[Congressional Record Volume 146, Number 121 (Tuesday, October 3, 2000)]
[House]
[Pages H8688-H8690]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   MOTOR VEHICLE FRANCHISE CONTRACT ARBITRATION FAIRNESS ACT OF 2000

  Mrs. BONO. Madam Speaker, I move to suspend the rules and pass the 
bill (H.R. 534) to amend chapter 1 of title 9 of the United States Code 
to permit each party to certain contracts to accept or reject 
arbitration as a means of settling disputes under the contracts, as 
amended.
  The Clerk read as follows:
       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Motor Vehicle Franchise 
     Contract Arbitration Fairness Act of 2000''.

     SEC. 2. ELECTION OF ARBITRATION.

       (a) Motor Vehicle Franchise Contracts.--Chapter 1 of title 
     9, United States Code, is amended by adding at the end the 
     following:

     ``Sec. 17. Motor vehicle franchise contracts

       ``(a) For purposes of this section, the term--
       ``(1) `motor vehicle' has the meaning given such term under 
     section 30102(6) of title 49; and
       ``(2) `motor vehicle franchise contract' means a contract 
     under which a motor vehicle manufacturer, importer, or 
     distributor sells motor vehicles to any other person for 
     resale to an ultimate purchaser and authorizes such other 
     person to repair and service the manufacturer's motor 
     vehicles.
       ``(b) Whenever a motor vehicle franchise contract provides 
     for the use of arbitration to resolve a controversy arising 
     out of or relating to the contract, arbitration may be used 
     to settle such controversy only if after such controversy 
     arises both parties consent in writing to use arbitration to 
     settle such controversy.
       ``(c) Whenever arbitration is elected to settle a dispute 
     under a motor vehicle franchise contract, the arbitrator 
     shall provide the parties to the contract with a written 
     explanation of the factual and legal basis for the award.''.
       (b) Technical and Conforming Amendment.--The table of 
     sections for chapter 1 of title 9, United States Code, is 
     amended by adding at the end the following:

``17. Motor vehicle franchise contracts.''.

     SEC. 3. EFFECTIVE DATE.

       The amendments made by section 2 shall apply to contracts 
     entered into, amended, altered, modified, renewed, or 
     extended after the date of enactment of this Act.

  The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from 
California (Mrs. Bono) and the gentleman from Michigan (Mr. Conyers) 
each will control 20 minutes.
  The Chair recognizes the gentlewoman from California (Mrs. Bono).


