United States: Recent Florida Supreme Court Decision Highlights Perils Of Conflicting Arbitration Clauses

Last Updated: April 7 2014
Article by Thomas F. Oppenheimer

A recent Florida Supreme Court decision may provide ammunition to non-English speaking consumers seeking to preclude the enforcement of arbitration clauses contained in consumer contracts written in English. In Roberto Basulto, et al. v. Hialeah Automotive, etc., et al., No. SC09-2358, 2014 WL 1057334 (March 20, 2014) a 5-2 majority of the Florida Supreme Court held that arbitration clauses contained in various agreements signed by the Spanish-speaking petitioners relating to their purchase of a Dodge Caravan from a car dealership were unenforceable. The Florida Supreme Court upheld the trial court's ruling that the arbitration clauses could not be enforced because they were conflicting and unconscionable.  In doing so, the Florida Supreme Court quashed the Third District Court of Appeal's (DCA) opinion in Hialeah Auto., LLC v. Basulto, 22 So.3d 586 (Fla. 3d DCA 2009), because the appellate court failed to apply the proper standard enunciated by the court in Seifert v. U.S. Home Corp., 750 So.2d 633 (Fla. 1999) when ruling on a motion to compel arbitration.

Factual and Procedural Background

The Basultos – a married couple from Cuba who did not speak English – purchased a 2005 Dodge Caravan from Hialeah Automotive in 2004. When they purchased the vehicle, they signed various agreements all of which were in English. A dispute arose between the parties when the Basultos attempted to return the vehicle to Hialeah Automotive.  The Basultos later filed an action against Hialeah Automotive in Miami-Dade Circuit Court asserting claims for fraud in the inducement and violation of the Florida Deceptive and Unfair Trade Practices Act. In response, Hialeah Automotive moved to compel arbitration pursuant to the arbitration clauses contained in the agreements signed by the Basultos.

An evidentiary hearing was held in which the trial court heard testimony from various witnesses, including the Basultos and certain sales representatives of Hialeah Automotive who were directly involved in the sale of the vehicle. Following the hearing, the trial court concluded that there was no valid agreement to arbitrate. In support of its decision, the trial court noted that there were several inconsistencies between the agreements signed by the Basultos. For example, one agreement called for arbitration by a single arbitrator while another required arbitration by a panel of three arbitrators. Additionally, the agreements contained jury waiver clauses, which implied a right to litigate disputes in court. The trial court also found that the sales representatives did not understand the arbitration process and therefore could not have been able to adequately explain arbitration to the Basultos nor the rights that they were waiving by signing the agreements, such as their waiver of the right to seek punitive damages or class action status. The trial court also found that the agreements were unenforceable because they were unconscionable.

On appeal, the Third District affirmed in part, and reversed in part, the trial court's decision. The Third District affirmed the trial court's decision to compel arbitration of the Basultos' claims for declaratory and injunctive relief, but held that arbitration was mandated for their claims for monetary relief under one of the agreements.

The Florida Supreme Court quashed the Third District's decision and remanded the case with instructions to reinstate the trial court's judgment based on controlling precedent. Specifically, the Court found that the Third District failed to properly apply the following elements set forth in Seifert that courts must consider when ruling on a motion to compel arbitration: (1) whether a valid agreement to arbitrate exists, (2) whether an arbitrable issue exists, and (3) whether the right to arbitration was waived. The Florida Supreme Court held that the Third District failed to address the first prong of the Seifert test, which the trial court considered and found was lacking because the subject arbitration clauses were unenforceable for the reasons explained above.

The Florida Supreme Court also exercised its discretionary authority to clarify the unconscionability defense to prevent the enforcement of an otherwise binding arbitration agreement. The Court held that procedural unconscionability (which is concerned with the manner in which a contract is entered into) and substantive uncionscionability (which focuses on the fairness of a contract's terms) must be established to prevail on the defense. However, procedural and substantive unconscionability do not need to be present to the same degree in order to prevail on the defense. Rather, the Court agreed with the balancing test adopted by several Florida appellate courts under which both components of unconscionability must be evaluated interdependently "allowing one prong to outweigh another provided there is at least a modicum of the weaker prong." Basulto, 2014 WL 1057334 at * 18 (citing VoiceStream Wireless Corp. v. U.S. Commc'ns, Inc., 912 So.2d 34, 39 (Fla. 4th DCA 2005)).

What Lessons Can Be Learned From Basulto?

