Kia Franklin

Excellent Dissent to Pro-Arbitration Clause Court Decision

Justice Griffin’s dissent to a recent Florida Appeals court decision clearly and persuasively lays out the problem with enforcing overbroad, overly restrictive arbitration agreements in consumer contracts, like the one in this case, Mercedes Homes, Inc. v. Colon. The defendant in the case, a homebuilding company, successfully argued on appeal that the plaintiff should be forced to go to mandatory binding arbitration with his personal injury claim. Despite evidence that the arbitration clause was misleadingly presented to the plaintiff as a warranty, and that the clause was unclear about whether disputes not related to the warranty itself (like personal injury disputes) were also subject to arbitration, the court agreed with the defendant. It reversed the trial court’s ruling and compelled arbitration over the plaintiff’s personal injury claim.

The dissent by Justice Griffin, amazing in its clarity, argues that this ruling “places an imprimatur of judicial approval on a scheme whose ambitious end is the elimination of personal injury claims in any case where the victim has a contractual relationship with the tortfeasor.”

First, the dissent lays out how this is done by setting up the perfect mega shield of all arbitration clause mega shields (You can just hear the collective mwoohahaha of homebuilders everywhere):

First, in your purchase contract document, tell the buyer that you supply your product with a special but “limited warranty.” The warranty might make a soothing reference to a desirable outcome like “Asset Protection” and the name might suggest that the warranty comes from a very important warranty-giving company. Specify that it is the buyer’s only remedy for any construction defect.

Several months later, when the home has been built, make the buyer fill out an “application” for this warranty, which will convey the impression that it is both desirable and exclusive, even though it is both required and automatic… The application must contain a provision that the buyer agrees that the warranty is an express limited warranty and that the seller can be liable to no one for any claim that is not covered by the warranty documents. Then, give the buyer the thirty-one page Warranty Booklet. Among other things, it will explain that the warranty is actually a contract between the buyer and the seller, not the warranty company; and that the warranty company is not a warrantor but a “warranty administrator”…

Somewhere after the provision informing the buyer that this warranty will be their exclusive remedy and that no person or entity will be liable to the buyer for any claim not covered by the warranty, add a provision that excludes personal injury claims from the warranty. This is a key provision whose purpose is to transmogrify a warranty exclusion into a release.”

Next, noting that this case presents “a wealth of procedural and substantive unconscionability issues” including the misleading way in which an arbitration provision was presented as a warranty, Griffin expresses his agreement with the trial court. He says:

What we have begun to see is that virtually all consumer transactions, no matter the size or type, now contain an arbitration clause. And with every reinforcing decision, these clauses become ever more brazenly loaded to the detriment of the consumer—who gets to be the arbitrator; when, where, how much it costs; what claims are excluded; what damages are excluded; what statutory remedies are excluded… not to mention the fairness or accuracy of the decision itself… Most consumers can’t read [arbitration clauses], won’t read them, don’t understand them, don’t understand their implication and can’t afford counsel to help them out.

The entire opinion is definitely worth reading. But as a final highlight, check out his reflections on the bigger implications of this case, despite its lack of high-profile importance on its own:

I suppose the case of Luis Colon tripping over badly laid sod in his yard in Rockledge, Flordia, does not offer a very compelling scenario, but imagine instead a badly hung chandelier falling on the head of some prominant person in Washington, D.c., injuring him severely. I would love to be in the room when it was explained to him that he had given up his claim for compensation for his injuries by buying a house with a HBW VI express limited warranty…

Posted at 12:58 PM, Aug 23, 2007 in Permalink | Comments (2) | TrackBack (0)