Application of Concepcion Is Decisive.
At last, the California Supreme Court has decided Sanchez v. Valencia Holding Company, LLC, S199119 (Cal. Sup. Ct. Aug. 3, 2015) (Liu, J., author). The case has been pending since Defendant and Appellant Valencia filed its petition for review on January 4, 2012. The majority opinion, authored by Justice Liu, holds: “Concepcion requires enforcement of the class waiver but does not limit the unconscionability rules applicable to other provision of the arbitration agreement. Applying those rules, we agree with Valencia that the Court of Appeal erred as a matter of state law in finding the agreement unconscionable.”
Sanchez’ lawsuit alleged Valencia violated the Consumer Legal Remedies Act by making false representations about the condition of the automobile he purchased.
The automobile sales contract at issue contained four arbitration provisions that some Courts of Appeal have found to be unfairly one-sided: (1) an award could be appealed to a panel of three arbitrators if the award was $0 or over $100,000; (2) an award of injunctive relief could be appealed; (3) the appealing party had to pay in advance the filing fee and other arbitration, through the arbitrators could later apportion costs; (4) repossession is exempted from arbitration. Because the California Supreme Court finds that none of those provisions is unconscionable, and because those provisions are common in automobile sales contracts, automobile dealers will breathe a collective sigh of relief.
Justice Chin, concurring and dissenting in part, agrees that the class arbitration waiver is enforceable and that Sanchez fails to carry his burden of establishing that the contract is unconscionable. However, Justice Chin disagrees with some of the majority’s analysis. He questions whether an adhesive contract is necessarily procedurally unconscionable, and states that the majority does not need to reach the issue of procedural unconscionability, because it holds that the arbitration provisions are not substantively unconscionable. He also argues in favor of a single substantive unconscionablility “shocks the conscience” test, rather than a smorgasbord of legal formulations.
COMMENT: The opinion also contains an interesting discussion of Cal. Code Civ. Proc. section 1284.3, concerning responsibility for fees in consumer arbitrations. While the Court agrees that a requirement that a consumer front appellate filing fees or other arbitration costs “has the potential to deter the consumer from using the appeal process”, the Court applies a case-by-case “affordability of arbitration” analysis to determine whether fees and costs would make arbitration unaffordable. Here, the dispute involved “a high-end luxury item” – a “preowned” Mercedes-Benz S500V. Sanchez simply failed to claim or show that appellate arbitration filing fees were unaffordable to him.
Unconscionability and the “affordability of arbitration” will have to be left for another day.
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