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Roberto Basulto v. Hialeah Automotive, No. SC09-2358

In Basulto, the Florida Supreme Court reversed a Third District opinion, and reinstated a trial court order which ruled that certain vaguely drafted arbitration provisions signed by the plaintiffs, two Spanish speaking individuals, were not enforceable. In 2004, the plaintiffs purchased a vehicle from the defendant car dealership. The defendant provided the plaintiffs with a blank sales contract to be signed, and advised that the contract numbers would be filled in later, once the transaction was finalized. The Plaintiffs realized after having purchased the vehicle that the defendant apparently wrote into the contract a lower trade in value than what was allegedly agreed upon. Having driven only seven miles with the new vehicle, the plaintiffs sought to return the vehicle and get their trade-in back. The defendant had already sold the trade-in. The plaintiffs then filed suit.

The defendant moved to compel arbitration, and the trial court held an evidentiary hearing on the matter. As the Florida Supreme Court noted, the evidence established that the plaintiffs had emigrated from Cuba in 1997 and spoke only Spanish. The arbitration provisions were drafted in English. In addition, the trial court found that there were various arbitration clauses within the sales contract, and read together, they were contradictory and ambiguous. The trial court noted that there were three provisions which each provided a different mechanism of resolution, including a jury waiver clause which implies trial in a court of law, an arbitration clause requiring a single arbitrator and a second arbitration clause contemplating a three person panel. The trial court found that even had the arbitration clauses been written in Spanish, a reasonable person reading the documents would not have a clear understanding of the precise terms and conditions to which they were called upon to agree. Further, the trial court found that the defendant’s employees had no basic understanding of the concept of arbitration, and failed to convey to the plaintiffs that arbitration deprived them of their rights to seek punitive damages or class action status. The trial court concluded that as a matter of law, no valid agreement to arbitrate existed, given that the competing dispute resolution provisions at issue provided remedies which were irreconcilable from one another.

The trial court went further, finding that even if the arbitration provisions were to be construed as agreed upon by the parties, they would not be enforceable because they were procedurally and substantively unconscionable.

The trial court went further, finding that even if the arbitration provisions were to be construed as agreed upon by the parties, they would not be enforceable because they were procedurally and substantively unconscionable.

As to the first and second rulings, Seifert requires that three elements be considered by courts considering a motion to compel arbitration: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. If any of the elements is lacking, the motion to compel arbitration must be denied. The trial court had determined that no valid agreement to arbitrate existed, and therefore, the first element was missing. The Florida Supreme Court noted that there was sufficient grounds for the trial court to find no arbitration agreement between the parties to exist. The Florida Supreme Court further noted that the trial court found procedural and substantive unconscionability, given that the buyers were unable to understand the purported arbitration provisions and the dealership employees could not and did not explain the arbitration provisions. The Court further explained that while the FAA was implicated, the analysis under the FAA requiring arbitration requires that there not be any issue alleged relating to the making of a valid agreement to arbitrate. In Basulto, the plaintiffs raised, and prevailed at the trial court level, an issue with respect to whether a valid arbitration agreement was in fact made. Therefore, the trial court’s determination that no valid arbitration agreement existed negated any conclusion that the FAA required arbitration. The Florida Supreme Court noted that the Third District did not evaluate the threshold requirement that the trial court be satisfied with the making of the agreement for arbitration, and therefore, failed to perform the proper analysis, under the FAA and Seifert.

As to the third ruling, the Florida Supreme Court chose not to rule on whether the arbitration provisions were, in fact, unconscionable, but the Court did provide insight as to the proper evaluation for unconscionability. “Unconscionability is a common law doctrine that courts have used to prevent the enforcement of contractual provisions that are overreaches by one party to gain ‘an unjust and undeserved advantage which it would inequitable to permit him to enforce.’” Unconscionability is generally recognized as the absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. The absence of meaningful choice is referred to as procedural unconscionability, and the unreasonableness of the terms is referred to as substantive unconscionability. To establish unconscionability, both prongs, procedural and substantive, must be present. However, the Florida Supreme Court noted that the two prongs need not be present to the same degree. Therefore, a balancing approach should be employed, in which one prong, procedural or substantive, may outweigh the other, as long as there is at least a modicum of the weaker prong.

While the Florida Supreme Court decision did not comment on whether unconscionability existed, it’s affirmance of the trial court’s ruling that no arbitration agreement existed, gives credence to the argument that a non-English speaking individual who signs an arbitration agreement written in English has not in fact agreed to the provision, unless it is clearly explained to him or her, including the fact that the arbitration provision strips the individual of certain rights.

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