Monday, May 20, 2013

Federal Preemption and Arbitration Clauses in Motor Vehicle Franchises

About a decade ago, manufacturers took advantage of policy favoring arbitration and began routinely including mandatory arbitration clauses in their dealership agreements. Whether a manufacturer can enforce mandatory arbitration in a motor vehicle franchise agreement requires an analysis of competing state and federal statutes, as well as a determination of what is a "motor vehicle." A federal district court in New York recently held the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 USC 1226, did not limit a franchisor's effort to arbitrate a dispute concerning dealer agreements for snowmobiles and all-terrain vehicles. However, the federal Fairness Act did serve to block arbitration of claims regarding the same dealer's motorcycle franchise. The dealer agreement provided any claims arising between the parties were subject to mandatory arbitration, but the parties agreed that each product line was considered to be a separate franchise. Suit was first filed in state court, seeking injunctive relief, and was removed to federal court where defendant filed a motion to compel arbitration. The court inquired whether the cause of action was subject to arbitration based on the following: (1) whether the parties agreed to arbitrate; (2) the scope of the agreement; (3) if federal statutory claims were asserted, whether Congress intended that certain claims be nonarbitrable; and (4) if not all of the claims were arbitrable, whether to stay the balance of the proceedings pending arbitration to avoid confusion and the possibility of inconsistent results. Under state law, a mandatory arbitration clause in a motor vehicle franchise agreement is converted into a consensual arbitration clause, though state law was preempted here by the Federal Arbitration Act (FAA). The federal Fairness Act defines "motor vehicle" as one primarily for use on public streets, roads and highways. This definition excluded claims related to snowmobiles and all-terrain vehicles. As for venue, interestingly, the FAA grants district courts the power to compel arbitration only within their own districts. See 9 USC 4. It is likely resolution of the arbitration will dictate how the motor vehicle-related motorcycle claims will be determined. See more here-- and Champion Auto Sales, LLC v. Polaris Sales Inc., 2013 U.S. Dist. Lexis 65219 (E.D.N.Y. Mar. 27, 2013)