How Do Arbitration Agreements Work Anyway

The following article is courtesy of:
Jordan A. Mayfield
Naham Howell Smith & Lee PLLC

Most retail installment contracts for the purchase of a car contain an arbitration clause or the dealership will have a stand-alone arbitration agreement.  I would recommend that the arbitration agreement be part of the retail installment contract if the vehicle is financed since many of these agreements have a clause that states that the retail installment agreement is the entire agreement between the parties.
  If the vehicle is not financed, I recommend that the dealership have an agreement to arbitrate as part of the Purchase Agreement.  Despite the agreement between the customer and dealership to arbitrate all disputes if a customer has an issue most customers start with a demand letter that threaten the dealership with a lawsuit or just file a lawsuit instead of starting with arbitration.  In response to either a lawsuit or a demand letter it is good to point out to the customer or the lawyer for the customer that there is an agreement to arbitrate as some lawyers for customers are less interested in going forward with a claim that they would have to handle in arbitration. 
If a lawsuit is filed against the dealership, I have found that most lawyers for customers will agree to abate (put on hold) the case in favor of arbitration.  The reason that most lawyers who assist customers on a regular basis will agree is that the law favors arbitration and it is almost a certainty that the court will grant the request to abate the case even if the lawyer for the customer opposes the motion.  Following the abatement of the case, the next step is that the customer or the dealership will prepare a demand for arbitration that they will file with the group that they are going to use to administer the arbitration.  Currently most of the arbitration agreements agree to use the American Arbitration Association (AAA) to handle the arbitration.  The following is a link to a demand form that the customer or dealer can use to demand arbitration.
Once the demand is made AAA will provide notice to the other party of the filing of the demand and the time to file their response.  The panel will also request the cost be paid.  The costs of arbitration are generally paid by the dealership to avoid arguments from the customer that arbitration is unfair since it would cost them more than going to court.  The parties will provide the AAA with a list of the names of those who may be involved in the case.  The next step that will occur is that an arbitrator will be selected.  If you go through AAA they will appoint someone and absent a conflict he or she will handle the case. 
When considering what qualifications to look for in an arbitrator you should look for someone with a background in handling consumer complaints or at least dealing with contracts.  Most of the arbitrators have some experience defending lawsuits and some in bringing lawsuits.  I have found that just because an arbitrator has done some work where he/she sued companies on behalf of consumers it does not necessarily mean they would be a bad or unfavorable arbitrator.  What you want is someone that will listen and fairly consider the evidence. 


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