Filed 8/3/15
IN THE SUPREME COURT OF CALIFORNIA
GIL SANCHEZ, )
)
Plaintiff and Respondent, )
) S199119
v. )
) Ct.App. 2/1 B228027
VALENCIA HOLDING COMPANY, LLC, )
) Los Angeles County
Defendant and Appellant. ) Super. Ct. No. BC433634
____________________________________)
The automobile sales contract in the present case has an arbitration
agreement that provides, among other things, that arbitral awards of $0 or over
$100,000 as well as grants but not denials of injunctive relief may be appealed to a
panel of arbitrators. The arbitration agreement also has provisions that require the
party appealing the award to front the costs of the appeal, preserve the right of the
parties to go to small claims court and to pursue self-help remedies, and waive the
right to class action litigation or arbitration. The agreement further provides that if
the class waiver is deemed unenforceable, then the entire arbitration agreement
shall be unenforceable.
In this dispute over the sale of a car, plaintiff Gil Sanchez filed a class
action lawsuit against defendant Valencia Holding Company (Valencia), and
Valencia moved to compel arbitration. The trial court denied the motion, finding
the class waiver and, in turn, the entire arbitration agreement unenforceable.
Subsequently, the United States Supreme Court held in AT&T Mobility LLC v.
Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) that the Federal
Arbitration Act (FAA) preempts California‘s unconscionability rule prohibiting
class waivers in consumer arbitration agreements. In deciding Valencia‘s appeal
from the trial court‘s denial of the motion to compel arbitration, the Court of
Appeal declined to address whether the class waiver was enforceable and instead
held that the arbitration appeal provision and the arbitration agreement as a whole
were unconscionably one-sided. Valencia sought our review, relying on
Concepcion.
While circumscribing the ability of states to regulate the fairness of
arbitration agreements, Concepcion reaffirmed that the FAA does not preempt
― ‗generally applicable contract defenses, such as fraud, duress, or
unconscionability.‘ ‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at
p. 1746].) Under the FAA, these defenses may provide grounds for invalidating
an arbitration agreement if they are enforced evenhandedly and do not ―interfere[]
with fundamental attributes of arbitration.‖ (Concepcion, at p. __ [131 S.Ct. at
p. 1748]; see Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1143–
1145 (we will use common name, Sonic II).) In the present case, we hold that
Concepcion requires enforcement of the class waiver but does not limit the
unconscionability rules applicable to other provisions of the arbitration agreement.
Applying those rules, we agree with Valencia that the Court of Appeal erred as a
matter of state law in finding the agreement unconscionable. Accordingly, we
reverse the judgment below.
I.
Plaintiff Gil Sanchez filed this class action in March 2010. Two months
later, Sanchez filed a first amended complaint. The complaint arises from
Sanchez‘s purchase of a 2006 ―preowned‖ Mercedes-Benz S500V in 2008 for
$53,498.60. Sanchez alleged that Valencia violated the Consumer Legal
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Remedies Act (CLRA) (Civ. Code, §§ 1750–1784) by making false
representations about the condition of the automobile. Sanchez also alleged that
Valencia violated several other California laws by (1) failing to separately itemize
the amount of the down payment that is deferred to a date after the execution of
the sale contract, (2) failing to distinguish registration, transfer, and titling fees
from license fees, (3) charging the optional Department of Motor Vehicles
electronic filing fee without discussing it or asking if he wanted to pay it,
(4) charging new tire fees for used tires, and (5) requiring him to pay $3,700 to
have the vehicle certified so he could qualify for the 4.99 percent interest rate,
when that payment was actually for an optional extended warranty unrelated to the
interest rate. Sanchez alleged violations of the Automobile Sales Finance Act
(Civ. Code, §§ 2981–2984.6), the unfair competition law (UCL) (Bus. & Prof.
Code, §§ 17200–17210), the Song-Beverly Consumer Warranty Act (Civ. Code,
§§ 1790–1795.8), and Public Resources Code section 42885.
The complaint further alleged that a class action was appropriate based on
the large number of putative class members who have suffered similar violations,
the predominance of common questions of law and fact, the typicality of the
claims, and the superiority and benefits of class litigation. He proposed four
distinct classes based on the different types of violations Valencia allegedly
committed.
Valencia filed a motion to compel arbitration pursuant to an arbitration
clause in the sale contract that authorized either party to have any dispute between
the parties decided by arbitration. The arbitration clause had a class action waiver:
―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.‖
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The arbitration clause further provided: ―Arbitrators shall be attorneys or
retired judges and shall be selected pursuant to the applicable rules. The arbitrator
shall apply governing substantive law in making an award. The arbitration
hearing shall be conducted in the federal district in which you reside . . . . We will
advance your filing, administration, service or case management fee and your
arbitrator or hearing fee all up to a maximum of $2500, which may be reimbursed
by decision of the arbitrator at the arbitrator‘s discretion. Each party shall be
responsible for its own attorney, expert and other fees, unless awarded by the
arbitrator under applicable law. . . . Arbitrator‘s award shall be final and binding
on all parties, except that in the event the arbitrator‘s award for a party is $0 or
against a party is in excess of $100,000, or includes an award of injunctive relief
against a party, that party may request a new arbitration under the rules of the
arbitration organization by a three-arbitrator panel. The appealing party
requesting new arbitration shall be responsible for the filing fee and other
arbitration costs subject to a final determination by the arbitrators of a fair
apportionment of costs. Any arbitration under this Arbitration Clause shall be
governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state
law concerning arbitration.
―You and we retain any rights to self-help remedies, such as repossession.
You and we retain the right to seek remedies in small claims court for disputes or
claims within that court‘s jurisdiction, unless such action is transferred, removed
or appealed to a different court. Neither you nor we waive the right to arbitrate by
using self-help remedies or filing suit. Any court having jurisdiction may enter
judgment on the arbitrator‘s award. This Arbitration Clause shall survive any
termination, payoff or transfer of this contract. If any part of this Arbitration
Clause, other than waivers of class action rights, is deemed or found to be
unenforceable for any reason, the remainder shall remain enforceable. If a waiver
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of class action rights is deemed or found to be unenforceable for any reason in a
case in which class action allegations have been made, the remainder of this
Arbitration Clause shall be unenforceable.‖
As the Court of Appeal summarized: ―The Sale Contract is a preprinted
document consisting of one page, 8 1/2 inches wide and 26 inches long. There are
provisions on both sides that occupy the entire document, leaving little in the way
of margins. Sanchez signed or initialed the front in eight places, each related to a
different provision. No signatures, initials, or other handwriting appears on the
back. The arbitration provision, entitled ‗ARBITRATION CLAUSE,‘ is on the
back at the bottom of the page, outlined by a black box. It is the last provision of
the Sale Contract concerning the purchase transaction; a provision related to the
assignment of the contract appears below it. The buyer‘s final signature appears
near the bottom on the front side.‖
In opposing arbitration, Sanchez submitted a declaration that said: ―When I
signed the documents related to my purchase of the Subject Vehicle, I was
presented with a stack of documents, and was simply told by the Dealership‘s
employee where to sign and/or initial each one. All of the documents (including
the purchase contracts) were pre-printed form documents. When I signed the
documents, I was not given an opportunity to read any of the documents, nor was I
given an opportunity to negotiate any of the pre-printed terms. The documents
were presented to me on a take-it-or-leave-it basis, to either sign them or not buy
the car. . . . There was no question of choice on my part or of my being able to
‗negotiate‘ anything. And I had no reason to suspect that hidden on the back of
the contracts . . . was a section that prohibited me from being able to sue the
Dealership in court if I had a problem.
―. . . When I signed the purchase contract and related documents, the
Dealership did not ask me if I was willing to arbitrate any disputes with it, did not
5
tell me that there was an ‗arbitration clause‘ on the back side of the purchase
contract, and I did not see any such clause before I signed the documents. The
Dealership did not explain to me what an arbitration clause was. I was not given
any opportunity at any time during my transaction with [the] Dealership to
negotiate whether or not I would agree to arbitrate any potential disputes. I was
not given an option whether to sign a contract with an arbitration clause or one
without.‖
The trial court denied the motion to compel arbitration. It held the class
waiver unenforceable on the ground that the CLRA expressly provides for class
action litigation and declares the right to a class action to be unwaivable. (See
Civ. Code, §§ 1751, 1781.) Because the arbitration clause provided that ―[i]f a
waiver of class action rights is deemed or found to be unenforceable for any
reason in a case in which class action allegations have been made, the remainder
of this Arbitration Clause shall be unenforceable,‖ the court denied the motion to
compel arbitration.
After the trial court‘s decision but before the Court of Appeal‘s opinion in
this case was filed, the United States Supreme Court in Concepcion, supra, 563
U.S. __ [131 S.Ct. 1740] held that the FAA requires enforcement of class waivers
in consumer arbitration agreements and preempts state law to the contrary. The
Court of Appeal declined to decide whether the class waiver at issue was
enforceable and instead affirmed the trial court‘s decision on different grounds.
First, the court concluded that the agreement contained elements of procedural
unconscionability, both oppression and surprise. Second, the court held that four
provisions made the agreement unfairly one-sided in favor of Valencia. ―First, a
party who loses before the single arbitrator may appeal to a panel of three
arbitrators if the award exceeds $100,000. Second, an appeal is permitted if the
award includes injunctive relief. Third, the appealing party must pay, in advance,
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‗the filing fee and other arbitration costs subject to a final determination by the
arbitrators of a fair apportionment of costs.‘ Fourth, the provision exempts
repossession from arbitration while requiring that a request for injunctive relief be
submitted to arbitration. Although these provisions may appear neutral on their
face, they have the effect of placing an unduly oppressive burden on the buyer.‖
We granted review.
