Can Arbitration Clauses Impact Lemon Law Claims?

Can Arbitration Clauses Impact Lemon Law Claims?

When car owners discover manufacturing problems with their new vehicles, there are two standard legal paths to hold the manufacturer accountable. The simplest solution is to file a lemon law claim, while the other is a class action lawsuit. However, some manufacturers have begun adding additional clauses in their sales contracts to force consumers down a third, more difficult path: arbitration. 

This has already started to impact owners seeking to hold manufacturers accountable for defects. For example, a recent class action lawsuit against General Motors (GM) regarding faulty valvetrains lost 17 plaintiffs because of an arbitration clause. The carmaker successfully requested that the court compel these plaintiffs to attend arbitration instead of participate in the class action because the contracts they signed to buy their vehicles included these clauses. 

This can significantly affect the success of any legal action regarding manufacturer defects. When someone agrees to arbitrate legal disputes instead of going to court, they often sacrifice their right to a public and fair hearing. As such, consumers who unknowingly sign contracts with these clauses may find it much more difficult to hold carmakers accountable for their defective vehicles. 

Difficult does not mean impossible, though. Even if your contract requires you to agree to arbitrate disputes, you still have the right to have your warranty honored. Here’s what you need to know about arbitration clauses, how they impact warranty claims, and what you can do to ensure your lemon law claim is honored. 

What Are Arbitration Clauses?

Arbitration clauses are elements of a larger contract that state that all parties agree to arbitrate certain legal disputes rather than take them to court. These clauses can be found in a wide variety of agreements and are particularly in sales contracts. 

Arbitrating disputes is significantly different from going through the legal system. Instead of going to public court, the disputing parties appear privately before an arbitrator they have selected together. The evidentiary process is minimal. Instead, the arbitrator hears both sides’ cases and decides how to resolve the dispute. However, unlike in court, appealing an arbitrator’s decision may be extremely difficult. If a binding clause is in place and you disagree with the arbitrator’s conclusion, you may not appeal unless it violates your contract or certain laws.

Several factors make arbitrating disputes appealing to corporations like GM. First, the process is typically much faster than going to court because of the ability to schedule hearings outside public courts and the reduced evidentiary process. Second, since the process is private and not public, there is less risk of bad press. Finally, corporations can often pursue extremely favorable decisions over consumers by having the right to choose the arbitrator and preventing the use of appeals in most cases. 

However, arbitration can also be beneficial for consumers. States like California certify arbitration programs to ensure they are respecting consumer rights. If you find an arbitrator through these programs, the process receives more oversight and less risk of bias. In this case, consumers benefit from the speed and simplicity of the process without having to take the arbitrator’s word that they are unbiased.

Arbitration Clauses and Warranty Claims

The growth of arbitration clauses in consumer sales contracts has not gone unnoticed by lawmakers. In fact, California has repeatedly attempted to pass laws barring the enforcement of arbitration clauses in many forms. Unfortunately, the Federal Arbitration Act preempts these laws, and the Supreme Court regularly rules to enforce these clauses. 

However, there are still debates regarding whether the federal warranty law, the Magnuson-Moss Act, permits binding clauses like this. In concert with the Federal Trade Commission, the U.S. Court of Appeals for the Ninth Circuit found that the Magnuson-Moss Act does not allow binding arbitration as a warranty claim resolution method. 

In contrast, the U.S. Court of Appeals for the Eleventh Circuit has decided otherwise. Until a case involving this specific matter rises to the federal Supreme Court, individual disputes will likely continue to be addressed according to the views of state and federal circuit Courts of Appeals.

California Lemon Laws and Arbitration

So, what does this mean for consumers who have purchased cars with arbitration clauses? It does not necessarily significantly impact California residents because the state’s lemon laws require consumers to arbitrate disputes before going to court. 

According to the California Department of Consumer Affairs, most carmakers are enrolled in state-certified arbitration programs. These programs are monitored by the Arbitration Certification Program (ACP) to ensure they comply with state laws. As such, it is significantly more likely that arbitrators found through these programs will genuinely be unbiased, neutral third parties. Combined with the speed of arbitrating disputes, this can help you resolve your claim significantly faster than going to court. 

However, not every carmaker is enrolled in the ACP. In these cases, it is worthwhile to request an arbitrator through the New Motor Vehicle Board (NVMB) rather than working with manufacturer-sponsored programs.

This mandatory process only binds the manufacturer, not the consumer. Normally, it is still possible for you to go to court afterward if you disagree with the decision, but the carmaker cannot do the same. The only difference made by arbitration clauses in a contract is that you may also be bound by the arbitrator’s decision. 

That’s why it is still important to work with a skilled lemon law attorney when making your claim, even if you pursue arbitration. Your attorney will work to achieve the best possible outcome, so there’s no need to go to court. 

At Johnson & Buxton – The Lemon Law Guys, we know the ins and outs of the state’s laws, requirements, and restrictions. Our skilled California lemon law attorneys can help you get your car repaired or replaced, even if your contract has an arbitration clause. Learn more about how we can help you by calling 866-761-2317 or reaching out online

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