Fourth District Invalidates Class-Wide Arbitration Clause

by charlesjung

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In this next case, Fisher v. DCH Temecula Imports LLC, — Cal.Rptr.3d —-, 2010 WL 3192912 (Cal. Ct. App. 4th Dist. Aug. 13, 2010), the Court of Appeal for the Fourth District upheld the trial court’s denial of a petition to compel arbitration.

Defendant DCH Temecula Imports LLC (DCH) appealed the denial of its petition to compel arbitration. The trial court found that an arbitration clause in a retail installment sales contract (RISC) for the sale of a car to plaintiff Amberlee Fisher, which included a waiver of the right to bring a class action lawsuit or request classwide arbitration, was unenforceable.  Fisher opposed enforcement of the arbitration clause, arguing that it required her to waive an unwaivable statutory right to bring a class action lawsuit under the California Legal Remedies Act (the CLRA) and that the arbitration agreement was both procedurally and substantively unconscionable.

Claims and Class Definition

Fisher filed her complaint for injunctive relief, restitution, rescission, and damages both on her own behalf and as a class action lawsuit.  The class definition was:

those who purchased a vehicle from DCH from July 28, 2003, to then present, and (1) after signing an RISC, DCH rescinded the original RISC and had the consumer sign a subsequent RISC for the same vehicle, but the new contract was dated the date of the original purchase contract and involved financing at an annual percentage rate greater than 0.00%, and/or (2) who executed an RISC for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed on a separate line in the contract as required.

The six causes of action for the class were violation of the CLRA and Civil Code sections 1750 and 1780, subdivision (a)(2) for backdating contracts; violation of the CLRA and Civil Code sections 1750, subdivision (a) and 1770, subdivision (a) for improperly designating license and registration fees; violation of the Automobile Sales Finance Act (the ASFA) and Civil Code section 2981 for backdating the second sales contract; violation of the ASFA and Civil Code section 2981 for improperly designating license and registration fees; commission of unlawful, unfair, and/or fraudulent business practices and violation of Business and Professions Code section 17200 for backdating the second sales contracts; and commission of unlawful, unfair, and/or fraudulent business practices and violation of Business and Professions Code section 17200 for failing to properly designate license and registration fees.

Petition to Compel Arbitration

On December 1, 2008, DCH filed its notice of petition and petition for orders compelling binding contractual arbitration, severing injunctive relief claims if inarbitrable, staying or dismissing proceedings pending arbitration, and staying injunctive relief claims pending arbitration if inarbitrable (petition to compel arbitration). According to the petition to compel arbitration, DCH had demanded that Fisher enter into binding arbitration prior to filing the complaint, but she had refused.

The binding arbitration clause appeared in a box on the back of the agreement in both the first and second RISC that Fisher signed.

The page on which it appeared was neither signed nor initialed. In bold letters it stated, “ARBITRATION CLAUSE PLEASE REVIEW–IMPORTANT–AFFECTS YOUR LEGAL RIGHTS.” It stated: “Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” (Capitalization omitted.) It also stated, “If a dispute is arbitrated, you will give up your right to participate as a class representative or class member on any class claim you may have against us including any right to class arbitration or any consolidation of individual arbitrations.” (Capitalization omitted.) It further stated, “You expressly waive any right you may have to arbitrate a class action.” Finally, it included language that, if the waiver of class action lawsuits or classwide arbitration was found unenforceable, the entire arbitration clause was unenforceable.

The court faced the issue of whether the waiver of a state statutory right (CLRA) constitutes a ground that exists at law or in equity for the revocation of any contract.  The court held that the “right to bring a class action lawsuit, an unwaivable statutory right under the CLRA, is ‘a separate, generally available contract defense not preempted by the FAA.'” Id. *11 (quoting Gutierrez v. Autowest, Inc., 114 Cal. App. 4th 77, 95 (2003)).

The manner in which the contract was written in this case gives the appearance that the class action waiver was included in the arbitration agreement in order to force Fisher to waive her statutory rights, and DCH could be protected by arguing that the FAA preempted the CLRA because the waiver was included in the arbitration agreement. This is the type of arbitration agreement criticized in Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1079 for hiding these types of waivers of unwaivable rights.

Our hands are tied as to ordering arbitration of any of Fisher’s individual claims in the agreement. It was DCH who chose to put the classwide arbitration and class action lawsuit waiver in the arbitration agreement and then included the “poison pill” provision that invalidated the remainder of the arbitration agreement if the classwide arbitration waiver was unenforceable. We cannot sever the offending class action waiver, as we are bound by the language of the contract. We therefore affirm the trial court’s ruling denying DCH’s petition to compel arbitration.

Id. *12.

Judges and Attorneys

Justice Betty Ann Richli wrote the opinion for the court.  Justices Hollenhorts and McKinster concurred.

The appeal was taken from the Superior Court of Riverside County, Hon. Mac R. Fisher.

Defendant and Appellant was represented by Christian J. Scali and Wade R. Kackstetter of Manning, Leaver, Bruder & Berberich.

Jonathan Morrison submitted an amicus brief for California New Car Dealers Association on behalf of Defendant and Appellant.

Plaintiff and Respondent was represented by Hallen D. Rosner and Christopher P. Barry of Rosner, Barry & Babbitt.

The Complex Litigator and The UCL Practioner also discuss this case.