II.
To aid understanding of the issues in this case, we begin by discussing
general principles of unconscionability. ― ‗One common formulation of
unconscionability is that it refers to ― ‗an absence of meaningful choice on the part
of one of the parties together with contract terms which are unreasonably
favorable to the other party.‘ ‖ [Citation.] As that formulation implicitly
recognizes, the doctrine of unconscionability has both a procedural and a
substantive element, the former focusing on oppression or surprise due to unequal
bargaining power, the latter on overly harsh or one-sided results.‘ ‖ (Sonic II,
supra, 57 Cal.4th at p. 1133.)
― ‗The prevailing view is that [procedural and substantive
unconscionability] must both be present in order for a court to exercise its
discretion to refuse to enforce a contract or clause under the doctrine of
unconscionability.‘ [Citation.] But they need not be present in the same degree.
‗Essentially a sliding scale is invoked which disregards the regularity of the
procedural process of the contract formation, that creates the terms, in proportion
to the greater harshness or unreasonableness of the substantive terms themselves.‘
[Citations.] In other words, the more substantively oppressive the contract term,
the less evidence of procedural unconscionability is required to come to the
conclusion that the term is unenforceable, and vice versa.‖ (Armendariz v.
Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114
7
(Armendariz).) Courts may find a contract as a whole ―or any clause of the
contrat‖ to be unconscionable. (Civ. Code, § 1670.5, subd. (a).)
As we stated in Sonic II: ―The unconscionability doctrine ensures that
contracts, particularly contracts of adhesion, do not impose terms that have been
variously described as ‗ ― ‗overly harsh‘ ‖ ‘ (Stirlen v. Supercuts, Inc. (1997) 51
Cal.App.4th 1519, 1532), ‗ ―unduly oppressive‖ ‘ (Perdue v. Crocker National
Bank (1985) 38 Cal.3d 913, 925 (Perdue)), ‗ ―so one-sided as to ‗shock the
conscience‘ ‖ ‘ (Pinnacle Museum Tower Assn. v. Pinnacle Market Development
(2012) 55 Cal.4th 223, 246 (Pinnacle)), or ‗unfairly one-sided‘ (Little [v. Auto
Stiegler, Inc. (2003)] 29 Cal.4th [1064], 1071). All of these formulations point to
the central idea that unconscionability doctrine is concerned not with ‗a simple
old-fashioned bad bargain‘ (Schnuerle v. Insight Communications Co. (Ky. 2012)
376 S.W.3d 561, 575 (Schnuerle)), but with terms that are ‗unreasonably favorable
to the more powerful party‘ (8 Williston on Contracts (4th ed. 2010) § 18.10,
p. 91). These include ‗terms that impair the integrity of the bargaining process or
otherwise contravene the public interest or public policy; terms (usually of an
adhesion or boilerplate nature) that attempt to alter in an impermissible manner
fundamental duties otherwise imposed by the law, fine-print terms, or provisions
that seek to negate the reasonable expectations of the nondrafting party, or
unreasonably and unexpectedly harsh terms having to do with price or other
central aspects of the transaction.‘ (Ibid.)‖ (Sonic II, supra, 57 Cal.4th at
p. 1145.) Because unconscionability is a contract defense, the party asserting the
defense bears the burden of proof. (Id. at p. 1148.)
We further observed in Sonic II, and reaffirm today, that ―an examination
of the case law does not indicate that ‗shock the conscience‘ is a different standard
in practice than other formulations or that it is the one true, authoritative standard
for substantive unconscionability, exclusive of all others.‖ (Sonic II, supra, 57
8
Cal.4th at p. 1159.) Nor do we see any conceptual difference among these
formulations. Rather, ―courts, including ours, have used various nonexclusive
formulations to capture the notion that unconscionability requires a substantial
degree of unfairness beyond ‘a simple old-fashioned bad bargain.’ ‖ (Id. at
p. 1160, italics added.) This latter qualification is important. Commerce depends
on the enforceability, in most instances, of a duly executed written contract. A
party cannot avoid a contractual obligation merely by complaining that the deal, in
retrospect, was unfair or a bad bargain. Not all one-sided contract provisions are
unconscionable; hence the various intensifiers in our formulations: ―overly
harsh,‖ ―unduly oppressive,‖ ―unreasonably favorable.‖ (See Pinnacle, supra, 55
Cal.4th at p. 246 [―A contract term is not substantively unconscionable when it
merely gives one side a greater benefit . . . .‖].) We clarify today that these
formulations, used throughout our case law, all mean the same thing.
An evaluation of unconscionability is highly dependent on context. (See
Williams v. Walker-Thomas Furniture Co. (D.C. Cir. 1965) 350 F.2d 445, 450
[―The test is not simple, nor can it be mechanically applied.‖].) The doctrine often
requires inquiry into the ―commercial setting, purpose, and effect‖ of the contract
or contract provision. (Civ. Code, § 1670.5, subd. (b); accord, Sonic II, supra, 57
Cal.4th at pp. 1147–1148; Walker-Thomas Furniture, at p. 450 [unconscionability
must ―be considered ‗in the light of the general commercial background and the
commercial needs of the particular trade or case‘ ‖].) As we have recognized, ― ‗a
contract can provide a ―margin of safety‖ that provides the party with superior
bargaining strength a type of extra protection for which it has a legitimate
commercial need without being unconscionable.‘ ‖ (Armendariz, supra, 24
Cal.4th at p. 117; see Walker-Thomas Furniture, at p. 450 [―where no meaningful
choice was exercised upon entering the contract,‖ the test is ―whether the terms are
‗so extreme as to appear unconscionable according to the mores and business
9
practices of the time and place‘ ‖].) And, as noted, the substantive unfairness of
the terms must be considered in light of any procedural unconscionability. The
ultimate issue in every case is whether the terms of the contract are sufficiently
unfair, in view of all relevant circumstances, that a court should withhold
enforcement.
Moreover, our unconscionability standard is, as it must be, the same for
arbitration and nonarbitration agreements. (Concepcion, supra, 563 U.S. at p. __
[131 S.Ct. at p. 1747].) Of course, unconscionability can manifest itself in
different ways, depending on the contract term at issue. (See, e.g., Washington
Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 916–917 [choice of law
clause]); City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777
[waivers of liability provision]); Moreno v. Sanchez (2003) 106 Cal.App.4th 1415,
1434 [statutes of limitation provision]; Smith, Valentino & Smith, Inc. v. Superior
Court (1976) 17 Cal.3d 491, 495–496 [forum selection clause].) But the
application of unconscionability doctrine to an arbitration clause must proceed
from general principles that apply to any contract clause. In particular, the
standard for substantive unconscionability — the requisite degree of unfairness
beyond merely a bad bargain — must be as rigorous and demanding for arbitration
clauses as for any contract clause.
Valencia broadly contends that under Concepcion, ―absent exceptional
circumstances, states –– either judicially or legislatively –– may not, under the
guise of unconscionability, judge the supposed fairness of the parties‘ agreed
arbitration process.‖ In support of that assertion, Valencia cites ―the examples of
arbitration-process unconscionability evaluations (ranging from discovery to
evidentiary requirements) that the FAA precludes.‖ (See Concepcion, supra, 563
U.S. at p. __ [131 S.Ct. at p. 1747].)
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We recently considered the effect of Concepcion on state law
unconscionability doctrine and observed that ―after Concepcion, unconscionability
remains a valid defense to a petition to compel arbitration.‖ (Sonic II, supra, 57
Cal.4th at p. 1142, citing Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at
p. 1746].) ―What is new,‖ we said, ―is that Concepcion clarifies the limits the
FAA places on state unconscionability rules as they pertain to arbitration
agreements. It is well established that such rules must not facially discriminate
against arbitration and must be enforced evenhandedly. Concepcion goes further
to make clear that such rules, even when facially nondiscriminatory, must not
disfavor arbitration as applied by imposing procedural requirements that
‗interfere[] with fundamental attributes of arbitration,‘ especially its ‗ ―lower costs,
greater efficiency and speed, and the ability to choose expert adjudicators to
resolve specialized disputes.‖ [Citation.]‘ (Concepcion, supra, 563 U.S. at pp. __,
__ [131 S.Ct.at pp. 1748, 1751].)‖ (Sonic II, at p. 1143.)
We proceeded to give examples of ―state law rules that do not ‗interfere[]
with fundamental attributes of arbitration‘ ‖ and thus ―do not implicate
Concepcion‘s limits on state unconscionability rules.‖ (Sonic II, supra, 57 Cal.4th
at p. 1143.) ―In Little, for example, we found unconscionable a $50,000 threshold
for an arbitration appeal that decidedly favored defendants in employment contract
disputes. (Little [v. Auto Stiegler, Inc.], supra, 29 Cal.4th at pp. 1071–1074.)‖ (Id.
at p. 1144.) As our reference to Little suggests, Concepcion does not immunize
adhesive arbitration processes from state law unconscionability principles as
broadly as Valencia contends.
Justice Chin says allowing multiple formulations to capture the notion of
substantive unconscionability will undermine predictability and will subject
arbitration and nonarbitration provisions of a contract to different standards.
