- May 24, 2022
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- Ian
Attention California Ford Dealers:
Thank you all for your participation and collaboration on implementing Ford’s California Arbitration Agreement into your sales process over the past several weeks. We have received a great deal of feedback from many of you about the agreement, including both positive results and some individual concerns and clarifying questions. Many of those questions and concerns were able to be addressed on an individual basis, but there are three specific questions that were raised by multiple dealers so we thought it would be good for us to send a follow up communication to all of you addressing those three items specifically.
Q: “Is it required that Ford dealers in California have customers sign the arbitration agreement in order to deliver the vehicle”
Q: “In the event the arbitration agreement voids the arbitration provision in the 553, will Ford indemnify or otherwise protect their dealers?”
Q: “The standard Ford Credit Lease agreement already contains language around arbitration, potentially making this new arbitration agreement redundant. Has Ford considered possible objections by lemon law lawyers that an arbitration contract outside the lease terms violates the California single-document rule?”
Thank you all for your participation and collaboration on implementing Ford’s California Arbitration Agreement into your sales process over the past several weeks. We have received a great deal of feedback from many of you about the agreement, including both positive results and some individual concerns and clarifying questions. Many of those questions and concerns were able to be addressed on an individual basis, but there are three specific questions that were raised by multiple dealers so we thought it would be good for us to send a follow up communication to all of you addressing those three items specifically.
Q: “Is it required that Ford dealers in California have customers sign the arbitration agreement in order to deliver the vehicle”
- A: Yes, the arbitration contract is mandatory in all new vehicle sales and leases.
- Why is it Mandatory? Because selling a car in California, without the protections provided by arbitration from abusive fee-shifting by the lemon law plaintiff lawyers, is bad business. The current legal environment in California consumer warranty (lemon law) litigation is unsustainable. California, with < 5% of Ford’s global sales, creates 80% of Ford’s global consumer warranty litigation costs. Together, we must make the California business healthy for Ford and dealers long-term. Ford is endeavoring to take more control of litigation costs rather than continue to fund the lemon law lawyers. Arbitration is an important part of creating a future in which we can all thrive. This is not in any way intended to shy away from our responsibilities to our customers under the law. Arbitration is better for our customers in many ways, as it is fast fair and efficient. Civil litigation favors the lemon law lawyers.
- How does this benefit my dealership? Each vehicle sold with an arbitration contract protects not just the selling dealer, but each of the repairing dealers down the line. Each dealer protects the rest of the dealer body by executing the arbitration agreement. We are all in this together. Dealers will also benefit from the reduced discovery and fewer depositions. Dealers will benefit by the reduction in cases filed against Ford, because fewer cases will reduce the churn of deal jackets and indemnity paperwork. Dealers will have fewer RAVs, as buybacks will be evaluated on merits in arbitration rather than on the fee-shifting risk of cases in LA County.
- How does Ford intend to ensure that all vehicles delivered to customers in California have a signed Arbitration Agreement? Later this year, Ford will be launching an electronic execution and document retention/storage of the contract which will diminish paperwork associated with the arbitration initiative and make it possible to track completion of the arbitration agreement on every sale.
Q: “In the event the arbitration agreement voids the arbitration provision in the 553, will Ford indemnify or otherwise protect their dealers?”
- A: Ford reiterates that it is willing to offer indemnity to back up its legal position that Dealers participating in Ford’s arbitration initiative should not bear increased liability. Ford will indemnify for claims related to single-document rule, a dealer’s participation in providing the arbitration contract and claims that multiple arbitration contracts were provided.
Q: “The standard Ford Credit Lease agreement already contains language around arbitration, potentially making this new arbitration agreement redundant. Has Ford considered possible objections by lemon law lawyers that an arbitration contract outside the lease terms violates the California single-document rule?”
- A: Ford is convinced the arbitration contract does not violate the single-document rule in lease transactions.
- The standalone arbitration agreement here is a separate transaction—i.e., not an agreement “of the lessor and lessee”—to which the single-document rule should apply, because it involves the arbitration obligations relating to Ford, a non-party to the lease contract. California law does not treat contracts involving third parties as “part of” a contract between some of the contracting parties. As a court has written, “The ‘single document’ rule cannot reasonably be read as requiring a lease agreement to detail a transaction that is not a part of the lease transaction.” LaChapelle v. Toyota Motor Credit Corp., 102 Cal. App. 4th 977, 986 (2002) (separate trade-in transaction that was not part of lease transaction did not violate single-document rule). The court continued, indicating that the purpose of the single-document rule is hindered “by compelling dealers to place terms of a separate transaction on the face of the lease agreement,” which “could only lead consumers to conclude, incorrectly, that the terms of the separate transaction have some bearing on the terms of the lease.” Id.
- We see such separateness commonly in normal business and to interpret otherwise would preclude lessees from entering into their own agreements with Ford relating to their leased vehicles, such as software licensing and telematics agreements. Its separate nature is further underscored by the fact that it is voluntary on its face; not a necessary term or condition of the lease contract: the consumer has the option of opting out of the standalone agreement.
- Even if the single-document rule were to apply to the limited extent that the standalone arbitration agreement relates, in part, to the arbitration obligations of the lessor and lessee, it would not be violated here. The lease contract already reflects the obligation of the lessor and lessee to arbitrate disputes between them. Consistent with that, the only California court to address this rule in the context of an arbitration agreement has held (in an unpublished portion of an opinion) that failure to include arbitration-provider’s rules in the lease contract does not violate the single-document rule. Gutierrez v. Autowest, Inc., No. A098704, p. 24 (Cal. Ct. App. Dec. 9, 2003) (see attached opinion).
- Here, the lease-contract parties will have already obligated themselves to arbitrate their disputes in the lease contracts; a separate document laying out procedures and obligations relating to non-parties does not, therefore, violate the single-document rule.
- Finally, liability for entering into an arbitration agreement under this rule for failure to place the agreement in a particular place (e.g., in the lease contract) would be preempted by the FAA because it would impose restrictions on grounds not applicable to contracts generally. 9 U.S.C. § 2 (arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”); see also Cal. Civ. Code § 2988.5(g) (“No provision of this section [addressing liability for failure to comply with § 2985.8] imposing any liability shall apply to any act done or omitted in good faith conformity with any rule, regulation or interpretation of federal law…”); Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 684, 688 (1996) (holding FAA preempted Montana statutory requirements that notice of arbitration agreements in a contract “be typed in underlined capital letters on the first page of the contract”).
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