Arbitration, Consumers, Delegation, Gateway Issues, Unconscionability: Fifth District Vacates Parts Of Trial Court Order About Unconscionability And Arbitrability, And Upholds Delegation Clause Sending Consumer Dispute To JAMS Arbitrator

Enforceable Delegation Provision Means The Buck Does Not Stop With Court, But Gets Passed To Arbitrator.

        Aanderud v. Superior Court (Vivint Solar Developer, LLC, Real Party In Interest), F073277 (5th Dist.  7/26/17) (Gomes, Hill, Meehan), is worth reading for its analysis of how a delegation provision is applied to a consumer arbitration, where the individual stakes are low, but the cost of entry to arbitration may be high for the consumer. 

        The Aanderuds brought individual and class action claims against Vivint Solar, in connection with their entry into a 20-year solar power purchase agreement with Vivint Solar.  The trial court granted Vivint Solar's petition to compel arbitration, ordered the Aanderuds to submit their individual claims to arbitration, and dismissing class claims without prejudice.

        The Court of Appeal disagreed in part with the trial court's order, because a delegation clause, if enforceable, required the arbitrator, not the trial court, to resolve substantive issues.  Therefore, the Court of Appeal addressed the dispositive issue: whether the delegation of issues to the arbitrator was valid.  The Aanderuds contended that the delegation clause was not enforceable, because it was not clear and unmistakable and because it was unconscionable.  The Court of Appeal, however, disagreed, finding the delegation clause enforceable.

        The most interesting part of the analysis addressed the Aanderud's contention that the delegation clause was unconscionable in the context of consumer arbitration, because it was prohibitively expensive for the Aanderuds to arbitrate their consumer claim.  The Court of Appeal, however, believed that under JAMS rules for consumer arbitrations, "the Aanderuds' fees will most likely be limited to $250 . . . "  (Query: Does "most likely" contain a negative pregnant?)  The Aanderuds, however, argued that because the arbitration did not satisfy all 10 requirements under JAMS rules for JAMS to arbitrate a consumer dispute, JAMS might proceed under other than consumer rules, requiring the parties to pay pro rata costs, including a $1,200 filing fee, a  $5,000 retainer, and arbitrator's fees ranging from $5,000 to $8,500 per day.

        The Court of Appeal, however, concluded that the merits of the Aanderuds' contention regarding the sharing of expenses are for the arbitrator to decide, "as their contentions go to the 'scope and applicability' of the arbitration provision."  

        The upshot is a disposition that grants in part and denies in part the Aanderuds' petition to the Court of Appeal.  Because the delegation clause is held to be effective, the Court of Appeal vacates parts of the trial court's order finding the arbitration agreement was not unconscionable, finding all claims are arbitrable, and finding the Aanderuds could only arbitrate in their individual capacity.  However, the case will go to arbitration, and now the arbitrator will have to decide issues the trial court should not have decided.

        COMMENT:  The Court of Appeal agreed that the arbitration agreement was procedurally unconscionable, but did not believe that substantive unconscionability existed.  The Court's reasoning regarding the Aanderuds' contention that the delegation clause was invalid, in part because the allocation of expenses was unfair, seems somewhat circular.  By leaving it up to the arbitrator to decide the issue, the Court of Appeal seems to be punting, leaving it up to the arbitrator to address an aspect of unconscionability.  And, the enforceability of the delegation clause turns on whether it is unconscionable, such that if it is unconscionable, then decisions could not be delegated to the arbitrator.  Here, the Court of Appeal has finessed the issue by the the deft application of labels, explaining that "[t]he merits of the Aanderuds' contention [regarding arbitration expenses] are for the arbitrator, not us, to decide, as their contentions go to the  'scope and applicability' of the arbitration  provision."  Thus, the Court of Appeal views the argument about the potential for unfair application of the cost rules not as an issue of ambiguity or of unfairness, but as an issue concerning the "scope and applicability" of the arbitration  provision.  Problem solved?

 

 

 

        

Comments

[Eugene E. Siegel]

Thank you, Marc, for your insightful remarks on our case. I agree with your analysis.
Eugene E. Siegel
Co-counsel for Appellant