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First District Invalidates Arbitration Agreement Citing Lack of Mutuality

In Arbitration on March 19, 2013 at 3:46 pm
"Mrs. F.S. Bliven in auto". Photo sh...

“Mrs. F.S. Bliven in auto”. Photo shows wife and daughter of Frank S. Bliven in a 1907 Franklin Model D roadster. Frank Bliven was a Washington, D.C. Franklin auto dealer. Discussion of this photo on Shorpy.com (Photo credit: Wikipedia)

The California Court of Appeal struck down an arbitration agreement by a 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.

Attorneys:

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.

By CHARLES H. JUNG

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