(Conc. & dis. opn., post, at pp. 14–15.) But we have just made clear that all the
11
formulations ―mean the same thing‖ and ―must be as rigorous and demanding for
arbitration clauses as for any contract clause.‖ (Ante, at pp. 9, 10.) It seems the
main reason Justice Chin favors ―shock the conscience‖ as the sole formulation is
that he believes it is a higher standard than the alternatives. (Conc. & dis. opn.,
post, at p. 14.) Adopting his approach, however, would call into question a
number of cases where we have found substantive unconscionability under other
formulations. (See, e.g., Little, supra, 29 Cal.4th at p. 1074 [―unfairly one-
sided‖]; Armendariz, supra, 24 Cal.4th at p. 114 [― ‗ ―overly harsh‖ ‘ or ‗ ―one-
sided‖ ‘ ‖]; Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 820 (Scissor-Tail)
[―unduly oppressive‖].) We see no reason to disturb our precedents, and we reject
the view that ―shock the conscience‖ is a higher standard.
We turn now to Valencia‘s alternative argument that the arbitration
agreement in this case was not unconscionable under state law.
III.
Valencia does not dispute that the contract was adhesive; at oral argument,
Valencia said the contract ―meets the definition of adhesive in California.‖
Instead, Valencia argues that ―adhesion contracts are not per se procedurally
unconscionable,‖ noting that the car was a luxury item and that Sanchez was able
to negotiate the price. Although Valencia says Sanchez has not shown he was
unable to negotiate the arbitration provision (conc. & dis. opn., ante, at p. 12),
Valencia does not contend in this court that Sanchez could have opted out of the
arbitration agreement or that he could have negotiated a sales contract without an
arbitration agreement. Indeed, Valencia acknowledged at oral argument that
―[m]any people who are not legally trained do not understand the vast majority of
what is in this contract‖ and that ―if you asked that dealer about everything other
than the negotiable terms of price and interest, they probably don‘t understand that
either . . . .‖ Moreover, in the context of consumer contracts, we have never
12
required, as a prerequisite to finding procedural unconscionability, that the
complaining party show it tried to negotiate standardized contract provisions.
(See, e.g., Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160,
disapproved of on other grounds in Concepcion, supra, 563 U.S. __ [131 S.Ct.
1740] [cardholder agreement in ―bill stuffer‖ had an element of procedural
unconscionability]; Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 924–
925 [signature card ―offered to the customer without negotiation is a classic
example of the contract of adhesion‖].) And although Valencia argues that 90
percent of the standardized contract was mandated by statute, it does not contend
that the arbitration agreement was so mandated.
As in many consumer transactions involving standard form contracts,
Sanchez apparently did not read the entirety of his contract, including the
arbitration clause. (See Consumer Financial Protection Bur., Arbitration Study:
Rep. to Congress Pursuant to the Dodd-Frank Act (Mar. 2015) § 3, p. 19 [fewer
than 7 percent of credit card consumers subject to predispute arbitration clauses
knew that they could not sue in court]; cf. Madden v. Kaiser Foundation Hospitals
(1976) 17 Cal.3d 699, 710–711 [applying ―the general rule that one who assents to
a contract is bound by its provisions and cannot complain of unfamiliarity with
[its] language‖ to a nonadhesive health care contract negotiated by the Board of
Administration of the State Employees Retirement System on the plaintiff‘s
behalf].)
On the other hand, Valencia was under no obligation to highlight the
arbitration clause of its contract, nor was it required to specifically call that clause
to Sanchez‘s attention. Any state law imposing such an obligation would be
preempted by the FAA. (See Doctor’s Associates, Inc. v. Casarotto (1996) 517
U.S. 681, 684, 687–688 [holding state statute requiring arbitration clause to be in
underlined capital letters on the first page of a contract is preempted]; but cf.
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Concepcion, supra, 563 U.S. at pp. __, fn. 6 [131 S.Ct. at p. 1750, fn. 6] [―States
remain free to take steps addressing the concerns that attend contracts of
adhesion—for example, requiring class-action-waiver provisions in adhesive
arbitration agreements to be highlighted.‖].) Furthermore, we have held that even
when a customer is assured it is not necessary to read a standard form contract
with an arbitration clause, ―it is generally unreasonable, in reliance on such
assurances, to neglect to read a written contract before signing it.‖ (Rosenthal v.
Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 424.)
Here the adhesive nature of the contract is sufficient to establish some
degree of procedural unconscionability. Yet ―a finding of procedural
unconscionability does not mean that a contract will not be enforced, but rather
that courts will scrutinize the substantive terms of the contract to ensure they are
not manifestly unfair or one-sided.‖ (Gentry, supra, 42 Cal.4th at p. 469.) We
now address each of Sanchez‘s claims of substantive unconscionability.
A.
The arbitration agreement in this case provides that an arbitrator‘s award
―shall be final and binding on all parties, except that in the event the arbitrator‘s
award for a party is $0 or against a party is in excess of $100,000, or includes an
award of injunctive relief against a party, that party may request a new arbitration
under the rules of the arbitration organization by a three-arbitrator panel.‖
Valencia challenges the Court of Appeal‘s holding that this provision was
unreasonably one-sided and unenforceable.
In Little, we unanimously found unconscionable an employment contract
provision that permitted an appeal to a second arbitrator only if the arbitral award
was greater than $50,000. (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at
p. 1073 (Little); id. at p. 1085 (conc. & dis. opn. of Baxter, J.); id. at p. 1089 (conc.
& dis. opn. of Brown, J.).) In so concluding, we discussed with approval two
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pertinent Court of Appeal cases. In Beynon v. Garden Grove Medical Group
(1980) 100 Cal.App.3d 698, 706 (Beynon), the court found unconscionable a
provision of a mandatory arbitration agreement between a medical group and a
patient that authorized the medical group, but not the patient, to reject the first
arbitration award and submit the dispute to a second arbitration panel. In Saika v.
Gold (1996) 49 Cal.App.4th 1074 (Saika), the court found unconscionable a
provision in a doctor-patient agreement that allowed a party to request a trial de
novo in superior court when the award was over $25,000. ―The [Saika] court
rejected the doctor‘s argument that the case was distinguishable from Beynon
because the challenged arbitration provision permitted either party to request a
trial de novo if the award exceeded the stated amount. ‗[I]n the vernacular of late
20th century America, let us ―get real.‖ As a practical matter, the benefit which
the trial de novo clause confers on patients is nothing more than a chimera. The
odds that an award will both (a) clear the $25,000 threshold but (b) still be so low
that the patient would want to have a trial de novo are so small as to be negligible.
Unless we are to assume that arbitrators in medical malpractice cases regularly and
capriciously make awards substantially below what justice requires –– and that is
an assumption which we will not indulge –– the cases where the trial de novo
clause could possibly benefit the patient are going to be rare indeed.‘ ‖ (Little, at
pp. 1072–1073, quoting Saika, at p. 1080.)
The employer in Little attempted to distinguish these cases on the ground
that ―an arbitration appeal is less objectionable than a second arbitration, as in
Benyon, or a trial de novo, as in Saika, because it is not permitting a wholly new
proceeding, making the first arbitration illusory, but only permitting limited
appellate review of the arbitral award.‖ (Little, supra, 29 Cal.4th at pp. 1073–
1074.) Rejecting this argument, we said: ―We fail to perceive a significant
15
difference. Each of these provisions is geared toward giving the arbitral defendant
a substantial opportunity to overturn a sizable arbitration award.‖ (Id. at p. 1074.)
Valencia argues that the present agreement is distinguishable from Little in
three respects. First, it provides that a party who is awarded nothing may appeal.
Second, the upper threshold for an appeal is $100,000 instead of $50,000. Third,
this is an auto sales agreement, not an employment contract. According to
Valencia, because the purchase price of an automobile averages around $30,000,
the vast majority of awards are below $100,000, in contrast to typically greater
awards in employment cases. (See, e.g., Roitz v. Coldwell Banker Residential
Brothers (1998) 62 Cal.App.4th 716, 721, 726 [upholding a $260,000 arbitral
award for wrongful termination].) Thus, Valencia contends, both an award of $0
and an award greater than $100,000 are outliers in disputes between automobile
buyers and sellers, so the appeal thresholds are not significantly more beneficial to
the seller, who is likely to be the defendant, than to the buyer, who is likely to be
the plaintiff.
We agree with Valencia that the appeal threshold provision does not, on its
face, obviously favor the drafting party. Assuming, as the parties do, the likely
scenario of the buyer as plaintiff and the seller as defendant, the unavailability of
an appeal from an award that is greater than $0 but not greater than $100,000
means that the buyer may not appeal from a non-$0 award that he or she believes
to be too small, nor may the seller appeal from a quite substantial award (up to
$100,000) that it believes to be too big. It may be reasonable to assume that the
ability to appeal a $0 award will favor the buyer, while the ability to appeal a
$100,000 or greater award will favor the seller. But nothing in the record indicates
that the latter provision is substantially more likely to be invoked than the former.
We cannot say that the risks imposed on the parties are one-sided, much less
unreasonably so.
16
As to the contract term providing that only arbitral grants of injunctive
relief are subject to a second arbitration, Valencia notes that car sellers sometimes
must seek an injunction in order to repossess a car from the buyer. But Valencia
acknowledged at oral argument that overall the car buyer is more likely than the
seller to seek injunctive relief. Nevertheless, we find significant Valencia‘s
concern that the scope of an injunction can extend well beyond the transaction at
issue and can compel a car seller to change its business practices. Because of the
broad impact that injunctive relief may have on the car seller‘s business, the
additional arbitral review when such relief is granted furnishes ― ‗a ―margin of
safety‖ that provides the party with superior bargaining strength a type of extra
protection for which it has a legitimate commercial need.‘ ‖ (Armendariz, supra,
24 Cal.4th at p. 117.) The potentially far-reaching nature of an injunctive relief
remedy, which Sanchez does not dispute, is sufficiently apparent here to justify the
extra protection of additional arbitral review.
