Northern District Denies Motion to Compel Arbitration Where Plaintiffs Sought Only Injunctive Relief Under Unfair Competition Law

by charlesjung

records of financial catastrophe from americredit
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The United States District Court for the Northern District of California denied a motion to compel arbitration where plaintiffs sought only injunctive relief under the California Unfair Competition Law (“UCL”).  Cardenas v. Americredit Financial Services Inc., No. C 09-04978 SBA, 2010 WL 3619851 (N.D. Cal. Sept. 13, 2010).

Plaintiffs allege that Defendant AmeriCredit Financial Services, Inc. (“AmeriCredit”), failed to provide Mr. Cardenas with proper notice of his rights in connection with the financing of his car, ostensibly in violation of California’s Unfair Competition Law (“UCL”), California Business and Professions Code § 17200.  Id. *1.  After plaintiff defaulted on his payments, AmeriCredit repossessed Cardenas’ vehicle. Id. *3. The vehicle was subsequently sold and on thereafter, AmeriCredit informed Cardenas that his car had been sold for $12,000, but that he still owed them a deficiency balance of $12,733.85 (i.e., the amount owed on his loan less the amount recovered from the sale of the car). Id. Mr. Cardenas paid only part of the deficiency balance, and AmeriCredit later reported Cardenas’ deficiency to credit bureaus. Id.

Plaintiff filed a class action complaint in San Francisco County Superior Court against AmeriCredit, alleging claims for (1) violation of the UCL, which, in turn, is predicated on a violation of Rees-Levering Automobile Sales Finance Act, Cal. Civ. Code § 2981, et seq., and (2) for declaratory relief. Id. AmeriCredit removed under the Class Action Fairness Act, 28 U.S.C. §§ 1332(d), 1453(b). Id. Subsequently, AmeriCredit filed a motion to compel arbitration and dismiss, or alternatively, to stay on the grounds that Plaintiff’s claims are subject to the arbitration clause set forth in the Agreement. Id. Plaintiffs contend that the arbitration clause is not enforceable, inter alia, because it allegedly is unconscionable and because claims for injunctive relief under the UCL are not arbitrable. Id.

Arbitration Agreement

The Agreement expressly notified the consumer–in capitalized lettering–to read the document and to indicate that the consumer has read it (including the arbitration clause), by signing the Agreement immediately below this clause:

YOU AGREE TO THE TERMS OF THIS CONTRACT. YOU CONFIRM THAT BEFORE YOU SIGNED THIS CONTRACT, WE GAVE IT TO YOU, AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.

Id. *2.

The Agreement’s arbitration clause was set forth in a text box (i.e., text surrounded by a border) that appears on the bottom of the second page (reverse side) of the Agreement:

ARBITRATION CLAUSE

PLEASE REVIEW . IMPORTANT . AFFECTS YOUR LEGAL RIGHTS

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN U.S. DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

2. 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 U.S. INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT AND THAT OTHER RIGHTS YOU AND WE WOULD HAVE MAY NOT BE AVAILABLE IN AN ARBITRATION.

Id. *2.

The Court was not persuaded that the arbitration clause at issue is either procedurally or substantively unconscionable.   Id. *7.  Plaintiffs also argued, however, that that AmeriCredit’s motion to compel arbitration should be denied because plaintiffs seek injunctive relief under the UCL, which they assert is not arbitrable under Broughton v. Cigna Healthplans of Cal., 21 Cal. 4th 1066, 1082, 90 Cal.Rptr.2d 334, 988 P.2d 67 (1999) and Cruz v. PacifiCare Health Sys., 30 Cal.4th 303, 316, 133 Cal.Rptr.2d 58, 66 P.3d 1157 (2003). Id. *8.

In Broughton, the California Supreme Court held that claims for injunctive relief under the Consumers Legal Remedies Act (“CLRA”), Cal.Civ.Code § 1750, et seq ., were not subject to arbitration because there is an “inherent conflict” between arbitration and the underlying purpose of the CLRA’s injunctive relief remedy:

First, that relief is for the benefit of the general public rather than the party bringing the action. [ ] Second, the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators.

Id. (quoting  Broughton, 21 Cal. 4th at 1082, 90 Cal.Rptr.2d 334, 988 P.2d 67).

In Cruz, the California Supreme Court extended Broughton to claims for injunctive relief under the UCL, to the extent they are “designed to prevent further harm to the public at large rather than to redress or prevent injury to a plaintiff.”  Id. (quoting Cruz, 30 Cal.4th at 315, 133 Cal.Rptr.2d 58, 66 P.3d 1157.

The court rejected AmeriCredit’s contention, which was without citation to relevant legal authority, that a “public injunction” is no longer available as a remedy following the passage of Proposition 64.  Id. *9.  “While Proposition 64 heightened the standing requirements to bring a UCL claim, it did not alter any of the remedies available under the UCL.” Id. Thus, the Court “rejects AmeriCredit’s assertion that Proposition 64 renders Broughton or Cruz inapt.”

The court also rejected AmeriCredit’s contention that the injunction sought by Plaintiffs under the UCL is not intended to benefit the public. Id. AmeriCredit asserted that the requested relief is “victim specific,” as it only benefits class members who received a Notice from AmeriCredit following the repossession of their vehicle, and against whom AmeriCredit has asserted a deficiency claim. Id. The court rejected this argument.  Id. The Complaint alleges that the Notices issued by AmeriCredit are “defective” in that they fail to accurately inform consumers of their legal rights and obligations. Id. As relief, plaintiffs sought an order enjoining AmeriCredit from continuing in this allegedly improper practice. Id.

Thus, it is evident that the relief being sought is not limited to Plaintiffs individually, but rather, extends to members of the public impacted by AmeriCredit’s allegedly unfair business practices. Indeed, under AmeriCredit’s reasoning, a UCL claim for injunctive relief would never be considered an injunction for the benefit of the public because the scope of relief would always be defined by the class. The Court is aware of no authority to support such an expansive proposition of law.

Id. Thus, the court concluded that “arbitration clause contained in the Installment Agreement is neither procedurally nor substantively unconscionable. Nevertheless, Plaintiffs cannot be compelled to arbitrate their claim for injunctive relief under the UCL.” Id. *10.

Judge and Attorneys

District Judge Saundra Brown Armstrong.

Andrew Jones Ogilvie, Carol McLean Brewer, Kemnitzer, Anderson, Barron, Ogilvie & Brewer, LLP, San Francisco, CA, for Plaintiffs.

Peter S. Hecker, Anna S. McLean, Craig A. Pinedo, Molly Rachel Newland, Sheppard Mullin Richter & Hampton LLP, San Francisco, CA, for Defendants.

By CHARLES JUNG

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