Feb 09, 2017: Suppliers Beware: FCA’s Revised General Terms and Conditions May Hamper Suppliers in Recall and Warranty Disputes

FCA US has revised its Production and Mopar Purchasing General Terms and Conditions to include a new dispute resolution provision which among things, provides FCA with the unilateral right to compel an expedited baseball style arbitration “in cases of disputes relating to quality, warranty, or indemnification under Section 6, 8, or 11 of the terms, including claims in connection with vehicle recalls or customer satisfaction campaign.” (Hereinafter collectively “Recall/Warranty Disputes”). Other matters are arbitrable only by mutual agreement and they too are subject to the expedited rules. (FCA revised terms, § 26(c) and Annex A)(click here to view).

The details of the revised terms are set forth in greater detail below:

FCA’s Unilateral Right to Compel Arbitration: Under new Section 26, ¶(c) FCA may unilaterally elect arbitration for Recall/Warranty Disputes. In these cases, if FCA chooses to arbitrate, which seems it will likely do since FCA has revised its terms primarily for this purpose, a supplier will have no legal recourse to have the action tried in a court of law and the arbitrator’s decision will be final and binding. It remains possible to seek judicial review, but courts seldom overturn or modify arbitrator awards. While a unilateral arbitration “referral” must be preceded by negotiations to resolve the dispute, FCA (or the supplier) can simply cancel the negotiations with 7-days’ advance notice.

Baseball Style Arbitration Awards: Arbitration awards will be decided baseball style. (Annex A, ¶¶ (vii) and (xi)). Each party must submit a proposed award to the arbitrator in advance of his rendering a decision and the arbitrator must select one of the two proposed awards, thus limiting the discretion of the arbitrator regardless of the evidence. Winner takes all.

While baseball style arbitration is not new, it is virtually unheard of as a mandatory term in a commercial contract. In a commercial setting baseball style arbitration is typically agreed to by parties after they have an understanding of the written evidence and facts. This allows parties to make reasoned and reasonable proposals. Under FCA’s new terms the supplier must provide its proposed award to the arbitrator prior to having received the list of witnesses and exhibits and the legal arguments that FCA intends to rely on.

Expedited and Limiting Discovery Rules: FCA’s new terms impose expedited discovery rules that limit discovery. (Annex A, ¶ 26(c)). Under FCA’s expedited rules, a supplier has only 20 days from referral to identify custodians of relevant documents and only 75 days thereafter to produce all of the documents requested by FCA or that it may rely on in the arbitration. (Annex A, ¶ (iv)).

Written interrogatories are not permitted and only 6 depositions may be taken by each side, including expert depositions. As indicated below, depositions are only allowed after expert reports are exchanged.

Expert Reports: Each party must prepare a “detailed disclosure” of expert testimony it will rely on (including findings and opinions) within 120 days after “referral” to arbitration. Moreover, the expedited procedures mandate that the expert report must be produced prior to taking any fact witness depositions. This is contrary to typical litigation practice as experts often rely on fact witness testimony to base their opinions. (Annex A, ¶ (v)).

Arbitration Hearing: The hearing will be scheduled within fifteen (15) months after referral to arbitration. Two weeks prior to the hearing the parties must exchange written direct testimony of their respective witnesses and all exhibits that will be offered at the arbitration. A prehearing brief containing the legal arguments that will be relied on must also be provided at that time. Evidence at the hearing is limited in scope to the exhibits and disclosures. The arbitration hearing is limited to 3 days per party and must be conducted in consecutive days. Each party is permitted to call only 6 witnesses and 2 rebuttal witnesses. (Annex A, ¶¶ (vi), (viii) and (ix)).

No Administrating Body: Generally, most sophisticated commercial arbitrations are administered by a third party arbitration administrator, such as the American Arbitration Association (AAA) or JAMs arbitration [1]. These third-party services provide not only administrative services, but also provide “gap filler” rules when the parties’ arbitration contractual agreement is silent on an issue. Under FCA’s new terms, there is no third-party administrator or gap filler rules.

Cynthia J. Haffey
313.983.7434
haffey@butzel.com

Bruce L. Sendek
313.983.7453
sendek@butzel.com 

[1]  In the event the parties cannot agree on an arbitrator, the AAA arbitrator selection process will be used. No other AAA services will be used. (Annex A, ¶(i)). All arbitrators must be based in Michigan