State Law Unconscionability Principles Are Not Preempted By The Federal Arbitration Act – So Long As They Do Not Uniquely Target Arbitration Agreements.
Carlson v. Home Team Pest Defense, Inc., A142219 (1/4 Aug. 17, 2015) (Ruvolo, Reardon, Streeter) (certified for publication) affirms an order denying an employer’s motion to compel arbitration, on grounds that the arbitration provisions are procedurally and substantively unconscionable. Finding the agreement permeated with unconscionability, the Court agrees that it would be improper to rewrite the agreement and sever unconscionable provisions. The analysis seems conventional and thorough, aided by a “substantial evidence” standard of review, because “[i]n this case the trial court made factual findings based on at least some material disputed evidence.”
NOTE: The California Supreme Court recently addressed the test for unconscionability in Sanchez v. Valencia Holding Co., LLC (See my August 4, 2015 post.) The Sanchez Court did not find the automobile sales arbitration provision to be unconscionable in Sanchez. However, the Court in Carlson does find the employment agreement provision to be unconscionable, while relying on the Sanchez test “which stated that all of these formulations essentially embrace a central idea requiring a degree of unfairness, beyond ‘a simple old-fashioned bad bargain.’”
Though the same legal test is applied, there is, perhaps, one high-level factual difference between Sanchez and Carlson. Sanchez was the purchaser of a two-year old pre-owned Mercedes Benz, with a sales price of $53,498.60. Perhaps that influenced the way the Supreme Court viewed unconscionability, because it did not view the transaction as an ordinary consumer purchase, in which, for example, affordability of arbitration could be a significant factor in the unconscionability analysis. By way of contrast, Carlson was an employee, not the purchaser of a high-end automobile. Among other things, the Carlson Court noted that requiring the employee to pay a $120 filing fee within 90 days after making an initial Request for Dispute Resolution, after which all fees and expenses incurred in connection with the arbitration are to be split between the parties, puts arbitration and litigation on an unequal footing, and becomes a factor in the unconscionability analysis.