Of course, apart from the parties‘ particular interests, the public has a
strong interest in ensuring that fraudulent business practices are enjoined. In
Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1082–1084, and Cruz v.
PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 316, we held that claims
seeking injunctive relief designed to protect the public by stopping ongoing
practices unlawful under the CLRA and the UCL, respectively, were inarbitrable.
Valencia argues that Broughton and Cruz are no longer good law in light of
Concepcion. (See Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d
928, 932–937.) The Court of Appeal below did not address whether Broughton or
Cruz has been abrogated, and Sanchez takes no position on the issue in this appeal,
focusing instead on the asymmetry of affording arbitral appeals to grants but not
denials of injunctive relief. We likewise do not address the continued viability of
Broughton and Cruz in this case.
17
B.
The Court of Appeal also held that the provision concerning appellate
arbitration filing fees and costs contributed to the unconscionability of the
arbitration agreement. As noted, the arbitration clause provides that Valencia will
advance the car buyer‘s filing, administration, service, and case management fees
and arbitrator or hearing fees ―up to a maximum of $2,500, which may be
reimbursed‖ at the arbitrator‘s discretion. The clause also provides that in case of
an appeal to a three-arbitrator panel, the appealing party ―shall be responsible for
the filing fee and other arbitration costs subject to a final determination by the
arbitrators of a fair apportionment of costs.‖ The Court of Appeal held that this
latter provision is inadequate for consumers ― ‗who cannot afford to initiate the
[appeal] process in the first place‘ ‖ given large arbitration costs. ―Items covered
by an appeal payment made in advance include, as stated in the Sale Contract, ‗the
filing fee and other arbitration costs.‘ Arbitrator fees in Los Angeles average
around $450 per hour. [Citation.])‖ Contrasting this arbitral scheme with the
American Arbitration Association rules, which do not require consumers to front
arbitration fees, the Court of Appeal concluded that ―[t]he requirement that the
appealing party pay the filing fee and arbitration costs of both parties in advance
puts an unduly harsh burden on the buyer.‖
In the context of mandatory employment arbitration of unwaivable
statutory rights, we have held that arbitration agreements ―cannot generally require
the employee to bear any type of expense that the employee would not be required
to bear if he or she were free to bring the action in court.‖ (Armendariz, supra, 24
Cal.4th at pp. 110–111.) In the area of consumer arbitration, the Legislature has
addressed costs in a different way. In 2002, shortly after Armendariz was decided,
the Legislature enacted Code of Civil Procedure section 1284.3 to address fees and
costs in consumer arbitration. Subdivision (a) of section 1284.3 provides that
18
―[n]o neutral arbitrator or private arbitration company shall administer a consumer
arbitration under any agreement or rule requiring that a consumer who is a party to
the arbitration pay the fees and costs incurred by an opposing party if the
consumer does not prevail in the arbitration, including, but not limited to, the fees
and costs of the arbitrator, provider organization, attorney, or witnesses.‖ Most
pertinently, section 1284.3, subdivision (b)(1) provides that ―[a]ll fees and costs
charged to or assessed upon a consumer party by a private arbitration company in
a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent
consumer. For the purposes of this section, ‗indigent consumer‘ means a person
having a gross monthly income that is less than 300 percent of the federal poverty
guidelines. Nothing in this section shall affect the ability of a private arbitration
company to shift fees that would otherwise be charged or assessed upon a
consumer party to a nonconsumer party.‖ Subdivision (b)(2) requires the
arbitration provider to give notice of the fee waiver provision, and subdivision
(b)(3) provides that ―[a]ny consumer requesting a waiver of fees or costs may
establish his or her eligibility by making a declaration under oath on a form
provided to the consumer by the private arbitration company for signature stating
his or her monthly income and the number of persons living in his or her
household. No private arbitration company may require a consumer to provide
any further statement or evidence of indigence.‖ (Code Civ. Proc., § 1284.3,
subd. (b)(2) & (3).)
The legislative history shows that the statute‘s specific provisions were part
of a general concern about the affordability of arbitration: ―One of the primary
arguments advanced in support of mandatory consumer arbitration is that it is less
costly than civil litigation. However, this argument is cast into significant doubt
by the available evidence. In fact, arbitration costs are so high that many people
drop their complaints because they can‘t afford to pursue them, a recent study by
19
Public Citizen found.‖ (Assem. floor analysis, Assem. Bill No. 2915 (Reg. Sess.
2001–2002) as amended Aug. 26, 2002, at p. 2.) The analysis observed that
―unlike civil court, private arbitration is subject to no fee limitations. As a result,
access to the system may be greatly affected by the wealth of the consumer. The
author states that this bill addresses these inequities by prohibiting large private
judging companies from conducting mandatory consumer arbitrations where a
consumer who loses the case must pay the winning company‘s fees and costs.
This bill also implements a fee waiver policy for indigent consumers akin to the
long-standing practice in public courts. This bill does not affect commercial
arbitrations between businesses.‖ (Ibid.)
As noted in Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77
(Gutierrez), on which the Court of Appeal below relied, the Legislature in
enacting Code of Civil Procedure section 1284.3 ―did not adopt the Armendariz
categorical approach and direct that all administrative fees be paid by
nonconsumer parties without regard to the size of the costs or the wealth of the
consumer. . . . [T]he Legislature did adopt an ability-to-pay approach, which,
though limited in this statute to indigents, provides direction for a rule applicable
to all consumers faced with arbitral forum fees that are prohibitively high. In
Armendariz the court signaled its deference to the Legislature in selecting a
categorical rule. (Armendariz, supra, 24 Cal.4th at pp. 112–113.) In this
consumer case, that same deference leads us to adopt a case-by-case determination
of affordability: plaintiffs suing under the [consumer protection] statutes may
resist enforcement of an arbitration agreement that imposes unaffordable fees.‖
(Gutierrez, at pp. 97–98.)
We agree with Gutierrez‘s approach. As Gutierrez said in distinguishing
Armendariz‘s categorical rule in the employment context, ―jobseekers are more
likely to face ‗particularly acute‘ economic pressure to sign an employment
20
contract with a predispute arbitration provision, ‗for the arbitration agreement
stands between the employee and necessary employment, and few employees are
in a position to refuse a job because of an arbitration requirement.‘ (Armendariz,
supra, 24 Cal.4th at p. 115.) A family in search of a job confronts a very different
set of burdens than one seeking a new vehicle. Consumers, who face significantly
less economic pressure[,] would seem to require measurably less protection.‖
(Gutierrez, supra, 114 Cal.App.4th at p. 97.) In enacting Code of Civil Procedure
section 1284.3, the Legislature concluded that an ability-to-pay approach is
appropriate in the context of consumer arbitration agreements. Although the
statute specifically addresses the affordability of consumer arbitration for people
who are indigent, high arbitration fees can be unaffordable for nonindigent as well
as indigent consumers, and nothing in the statute‘s text or legislative history
precludes courts from using unconscionability doctrine on a case-by-case basis to
protect nonindigent consumers against fees that unreasonably limit access to
arbitration. (See Sonic II, supra, 57 Cal.4th at p. 1145 [endorsing Gutierrez‘s
view that unaffordable arbitration costs that ―effectively blocks every forum for
the redress of disputes‖ may render an arbitration agreement unconscionable].)
In the present case, the arbitration agreement did not have to provide for an
appeal. But having done so, the agreement may not structure the appeal process so
that it unreasonably favors one party, just as the agreement may not authorize only
one party and not the other to take an appeal. (Little, supra, 29 Cal.4th at
pp. 1073–1074.) We agree with the Court of Appeal below that a requirement that
a consumer front any appellate filing fees or other arbitration costs — recall that
an appeal here requires not one but three arbitrators — has the potential to deter
the consumer from using the appeal process. But given the Legislature‘s approach
to the affordability of consumer arbitration, the provision cannot be held
unconscionable absent a showing that appellate fees and costs in fact would be
21
unaffordable or would have a substantial deterrent effect in Sanchez‘s case. (See
Gutierrez, supra, 114 Cal.App.4th at pp. 90–91.)
Moreover, courts are required to determine the unconscionability of the
contract ―at the time it was made.‖ (Civ. Code, § 1670.5.) In light of this
requirement, we recently clarified the proper affordability inquiry in Sonic II in the
context of employment arbitration: ―Because a predispute arbitration agreement is
an agreement to settle future disputes by arbitration, the proper inquiry is what
dispute resolution mechanism the parties reasonably expected the employee to be
able to afford. Absent unforeseeable (and thus not reasonably expected)
circumstances, there is no reason to think that what an employee can afford when
a wage dispute arises will materially differ from the parties‘ understanding of what
the employee could afford at the time of entering the agreement.‖ (Sonic II, supra,
57 Cal.4th at p. 1164.) The same principle applies to consumer arbitration.
Justice Chin says American Express Co. v. Italian Colors Restaurant
(2013) 570 U.S. __, __–__ [133 S.Ct. 2304, 2310–2311] (Italian Colors) entails
that ―if a cost provision does not impose fees that ‗make access to the forum
impracticable‘ [citation], then the FAA precludes a court from invalidating it as
unconscionable because of a subjective determination that it will, in a particular
case, ‗have a substantial deterrent effect‘ on a party‘s exercise of the right to
request a second arbitration.‖ (Conc. & dis. opn., post, at pp. 23–24.) But it is not
clear that the notion of ―impracticab[ility]‖ mentioned in passing in Italian Colors
(Italian Colors, at p. __ [133 S.Ct. at p. 2311]) differs from ―a substantial deterrent
effect‖ (ante, at p. 21). In any event, we explained in Sonic II that Italian Colors
reaffirmed the principle stated in Concepcion that ―[w]here a state-law rule
interferes with fundamental attributes of arbitration, the FAA preempts the state-
law rule even if the rule is designed to facilitate prosecution of certain kinds of
claims.‖ (Sonic II, supra, 57 Cal.4th at p. 1157.) Neither Concepcion nor Italian
22
Colors precludes states from ensuring, through rules that do not interfere with
arbitration‘s fundamental attributes, that the arbitral scheme set forth in a contract
is in practice ―an accessible, affordable process for resolving . . . disputes.‖ (Sonic
II, at p. 1158.)
