Court Says Scammed Customers Cannot Be Forced into Arbitration

Court Says Scammed Customers Cannot Be Forced into Arbitration

By Aidan O’Shea
Communications Specialist

In a case regarding a car dealership that misrepresented and marked up a fee in its contracts with customers, the Florida First District Court of Appeal has now written a thorough opinion outlining the reasons why those customers taking part in a class action suit against the dealership cannot be forced into arbitration. This follows a ruling to that effect earlier this year.

“This opinion clarifying why there was no agreement to arbitrate will be helpful to fellow consumer rights attorneys working to preserve access to civil justice for people who are cheated,” said Public Justice Executive Director Paul Bland, who argued the case before the court in early 2014.

While there are some situations in which the FAA overrides state laws that create defenses to arbitration agreements, in this case the Court held that there was no agreement to arbitrate in the first place. The court explained the key point that under the FAA, “challenges to formation or existence of a contract are resolved by the court.” 

In this case, under Florida law, no agreement to arbitrate had ever been formed because of the way the defendant wrote the documents. “HHH Motors is being held to the language of its own concurrently-signed documents”, said the court. “If it intended for credit buyers to be subject to the arbitration clause, then it could have said so in the RISC, but did not.”

For at least four years, Florida car dealership conglomerate HHH Motors scammed its customers by misrepresenting a vendor’s fee for making a required government filing as the government’s fee, then drastically marked up that fee and pocketed the profits. HHH’s customers have filed a class-action lawsuit under Florida’s Deceptive and Unfair Trade Practices Act, which prohibits sellers from overcharging customers for government fees in an attempt to squeeze additional profits. The plaintiffs seek reimbursement and injunctive relief.

But HHH refuses to defend its conduct in court and is fighting to force its wronged customers into individual arbitration, where they could not be part of a class action. Without a class action, almost no consumers would bother to sue and those who did would be unable to find a lawyer who could afford to fight the case for recovery of about $100. HHH charged buyers $100 or in some cases more, for a fee that’s actually about $12, attorneys said.

“The defendants made a lot of money from a phony electronic funds transfer fee,” Brian W. Warwick, attorney for the plaintiffs, said. “It’s deceptive because the dealer made the fee look like it’s a government required fee, like a sales tax, but in fact it’s almost all profit. There’s no question that the consumers deserve to get their money back.” 

Warwick is a partner with Florida law firm Varnell & Warwick. The case is Jenny Lee Holt and Kristopher Holt, etc. v. HHH Motors LLP., d/b/a/ Hyuandai of Orange Park, etc. 

The trial court denied HHH’s Motion to Compel Arbitration because the contracts its customers signed did not reflect a legally valid agreement to arbitrate. HHH has appealed that denial in Florida’s First District Court of Appeals, arguing that the Federal Arbitration Act calls for an arbitrator, and not the court, to decide whether there is an agreement to arbitrate. 

Paul Bland successfully defeated the defendant’s argument that the Federal Arbitration Act essentially preempts the normal rules of state contract law relating to the formation of contracts. On May 27, 2014, the Florida First District Court of Appeal upheld the trial court’s decision that the car dealership could not enforce an arbitration clause and class action ban that appeared in its Retail Purchase Agreement where a second agreement to finance the car did not contain an agreement to arbitrate.

Plaintiffs’ attorney Janet Varnell, of Varnell & Warwick, emphasized the rare and precious nature of this spring’s victory for consumers in consumer contracts that involve an arbitration clause.

“Paul Bland was masterful in his argument, but it was his leadership and tenacity in educating and encouraging consumer protection lawyers to properly identify the last vestiges of opportunity amid the tsunami of pro-mandatory-arbitration opinions,” Varnell said. “Lawyers facing these same overreaching arguments about FAA preemption of state contract law should watch the video recording of Paul Bland’s oral argument in this case.”

The appellate court’s decision upheld the critical Florida precedent set in Duval Motors Co. v. Rogers (2011), which states that an agreement to arbitrate is only valid when the arbitration clause is in the particular document at issue in the case. In Holt, the challenged fee was in the financing agreement that contained an integration clause, while the agreement to arbitrate was in a separate purchase agreement. Had the appellate court done away with the Duval precedent, Varnell said, it would have left scammed Florida consumers with little hope of defeating arbitration challenges on the basis of contract formation, one of the last remaining lines of defense available to consumer attorneys.

“As it stands, the Plaintiffs in Holt now have the increasingly rare opportunity to bring a class action and to prove they were cheated in court,” she said.

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