court of Appeals failed to perform a Seifert analysis in reaching its conclusion.  The purchasers appealed to the Florida Supreme Court.

Before the Florida Supreme Court, the dealership argued that under Florida contract law, it should not matter whether a party to an agreement is “blind, illiterate, or has limited understanding of the language.”  Rejecting this, and several other arguments presented by the dealership, the Florida Supreme Court reversed the appellate court’s decision and affirmed the trial court’s application of Seifert. Succinctly, as established by Basulto, arbitration clauses in Florida will be enforced unless (a) an agreement to arbitrate fails to satisfy a Seifert analysis, (b) there is a finding that that the parties never reached a “meeting of the minds,” or (c) the agreements at issue are found to be both procedurally and substantively unconscionable. The Florida Supreme Court’s ruling in this case was critical, and will govern how arbitration clauses in Florida will be enforced for the foreseeable future.

Topics:  Arbitration, Arbitration Agreements, Mandatory Arbitration Clauses

Published In: Alternative Dispute Resolution (ADR) Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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