It is common today for consumer goods and services purchase and financing agreements, and credit card agreements, to include a provision requiring disputes to be submitted to arbitration. These provisions identify the arbitration forum in which the dispute will be determined, and often spell out procedural requirements, limitations and other aspects of the process. Arbitration is a favored means of dispute resolution supported by strong statements of national and state policy in court decisions enforcing agreements. A consumer obligated to arbitrate may not pursue the dispute in court in a jury trial.
Nevertheless, because arbitration provisions generally appear as “fine print” in preprinted standardized forms offered to consumers on a “take-it-or-leave-it” basis, they may be scrutinized by courts and in some cases invalidated.
Such scrutiny was applied earlier this year when the Ohio Court of Appeals for Summit County rendered a decision impacting the way Ohio courts will look at consumer arbitration provisions in the future.
The Case
In Eagle v. Fred Martin Motor Co., Eagle sued the auto dealership over alleged unfair and deceptive consumer sales practices in the sale of an automobile. Because her purchase agreement contained a provision requiring that disputes be submitted to arbitration, Eagle was ordered to go to arbitration. Eagle challenged that order in the court of appeals, claiming that the arbitration provision was unenforceable.
The Decision
The court of appeals agreed with Eagle, finding that the terms of the arbitration provision were unfair and unreasonable, and that Eagle, under the circumstances, could not have agreed to the provision.
The court of appeals found that the arbitration provision imposed undisclosed excessive costs and mandated confidentiality of the arbitration. This, said the court, undermines the purpose of a remedial statute such as Ohio’s Consumer Sales Practices Act. The agreement further required that arbitration would be conducted by the National Arbitration Forum under its rules. It did not disclose costs to a claimant to bring an arbitration case, which could be as much as $6,000 plus filing fees. There was no provision for relief for indigent parties. Such costs, said the court, would be prohibitive, unreasonable and unfair as applied to Eagle.
The court also found that the arbitration provision was “unconscionable” because of the disparity in bargaining power between Eagle and the dealership. It is doubtful, said the court, considering Eagle’s educational and economic background, age, sophistication and experience that she had sufficient knowledge about the type of transaction involved or any awareness of her rights as a consumer. The court also was concerned that while arbitration provides an economical and speedy method of dispute resolution for many businesses, the remedial purpose of the Ohio Consumer Sales Practices Act would be thwarted by forcing consumer claims into private arbitration proceedings thus preventing the public from discovering deceptive acts and practices.
The Implications
This strongly worded decision is now being applied by other courts in Ohio. Most recently, the Richland County Court of Appeals applied it to strike down an arbitration provision contained in a credit card agreement for which the fees and costs to bring an arbitration were such that the agreement discouraged consumers from bringing large claims.
The Eagle decision opens arbitration provisions in Ohio consumer transaction documents to heightened scrutiny. Arbitration provisions in Ohio consumer transaction documents should be reviewed to assess the risk of being held “unconscionable.” Provisions must be re-examined in terms of appropriate notice, arbitration costs, mandated forum and procedures, remedy limitations, and, generally, for features that may undermine the purpose of a remedial statute like the Consumer Sales Practices Act. The court did not hold that all arbitration clauses in preprinted sales contracts are invalid. It did hold, however, that particular features or elements of an arbitration provision can make it invalid, particularly in circumstances where there is significant disparity in bargaining power and an unfair surprise to a consumer.
Eagle is a wake-up call. Arbitration provisions within your consumer contracts should be reviewed to preserve the advantages and efficiencies of arbitration as a means of dispute resolution.