Wirtz Law Blog

Binding pre-dispute arbitration provisions are nearly ubiquitous in consumer contracts. Most consumers do not even know that such provisions are in the lengthy boilerplate contracts presented to them by credit card companies, mobile phone providers, and manufacturers. Arbitration has statistically verified as a less favorable forum for consumers and a more favorable forum for large corporations by the Consumer Financial Protection Bureau.

Increasingly, automobile dealers include a broadly worded arbitration provision in their sales agreements and leases. One of the most popular purchase agreements is the LAW 553 CA ARB. This document is a product of Reynolds and Reynolds, a company that also makes a popular dealership document management system. Much of the contents of LAW 553 are required by statute.

However, this form also includes a provision that is not required by statute: an arbitration provision.

This arbitration provision was never intended by the drafts to apply to your Lemon Law claims. Car dealerships are what are called loan originators. The LAW 553 acts as both a sale document and a financing document. The dealer sells the vehicle to the consumer and then immediately assigns the loan to a finance company, which is usually a subsidiary of the manufacturer. This assignee financing company is the intended beneficiary of the arbitration provision. Reynolds and Reynolds even advertise the LAW 553 for its acceptability to financial institutions, not manufacturers.

However, manufacturers have begun using the broadly worded arbitration provisions in LAW 553 and other purchase agreements and leases to try to force California Lemon Law claims into arbitration. Manufacturers have had some success in convincing over-docketed courts that the California Lemon Law claims of some consumers should go to arbitration.

It may be possible to avoid the apparent pre-dispute binding arbitration by agreeing with your dealer to strike the arbitration provision from the document or to use a document that does not contain an arbitration provision. While LAW 553 is a pre-printed form, it is still a contract potentially subject to negotiation.

First, the LAW 553 and other form sales contracts and leases are available without an arbitration provision. Ask your dealer if they have a purchase agreement or lease without an arbitration provision. If so, ask to use that form.

Second, the sales contracts and leases are pre-printed triplicate forms, ordered by dealerships in bulk. If they do not have a version without an arbitration provision on hand just propose to “strike” the arbitration provision by handwritten amendment.

Four steps here:

1. Find the arbitration provision (usually in the very back in very small print);
2. Strike or cross out the arbitration provision;
3. Initial the stricken provision and ask the salesperson to do the same; and
4. Keep a copy.

Below is a simple example of a stricken arbitration provision on LAW 553:

Conclusions

• Arbitration is less favorable to consumers.
• A consumer may be able to avoid agreeing to arbitration, but only if they speak up when purchasing or leasing a new motor vehicle.
• First, ask to use a form that does not contain an arbitration provision.
• Second, follow the steps above to strike an arbitration provision.

For more information call the experienced trial attorneys at (858) 259-5009 for a free case evaluation.

Disclaimer. The information provided in this post is for informational and educational purposes only regarding aspects of the California Lemon Law. It is intended for California Consumers only. This post is considered an advertisement by attorney Richard M. Wirtz and Wirtz Law APC. You should not rely on any of the information provided in this advertisement and no legal advice is given by the advertisement. No attorney-client relationship is established by viewing this advertisement. A written signed engagement agreement between you and Wirtz Law APC is required to create an attorney-client relationship. You should immediately consult an attorney who is experienced in California Lemon Law. Attorney Richard M. Wirtz is responsible for the content of this post.

1. CFPB Arbitration Study 2015, Section 1.4.1.
2. Id.at 1.4.2.
3. Id. generally.
4. California Civil Code, Section 2982.
5. https://www.reyrey.com/reynolds-document-services/f-and-i-compliance/law-553-retail-installment-contract
6. California Civil Code, Section 1651 (“Where a contract is partly written and partly printed, or where part of it is written or printed under the special directions of the parties, and with a special view to their intention, and the remainder is copied from a form originally prepared without special reference to the particular parties and the particular contract in question, the written parts control the printed parts, and the parts which are purely original control those which are copied from a form. And if the two are absolutely repugnant, the latter must be so far disregarded.” [emphasis added].)