                             General Leave

  Mrs. BONO. Madam Speaker, I ask unanimous consent that all Members 
may have 5 legislative days to revise and extend their remarks and 
include extraneous material on the bill under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from California?
  There was no objection.
  Mrs. BONO. Madam Speaker, I yield myself such time as I may consume.
  Madam Speaker, I rise today in support of my legislation that will 
correct unfair auto dealer franchise agreements that are purposefully 
written in favor of the manufacturer. With over 250 cosponsors, this 
Congress has realized that America's community auto dealers are in a 
unique position in franchise law and that relief is needed.
  In 1925, Secretary of Commerce Herbert Hoover said of the Federal 
Arbitration Act that was recently passed by Congress, ``If the bill 
proves to have some defects, and we know most legislative measures do, 
it might well, by reason of the emergency, be passed and amended later 
in the light of further experience.'' It is the result of ``further 
experience'' that brings us to amend the Federal Arbitration Act today.
  Current business practice is that both the auto dealer and the 
manufacturer go through a process of mandatory binding arbitration in 
the case of a legal dispute. Unlike other forms of legal resolution, 
the auto dealer arbitration process has no jury, no rules of evidence 
or appeals process. H.R. 534, however, would simply make this mandatory 
binding arbitration in motor vehicle franchise contracts voluntary.
  It is our turn to amend the Federal Arbitration Act and return some 
of the power back to the States. In my home State of California, there 
are numerous State laws that cover motor vehicle franchise contracts 
and sufficient State forums to hear the legal disputes that may arise 
from these agreements.
  However, California's efforts to preserve the right of its auto 
franchisees to obtain a fair hearing for claims brought under the 
California franchise investment law have been preempted by Federal law. 
Because State laws to provide auto dealer protections are currently 
prohibited, it is now appropriate to revisit this issue.
  Madam Speaker, many vehicle manufacturers already have inserted 
mandatory binding arbitration clauses in their standard dealer 
agreements. With broad power to unilaterally amend their dealer 
agreements without dealer input at any point, every manufacturer could 
force mandatory binding arbitration on its dealers tomorrow.
  Madam Speaker, I would like to thank the gentleman from Illinois (Mr. 
Hyde) for his leadership and the gentleman from Massachusetts (Mr. 
Delahunt) for his dedication to see this legislation passed into law. 
It has been with his hard work and bipartisan spirit that this bill has 
made it to the floor of the House today. I would also like to take this 
opportunity to thank the gentleman from Pennsylvania (Mr. Gekas), the 
subcommittee chairman, for his effort and leadership on this issue. The 
gentleman from Pennsylvania has been a true leader in the Subcommittee 
on Commercial and Administrative Law since I have been a Member, and I 
have appreciated his counsel and friendship in my 2 years on this 
committee.
  I would like to thank Jim Hall on my staff and Chris Katopis and Ray 
Smietanka on the Judiciary staff as well.
  Madam Speaker, I reserve the balance of my time.
  Mr. CONYERS. Madam Speaker, I yield myself such time as I may 
consume.
  (Mr. CONYERS asked and was given permission to revise and extend his 
remarks.)
  Mr. CONYERS. Madam Speaker, I rise in strong support of this very 
important measure which would amend the Federal Arbitration Act to 
permit parties to automobile manufacturers and automobile dealer 
agreements to accept or reject arbitration of disputes. Essentially, 
H.R. 534 prohibits binding arbitration in contracts between automobile 
manufacturers and automobile dealers.
  This legislation deals with an increasing problem of motor vehicle 
manufacturers forcing small business automobile and truck dealers into 
non-negotiated agreements containing mandatory binding arbitration 
clauses. As a result of these clauses, binding arbitration becomes the 
sole remedy for resolving disputes between the manufacturer and the 
dealer. Although arbitration is a valuable form of alternative dispute 
resolution, when its use is

[[Page H8689]]

forced upon automobile dealers, they are denied use of courts and other 
state forums otherwise available to resolve such disputes. Such 
restrictive contractual terms are frequently proffered to the dealer on 
a ``take it or leave it'' basis with the threat of loss of manufacturer 
support for the dealer.
  H.R. 534 responds to this problem by allowing the use of arbitration 
as a method to settle contract controversies if both parties consent in 
writing. This would ensure that dealers are not forced to give up their 
legal rights to obtain or maintain their business. In addition, this 
legislation will send a strong message regarding the inequitableness of 
mandatory binding arbitration and will act as an incentive for broader 
legislation that prohibits mandatory arbitration contract clauses for 
consumers as well.
  Requiring dealers to agree to mandatory binding arbitration as a 
condition of obtaining, renewing, or maintaining their dealership is 
contrary to fundamental fairness. The intent of this proposed 
legislation is to make arbitration of disputes between dealers and 
manufacturers absolutely voluntary and I support it wholeheartedly.
  Madam Speaker, I yield such time as he may consume to the gentleman 
from Massachusetts (Mr. Delahunt).
  Mr. DELAHUNT. I thank the gentleman for yielding me this time.
  Madam Speaker, I rise in support of H.R. 534. I particularly want to 
commend my friend and colleague, the gentlewoman from California, for 
her authorship and her fine work on this very significant bill before 
us. This bill is about fairness, the most American of virtues, if you 
will. It is really, truly about preserving local businesses that are a 
cornerstone in our communities.