The dispute in this case concerns a high-end luxury item. Sanchez does not
claim, and no evidence in the record suggests, that the cost of appellate arbitration
filing fees were unaffordable for him, such that it would thwart his ability to take
an appeal in the limited circumstances where such appeal is available. We
therefore conclude on the record before us that the arbitral appeal fee provision is
not unconscionable.
C.
The arbitration agreement further provides: ―You and we retain any rights
to self-help remedies, such as repossession.‖ The Court of Appeal held that this
provision also contributed to the unconscionability of the arbitration agreement.
We disagree.
The Court of Appeal explained its conclusion as follows: ―By exempting
repossession — to which only the car dealer would resort — from arbitration,
while subjecting a request for injunctive relief — the buyer‘s comparable
remedy — to arbitration, the Sale Contract creates an unduly oppressive
distinction in remedies. This is especially so given that the California Arbitration
Act (Code Civ. Proc., §§ 1280–1294.2) exempts preliminary injunctions from
arbitration, allowing an application for ‗provisional‘ remedies to be filed directly
in court (id., § 1281.8, subd. (b)). Nevertheless, the Sale Contract dictates
otherwise. As several courts have held, arbitration provisions are unconscionable
if they provide for the arbitration of claims most likely to be brought by the
weaker party but exempt from arbitration claims most likely to be filed by the
stronger party.‖
23
As an initial matter, the arbitration agreement does not appear to preclude
provisional injunctive relief authorized by statute. Code of Civil Procedure
section 1281.8, subdivisions (a) and (b) authorize a court to issue before
arbitration ―a provisional remedy . . . upon the ground that the award to which the
applicant may be entitled may be rendered ineffectual without provisional relief.‖
Although the arbitration agreement in the present case provides that the arbitration
is to be governed by the FAA and not California law, generally the California
Arbitration Act governs arbitral procedures brought in California courts. (See
Cronus Investments, Inc. v. Concert Services (2005) 35 Cal.4th 376, 389–390.)
Even if FAA procedures apply, federal courts have concluded that a court may
―issue interim injunctive relief on arbitrable claims if interim relief is necessary to
preserve the status quo and the meaningfulness of the arbitration process.‖ (Toyo
Tire Holdings v. Continental Tire North Amer. (9th Cir. 2010) 609 F.3d 975, 981,
and cases cited therein.) Regardless of whether an arbitration agreement could
deprive a court of the power to grant preliminary injunctive relief, the present
agreement does not do so. It addresses injunctive relief in connection with the
relief granted by the arbitrator, subjecting such a remedy to review by a panel of
three arbitrators. The agreement does not purport to limit a court‘s power to issue
preliminary injunctive relief to preserve the status quo pending a final judgment.
Moreover, we see nothing unconscionable about exempting the self-help
remedy of repossession from arbitration. First, although this remedy is favorable
to the drafting party, the contract provision that preserves the ability of the parties
to go to small claims court likely favors the car buyer. Second, arbitration is
intended as an alternative to litigation, and the unconscionability of an arbitration
agreement is viewed in the context of the rights and remedies that otherwise would
have been available to the parties. (See Sonic II, supra, 57 Cal.4th at pp. 1146–
1148.) Self-help remedies are, by definition, sought outside of litigation, and they
24
are expressly authorized by statute. Commercial Code section 9609, subdivisions
(a)(1) and (b)(2) authorize a secured creditor ―[a]fter default‖ to ―[t]ake possession
of the collateral‖ ―[w]ithout judicial process, if it proceeds without breach of the
peace.‖ Civil Code sections 2983.2 and 2983.3 set forth the requirements for post-
repossession notice and opportunity to cure default in the case of automobile
loans. Moreover, it is undisputed that the remedy of repossession of collateral is
an integral part of the business of selling automobiles on credit and fulfills a
― ‗legitimate commercial need.‘ ‖ (Armendariz, supra, 24 Cal.4th at p. 117.) We
thus conclude that the exclusion of such a remedy from an arbitration agreement,
while favorable to Valencia, is not unconscionable.
IV.
The trial court held, prior to Concepcion, that the class waiver was
unconscionable and invalidated the entire arbitration agreement based on a poison
pill provision that said: ―If a waiver of class action rights is deemed or found to be
unenforceable for any reason in a case in which class action allegations have been
made, the remainder of this Arbitration Clause shall be unenforceable.‖ The Court
of Appeal, deciding the case after Concepcion, took no position on the
enforceability of the class waiver. Sanchez now advances several arguments for
why the trial court‘s decision was correct, but none is persuasive.
In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, we announced a
rule that class arbitration waivers in consumer contracts are unconscionable when
they are found ―in a setting in which disputes between the contracting parties
predictably involve small amounts of damages and when it is alleged that the party
with the superior bargaining power has carried out a scheme to deliberately cheat
large numbers of consumers out of individually small sums of money.‖ (Id. at
pp. 162–163.) This rule was abrogated by Concepcion, supra, 563 U.S. at p. __
[131 S.Ct. at p. 1753]; see Sonic II, supra, 57 Cal.4th at pp. 1137–1139.) As
25
noted, the imposition of class action arbitration or litigation interferes ―with
fundamental attributes of arbitration and thus creates a scheme inconsistent with
the FAA.‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1748].) To find
the class waiver here unconscionable would run afoul of Concepcion.
Sanchez correctly notes that the CLRA sets forth a number of unwaivable
rights, including the right to a class action. The anti-waiver provision is found in
Civil Code section 1751: ―Any waiver by a consumer of the provisions of this
title is contrary to public policy and shall be unenforceable and void.‖ Civil Code
section 1780 permits the consumer damaged by certain enumerated practices to
seek various remedies including damages and injunctive relief. Civil Code section
1781, subdivision (a) provides: ―Any consumer entitled to bring an action under
Section 1780 may, if the unlawful method, act, or practice has caused damage to
other consumers similarly situated, bring an action on behalf of himself and such
other consumers to recover damages or obtain other relief as provided for in
Section 1780.‖ Thus, class actions are among the provisions of the CLRA that
may not be waived. (See Fisher v. DCH Temecula Imports LLC (2010) 187
Cal.App.4th 601, 613.)
Nonetheless, Concepcion‘s rule that states may not require a procedure that
interferes with fundamental attributes of arbitration, ―even if it is desirable for
unrelated reasons‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753]),
applies equally to requirements imposed by statute or judicial rule. We conclude
that the CLRA‘s anti-waiver provision is preempted insofar as it bars class waivers
in arbitration agreements covered by the FAA. Sanchez‘s argument that enforcing
the CLRA‘s anti-waiver provision merely puts arbitration agreements on an equal
footing with other contracts is unavailing. Concepcion held that a state rule can be
preempted not only when it facially discriminates against arbitration but also when
it disfavors arbitration as applied. (Concepcion, supra, 563 U.S. at p. __ [131
26
S.Ct. at pp. 1747].) Concepcion further held that a state rule invalidating class
waivers interferes with arbitration‘s fundamental attributes of speed and
efficiency, and thus disfavors arbitration as a practical matter. (Id. at pp. 1750–
1753.)
Finally, Sanchez contends that the language of the arbitration agreement ––
―If a waiver of class action rights is deemed or found to be unenforceable for any
reason . . . , the remainder of this Arbitration Clause shall be unenforceable‖ ––
means that once a class action waiver is deemed unenforceable, as the trial court
ruled here, then the rest of the agreement is likewise unenforceable. But plainly
the quoted provision was not meant to apply when a trial court erroneously holds
the class waiver unenforceable and the error is corrected on appeal. Rather, the
provision is most reasonably interpreted to permit the parties to choose class
litigation over class arbitration in the event that the class waiver turns out to be
legally invalid. Because we conclude in light of Concepcion that the FAA
preempts the trial court‘s invalidation of the class waiver on unconscionability
grounds, the agreement‘s poison pill provision is inoperable.
27
CONCLUSION
The judgment of the Court of Appeal is reversed, and the cause is remanded
for proceedings not inconsistent with this opinion.
LIU, J.
WE CONCUR:
CANTIL-SAKAUYE, C. J.
WERDEGAR, J.
CORRIGAN, J.
CUÉLLAR, J.
KRUGER, J.
28
CONCURRING AND DISSENTING OPINION BY CHIN, J.
