Last year's federal ban on mandatory binding arbitration applies to franchise agreements but not to other contracts between auto dealers and manufacturers, a federal court has ruled.
The ruling is bad news for dealers because manufacturers often require dealers to sign side agreements to relocate, remodel, add franchises or purchase other dealerships. These separate contracts can include mandatory binding arbitration provisions. The 2002 ban on mandatory binding arbitration was hailed as a legislative victory for dealers.
Charles Haselwood, owner of Today Chevrolet Co. of Bremerton, Wash., is appealing the May 12 decision, says Loula Fuller, his Tallahassee, Fla., attorney.
Haselwood received $250,000 from General Motors to help him acquire an Oldsmobile-Cadillac dealership and move his operations in 2000. The relocation agreement and exclusive-use agreement he signed required binding arbitration to settle disputes.
Haselwood, who is suing GM for damages resulting from the discontinuation of Oldsmobile, claims the dispute is governed by the franchise agreement, which was modified after the ban took effect in November.
The federal ban on mandatory binding arbitration applies to franchise agreements that were entered into or altered after Nov. 2, 2002.
But the U.S. District Court for the Western District of Washington at Tacoma sided with GM, which argued that the dispute falls under the side agreements that Haselwood entered into to acquire and move the Cadillac-Oldsmobile dealership in 2000.
The court cited the Federal Arbitration Act, which states an arbitration clause in a business contract "shall be valid, irrevocable and enforceable."
The dealer argued that if the dispute is governed by the side agreements, those contracts should be considered part of the franchise agreement.
But the court ruled the agreements were separate from the sales and service agreement, stating: "The relocation agreement and the exclusive-use agreement are not contracts under which GM sells motor vehicles to Today for resale to an ultimate purchaser and authorizes Today to repair and service GM's motor vehicles."
Haselwood also argued that the franchise agreement supersedes previous agreements covering the same subjects, but the court ruled the relocation and exclusive-use agreements are still in force.