                              {time}  1730

  For small business, arbitration is often an effective alternative to 
going to court to settle disputes, and where arbitration is in their 
interests, sensible business people will generally agree to do that. 
But they do not need to be coerced. Chances are that when coercion is 
involved, it is because the party with greater leverage stands to gain 
from a procedure that deprives the other party of its rights and 
remedies under State law, laws that were enacted to protect the less 
powerful from predatory practices.
  By passing H.R. 534, we can level the playing field, so that both the 
manufacturer and the dealer are free to negotiate dispute resolution 
procedures that are truly voluntary and truly in their mutual interest. 
Some have charged that this interferes with freedom of contract. 
Nothing could be further from the truth, unless you define ``freedom of 
contract'' as the freedom of giant multinational auto makers to impose 
one-sided, take-it-or-leave-it contracts on small, locally owned 
dealerships.
  Let us pause and remember who these local dealers are. They are the 
people who sustain our local economies, who offer valuable goods and 
services to consumers and provide jobs, and they pay taxes. They are 
the people who contribute to their communities in ways that cannot be 
measured in terms of dollars and cents.
  It is the local dealer who sponsors the little league team; it is the 
local auto dealer who funds the after-school programs, and church 
picnics, and food banks, and domestic violence shelters. It is the 
local auto dealer who is often the president of the local chamber of 
commerce and also the chairman of the United Way.
  The people we are talking about are an integral part of the fabric of 
our communities. They are truly a mainstay of the American way of life, 
and they are slowly, inexorably being squeezed out by economic forces 
that they cannot control, but by forces we can control.
  We have heard a lot about globalization lately, and many of us are 
frustrated by our inability to temper its negative effects on the 
health of our communities. The use by large corporations of unfair, 
unbalanced franchise agreements is only one of those effects; but it is 
one that we can address, and we do it with this bill.
  Some have complained that the bill does not go far enough, that 
consumers and other segments of the small business community deserve 
comparable attention. Well, they are right, but that is not an argument 
against this bill. It is an argument, in fact, in favor of it. But by 
passing H.R. 534 we will be raising the bar for what constitutes fair 
dealing in all commercial relationships and setting a precedent that 
will ultimately lead to greater fairness and greater freedom for all.
  Again, I conclude by thanking the sponsor of this bill for her 
outstanding work, and urge its enactment.
  Mr. CONYERS. Mr. Speaker, I yield such time as he may consume to the 
gentleman from Wisconsin (Mr. Barrett).
  Mr. BARRETT of Wisconsin. Mr. Speaker, I rise today in strong support 
of H.R. 534, the Fairness and Voluntary Arbitration Act. I am proud to 
be one of the 252 cosponsors this bill introduced by the gentlewoman 
from California (Mrs. Bono), and I congratulate her for taking the 
leadership on this issue.
  H.R. 534 would correct what many of us see as a serious problem. When 
disputes arise between automobile manufacturers and dealers, the 
manufacturers are able to enforce mandatory arbitration provisions in 
their contracts. Quite simply, this bill would specify that binding 
arbitration is an option only if both sides agree to go in that 
direction.
  The relationship between automobile manufacturers and dealers has 
often been one-sided over the years, with manufacturers enjoying 
substantial bargaining advantages over dealers, many of whom are small 
businesses. Dealers often have no choice but to sign a contract that 
includes mandatory binding arbitration, further eroding their rights.
  This is an issue of fairness for small businesses, who should not be 
forced into binding arbitration against their will. I urge my 
colleagues to pass this bill.
  Mr. GEKAS. Mr. Speaker, the Judiciary Committee has reported H.R. 
534, a bill that allows parties who have signed motor vehicle franchise 
contracts containing arbitration clauses to accept or reject 
arbitration as a means of settling their contractual disputes.
  Arbitration is an increasingly common form of dispute settlement 
where parties submit their contractual claims for resolution by a 
neutral arbitrator. Arbitration and other forms of alternative dispute 
resolution have greatly reduced formal litigation costs while providing 
parties with a fair, efficient, and timely venue to resolve their 
disputes.
  Some parties, however, claim that arbitration may be burdensome and 
unfair. Motor vehicle dealers in particular have complained that 
manufacturers use superior bargaining power to require that they accept 
nonnegotiable franchise contracts containing binding arbitration 
clauses. These mandatory arbitration clauses place dealers in the 
position of having to forego state legal protections designed to remedy 
the bargaining imbalance between dealers and manufacturers. H.R. 534 
addresses this concern by allowing dealers or manufacturers to reject 
arbitration and seek legal relief for breach of contract.
  Since passage of the Federal Arbitration Act in 1925, the Congress 
has unequivocally encouraged alternative dispute resolution. We will 
continue to do so. However, we must also periodically examine the 
efficacy of binding arbitration clauses in exceptional circumstances to 
ensure that arbitration continues to serve as a fair and efficient 
alternative to formal litigation. H.R. 534 addresses one such 
exceptional circumstance, and I urge your support of the bill.
  Mr. PASCRELL. Mr. Speaker, I am pleased to rise today in support of 
H.R. 534.
  This legislation is designed to specifically help automobile dealers, 
but it is also legislation that will help consumers and our communities 
at large.
  There are 700 new automobile retail businesses throughout New Jersey. 
Dealerships are located on every highway, and in almost every downtown 
area throughout the state. I know driving down Route 46, and Route 23, 
and on other roads, I see dozens of these businesses that are 
contributing to the betterment of Northern New Jersey.
  These small businesses serve as important parts of the community. You 
can see their names on the backs of youth sports league jerseys and 
they always provide funds to civic events and fundraising drives.
  It is time we in Congress give back on behalf of our communities, and 
do something to resolve an inequity and promote fairness in the 
automobile industry.
  H.R. 534 merely makes binding arbitration in dealer/manufacturer 
disputes a voluntary option. This is needed legislation to help a 
segment of the small business community that needs our help.
  We must pass this legislation for not only business owners, but for 
their employees as well.
  Automotive retailing in New Jersey accounts for the direct employment 
of almost 45 thousand workers. There are also 24 thousand workers who 
indirectly owe their jobs to these businesses in the Garden State. That 
is 67