I agree with the majority that, under the high court‘s decision in AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion),
the Federal Arbitration Act (FAA) requires enforcement of the class arbitration
waiver in the contract between plaintiff Gil Sanchez and defendant Valencia
Holding Company, LLC (Valencia). I also agree with the majority that Sanchez
has failed to carry his burden of establishing that the arbitration agreement in that
contract is unconscionable. However, as explained below, my analysis of these
issues differs from the majority‘s in several respects, and I do not endorse all of
the majority‘s reasoning. Therefore, I concur only in the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
On August 8, 2008, Sanchez went to Valencia‘s Mercedes-Benz dealership
to shop for a certified preowned car. In response to his inquiry, a sales
representative showed him a 2006 Mercedes-Benz S500V with an advertised price
of approximately $48,000. After negotiations regarding various terms of the
purchase, Sanchez signed a contract entitled ―RETAIL INSTALLMENT SALE
CONTRACT — SIMPLE FINANCE CHARGE,‖ which specified the total
amount financed as $47,032.99. This amount included a price for the car of
approximately $39,800, sales tax of approximately $3,330, a service contract price
of $3,700, a cash down payment of $15,000, and a net trade-in amount for
1
Sanchez‘s 2004 Cadillac of -$14,800 (reflecting the amount Sanchez still owed on
the car ($20,800) offset by its value ($6,000)).
Sanchez later filed a class action against Valencia asserting violations of the
Consumer Legal Remedies Act (CLRA) (Civ. Code, §§ 1750–1784), the
Automobile Sales Finance Act (Civ. Code, §§ 2981–2984.6), the unfair
competition law (UCL) (Bus. & Prof. Code, §§ 17200–17210), the Song-Beverly
Consumer Warranty Act (Civ. Code, §§ 1790–1795.8), and Public Resources
Code section 42885. He alleged that Valencia had (1) made false representations
about the car‘s condition, (2) failed separately to itemize the amount of the down
payment that was deferred, (3) failed to distinguish registration, transfer, and
titling fees from license fees, (4) charged an optional electronic filing fee without
discussing it with him, (5) charged new tire fees for used tires, and (6) required
payment of $3,700 to have the car certified so he could qualify for a 4.99 percent
interest rate, when that payment was actually for an optional extended warranty
unrelated to the interest rate.
Valencia moved to compel arbitration pursuant to a provision in the
contract that provided in relevant part: ―Any claim or dispute, whether in contract,
tort, statute or otherwise . . . between you and us . . . which arises out of or relates
to your credit application, purchase or condition of this vehicle, this contract or
any resulting transaction or relationship . . . shall, at your or our election, be
resolved by neutral, binding arbitration and not by a court action. . . . Any claim
or dispute is to be arbitrated by a single arbitrator on an individual basis and not as
a class action. You expressly waive any right you may have to arbitrate a class
action.‖
Sanchez opposed the motion, principally asserting that the arbitration
provision was illegal and unenforceable insofar as it required him ―to waive his
unwaivable right to file a class action under the CLRA.‖ The unenforceability of
this waiver, he argued, rendered the entire arbitration agreement unenforceable
under a clause stating, ―If a waiver of class action rights is deemed or found to be
2
unenforceable for any reason in a case in which class action allegations have been
made, the remainder of this Arbitration Clause shall be unenforceable.‖ As an
alternative ground for opposing the motion, Sanchez argued that the arbitration
agreement was unenforceable because it was ―both procedurally and substantively
unconscionable.‖
Based solely on the invalidity of the class arbitration waiver, the trial court
denied the motion to compel, explaining: ―As the CLRA contains a right to bring
class actions, a waiver of such right is contrary to public policy and is
unenforceable. [Citation.] Thus, the class action waiver herein is unenforceable.
As such, the entire clause is unenforceable, as specifically provided for in that
clause.‖ The trial court did not address Sanchez‘s unconscionability claim.
The Court of Appeal affirmed, but took the opposite approach, i.e., it
declined to consider whether the class arbitration waiver was unenforceable and
held instead that ―the arbitration clause as a whole is unconscionable.‖ It is
―procedurally unconscionable,‖ the court reasoned, ―because it is adhesive and
satisfies the elements of oppression and surprise; it is substantively
unconscionable because it contains harsh terms that are one-sided in favor of the
car dealer to the detriment of the buyer.‖ ―First, a party who loses before the
single arbitrator may appeal to a panel of three arbitrators if the award exceeds
$100,000. Second, an appeal is permitted if the award includes injunctive relief.
Third, the appealing party must pay, in advance, ‗the filing fee and other
arbitration costs subject to a final determination by the arbitrators of a fair
apportionment of costs.‘ Fourth, the provision exempts repossession from
arbitration while requiring that a request for injunctive relief be submitted to
arbitration. Although these provisions may appear neutral on their face, they have
the effect of placing an unduly oppressive burden on the buyer.‖
3
DISCUSSION
I. The FAA Requires Enforcement of the Class Arbitration
Waiver.
In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 161 (Discover
Bank), a four-to-three majority of this court held that certain waivers of classwide
arbitration procedures are unconscionable and unenforceable because they ―may
operate effectively as exculpatory contract clauses that are contrary to public
policy.‖ This rule, the Discover Bank majority concluded, is not preempted by the
FAA because (1) enforcement of arbitration provisions under the FAA ―is limited
by certain general contract principles ‗ ―at law or in equity for the revocation of
any contract‖ ‘ ‖ (id. at p. 163), and (2) ―the principle that class action waivers are,
under certain circumstances, unconscionable as unlawfully exculpatory is a
principle of California law that does not specifically apply to arbitration
agreements, but to contracts generally,‖ i.e., ―it applies equally to class action
litigation waivers in contracts without arbitration agreements as it does to class
arbitration waivers in contracts with such agreements‖ (id. at pp. 165-166). The
Discover Bank majority found ―[n]othing in‖ the high court‘s decisions
―suggest[ing] that state courts are obliged to enforce contractual terms even if
those terms are found to be unconscionable or contrary to public policy under
general contract law principles.‖ (Id. at p. 166.) In other words, the Discover
Bank majority declared, ―the FAA does not federalize the law of unconscionability
or related contract defenses except to the extent that it forbids the use of such
defenses to discriminate against arbitration clauses.‖ (Id. at p. 167.)
In Concepcion, the high court rejected the Discover Bank majority‘s
preemption analysis and held that the FAA does, in fact, preempt Discover Bank‘s
rule against enforcement, on grounds of unconscionability, of class arbitration
waivers. (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753].) The court
explained that, under certain circumstances, the FAA‘s preemptive effect
4
―extend[s] even to grounds‖ ―normally thought to be generally applicable, such
as . . . unconscionability.‖ (Id. at p. __ [131 S.Ct. at p. 1747].) The FAA preempts
such ―generally applicable contract defenses‖ if they ―stand as an obstacle to the
accomplishment of the FAA‘s objectives.‖ (Id. at p. __ [131 S.Ct. at p. 1748].)
The Discover Bank rule stands as such an obstacle for two reasons. First, it
contravenes the FAA‘s ― ‗principal purpose,‘ ‖ which ―is to ‗ensur[e] that private
arbitration agreements are enforced according to their terms.‘ [Citations.]‖ (Id. at
p. __ [131 S.Ct. at p. 1748], italics added.) Second, it frustrates the FAA‘s goal of
encouraging ―efficient, streamlined,‖ speedy procedures. (Id. at p. __ [131 S.Ct. at
p. 1749].) Because, in these respects, the Discover Bank rule ― ‗stands as an
obstacle to the accomplishment and execution of the full purposes and objectives
of Congress,‘ ‖ the FAA preempts it. (Id. at p. __ [131 S.Ct. at p. 1753].) As the
majority explains, under Concepcion, the FAA ―requires enforcement‖ of the class
arbitration waiver at issue in this case. (Maj. opn., ante, at p. 2.)
Although I also agree with the majority that, under Concepcion,
unconscionability remains a valid defense to a petition to compel arbitration (maj.
opn., ante, at p. 11), I do not subscribe to the majority‘s broad dictum that
Concepcion ―does not limit the unconscionability rules applicable to other
provisions of the arbitration agreement‖ (maj. opn., ante, at p. 2). Indeed, as the
majority later explains, under Concepcion, in order to avoid FAA preemption, our
standard for unconscionability ―must be[] the same for arbitration and
nonarbitration agreements.‖ (Maj. opn., ante, at p. 10.) In other words, ―the
application of unconscionability doctrine to an arbitration clause must proceed
from general principles that apply to any contract clause. In particular, the
standard for substantive unconscionability . . . must be as rigorous and demanding
for arbitration clauses as for any contract clause.‖ (Ibid.) Moreover, Concepcion
declares that, although ―[s]tates remain free to take steps addressing the concerns
that attend contracts of adhesion,‖ those steps ―cannot . . . conflict with the FAA
or frustrate its purpose to ensure that private arbitration agreements are enforced
5
according to their terms.‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p.
1750], fn. 6.) Concepcion also declares that ―[w]hen state law prohibits outright
the arbitration of a particular type of claim,‖ the state law ―is displaced by the
FAA.‖ (Id. at p. __ [131 S.Ct. at p. 1747].) The high court has subsequently made
clear that this principle precludes courts from basing a finding of
unconscionability on a state rule that precludes, as a matter of state public policy,
arbitration of certain types of claims. (Marmet Health Care Center Inc. v. Brown
(2012) __ U.S. __, __ [132 S.Ct. 1201, 1204].) These general principles from
Concepcion do, in fact, ―limit the unconscionability rules applicable to‖ provisions
of arbitration agreements other than class arbitration waivers. (Maj. opn., ante, at
p. 2.)
II. Sanchez Has Not Established Unconscionability.
Unconscionability has both a procedural and substantive element, and the
party asserting the defense bears the burden of proving both by a preponderance of
the evidence. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development
(US), LLC (2012) 55 Cal.4th 223, 246-247 (Pinnacle); Engalla v. Permanente
Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla).) Below, I explain my
reasons for agreeing with the majority that Sanchez has failed to establish
substantive unconscionability. Before that, I explain why I do not endorse the
majority‘s discussion of procedural unconscionability.
