Monday, August 16, 2010
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Court of Appeal Rules:
U.S. Law Does Not Render Class Action Waivers Enforceable
By KENNETH OFGANG, Staff Writer
The Federal Arbitration Act does not require California courts to enforce arbitration agreements that waive class-wide remedies for consumers, the Fourth District Court of Appeal has ruled.
Div. Two Thursday affirmed an order by Riverside Superior Court Judge Mac R. Fisher denying a Temecula auto dealer’s petition to compel arbitration of a customer’s suit alleging several violations of consumer protection laws in connection with her 2007 purchase of a 2004 Dodge Neon.
Amberlee Fisher alleged that DCH Temecula Imports LLC rescinded her original retail installment sales contract and had her sign a backdated agreement at a higher interest rate, threatening to repossess the vehicle if she did not sign; failed to disclose registration and licensing fees in the manner prescribed by law; and misrepresented the condition and inspection of the vehicle.
Class Claims
The claims regarding the rescission of the original agreement and the backdating of the substituted contract, and the failure to properly disclose fees, were brought on behalf of a class of similarly situated purchasers.
DCH petitioned the court to compel arbitration of all claims, pursuant to an arbitration clause in both contracts, stating, among other things:
“If a dispute is arbitrated, you will give up your right to participate as a class representative or class member on any class claim you may have against us including any right to class arbitration or any consolidation of individual arbitrations.”
It further stated, “You expressly waive any right you may have to arbitrate a class action” and that if the class waiver was found unenforceable, the entire arbitration clause was unenforceable.
Preemption Argument
DCH argued that the class waiver was enforceable in California pursuant to the Federal Arbitration Act, which it argued preempted state law. The sale of the Neon, the company argued, involved interstate commerce because the vehicle was manufactured outside the state and transported to California over interstate highways.
Fisher responded that the arbitration agreement was unenforceable because she was seeking injunctive relief under the Consumer Legal Remedies Act and because she had an unwaivable right under that act to bring a class action. She also claimed that the arbitration clause on the back side of the contract was never explained to her, that she had no idea what arbitration was and that she could not afford to pay for arbitration proceedings.
DCH replied that its policy was to explain the terms of its retail installment sales contract to the customer and to allow the customer to negotiate the terms. The company said that it had programmed into its computer an alternative version of the contract that did not include the arbitration clause.
The trial judge ruled, following a hearing, that arbitration could not be compelled. The company appealed, with the support of the California New Car Dealers Association as amicus.
Agreement Unenforceable
Justice Betty Ann Richli, writing for the Court of Appeal, said the arbitration agreement was unenforceable because the plaintiff could not be compelled to waive her right to sue on behalf of a class.
The CRLA, the justice noted, specifically provides that an injured consumer “may, if the unlawful method, act, or practice has caused damage to other consumers similarly situated, bring an action on behalf of himself and such other consumers to recover damages or obtain other relief.” The act also provides that “[a]ny waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.”
The federal act, Richli explained, makes arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
The justice concluded that the exclusion of class remedies is a legal ground for the revocation of an arbitration agreement, based on Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77. The court held there that the plaintiffs, who were suing a dealer for fraud and negligent representation with respect to financing, could challenge the enforceability of an arbitration agreement they claimed was unconscionable for purporting to require that they pay fees that they could not afford.
Richli wrote:
“We believe the reasoning in Gutierrez is sound. The arbitration clause at issue here required Fisher to waive an unwaivable statutory right under the CLRA to bring a classwide arbitration or class action lawsuit, which violates the public policy underlying these rights. This qualifies as a private agreement in contravention of public rights. DCH has never argued that the CLRA does not further a strong public policy of California; regardless, such argument would not be successful.”
The justice distinguished Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, which held that a class waiver could be enforced in a suit alleging that a dealer violated the Automobile Sales Finance Act by failing to give proper notice for repossession of a vehicle. Richli explained that the ASFA and the CLRA are different statutes, and that while the issue in Arguelles-Romero concerned the remedy for unconscionability, the CLRA does not require a finding of unconscionability to bar enforcement of an arbitration agreement.
The case is Fisher v DCH Temecula Imports LLC, 10 S.O.S. 4795.
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