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What You Signed Up For

What’s the difference between arbitration and litigation? It’s a difference you may want to know about if you’re planning on buying a vehicle in the near future. Most dealership contracts include arbitration clauses that you are bound to once you sign for your new car.

So what exactly are these processes? Arbitration is the hearing and determining of a dispute or the settling of differences between parties by a mediator chosen or agreed to by them. Litigation is the process of contesting a legal action in court. The biggest differences between the two are that arbitration is private, informal and there is no possibility of an appeal to the arbitrator’s decision. Arbitration is also much quicker and cheaper than litigation, which takes place in a public courtroom with an appointed judge presiding over the case. Litigation is formal with attorneys usually present, the possibility to submit evidence and the option to appeal a judge’s decision. Auto dealerships prefer to use arbitration because of the lesser cost, shorter time for processing and the finality of an arbitrator’s decision.

Basically, if you have a claim against or want to sue a dealership, you must do so through mediation and without the benefit of a jury or allowable evidence. Two customers found this out the hard way when they tried to withdraw from their auto deals.

Velessa Hathaway attempted to return the 2007 Dodge Charger she purchased from Commonwealth Dodge in Louisville, Kentucky, when she learned past repairs had been made to the vehicle. Hathaway claimed she was told that the car had no shop history of any kind when she purchased it. She later learned that the dealership itself had actually made several repairs to the vehicle. Commonwealth was sued for fraud and punitive damages, but the Kentucky court ruled that the case must be arbitrated, as stated in Hathaway’s contract. Hathaway’s lawyer, David Mour of Louisville, stated that the ruling was “a bad omen” for consumers and that it is very difficult to win punitive damages from an arbitrator.

In the second case, Charlette Wade made a claim against Country Ford Inc. in Southhaven, Mississippi, after purchasing a used 2004 Chrysler Pacifica from them. She argued that the dealership did not disclose accurate history on her vehicle, including past damage due to flooding. She also disputed the arbitration clause in her signed contract, maintaining that it was one-sided and unfair, and should not be enforced. However, a U.S. District Chief judge disagreed and granted Country Ford’s motion to settle the claim through arbitration.

Wade also sued Wynn’s Extended Car In., the warranty company providing extended repair coverage her Pacifica. She alleged fraud against Wynn’s, whose warranty she purchased along with her vehicle. The contract with the warranty company did not contain an arbitration stipulation, but the charges were dismissed on other grounds.

 

Sources:

Automotive News: April 25, 2011 issue

About.com: US Business Law / Taxes

http://biztaxlaw.about.com/od/resolvingbusinessdisputes/a/arbitratelitiga.htm

 

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