1. We need not decide, and the record fails to establish, procedural
unconscionability.
Initially, it is both unnecessary and, on the state of the record here,
improper under our case law to decide that the agreement was procedurally
unconscionable. It is unnecessary given the majority‘s conclusion, with which I
agree, that the arbitration provision is not substantively unconscionable. (Maj.
opn., ante, at p. 2.) Because, as explained above, a showing of both procedural
6
and substantive unconscionability is required to render a contract unenforceable, a
contract that is not substantively unconscionable is fully enforceable regardless of
procedural unconscionability. Given our unanimous conclusion regarding
substantive unconscionability, ―adherence to judicial restraint and economy
counsels against an unnecessary detour into an analysis‖ of procedural
unconscionability. (People v. Mosley (2015) 60 Cal.4th 1044, 1055, fn. 7; see
Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938, 956 [declining to
consider procedural unconscionability given finding of no substantive
unconscionability]; Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th
1159, 1167 (Crippen) [declining to consider substantive unconscionability given
finding of no procedural unconscionability].)
It is improper to decide the issue because, as explained earlier, the trial
court made no findings regarding unconscionability and denied Valencia‘s motion
to compel based solely on its conclusion that the class arbitration waiver
constituted an illegal and unenforceable waiver of Sanchez‘s ―unwaivable right to
file a class action under the CLRA.‖ Thus, the trial court has never resolved
factual conflicts that must be resolved in Sanchez‘s favor in order to warrant a
finding of procedural unconscionability (discussed post). Our decisions establish
that where a trial court fails to resolve factual conflicts that must be resolved in
favor of a party who alleges that an arbitration provision is unenforceable, the
proper course for an appellate court is to remand the case to the trial court to
determine those factual issues, not to determine them itself in the first instance.
(Engalla, supra, 15 Cal.4th at pp. 972-973; Rosenthal v. Great Western Fin.
Securities Corp. (1996) 14 Cal.4th 394, 414.) Under these decisions, were a
finding on procedural unconscionability necessary, the majority should remand for
the trial court to consider the issue rather than resolve it in Sanchez‘s favor in the
first instance on appeal. The majority offers no explanation for departing from our
precedents.
7
On the merits, the majority‘s summary dicta is incomplete and
unpersuasive. The only basis the majority offers for finding ―some degree of
procedural unconscionability‖ is the ―adhesive nature of the contract.‖1 (Maj.
opn., ante, at p. 14.) But the majority offers no independent legal analysis for
establishing that the contract was adhesive, asserting instead that ―Valencia does
not dispute that the contract was adhesive.‖ (Id. at p. 12.) It is true that Valencia‘s
counsel stated at oral argument that the contract was ―adhesive in the sense that it
is . . . a form contract.‖ But the circumstance that a contract is ―standardized in
form‖ does not alone establish adhesiveness. (Izzi v. Mesquite Country Club
(1986) 186 Cal.App.3d 1309, 1318 (Izzi); see Federico v. Frick (1970) 3
Cal.App.3d 872, 875 [―nothing in the record provid[es] evidentiary support for
th[e] conclusion‖ that ―[t]he standard union employment contract before us‖ is ―a
contract of adhesion‖].) The additional characteristics of adhesiveness are that the
contract was drafted and imposed ― ‗by the party of superior bargaining strength‘ ‖
(Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817) ― ‗on essentially a ―take
it or leave it‖ basis without affording the consumer a realistic opportunity to
bargain and under such conditions that the consumer cannot obtain the desired
product or services except by acquiescing in the form contract‘ ‖ (Victoria v.
Superior Court (1985) 40 Cal.3d 734, 743 (Victoria)).
At all levels of this litigation, Valencia clearly has disputed whether
Sanchez has met his burden to prove by a preponderance of the evidence that these
additional characteristics of adhesiveness are present. In the Court of Appeal,
1 The majority states that ―Sanchez apparently did not read the entirety of his
contract, including the arbitration clause‖ (maj. opn., ante, at p. 13), but it does not
conclude that this circumstance contributes to a finding of procedural
unconscionability. I agree. As the majority explains, ―even where a customer is
assured it is not necessary to read a standard form contract with an arbitration
clause, ‗it is generally unreasonable, in reliance on such assurances, to neglect to
read a written contract before signing it.‘ ‖ (Id. at p. 14.)
8
Valencia argued that the contract, although ―a pre-printed form contract,‖ was
―not a contract of adhesion‖ and that, as relevant to this issue, Sanchez had failed
to show that he ―had no realistic choice,‖ that he could not have ―negotiate[d] a
contract term‖ had he attempted to do so, that ―he was under any compulsion to
finalize the purchase of a vehicle at any particular point in time,‖ that the car ―was
unique,‖ or that he could not have purchased it without agreeing to arbitration
from either a private individual or from one of the other five Mercedes-Benz
dealers ―[w]ithin 25 miles of‖ Valencia. Valencia made the same arguments in the
trial court` and asserted in its opening brief in this court that Sanchez had failed to
satisfy his ―burden of proof‖ because he ―made no showing that he could not
negotiate the arbitration provision or that he lacked other alternatives, such as
going to another dealer.‖ Thus, the record reflects that Valencia does, in fact,
―dispute that the contract was adhesive‖ and that, as part of its argument, has
emphasized both in the lower courts and ―in this court‖ Sanchez‘s failure to show
he could not ―have opted out of the arbitration agreement‖ or ―negotiated a sales
contract without an arbitration agreement.‖2 (Maj. opn., ante, at p. 12.)
Indeed, the majority‘s discussion overlooks the legal significance of the
fact that the burden of proof was on Sanchez to establish procedural
unconscionability. Valencia‘s asserted failure to ―dispute‖ the contract‘s adhesive
nature or to ―contend in this court‖ that Sanchez could have obtained the car
without accepting the arbitration agreement (maj. opn., ante, at p. 12), even if
consistent with the record, does not substitute for evidence that satisfies Sanchez’s
burden to establish procedural unconscionability. This is especially true given the
2 After stating at oral argument that the contract was ―adhesive in the sense
that it is . . . a form contract,‖ Valencia‘s counsel added: ―I think that meets the
definition of adhesive in California. But I think adhesive without more does not
get . . . one unconscionability.‖ Unlike the majority (see maj. opn., ante, at p. 12),
I do not, in the context of the entire record, view these additional statements as a
basis for dispensing with a proper and complete analysis of adhesiveness.
9
procedural posture of this case, i.e., the trial court made no findings regarding
unconscionability, and the majority is deciding the issue on appeal in the first
instance.
The majority also overlooks the fact that case law strongly supports
Valencia‘s arguments. In Crippen, supra, 124 Cal.App.4th at page 1165, the
Court of Appeal, in ordering enforcement of an arbitration agreement between a
dealer and the purchaser of a motor home, rejected the argument that the
agreement was ―a contract of adhesion and therefore procedurally
unconscionable‖ simply ―because [it] was a form contract [the dealer] used with
many customers.‖ The court explained: ―[T]here is no general rule that a form
contract used by a party for many transactions is procedurally unconscionable.
Rather, ‗[p]rocedural unconscionability focuses on the manner in which the
disputed clause is presented to the party in the weaker bargaining position. . . .
There is no reason in this case to conclude that plaintiff lacked power to bargain.
In general, nothing prevents purchasers of . . . vehicles from bargaining with
dealers, even though dealers use form contracts, and nothing in the record shows
that plaintiff could not bargain in this case.‖ (Id. at pp. 1165-1166.) ―There is
nothing in this buyer-seller relationship from which we can infer a great disparity
of bargaining power.‖ (Id. at p. 1166; cf. Izzi, supra, 186 Cal.App.3d at p. 1318
[although the contract was standardized, ―no presumption is warranted that
plaintiffs had no choice or power to negotiate as to the terms of their purchase
agreement or that they could not obtain comparable or superior terms on a suitable
condominium nearby‖] .)
Indeed, the record here is consistent with the analysis in Crippen and
supports Valencia‘s arguments. It indicates that Sanchez had significant financial
means when he signed the contract, which is the relevant time for judging
unconscionability (Civ. Code, § 1670.5, subd. (a)). He contracted to pay nearly
$50,000 for a luxury automobile for personal use, traded in a relatively new (four-
year old) luxury automobile as part of the purchase and, at the time he signed the
10
contract, wrote a $10,000 check for the down payment and agreed to put down
more money within 30 days if necessary. Over the course of the next week, he
returned to Valencia and increased his down payment by $5,000, for a total of
$15,000. The record also shows that Sanchez actually bargained for a substantial
reduction in the car‘s purchase price. Finally, the record contains evidence —
submitted by Sanchez — that, during the time period when he executed the
contract, contracts without an arbitration provision were available to Valencia‘s
buyers; that Valencia had not used contracts with arbitration clauses since August
29, 2008, a few weeks after Sanchez signed the contract; and that Valencia no
longer uses contracts with arbitration clauses. Thus, the record fails to show that
Sanchez lacked bargaining power or that he could not have obtained the car, either
from Valencia or elsewhere, ― ‗except by acquiescing in the form contract.‘ ‖
(Victoria, supra, 40 Cal.3d at p. 743.)