It remains to be seen what impact the Basulto case will have on other similarly situated consumers who want to avoid arbitrating their disputes with retail sellers pursuant to arbitration clauses contained in consumer contracts governed by Florida law. However, some lessons can be taken from Basulto that may benefit parties (both in the consumer and non-consumer context) who want to reduce the chances that their arbitration agreements will be declared unenforceable by courts or arbitrators.

  1. Consistency is Key.  If several agreements are drafted for the same transaction and each contains an arbitration clause, make sure that they are consistent with each other.  If, as in Basulto, there are multiple agreements containing different arbitration clauses, any conflicting provisions may render the arbitration agreement unenforceable if challenged. If an arbitration clause must be used in multiple agreements, the same clause should be inserted into each agreement. Care should be taken to ensure that the arbitration clause used in each agreement contains the essential terms of the arbitration and does not conflict with other provisions, such as any jury waiver clauses found elsewhere in the agreement. 
  2. Arbitration Clauses Should Contain The Essential Terms. Arbitration clauses should cover the material aspects of the arbitration in order to reduce the chances that a court or arbitrator will fill in the gaps or find that no arbitration agreement was entered into between the parties. An arbitration clause should include, at a minimum, clauses that clearly set forth (i) whether the submission of a dispute to arbitration is required or optional, (ii) what disputes will be arbitrated, (iii) whether a court or arbitrator will decide whether the arbitration agreement is enforceable and other threshold issues, (iv) the rules that will govern the arbitration, (v) whether an institution such as the American Arbitration Association will administer the arbitration, (vi) the place of the arbitration, (vii) whether English or another language should be used in the arbitration (particularly where non-English speaking parties are involved as was the case in Basulto) (viii) the substantive and procedural law that will apply to the arbitration, (ix) the number of arbitrators and the method in which they will be selected, and (x) whether a party may seek emergency relief in court before or during the arbitration.   
  3. Avoid Unfair Arbitration Clauses In Adhesion Contracts. Oftentimes, parties with significant leverage, like the car dealership in Basulto, present their powerless counterparties with "take-it-or-leave-it" adhesion contracts with arbitration clauses that may be successfully challenged if they are inherently unfair. In this context, the arbitration clause, when taken as a whole, should be objectively fair and not too one-sided in favor of the party with all of the bargaining power. Arbitration provisions that eliminate or limit the rights of a party lacking bargaining power (such as a waiver of the right to seek punitive damages) or give one party too much control over the arbitration proceedings increase the risk that the agreement will be declared unenforceable by a court or arbitrator. 
  4. Be Careful With Waivers Of Statutory Remedies.  If the arbitration agreement substantially limits or prevents a party from obtaining relief under a statutory claim, the agreement to arbitrate that claim may be rendered unenforceable. That may open the door to the party seeking such relief to pursue the statutory remedies in court, which would defeat the purpose of the having the arbitration agreement in the first place. 
  5. Consider Translating Agreements In Certain Situations.  In situations like in Basulto where the party without leverage is not fluent in English, providing that party with copies of the agreements that are translated in their native language would provide a defense to any claims that the agreements are unenforceable due to a language barrier. Given the number of Spanish-speaking consumers in the south Florida market, prudent vendors should take special precaution to ensure that they don't risk having their contracts (or pertinent provisions thereof) rendered unenforceable solely because they are written in English.
  6. Avoid Rendering Legal Advice To The Other Party. It is not recommended that any representative of a party attempt to translate, explain or interpret any arbitration clauses to the other party, especially if they are not an attorney. This is particularly true in the case of adhesion contacts where one party has all of the bargaining power. The testimony of the sales representatives in Basulto revealed that they did not understand the concept of arbitration and confirmed the trial court's suspicions there was no "meeting of the minds" between the parties regarding arbitration. Rather than having their sales representatives attempt to explain arbitration to the Basultos, Hialeah Automotive would probably have been better off if they had provided them with a document to sign in Spanish that informed them that they were waiving important legal rights and should retain an attorney to explain the agreements to them.

There is no "one size fits all" arbitration clause that can or should be used for every type of transaction. Each arbitration clause should be drafted with the client's goals in mind regarding the dispute resolution process and with a view towards the type of defenses that were successfully raised in Basulto to preclude arbitration. The attorneys at Fox Rothschild LLP routinely assist clients in reviewing and drafting arbitration clauses in consumer transactions as well as sophisticated domestic and cross border transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Thomas F. Oppenheimer
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.