For the second time this week, a development came to light out of New Jersey that might be relevant to buy-here, pay-here dealerships nationwide.
After BHPH Report highlighted how the industry scored a major legislative victory in the Garden State involving the use of GPS and starter-interrupt devices, a case decided by the New Jersey Supreme Court earlier this month reinforced the importance of dealers maintaining their fee payments to keep the arbitration component in their installment contracts enforceable.
The matter stems from a pair of plaintiffs who purchased used vehicles from BM Motoring, LLC, and Federal Auto Brokers, Inc., which are doing business as BM Motor Cars, a dealership located near Rahway N.J. by the Rutgers University School of Law, as part of the transaction, each plaintiff signed an identical dispute resolution agreement (DRA), which required resolution of disputes through an arbitration in accordance with the rules of the American Arbitration Association (AAA) before a retired judge or an attorney.
Two months later, one plaintiff filed a demand for arbitration against BM Motor Cars with the AAA, asserting a claim under the New Jersey Consumer Fraud Act (CFA) for “treble damages and other relief based on overcharges and misrepresentations by the dealership.” Despite repeated requests by the AAA, the case report said BM Motor Cars did not advance the filing fees that the DRA obligated the operation to pay, or otherwise respond to the claim. The AAA dismissed the plaintiff’s arbitration claim for non-payment of fees.
Six months after her vehicle purchase, the case report indicated the other plaintiff filed a complaint in the state’s superior court against BM Motor Cars and its president and vice president alleging violations of the CFA and other consumer protection laws. The report continued that the dealership filed a motion to dismiss the complaint for lack of jurisdiction based on the arbitration provision of the DRA. The court dismissed the complaint without prejudice in favor of arbitration.
The report went to explain that plaintiff then filed an arbitration demand with the AAA, which dismissed the claim because BM Motor Cars had previously failed to comply with the AAA’s rules and procedures. That plaintiff did not receive a response from BM to her arbitration demand, according to the case report.
The plaintiffs then filed another action against the dealership, which moved to dismiss the complaint in favor of arbitration.
“Defendants contended that they did not contemplate using the AAA as the forum for arbitration, and consistently had not arbitrated customer disputes before the AAA, because of the excessive filing and administrative fees that the AAA charged,” the case report said. “In opposition to the motion, plaintiffs asserted that defendants materially breached the DRA by failing to advance filing and arbitration fees, and waived their right to arbitration. Defendants contended that they neither breached the DRA nor waived arbitration because the AAA was not the appropriate arbitral forum.”
According to the case report, the trial court found that the parties intended to resolve disputes by arbitration, and the matter should therefore proceed in arbitration. The court ordered the parties to attempt to reinstate plaintiffs’ claims with the AAA, and comply with AAA rules. The court further provided that if the AAA refused to administer the claim, plaintiffs could reinstate their complaint.
“The AAA reinstated the arbitration, and the court dismissed plaintiffs’ complaint with prejudice,” the case report said. “The appellate division affirmed the dismissal of the complaint, finding that there was a sufficient factual dispute as to the proper forum for arbitration that defendants’ conduct did not constitute a material breach of the DRA, nor did they voluntarily and intentionally waive their right to enforce the DRA.
In writing for the majority, the case report noted, “Defendants’ knowing refusal to cooperate with plaintiffs’ arbitration demands, filed in reasonable compliance with the parties’ agreement, constitutes a material breach of the DRA and bars defendants from compelling arbitration under the agreement.
“The court makes no determination as to whether defendants’ conduct constitutes a waiver of the right to compel arbitration,” the report continued. “The court also declines to establish a bright-line rule for determining whether a refusal or failure to respond to a written arbitration demand, within a reasonable time, constitutes a material breach of an arbitration agreement that precludes its enforcement. Such determinations must be made on a case-by-case basis, after consideration of the terms of the agreement and conduct of the parties.
“Here, plaintiffs satisfied their obligations under the DRA, and defendants’ non-payment of filing and arbitration fees amounted to a material breach of the agreement. Defendants are therefore precluded from enforcing the arbitration provision, and the case will proceed in the courts,” the court went on to say.
To clarify what this case could mean for dealerships throughout New Jersey and beyond, BHPH Report found a commentary posted by compliance expert Randy Henrick, who was Dealertrack’s regulatory and compliance counsel for 12 years and now conducts industry consulting at .
“This case shows the importance of meeting your obligations in the event of a consumer dispute that you want and have the right to go to arbitration,” Henrick wrote in . “Missing a deadline, failing to advance fees, or not meeting some other procedural requirement could put you back in the court system and probably with the likelihood of a jury since it is arbitration agreements that most typically waive the right to a trial by jury.
“Make sure you know in advance the rules and requirements for the arbitration procedures your retail installment sales contracts or dispute resolution agreements provide,” he continued. “Create a checklist for convenience so you are not scrambling at the last minute to figure out what to do. Then, follow the requirements meticulously so your right to arbitration is not forfeited like this dealer in New Jersey.”