Fourth District, Division 3 Reverses Denial of Petition to Compel Arbitration and Remands to Consider Unconscionability Challenge
Plaintiff Caron, who experienced difficulties with her certified preowned Mercedes Benz, sued Mercedes Financial and Mission Imports for relief under the Consumer Legal Remedies Act (CRLA), the Automobile Sales Finance Act, and unfair competition law. Defendants petitioned to arbitrate under an arbitration provision that included a class-action waiver. The trial court believed that it was bound by Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601 (2010), and ruled that the arbitration provision was unenforceable because it waived the right to bring a class action under the CRLA, and that the Federal Arbitration Act (FAA) did not preempt the CLRA’s prohibition against class-action waivers. Caron v. Mercedes-Benz Financial Services USA LLC, Case No. G044550 (4th Dist., Div. 3 July 30, 2012) (Aronson, J., author).
Whether the FAA preempts the CLRA’s anti-waiver rule is a legal question. Therefore, the Court of Appeal reviewed the trial court’s ruling de novo.
Based on AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011),the Court of Appeal agreed that the FAA preempts the CLRA’s anti-waiver provision, and declined to follow Fisher. Therefore, the Court of Appeal reversed the trial court’s ruling that denied the petition to arbitrate, but remanded for the trial court to resolve factual issues raised by Caron’s unconscionability challenge.
The Court of Appeal acknowledged that the California Supreme Court created the “Discover Bank rule,” used to find certain arbitration provisions in consumer contracts unconscionable because they included a waiver of the consumer’s right to bring a class action. The reason for the Discover Bank rule was that “consumer contracts of adhesion allowed companies to effectively exonerate themselves from liability for cheating large numbers of consumers out of money individually too small for a consumer to bring an individual action.” But Concepcion took a different paths.
Properly drafted class-action waivers may be enforceable, requiring consumers to arbitrate substantive claims brought under the CRLA.
Caron highlights two themes in recent cases: (1) the FAA preempts state law (including statutory rules) that erect obstacles to the FAA’s objective of enforcing arbitration agreements according to their terms, and result in special treatment of contracts with arbitration provisions; (2) arbitration provisions must still satisfy common law rules that govern contract formation and enforceability. As to the second point, we posted on March 29, 2012, about a case in which an automobile dealership’s effort to enforce an arbitration provision was defeated on state-law waiver grounds. Lewis v. Fletcher Jones Motor Cars, Inc., No. G045603 (4th Dist. Div. 3 March 26, 2012) (Aronson, J.) (not for publication).
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