Monday, January 14, 2013
Court Rules FAA Preempts Prohibition Against Class Action Waivers
By JACKIE FUCHS, Staff Writer
A woman and her father who signed a form automobile purchase agreement waived their right to initiate a class action, this district’s Court of Appeal ruled Friday.
Div. Eight held that under the terms of the agreement, the Federal Arbitration Act preempted the California law, including the Consumer Legal Remedies Act’s prohibition against class waivers.
Andrea Naasz purchased a previously owned vehicle from West Covina Toyota. Her father, Israel Flores, cosigned the preprinted form contract.
That agreement contained a clause allowing either party to request arbitration of disputes. It further provided that if a dispute was arbitrated, the purchaser gave up his or her right to initiate or participate in class actions.
The contract provided that it would be governed by both federal and California law, and the arbitration clause specified that any arbitration would be governed by the Federal Arbitration Act and not by any state law concerning arbitration.
After the purchase, Naasz allegedly experienced a number of problems with her vehicle. which the defendants were unable to repair. She and Flores filed suit, alleging individual claims as well as class claims for violations of the CLRA.
After months of discovery, the dealership filed a motion to compel arbitration and stay the action, which Los Angeles Superior Court Judge Maureen Duffy-Lewis granted. Plaintiffs appealed under the “death knell” doctrine, which provides that an order effectively terminating class claims while allowing individual claims to proceed is immediately appealable.
Justice Madeleine Flier, writing for the panel, agreed that the appellate court could review the order, even though an order compelling arbitration is not ordinarily appealable and may be reviewed only after the parties complete arbitration and appeal from the judgment.
Given the class arbitration waiver in defendant’s form contract, Flier said, the order compelling arbitration effectively rang the death knell for the class claims. The panel, therefore, had jurisdiction to rule on Duffy-Lewis’ order.
Flier noted that the sales contract contained a general choice of law provision, which stated that both federal law and California law appled to the contract. To the extent the two conflicted, the panel said, the Supremacy Clause mandated that federal law preempt state law.
In addition, Flier noted, Sec. 2 of the FAA provides that the FAA preempts state laws inconsistent with its provisions and objectives, and under AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, FAA preemption extends to state laws standing “as an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA.
Thus, she said, the arbitration clause was enforceable, notwithstanding a provision in the CLRA which states that “[a]ny waiver by a consumer of the provisions of [the CLRA] is contrary to public policy and shall be unenforceable and void.”
Flier emphasized that the panel’s holding did not invalidate the CLRA’s antiwaiver provision altogether, only that it is preempted by the FAA.
The justice rejected the plaintiffs’ argument that applying preemption “would mean any number of illegal terms placed in arbitration clauses could be enforceable because the state laws making them illegal would be preempted by the FAA.” They cited as examples a hypothetical provision forcing plaintiffs to hand over their first-born children at the beginning of the arbitration, or a term permitting the defendant to take a free punch at the plaintiff to commence the arbitration.
“Our holding does not lead to such absurd results… the defense of unconscionability to terms other than class arbitration waivers survives Concepcion… We cannot imagine how such terms would survive an unconscionability challenge.”
The panel also refuted the plaintiffs’ claims that defendant waived its right to arbitrate by engaging in discovery and pretrial motions without any mention of arbitration for months.
Flier said that defendant no choice but to engage in the litigation process, since its arbitration clause was unenforceable prior to Concepion.
The panel also made short work of plaintiffs’ claims that the contract was unenforceable as a contract of adhesion, nothing that arbitration is a common and expected means of dispute resolution “in this day and age.”
In addition, Flier said, the arbitration clause was in boldface and capital letters, and Naasz acknowledged that she had the opportunity to thoroughly read the contract before signing it. As a result, the clause was not unconscionable.
Presiding Justice Elizabeth Grimes and Justice Laurence Rubin concurred in the opinion.
Hallen Rosner, Christopher Barry and Angela Smith of Rosner, Barry & Babbitt were counsel for the plaintiffs. Robert Thompson, Charles Russell and George Koumbis of Callahan, Thompson, Sherman & Caudill represented the defendant.
The case is Flores v. West Covina Auto Group, B238265.
Copyright 2013, Metropolitan News Company