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What a difference 5 years makes

Surprisingly, the first substantive post I did on this blog, nearly five years ago now, was not on some aspect of criminal law, but on Olah v. Ganley, an 8th District decision about arbitrations -- provisions in consumer contracts (in that case a car purchase agreement) which required that any dispute be submitted to arbitration.  In later posts, I noted that the 8th District was "one of the most arbitration-unfriendly districts in Ohio" and that "I have a real hard time trying to imagine a scenario in which an arbitration provision will be upheld in an ordinary consumer transaction."  In fact, I did so many posts on the issue that Lexis came to the delusionary conclusion that people would be willing to pay $50 a pop to read my bloviations on the subject. 

I haven't done a post on that in a while, because the legal landscape has changed substantially in the past five years.  Back then, courts were sympathetic to the claim that large companies shouldn't be able to force consumers into giving up the rights they normally would under our legal system, like trial by jury and full discovery.  One of those rights was also the right to come together to form a class action to seek redress; some Ohio courts invalidated arbitration provisions simply because they would have precluded the ability to file a class action suit.

After the 8th District's decision last week in Wallace v. Ganley Auto Group, you can stick a fork in that idea.

The plaintiffs in the case had filed a class action, alleging that Ganley had sold them used cars without disclosing that the vehicles had been owned by rental car companies and used as rental cars.  Ganley filed a motion to stay pending arbitration, pursuant to the arbitration agreement contained in its purchase agreements.  The trial court allowed limited discovery, relating to the enforceability of the arbitration provision, then granted the motion.

The plaintiffs appealed, making several arguments.  The first was that the provision was void as a matter of public policy because it banned class action arbitrations, relying on prior case law to that effect.  Unfortunately, the US Supreme Court's decision two months ago in AT&T Mobility v. Concepcion pretty much killed that argument.  That case involved a class action suit against AT&T, alleging that the company engaged in fraud by charging a sales tax -- in this case, about thirty dollars -- on phones advertised as free.  AT&T's contract required arbitration, and that claims be brought "in an individual capacity."  Several years earlier, the California Supreme Court had held that such provisions were unconscionable and unenforceable if three conditions could be met:   the provision was part of an adhesion contract, the case involved disputes over small amounts of money, and the claim alleged that the defendant had engaged in a scheme to deliberately cheat consumers individually out of small amounts of money.  The District Court and the 9th Circuit had relied on the California case to deny the motion for arbitration, but the Supreme Court reversed by a 5-4 vote, the majority holding that the California rule was pre-empted by the Federal Arbitration Act, which favors arbitration as a method of resolving disputes. 

That preference was echoed two years ago by the Ohio Supreme Court in Hayes v. Oakridge Nursing Home, which had reversed an 8th District decision voiding an arbitration provision in a nursing home agreement signed by a 94-year-old woman.  As I'd mentioned in my discussion of the case and my earlier post on the 8th's decision, the latter hadn't been particularly well-grounded, so I wasn't surprised to see it reversed, but the emphasis on the "strong public policy favoring arbitration" and the lack of any recognition that the parties don't have equal bargaining powers in consumer contracts was of some concern.

That carried over into the Wallace plaintiff's second argument, that the provision was substantively and procedurally unconscionable.  The court in Olah had given lip service to the policy favoring arbitration before focusing on unconscionability, noting that "transactions involving modern day necessities such as transportation deserve especially close scrutiny before an arbitration clause is enforced by the courts."  Nothing like that here; the Wallace opinion quickly dispenses with the argument that Ganley's agreement doesn't pass muster.  In fact, in Olah the court had found "troublesome" a statement in the arbitration provision that "arbitration procedures are simpler and more limited than rules applicable in court"; the panel in Wallace finds that this "is indeed an accurate statement of the law."

But while the Supreme Court in Hayes had merely ignored the issue of the parties' unequal bargaining situation, the Wallace opinion confronts it head-on:

Ganley and appellants were no doubt in unequal bargaining positions. However, an unequal bargaining position is not, in and of itself, a sufficient reason to hold an arbitration agreement unenforceable.   There must be some evidence that, as a result of the imbalance, the party in the weaker position was defrauded or coerced into agreeing to the arbitration clause.

That's my emphasis, and it pretty much sounds the death knell for any attempt to negate an arbitration provision in a consumer contract.  Such contracts, by virtue of their adhesionary nature, are inherently coercive; try telling Ganley that you want to buy their car, but don't want to sign the arbitration provision.  If that's not sufficient to constitute coercion, it's hard to see what would be.

It may simply be a sign of the times.  Yesterday's Plain Dealer, before assuming its more functional role the liner in the litterbox, informed me that our legislature is working, with the assistance of the Ohio Auto Dealers Assocation and the Chamber of Commerce, on "streamlining" the provisions of the Consumer Sales Practices Act.  That's somewhat akin to teaming up with Hugh Hefner and Larry Flynt to come up with new definitions of obscenity.


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