The Federal Arbitration Act and Its Limits
Most dealer arbitration clauses are governed by the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., which establishes a strong federal policy favoring arbitration agreements. When a consumer signs a contract containing an arbitration clause, a court will generally enforce it — unless the consumer can demonstrate a valid basis for invalidating the clause under state contract law.
The FAA does not make arbitration clauses absolutely enforceable. It makes them enforceable on the same basis as other contracts. This means that defenses available under state contract law — including unconscionability, fraud in the inducement, and lack of mutual assent — can be used to challenge an arbitration clause. The question is not whether arbitration clauses are enforceable in general, but whether this particular clause, in this particular contract, is enforceable against this particular consumer.
Unconscionability: The Most Common Challenge
Florida courts recognize both procedural and substantive unconscionability as grounds for refusing to enforce a contract provision. Procedural unconscionability focuses on how the clause was presented: Was it buried in fine print? Was the consumer given an opportunity to read it? Was the consumer told the clause was non-negotiable? Was the consumer in a position of unequal bargaining power? Substantive unconscionability focuses on the terms themselves: Is the clause one-sided? Does it require arbitration only for the consumer's claims while preserving the dealer's right to sue in court?
Florida courts have invalidated arbitration clauses that were both procedurally and substantively unconscionable. A clause that requires the consumer to arbitrate in a distant city, pay substantial filing fees, or waive the right to class action relief may be substantively unconscionable. A clause that was presented as part of a take-it-or-leave-it package at the end of a long negotiation, without explanation, may be procedurally unconscionable. When both elements are present, Florida courts have refused to enforce the clause.
Fraud in the Inducement
If the consumer was fraudulently induced to sign the contract — including the arbitration clause — the entire contract, including the arbitration clause, may be voidable. Florida courts have held that when a consumer's consent to a contract was obtained through fraud, the consumer is not bound by the arbitration clause in that contract. The reasoning is that the arbitration clause, like every other provision of the contract, was part of the fraudulently induced agreement.
This is particularly relevant in cases involving forged signatures or unauthorized electronic signatures. If the consumer never actually agreed to the arbitration clause — because the dealer applied the consumer's signature without authorization — there is no valid agreement to arbitrate. A court cannot compel arbitration under a clause the consumer never agreed to.
TILA Claims and Arbitration
Claims under the Truth in Lending Act (TILA) present a specific issue in the arbitration context. While TILA does not categorically prohibit arbitration of TILA claims, courts have recognized that certain TILA violations — particularly those involving the failure to provide required disclosures — may not be arbitrable when the arbitration clause itself was part of the defective disclosure package.
The practical takeaway is that an arbitration clause in a dealer contract is a significant obstacle, but not an insurmountable one. The enforceability of the clause depends on the specific facts of how it was presented, what it requires, and whether the underlying transaction involved fraud. An attorney experienced in Florida auto dealer fraud cases can evaluate whether the clause in your contract is likely to be enforced and advise you on the best strategy for your situation.
What Documents Should I Save?
- The complete contract package, including all addenda and any separate arbitration agreement
- Buyer's order and retail installment contract
- Any documents you were asked to sign separately from the main contract
- Notes about how the arbitration clause was presented to you and what you were told about it
- Text messages and emails with the dealer