California Mediation and Arbitration

Arbitration/Consumers/Unconscionability: Second Dist. Div. 3 Affirms Order Denying Petition To Compel Arbitration Of Consumer Dispute Over Used Car

Procedural and Substantive Unconscionability Drive The Result

     Arbitration clauses, automobile purchases and leases provide a ripe area for dispute.  In 2012, I reported on a number of those disputes.  See my posts of April 12, 2012 (Kolev v. Euromoters West/The Auto Gallery; opinion withdrawn by 9th Cir.), August 1, 2012 (Caron v. Mercedes-Benz Financial Services USA LLC), August 26, 2012 (Goodridge v. KOI Automotive), and October 16, 2012 (Sherf v. Rusnak/Westlake).  In our next case, the purchaser sued after encountering problems with his used Dodge Avenger.  Defendants, the finance corporation and dealership, appealed the denial of their petition to compel arbitration.  Norton v. Ford of Santa Monica, et al., Case No. B237273 (2nd Dist. Div. 3 Dec. 28, 2012) (Kitching, J., author) (unpublished). 

     These consumer cases typically turn now on the issue of whether the arbitration clause is “unconscionable.”  In Norton, the arbitration provision crashed.

 

 

 

Used cars for sale.  Marion Post Wolcott, photographer.  Dec. 1940.  Library of Congress

     The arbitration clause was procedurally unconscionable because it contained “elements of surprise.”  Specifically, the arbitration clause was “inconspicuous” because it was located on the back side of a page, and did not have to be initialed.  The dealer did not draw the buyer’s attention to the clause.

     Substantive unconscionability resulted from the one-side nature of the arbitration provision – though it might appear superficially neutral on its face, it primarily benefited the dealer.  Example:  “A car buyer does not benefit from a provision allowing the dealership to seek a new arbitration of an award of more than $100,000 because the buyer, not the dealer, will be the party more likely to recover an award of that size. If the buyer obtains an award under the $100,000 threshold but believes it is too low, the buyer has no option to request a new arbitration unless the award is $0.”  Additionally, the “arbitration provision requiring the party requesting a new arbitration to advance filing fees and arbitration costs is unconscionable because it allows a financially strong automobile dealership to request a new arbitration while discouraging or preventing a cash-strapped consumer from doing so.”

     Thus, the Court of Appeal readily affirmed the trial court’s order denying the petition to arbitrate, based on procedural and substantive unconscionability.

Arbitration/Class/Waiver/Consumers/Enforceability: Second District Division 6 Reverses Denial of Automobile Dealership’s Motion to Compel Arbitration

 

Ducks Addressing Viability of Gentry v. Superior Court By Distinguishing It As Case Dealing With Employment Issues, Not Consumer Issues

     Plaintiff purchased a BMW, and filed a complaint alleging a violation of the Consumers Legal Remedies Act (CLRA) and other consumer protection statutes, because some BMWs do not come with a spare tire, but are equipped instead with tires that allow one to drive a short time after a tire is punctured.  The trial court denied the dealership’s motion to compel arbitration, on the ground that the arbitration agreement included an unenforceable class action waiver.  The dealership appealed.  Sherf v. Rusnak/Westlake, Case No. B237275 (2nd Dist. Div. 6 Oct. 16, 2012) (Perren, J.) (unpublished).

     The Court of Appeal reversed the trial court’s order denying arbitration.   AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011) preempts state law prohibiting a consumer from waiving class action rights.  However, the Court of Appeal remanded to the trial court to determine whether the arbitration agreement was unconscionable under California law.

     Along the way, the Court of Appeal pointed out that the California Supreme Court “has relied on statutory rights to invalidate a class action waiver in the context of employee rights.” Gentry v. Superior Court, 42 Cal.4th 443 (2007).  Rather than address the continuing viability of Gentry, the Court of Appeal simply ducked that issue by pointing out that Gentry dealt with employment issues, not consumer issues.  Besides, the California Supreme Court has granted review for Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012), a case that concluded that Concepcion invalidated Gentry.  So the issue of using unwaivable statutory rights to nix enforcement of arbitration agreements should come up again soon. 

Spare wheels and tires.  Between 1940 and 1946.  Alfred T. Palmer, photographer.  Library of Congress.