Fees And Costs Provision In Consumer Arbitration Was Unconscionable Here.
This case involves a common scenario in which a business sells a good or service that is financed, the business is unable to fully perform, and the lender seeks to enforce an arbitration provision when it gets sued. Here, the Court of Appeal held that the arbitration clause was enforceable, with one exception: the provision that shifted fees and costs to the prevailing party in a consumer arbitration was held to be substantively unconscionable. Why? Because a prevailing plaintiff consumer would have been entitled to fees under the Consumer Protection Act, the “loser pays” provision only benefits a prevailing defendant. Brinkley v. Monterey Financial Services, Inc., D066059 (4/1 Nov. 11, 2015) (Aaron, McIntyre, O’Rourke). However, the Court also determined that because the agreement was not permeated with unconscionability, the one unconscionable provision could be severed, saving the rest of the arbitration provision.
This is also a case in which incorporation by reference of AAA arbitration rules resulted in incorporation by reference of the AAA Supplementary Class Arbitration Rules. And that in turn meant here that the decision to determine whether a class-wide arbitration will be allowed is a decision delegated to the arbitrator under the AAA rules. The same delegation of the decision to decide whether to allow class-wide arbitration, with the same result, has been addressed in a case we blogged about earlier on August 20, 2015, Universal Protection Services, LP v. Superior Court of Yolo County (Michael Parnow, et al., Real Parties in Interest), C078557 (3d Dist. August 18, 2015)(published).