Federal Statute Precluding Enforcement of Arbitration Clauses in Motor Vehicle Franchise Contracts Inapplicable to Snowmobile, ATV Dealer Agreements

Champion Auto Sales, LLC v. Polaris Sales Inc., 2013 U.S. Dist. Lexis 65219 (E.D.N.Y. Mar. 27, 2013) Mandatory arbitration clauses are common in franchise agreements, including motor vehicle franchise agreements. Whether a manufacturer can enforce such a provision requires an analysis of competing state and federal statutes and a determination of whether the vehicles sold fall within the statutory definition of a "motor vehicle." In an opinion addressing the various statutory regimes, a federal district court in New York held the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 U.S.C. 1226 (the Fairness Act), did not limit a franchisor's effort to arbitrate a dispute concerning dealer agreements for snowmobiles and all-terrain vehicles (ATVs). At the same time, the court held that the Fairness Act did serve to block arbitration of claims regarding the same dealer's motorcycle franchise. Champion Auto Sales, LLC v. Polaris Sales Inc., 2013 U.S. Dist. Lexis 65219 (E.D.N.Y. Mar. 27, 2013). Factual and Procedural Background Polaris entered into a Dealer Agreement with Champion on July 21, 2011, pursuant to which Champion was authorized to sell Polaris snowmobiles, various types of ATVs and Victory brand motorcycles. The Dealer Agreement provided that any claims arising between the parties were subject to mandatory arbitration proceedings in Minnesota. Although only one agreement was executed, the parties agreed that each product line was considered to be a separate franchise. Champion 2013 U.S. Dist. Lexis 65219 at *2-4. In January 2012, Polaris sent a termination notice to Champion, accusing it of breaching the Dealer Agreement. Champion and its principal filed suit in New York State Supreme Court, seeking preliminary and permanent injunctive relief and asserting a number of claims, including violation of the New York Franchised Motor Vehicle Act (NYFMVA), N.Y. Veh. 7 Traf. Law § 463. Polaris removed the action to the United States District Court for the Eastern District of New York and filed a motion to compel arbitration and/or stay the action. Enforceability of the Arbitration Clause In its opinion, the court analyzed whether the claims were subject to the arbitration clause in the agreement and then whether that clause was enforceable. As the court noted, there is generally a four-part inquiry when determining whether a cause of action is subject to arbitration: (1) whether the parties agreed to arbitrate; (2) the scope of the...