Wednesday, February 6, 2013
Court Upholds Unconscionability Ruling in Arbitration Case
Panel Declines to Broaden Impact of Recent U.S. High Court Decision on Class Waivers
By KENNETH OFGANG, Staff Writer
A recent U.S. Supreme Court decision that overruled California’s ban on class-action waivers in arbitration agreements does not require reconsideration of the broader ban on one-sided, unconscionable waiver provisions, the First District Court of Appeal has ruled.
Div. Five yesterday certified for publication its Jan. 7 ruling affirming a San Mateo Superior Court judge’s denial of a motion to compel arbitration brought by Import Motors, Inc.
The car dealer sought to compel Gabriel Natalini to arbitrate after the customer sued for negligent misrepresentation and violation of consumer protection statutes, claiming that the company falsely represented a used car and its tires as new. He also included class claims based on certain practices related to trade-in vehicles.
The complaint was filed in November 2010. The motion was filed about a month after the U.S. Supreme Court’s April 2011 decision in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740.
Concepcion expressly overruled Discover Bank v. Superior Court (2005) 36 Cal.4th 148, which held that arbitration provisions in consumer contracts prohibiting classwide arbitration are generally unconscionable.
Back of the Contract
Import Motors’ motion relied on an arbitration clause on the back of the sales contract. Natalini responded that the clause was unconscionable because he was not given an opportunity to negotiate or even read it, and that many of the individual provisions were unconscionable as well.
He cited provisions barring allowing the dealer to retain self-help remedies, such as repossession, and to request a new arbitration, with a three-member panel, in the event of an award of more than $100,000.
Judge Joseph C. Scott denied the motion on several grounds, including unconscionability.
Justice Mark Simons, writing for the Court of Appeal, agreed that the agreement was unconscionable and said the trial judge did not abuse his discretion in declining to sever the unconscionable provisions and enforce the remainder of the arbitration agreement.
The appellate jurist rejected the argument that Concepcion, which was based on Federal Arbitration Act preemption, extends beyond waivers of class claims and prohibits trial courts generally from applying state contract law to arbitration agreements “in a fashion that disfavors arbitration.”
Simons cited several recent decisions by federal judges applying California law, as well as a Court of Appeal decision, that “have not read Concepcion so broadly.” He noted, however, that another car purchase case involving that issue—Sanchez v. Valencia Holding Company—is before the California Supreme Court.
Applying California precedent to the facts before the trial court, Simons said there was sufficient evidence of both procedural and substantive unconscionability to support the ruling.
He cited the plaintiff’s declaration, in which Natalini insisted that the dealer’s employees “spent only enough time on the contract to point out where to sign,” and said that he was “not allowed to read the back of the contract,” that he and the dealer’s employees “did not discuss anything on the back of the contract,” and that he was “not aware of any arbitration clause or waiver of rights at or before the purchase.”
As for the substance of the agreement, Simons wrote:
“We conclude that the arbitration provision in the present case is substantively unconscionable because it is designed in several ways to systematically favor the car dealer.”
Allowing the dealer to seek a second arbitration if the customer gets a large award, he said, is unfair, even if, as in this case, the customer is facially allowed to seek a second arbitration if he gets a “zero dollars” award. “[T[here is no justification for the $100,000 threshold, other than to relieve the car dealer of liability it deems excessive.”
Other unconscionable provisions, he wrote, were those that allowed a new arbitration if injunctive relief is awarded, and allowed self-help, provisions that will always benefit the dealer and never the customer. Those provisions, he wrote, were so pervasive that the trial judge was not required to sever them from the remainder of the agreement.
In yesterday’s order modifying the opinion and certifying it for publication, the court noted that a recent decision of this district’s Court of Appeal, Flores v. West Covina Auto Group (2013) 212 Cal.App.4th 895, reached a different result, but said the panel would “adhere to our analysis and conclusion.”
The case is Natalini v. Import Motors, Inc., A133236.
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