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May 14, 2006

Your client comes in and tells you that she just bought a car from a local dealership. The salesman assured her it was a new car, but it turns out it wasn't. Visions of treble damages and attorney fees under the Consumer Sales Practices Act dance in your head, plus there's the prospect of whipping the jury into a sufficient frenzy to award punitive damages. (And let's face it: if you can't whip a jury into a frenzy against a lying car salesman, you should be looking for another line of work.)  Then you get around to reading the purchase agreement, and there it is: a clause specifying that any disputes arising under the agreement have to be submitted to arbitration. No jury. No frenzy.

Well, cheer up, things might not be so bleak. In Olah v. Ganley Chevrolet the court reverses the trial judge's grant of a motion to stay proceedings pending arbitration.

Judge Karpinski's opinion begins by addressing the fact that differing panels of the court have come up with two different approaches for gauging the propriety of a lower court's grant of a stay in those circumstances: some panels have used an abuse of discretion standard, while others have reviewed it de novo. The court addresses that dichotomy, but doesn't resolve it, finding that either standard of review would require reversal.

The court then notes approvingly the language in Battle v. Bill Swad Chevrolet, 140 Ohio App. 3d 185 (Franklin Cty. 2000), where the dealership tried to force arbitration in a claim in which its salesman told the customer that the car he was buying hadn't been in any accidents, when in fact it had been in two, one of which occurred while an employee of the dealership was driving it. (The opinion notes that the damages "had been repaired by Bill Swad with a material called 'Bondo.'" I wasn't sure whether this was a good thing or a bad thing, so I looked it up. After reading this account my vote comes down pretty solidly on "bad thing.") Finding that "transactions involving modern day necessities such as transportation deserve especially close scrutiny before an arbitration clause is enforced by the courts," the court noted,

Assuming appellee's allegations are true, a company with far superior knowledge of the situation concealed very damaging information about its product from a far less knowledgeable consumer in a transaction which is among the most expensive transactions engaged in by the average consumer. Further, the product purchased is of critical importance to the consumer. If the vehicle purchased fails to perform its basic function of providing reliable transportation, the impact on the consumer can be devastating, especially if the consumer is not a wealthy person.

The Olah court then discusses the twin concepts of unconscionability, substantive and procedural. The former relates to the factors pertaining to the "commercial reasonableness" of the arbitration provision; the latter addresses the "those factors bearing on the relative bargaining position of the contracting parties." The opinion contains a good discussion of the substantive requirement, and concludes that the arbitration provision in the contract, because of the incompleteness and inaccuracy of the information pertaining to appeals of the arbitration award, "is not only confusing, but misleading and thus substantively unconscionable."

As for procedural unconscionability, the court found that the record lacked the necessary information - "plaintiff's age, education, intelligence, business acumen, etc." - to allow it to make a conclusion. The resulting decision, though, was somewhat odd: the court vacated the stay and remanded the case back to the trial court "for a hearing to develop those circumstances in order to determine whether the arbitration clause is also procedurally unconscionable and thus unenforceable." Since the court had already concluded that the provision was substantively unconscionable, why a hearing would be necessary to determine procedural unconscionability isn't clear.

That small nit aside, Olah is a salutary development, and part of a welcome trend of the courts' subjecting arbitration provisions to more careful examination. It's certainly understandable that a company would desire to limit its liability, and choosing an alternative forum is one way to do that. When the choice of arbitration is made by two parties of relatively equal bargaining power, or even in matters like brokerage agreements, where the consumer has some degree of sophistication and has other investment alternatives available, there's good reason to honor the choice with minimal court supervision of the matter. But when, as the Battle court notes, arbitration provisions are written into what are basically adhesion contracts involving essential and expensive consumer products, more exacting scrutiny should be required. Given that in our current legislature's list of priorities, "protecting the consumer" can be found somewhere on page seven, a couple notches above "safeguarding the rights of alleged child molesters," that duty falls to the courts.


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