|
The Second Circuit Court of Appeals held that a federal statute limiting the enforcement of arbitration clauses in motor vehicle franchise contracts did not apply to a stockholders agreement between an automobile manufacturer and an individual investor. In so holding, the Court highlighted the strong federal policy in favor of arbitration for all parties, small and large.
In Arciniaga v. General Motors Corp., No. 05-6299-CV, 2006 WL 2260872 (2nd Cir. Aug. 8, 2006), General Motors (GM) financed Arciniaga’s acquisition of a GM dealership by contributing capital in exchange for stock in the dealership.
The terms of the co-investment were set forth in a stockholder agreement that was accompanied by an arbitration agreement. GM and the dealership were also parties to a dealer agreement, which is a standard agreement authorizing the dealership to sell and service GM vehicles.
When GM exercised an option to buy out Arciniaga, he sued GM, alleging discrimination, breach of contract, and several other claims. GM responded by filing a demand for arbitration pursuant to the arbitration agreement. Arciniaga then sought a court order staying arbitration, while GM moved to compel arbitration.
The trial court issued an order staying arbitration based on the federal Motor Vehicle Franchise Contract Arbitration Act of 2002 (the Act), which provides that an arbitration clause in “a motor vehicle franchise contract” is unenforceable in the absence of a post-dispute agreement to arbitrate.
On appeal, the dispositive issue was whether the stockholder agreement was “a motor vehicle franchise contract” and thus subject to the Act. The Court held that the stockholder agreement did not meet the Act’s definition of “a motor vehicle franchise contract.” Accordingly, the Court directed the trial court to order arbitration.
In reaching its decision, the Court noted that Arciniaga’s lawsuit alleged a breach of the stockholder agreement, not a breach of the dealer agreement. The Court further observed that “it is difficult to overstate the strong federal policy in favor of arbitration.”
The Court concluded its decision by rejecting the notion that arbitration favors the goliath: “Arciniaga’s brief bristles with a jeremiad about ‘small businessmen and businesswomen’ compared to ‘large powerful multinational automobile manufacturers.’ He suggests that if we reverse the district court’s decision, the proverbial little guy will not get his day in court. Of course, our decision today does no such thing. Arciniaga’s claims will be heard, but they will be heard in the forum he agreed to and not in the forum he bargained away.”
Subscribe to a free weekly update on ADR case law and
legislation
|