California’s First District Invalidates Auto Dealer’s Arbitration Agreement Due to Lack of Mutuality
The California Court of Appeal struck down an arbitration agreement by a car dealer defendant in a putative class action, rejecting an argument that an unconscionability analysis that focuses on the lack of mutuality in an arbitration contract violates Concepcion. Natalini v. Import Motor, Inc., 213 Cal. App. 4th 587 (1st Dist., mod. February 5, 2013).
Relying on the U.S. Supreme Court’s holding in AT & T Mobility LLC v. Concepcion, 563 U.S. –––– , 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), appellant car dealer argued that an “unconscionability analysis that focuses on the lack of mutuality or bilaterality in an arbitration provision is ‘an example of applying a generally applicable contract defense in a manner which disfavors arbitration.'” The First District declined to read Concepcion so broadly, and noted that:
Recent California and federal district court decisions addressing arbitration provisions very similar to that in the present case and in the identical car purchase context have not read Concepcion so broadly. (See Trompeter v. Ally Financial, Inc. (N.D.Cal., June 1, 2012, No. C–12–00392 CW) 2012 WL 1980894 [p. *8] [nonpub. opn.] ( Trompeter ); Smith v. Americredit Financial Services, Inc. (S.D.Cal., Mar. 12, 2012, No. 09cv1076 DMS (BLM)) 2012 WL 834784 [pp. *2–*4] ( Smith ); Lau v. Mercedes–Benz USA, LLC (N.D.Cal., Jan. 31, 2012, No. CV 11–1940 MEJ) 2012 WL 370557 [pp. *6–*7] ( Lau ); see also Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 804, fn. 18, 137 Cal.Rptr.3d 773.) A conclusion that an adhesive arbitration provision is unconscionable because it is crafted overly in favor of the drafter does not rely on any “judicial policy judgment” disfavoring arbitration. ( Truly Nolen, supra, 208 Cal.App.4th at p. 506, 145 Cal.Rptr.3d 432.)
In any event, the impact of Concepcion is before the California Supreme Court in another car purchase agreement arbitration provision case, Sanchez v. Valencia Holding Company (S199119). The issue presented in that case is “Does the Federal Arbitration Act (9 U.S.C. § 2), as interpreted in AT & T Mobility LLC v. Concepcion (2011) 563 U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?” FN2 Pending the Supreme Court’s ruling on the issue, we find persuasive the decisions in Trompeter, Smith, and Lau, as well as prior California Court of Appeal and Supreme Court decisions analyzing similar claims of substantive unconscionability. (See Truly Nolen,supra, 208 Cal.App.4th at p. 507, 145 Cal.Rptr.3d 432 [adhering to prior Supreme Court authority on issue not “directly address[ed]” in Concepcion ].)
Analyzing the arbitration agreement at issue, the Court of Appeal found the arbitration clause procedurally and substantively unconscionable and permeated with unconscionability, such that the trial court did not abuse its discretion in declining to sever the unconscionable aspects. The arbitration provision expressly exempted self-help remedies including repossession, authorized an appeal resulting in a new arbitration before a three-arbitrator panel only for an award of $0, an award in excess of $100,000, or an award including injunctive relief; the $100,000 threshold for an appeal was more than buyer’s total payments due under the contract, and the buyer was more likely than the dealer to obtain an injunction.
Justices & Judges:
Justice Simons wrote the opinion for the Court. Judge Joseph C. Scott, Superior Court of San Mateo County.
Toschi, Sidran, Collins & Doyle, David R. Sidran and Thomas M. Crowell, for Defendant and Appellant.
Hanson Law Firm and John W. Hanson; Louis A. Liberty, for Plaintiff and Respondent.