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The Law Offices of Robin Bresky Boca Raton & West Palm Beach Appellate Attorney
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Florida Supreme Court Clarifies Standards for Enforcement of Arbitration Clauses

Florida Supreme Court Clarifies Standards for Enforcement of Arbitration Clauses

On March 20, 2014, the Florida Supreme Court decided Basulto v. Hialeah Automotive, 39 Fla. L. Weekly S 140, concerning whether a buyer was required to arbitrate a dispute with a seller. The Supreme Court clarified that courts, when asked to enforce an arbitration provision, must first determine whether a valid agreement to arbitrate exists, and, if so, whether enforcement would be unconscionable (assuming that unconscionability has been pled as an affirmative defense).

In Basulto, the car buyers did not speak English and were pressured to sign a series of English-language documents rapidly without reading them. The forms contained three contradictory arbitration clauses. The transaction occurred in Spanish, and the dealer did not explain adequately (if at all) what the English-language forms said about arbitration—especially the fact that it meant giving up the right to court litigation and included a waiver of certain substantive rights such as to seek punitive damages or class-action status.

Some of the documents had blanks that the dealership filled in later, after promising to write in the figures they had agreed to orally. The buyers soon discovered that the dealer wrote in a lower trade-in allowance than they had agreed upon. When the dealer refused to rectify the situation, the buyers returned the new vehicle and demanded to receive their trade-in car—which had already been sold.

The buyers sued for fraud and other claims in the trial court, but the dealership moved to compel arbitration. In a non-final order, the trial court concluded that there was no valid arbitration agreement, as there was no meeting of the minds on those terms; and even if there had been a valid agreement it would be unenforceable because it was unconscionable.

The dealer appealed to the Third DCA, which partly affirmed and partly reversed the trial court’s order. The buyer sought review by the Florida Supreme Court, which quashed the Third DCA’s decision and reinstated the trial court’s order.

The Supreme Court held that the Third DCA misapplied Supreme Court precedent by failing to first determine whether a valid written agreement to arbitrate existed. That is the first question a court must decide when evaluating a motion to compel arbitration under a purported agreement. The Supreme Court accepted the trial court’s conclusion that no valid arbitration agreement existed; and that was a proper basis to deny the motion to compel arbitration. Because there was no valid agreement to arbitrate, the Federal Arbitration Act (which the dealership forms made applicable) did not apply and did not require arbitration of any of the buyers’ claims.

Because there was no valid agreement to arbitrate, the Supreme Court did not comment on whether the arbitration provisions were unconscionable. The Court did, however, take the opportunity to clarify the standard for avoiding an arbitration clause on the basis of unconscionability: the party must establish that the arbitration agreement is unconscionable both procedurally (e.g., by the absence of meaningful choice when entering into the contract negotiating its terms) and substantively (by undue harshness or unreasonableness of the terms). In this regard, the Florida Supreme Court agreed with Florida’s intermediate courts of appeal.

The Supreme Court decided, however, that both elements need not be present to the same degree; courts must use a sliding scale where the more substantively oppressive the contract terms are, the less evidence of procedural unconscionability is required (and vice versa). Under this balancing approach, one element can outweigh the other, provided that there is at least some amount of the weaker element present. This is an integrated analysis, not an independent analysis of the two elements.

In holding that the elements of unconscionability are intertwined and must be considered with a balancing or sliding-scale approach, the Supreme Court rejected decisions of the Second DCA and Third DCA which had previously required an independent analysis of each element. The Supreme Court clarified that the procedural and substantive aspects of unconscionability must be evaluated interdependently rather than independently.

The holding in Basulto v. Hialeah Automotive will prompt courts to be careful to determine whether a valid agreement to arbitrate exists in the first instance—including whether the parties really had a “meeting of the minds” on the terms of the arbitration provision. Basulto should also assist consumers in avoiding arbitration clauses if they can show some degree of procedural unconscionability or substantive unconscionability, as long as both elements are present.

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