[[Page H8690]]

thousand workers who will see the benefits this legislation provides.
  This legislation is also of great benefit to the consumer, who as we 
all know, is always looking to get the best possible deal on a car. 
H.R. 534 promotes competition in an already very competitive industry, 
yielding the best prices for dealers, and these deals can be passed 
onto the consumer.
  As a member of the House Small Business Committee, I am always 
looking to help small businesses succeed and grow. Small business is 
the engine that has brought our economy to where it is today.
  This legislation will help one group of small businesses in their 
pursuit of economic success. I am pleased to be a cosponsor of this 
bill and support it on the floor.
  Mr. NADLER. Mr. Speaker, today we consider legislation intended to 
protect automobile dealers against binding arbitration clauses in 
contracts with manufacturers and franchisers. Although it was narrowed 
in Subcommittee to cover only one industry, it is an important and 
necessary step, one for which the testimony we received in the 
Judiciary Committee certainly makes the case.
  Too often, these businesses are presented with contracts on a take-
it-or-leave-it basis. If they do not accept the contract, with the 
binding arbitration clause, they risk losing their franchise and with 
it years of investment, both financial and the hard work they and their 
families have put into the business. That is a pretty coercive 
situation and one which most members of this House rightly view as 
contracts of adhesion.
  Moreoever, binding arbitration often deprives these businesses of 
their rights under State law, and their due process rights in court. 
Under certain circumstances, binding arbitration even threatens some 
contractual protections.
  Prohibiting this kind of unconscionable coercion is appropriate and I 
plan to support it.
  In addition to leaving other businesses exposed, this bill fails to 
protect individual consumers who also suffer violations of their rights 
under binding arbitration clauses in service agreements with sellers, 
and in credit agreements. During our hearing one witness for the auto 
dealers did admit that some dealers use these clauses in their 
contracts with their customers.
  Clearly this is a situation which also needs to be remedied. Now that 
the House has endorsed this fundamental protection for automobile 
dealers, I hope that the same concern which animates the bipartisan 
support for this legislation will help bring that bill into law as 
well.
  So while I do not believe this legislation goes far enough, it is an 
important step to protect small businesses and I urge its passage.
  Mr. CONYERS. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  Mrs. BONO. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Ose). The question is on the motion 
offered by the gentlewoman from California (Mrs. Bono) that the House 
suspend the rules and pass the bill, H.R. 534, as amended.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill, as amended, was passed.
  The title of the bill was amended so as to read: ``A bill to amend 
chapter 1 of title 9, United States Code, to provide for greater 
fairness in the arbitration process relating to motor vehicle franchise 
contracts.''.
  A motion to reconsider was laid on the table.

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