Case(s) of the Month

Arbitration Agreement Signed on Same Day and as Part of Same Transaction as Vehicle RISC Was Not Enforceable Under Pennsylvania Motor Vehicle Sales Finance Act's One-Document

Rule: In separate transactions, two individuals bought used vehicles from a dealership. In connection with the purchases, the buyers each signed a retail purchase agreement, a retail installment sale contract, and an arbitration agreement. The buyers then brought a class action lawsuit against the dealership, alleging that it failed to properly register their vehicles, in violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and in breach of contract. The dealership moved to compel arbitration or, in the alternative, to dismiss the claims. The trial court denied both motions.

The U.S. Court of Appeals for the Third Circuit affirmed the trial court's decision denying the motion to compel arbitration and remanded the matter. The appellate court looked to Pennsylvania law to determine whether the arbitration agreements signed by the buyers were enforceable. Under the Pennsylvania Motor Vehicle Sales Finance Act, a contract governing an installment sale must: (1) be in writing; (2) contain all of the agreements between the buyer and the seller relating to the installment sale of the vehicle ("one-document rule"); and (3) be signed by the buyer and the seller. The appellate court clarified that this one-document rule in the MVSFA requires all agreements between the parties to an installment sale to be incorporated into the RISC. Here, because the arbitration agreement exists independently of the RISC, it is unenforceable. In addition, the RISC itself states that it represents the complete and exclusive agreement between the parties.

The appellate court rejected the dealership's argument that, because the buyers signed the RPA, RISC, and arbitration agreement on the same day and as part of the same transaction, the three documents should be considered one contract under Pennsylvania contract law. The appellate court found that all three documents could not be considered one contract because they do not reference or incorporate one another. The RISC unequivocally states that it constitutes the entire agreement between the parties. The dealership also argued that, even if the MVSFA imposes a one-document rule, it does not apply to the arbitration agreement because the Act is only concerned with financing terms. The appellate court disagreed, finding that the MVSFA requires that certain financing terms be included in a RISC, but it also dictates that all agreements be contained within the RISC. See Jennings v. Carvana LLC, 2024 U.S. App. LEXIS 6705 (3d Cir. (E.D. Pa.) March 21, 2024). 

This Month’s CARLAWYER^© Compliance Tip

This month’s Case of the Month illustrates why it is so important to not only review all of the documents you ask the consumer to sign at the dealership, but also whether you may be running afoul of other federal or state law in doing so, like a state’s single document rule. There are several states that impose a single document rule that requires a Retail Installment Sales Contract to contain all of the agreements between a buyer and a seller relating to the installment sale of the motor vehicle.  If your RISC doesn’t contain an arbitration agreement, or you don’t follow your state’s single document rule (if it has one), then you may end up like the dealer in the case above and have your motion to compel arbitration denied by a court.  Time to talk to your friendly lawyer and see if you’re doing things correctly in your state!

So, there’s this month’s roundup!  Stay legal, and we’ll see you next month.

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Eric ([email protected]) is a Partner in the law firm of Hudson Cook, LLP, Editor in Chief of CounselorLibrary.com’s Spot Delivery®, a monthly legal newsletter for auto dealers, and a contributing author to the F&I Legal Desk Book.  For information, visit www.counselorlibrary.com. ^©CounselorLibrary.com 2024, all rights reserved.