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Court of Appeal:
Arbitration Clause in Mobile Home Lease Unconscionable
Opinion Says Residents Did Not Make a Knowing, Voluntary Agreement
By a MetNews Staff Writer
The Third District Court of Appeal held yesterday that an arbitration provision in a mobile home park lease was unconscionable where the lessees had already purchased or made down payments toward their mobile homes before being asked to sign the leases and some had limited ability to understand English, had not completed high school, and were not told that the arbitration agreement was optional or the fees associated with arbitration.
The unpublished opinion, authored by Justice Shama Hakim Mesiwala, affirms Sacramento Superior Court Judge Richard K. Sueyoshi’s order denying the mobile home park’s motion to compel arbitration. Joining in the opinion was Acting Presiding Justice Louis Mauro, and Justice Jonathan K. Renner dissented.
Opposing arbitration were Janice Elizabeth Arnold and other current and former residents of a mobile home park in Antelope, a city in Sacramento County. They sued Antelope Manufactured Home Community, LP, the owner and operator of the park for failure to properly maintain common areas and facilities.
The plaintiffs alleged causes of action that included nuisance, breach of contract, breach of duty of good faith and fair dealing, and negligence, as well as seeking declaratory and injunctive relief.
In opposing the motion to compel arbitration, they cited a lack of sufficient time to review the agreements and ignorance of the arbitration provisions and other terms of the leases. They also protested that they could not afford to advance arbitration costs or to pay for arbitration.
Sueyoshi denied the motion to compel on the grounds that the Federal Arbitration Act does not apply to lease agreements, the leases were void under the applicable Mobilehome Residency Law Protection Act of 2018, and the arbitration provision was unconscionable.
Arbitration Agreement
The arbitration provision in the lease provides, in relevant part:
“DISPUTE RESOLUTION PROCESS: To ensure speedy resolution of disputes, neutral arbitration is used to resolve disputes. Arbitrator shall determine costs based on ability to pay. Arbitration applies to all claims for personal or bodily injury; and, claims for property damage and any claimed loss or expense whatsoever (apart from damages incidental to an unlawful detainer action). Arbitration shall be under the Federal Arbitration Act (FAA), as mobilehomes and appurtenances are constructed, shipped, financed and leased in interstate commerce.”
The provision also says that the arbitrator “shall determine all issues including whether the dispute may be arbitrated” and that joinder, consolidation and class actions were disallowed.
Unconscionable Provision
Mesiwala acknowledged that the terms of the provision empower the arbitrator to decide the issue of arbitrability but said “[w]e nevertheless conclude we may review plaintiffs’ unconscionability claim because they contend that they never knowingly agreed to the arbitration provision.”
She noted that enforcement of valid arbitration agreements is favored by both California and federal law, but wrote that “generally applicable contract defenses such as unconscionability may be applied to invalidate an arbitration agreement without contravening the Federal Arbitration Act or California law.”
Mesiwala explained that the unconscionability doctrine has both a procedural and substantive element.
She noted that the procedural element focuses on oppression or surprise due to unequal bargaining power between the parties and the substantive element focused on overly harsh or one-sided results.
The jurist said that “[b]oth procedural and substantive unconscionability must be present to establish unconscionability” but that a sliding scale existed between the two elements.
Procedural Element
An analysis of whether a contract is procedurally unconscionable begins with an inquiry as to whether the contract is a contract of adhesion, she wrote, declaring:
“Here, the leases are adhesive because they are standardized contracts drafted by defendants, who had superior bargaining power, and plaintiffs had no opportunity to negotiate. The circumstances surrounding the signing process also demonstrated oppression and an unfair surprise.”
She continued:
“Defendants exerted significant pressure on plaintiffs to sign the leases by telling them that they could not move into the mobilehomes they had already purchased unless they signed. No evidence suggests plaintiffs could readily have relocated their mobilehomes to another mobilehome park.”
She made note of imbalances in power between the parties, writing:
“Many plaintiffs do not have a high school education. But defendants did not explain the contents of the 21-page lease, including the arbitration provision, to plaintiffs; nor did they tell plaintiffs that the arbitration provision was optional. Instead, defendants instructed plaintiffs to initial and sign the leases at the office….Indeed, even though the leases contain acknowledgements from plaintiffs that they were given 30 days to review and the opportunity to seek legal counsel, plaintiffs declared under penalty of perjury that neither was true.”
Costs Not Mentioned
The justice explained that the provision also does not contain a fee schedule or disclose that a filing fee is required to commence an arbitration. She rejected Antelope’s argument that the ambiguous provision in the lease providing that “[a]rbitrator shall determine costs based on the ability to pay” made clear that Antelope would bear the costs if the plaintiffs were unable to pay.
Mesiwala addressed concerns relating to language barriers, saying:
“Defendants also unfairly surprised the Spanish-speaking plaintiffs by hiding the arbitration provision in English. One of the plaintiffs told defendants’ manager about her difficulties in understanding English. But defendants did not provide a Spanish version of the leases, explain the contents of the leases in Spanish, or tell these plaintiffs they could take the leases home for translation. These facts support a finding of unfair surprise.”
Finding that “the arbitration provision evinced a high degree of procedural unconscionability” she noted that only a low level of substantive unconscionability would be required on the “sliding scale.”
Substantive Element
As to the substantive inquiring, Mesiwala explained that a contract may be found unconscionable where it required a party to give up the right to utilize the judicial system and imposed unreasonably high arbitration costs. Looking to the circumstances surrounding the lease agreement, she wrote:
“Here, plaintiffs’ counsel submitted a declaration stating [a private arbitrator] requires a $3,000 filing fee to initiate an arbitration. While defendants contended at oral argument that cheaper arbitration services exist, they did not put into evidence a fee schedule of any alternative arbitration service. They also do not dispute that plaintiffs cannot afford the $3,000…filing fee.”
Mesiwala also found that the provision prohibiting joinder, consolidation and class actions raise unconscionability issues. She acknowledged that in the 2011 U.S. Supreme Court case of AT&T Mobility LLC v. Concepcion held that such provisions do not render an arbitration provision to be substantially unconscionable per se.
However, she said that the prohibition in the leases “prevent[ed] plaintiffs from sharing their arbitration fees” and required bringing “the same claims based on the same facts in 13 different arbitrations before 13 different panels that may reach different conclusions.”
She wrote:
“Returning to the sliding scale measurement for unconscionability, we conclude the arbitration provision contains a high degree of procedural unconscionability and a certain degree of substantive unconscionability and is therefore unenforceable.”
Renner’s Dissent
Renner noted that Sueyoshi denied the motion to compel because he determined that the FAA does not apply to lease agreements and that the arbitration agreement is void under the Mobilehome Residency Law. The judge alternatively concluded that even if the FAA was found to apply to the lease, the arbitration provision was unenforceable as an unconscionable agreement.
The dissenting jurist took issue with the majority’s opinion because, he argued, it fails to address the FAA or the Mobile Home Residency Act, and said:
“[T]he majority affirms the trial court’s order based solely on an analysis of unconscionability that follows neither the path charted by the trial court nor any authority identified by the parties or this court.”
Under these circumstances, he wrote:
“Because the majority has advanced no reason I may use to affirm the trial court’s ruling, I dissent.”
The case is Arnold v. Antelope Manufactured Home Community, LP, C097244.
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