“Saving Clause” of the FAA Doesn’t Save Consumer’s Unwaivable Statutory Rights Here
A hot arbitration topic is whether in various circumstances the Federal Arbitration Act (FAA) preempts “unwaivable statutory rights” under state law. That was an important question in Flores v. West Covina Auto Group, Case No. B238265 (2nd Dist. Div. 8 January 11, 2013) (Flier, J., author) (unpublished). The lawsuit arose from the purchase of a previously owned automobile from West Covina Auto Group, LLC (WCT). WCT successfully moved to compel arbitration based on an arbitration provision in the auto sales contact, and the consumer appealed.
The consumer argued that arbitration was inappropriate: “(1) a ‘poison pill’ provision in the arbitration clause prohibits arbitration; (2) WCT waived its right to arbitration; (3) the arbitration clause is unconscionable; (4) there was no meeting of the minds or mutual consent regarding the arbitration clause; and (5) as an unexpected term in an [sic] contract of adhesion, the arbitration clause is unenforceable.” All the arguments went down in flames.
The Federal Arbitration Act provides arbitration agreements “shall be valid, irrevocable, and enforceable,” except on “such grounds as exist at law or in equity for the revocation of any contract” – the last phrase being the so-called “saving clause” of the Act. The consumers here argued, in effect, that their unwaivable statutory rights under the CLRA constituted grounds under the savings clause to avoid arbitration. But the savings clause of the Act was not enough to save them from arbitration here.
Significantly, the Court of Appeal held that the ruling in Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601 (2010), holding that the right to a class action lawsuit or classwide arbitration was an unwaivable statutory right under the California Consumer Legal Remedies Act, has been preempted by the Federal Arbitration Act, following the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).
No waiver by the auto dealer of the right to arbitrate was found to have occurred, despite extensive litigation. Here, timing was important: Fisher was decided just after the plaintiffs filed their original complaint, precluding arbitration, and within two weeks after the filing of Concepcion, the auto dealer informed the trial court that it intended to compel arbitration. In concluding that the auto dealer had not waived its right to arbitrate, the Court “decline[d] to establish a rule that WCT should have done everything possible to compel arbitration, no matter how futile, expensive, or protracted the process.”
Despite the fact that the contract contained a number of clauses that other courts have found to be one-sided, prejudicial, and unconscionable, the Court here found no prejudice or unconscionability. I note the Court stated, “appellants have not shown prejudice” – and therein lies a clue as to how consumers must attack such arbitration clauses if they are to have any hope of avoiding arbitration. They must make particularized showings, based on admissible evidence, that in their case, the contractual provisions are unduly prejudicial or unconscionable. Given the post-Concepcion legal trend, a general argument that waiver of a statutory right to a class action is unconscionable, without a particularized showing based on evidence, is going to be a tough, if not impossible, argument to win.
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