The majority‘s response to my analysis — that ―in the context of consumer
contracts, we have never required‖ a party asserting procedural unconscionability
to ―show it tried to negotiate standardized contract provisions‖ (maj. opn., ante, at
pp. 12-13, italics added) — is unpersuasive. Although we may never have
required such proof, we have expressly stated that ―freedom to choose whether or
not to enter a contract of adhesion is a factor weighing against a finding of
procedural unconscionability.‖ (Gentry v. Superior Court (2007) 42 Cal.4th 443,
470.) Notably, the decision we cited in support of this statement — Dean Witter
Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758 — involved ―the
context of consumer contracts‖ (maj. opn., ante, at p. 12), a circumstance we
expressly acknowledged in our explanation of that decision: ―agreement between
brokerage house and sophisticated consumer of financial services that included a
$50 termination fee on an IRA account was not unconscionable where competing
IRA‘s without the challenged fee were freely available.‖ (Gentry, supra, at p. 470,
italics added.)
11
Indeed, Discover Bank, which the majority cites in support of its response,
actually confirms the validity of this principle ―in the context of consumer
contracts.‖ (Maj. opn., ante, at p. 12.) There, a majority of this court stated that
―when a consumer is given an amendment to its cardholder agreement in the form
of a ‗bill stuffer‘ that he would be deemed to accept if he did not close his account,
an element of procedural unconscionability is present.‖ (Discover Bank, supra, 36
Cal.4th at p. 160.) In making this statement, we relied on Szetela v. Discover Bank
(2002) 97 Cal.App.4th 1094. There, consistent with our precedents, the Court of
Appeal stated that ―[t]he availability of similar goods or services elsewhere may
be relevant to whether the contract is one of adhesion . . . .‖ (Id. at p. 1100.) The
court then explained that, on ―the [particular] facts in the case,‖ this was ―not the
deciding factor‖ because of the ―oppressive‖ manner in which the defendant had
―imposed‖ the arbitration provision; the record showed that the consumer, who
already had a ―Cardholder Agreement‖ with the defendant, subsequently
―received‖ an ―amendment‖ imposing the arbitration provision ―in a bill stuffer‖
and ―was told to ‗take it or leave it.‘ His only option, if he did not wish to accept
the amendment, was to close his account.‖ (Ibid.) The facts in Discover Bank
were virtually identical. (Discover Bank, supra, at pp. 153-154.) The facts in this
case are completely different. Thus, although Discover Bank is factually
distinguishable, legally, it confirms that Sanchez‘s failure to show he was unable
to obtain the car from Valencia or elsewhere without agreeing to arbitration is an
important factor in determining procedural unconscionability.
Even more supportive of this conclusion is the other decision the majority
cites in support of its response: Perdue v. Crocker National Bank (1985) 38
Cal.3d 913. (Maj. opn., ante, at p. 13.) There, we considered the legal sufficiency
of the plaintiff‘s claim that the fee the defendant bank charged customers for
returned checks was unconscionable. (Perdue, supra, 38 Cal.3d at pp. 920-921.)
In addressing this question, we first reaffirmed the principle that the determination
of procedural unconscionability ―may turn on the absence of meaningful choice.‖
12
(Id. at p. 927.) In holding that the plaintiff had sufficiently stated a claim for
relief, we then stressed that he had ―alleged . . . that similar arrangements would
be imposed by other banks.‖ (Id. at p. 927, fn. 12, italics added.) This
―allegation[],‖ we explained, rendered ―distinguish[able]‖ a decision in which a
court had ―reject[ed]‖ a similar unconscionability claim because of the plaintiffs‘
― ‗fail[ure] to show that they were deprived of a meaningful choice of banks with
which they could do business.‘ ‖ (Ibid.) Thus, like Discover Bank, Perdue
confirms the significance of Sanchez‘s failure to show (or even allege) that he
either tried to negotiate with Valencia or could not have obtained a similar car
elsewhere without agreeing to arbitration.
Consistent with these precedents, our Courts of Appeal have, in rejecting
claims of adhesiveness, relied in part on the absence of evidence that the
complaining parties tried to negotiate the terms they were seeking to invalidate.
(Spinello v. Amblin Entertainment (1994) 29 Cal.App.4th 1390, 1397; Union Bank
v. Ross (1976) 54 Cal.App.3d 290, 296 (Union Bank).) Thus, under existing
California case law, Sanchez‘s failure to show that he ―tried to negotiate‖ the
arbitration provisions (maj. opn., ante, at p. 13) is an important factor in
determining whether he has established adhesivenesss. The majority‘s contrary
view, which is not supported by our precedents, effectively disapproves these
decisions.
I also disagree with the majority that the statements of Valencia‘s counsel
at oral argument regarding the clarity of the contract are relevant. (Maj. opn.,
ante, at p. 12.) Counsel stated: ―I think many people who are not legally trained
don‘t understand the vast majority of what is in this contract. My guess is that if
you asked that dealer about everything other than the negotiable terms of price and
interest they probably don‘t understand that either, even though that language is
required by statute.‖ Unlike the majority, I would not rely on counsel‘s ―guess‖
about these matters, which lacks any evidentiary support in the record. Indeed, the
contract here clearly provided for arbitration of ―[a]ny claim or dispute . . .
13
between‖ Sanchez and Valencia, and there is no reason Sanchez would have been
unable to understand this had he read the contract. Moreover, if, as the majority
asserts, Sanchez ―did not read‖ the contract (see maj. opn., ante, at p. 13), then
under existing case law, he ―may not,‖ in asserting adhesiveness, ―properly argue
that he did not give an ‗understanding consent.‘ ‖ (Union Bank, supra, 54
Cal.App.3d at p. 296.) Finally, ―[t]he general rule‖ in California, established now
for over 100 years, ―is that, when a person with the capacity of reading and
understanding an instrument signs it, he is, in the absence of fraud and imposition,
bound by its contents, and is estopped from saying that its provisions are contrary
to his intentions or understanding.‖ (Smith v. Occidental etc. Steamship (1893) 99
Cal. 462, 470-71.) For these reasons, the majority‘s reliance on counsel‘s ―guess‖
during oral argument is misplaced.
In any event, our prior decisions establish that adhesiveness does not alone
necessarily establish procedural unconscionability. In Pinnacle, the trial court, on
grounds of unconscionability, refused to enforce against a condominium
homeowners association an arbitration provision in the condominium‘s covenants,
conditions, and restrictions (CC&R‘s). (Pinnacle, supra, 55 Cal.4th at p. 234.) It
based a finding of procedural unconscionability on the fact that ―the [a]ssociation
had no opportunity to participate in the drafting of‖ the CC&R‘s because they
were recorded ―before the [a]ssociation was formed.‖ (Id. at p. 247.) We
disagreed with the trial court‘s conclusion, explaining: ―That the . . . CC&R‘s
were drafted and recorded before the sale of any unit and without input from the
[a]ssociation was a circumstance dictated by the legislative policy choices
embodied in the Davis–Stirling Act. . . . Thus, while a condominium declaration
may perhaps be viewed as adhesive, a developer‘s procedural compliance with the
Davis–Stirling Act provides a sufficient basis for rejecting an association‘s claim
of procedural unconscionability.‖ (Id. at pp. 247-248, italics added, fn. omitted.)
Here, Valencia asserts — and Sanchez does not dispute — ―that over 90% of the
contract is statutorily dictated in both form and content‖ by the Automobile Sales
14
Finance Act (Civ. Code, § 2981 et seq.). Therefore, as Valencia argues, under
Pinnacle, the contract is not procedurally unconscionable even if it could ―be
viewed as adhesive.‖ (Pinnacle, supra, at p. 248.) This conclusion does not, as
the majority suggests, depend on whether the arbitration agreement ―was
mandated by statute‖ (maj. opn., ante, at p. 13), because the arbitration agreement
in Pinnacle was not statutorily required (Pinnacle, supra, at pp. 235-242; see
Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1320
[―adhesion contracts‖ are ―not always‖ procedurally unconscionable]).
California has a ―strong public policy in favor of enforcing arbitration
agreements.‖ (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1073.)
―In keeping with [this] strong public policy . . . , any doubts regarding the validity
of an arbitration agreement [must be] resolved in favor of arbitration.‖
(Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1144; Lhotka v.
Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 821.) Consistent with
these principles, were it either necessary or appropriate to decide the issue, I
would, for the reasons set forth above, find that Sanchez has failed to prove
adhesiveness that supports a finding of procedural unconscionability.
2. Sanchez has not established substantive unconscionability.
―Civil Code section 1670.5, subdivision (a), authorizes a court, upon
finding ‗as a matter of law‘ that a ‗contract or any clause of the contract‘ was
‗unconscionable at the time it was made,‘ to ‗refuse to enforce the contract,‘ to
‗enforce the remainder of the contract without the unconscionable clause,‘ or to
‗so limit the application of any unconscionable clause as to avoid any
unconscionable result.‘ The official Assembly comment accompanying this
section explains: ‗The basic test [of unconscionability] is whether, in the light of
the general background and the needs of the particular case, the clauses involved
are so one-sided as to be unconscionable under the circumstances existing at the
time of the making of the contract. . . . The principle is one of prevention of
15
oppression and unfair surprise [citation] and not of disturbance of allocation of
risks because of superior bargaining power.‘ (Rep. on Assem. Bill No. 510
(1979–1980 Reg. Sess.) 5 Assem. J. (1979–1980 Reg. Sess.) p. 9231, reprinted as
Legis. Com. com., 9 West‘s Ann. Civ. Code (2011 ed.) p. 74 (Official
Comment).)‖ (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1176
(conc. & dis. opn. of Chin, J.) (commonly known as Sonic II).)
Consistent with these legislative pronouncements, in Pinnacle, we recently
explained that ―[a] contract term,‖ including an arbitration provision, ―is not
substantively unconscionable when it merely gives one side a greater benefit;
rather, the term must be ‗so one-sided as to ―shock the conscience.‖ ‘ ‖ (Pinnacle,
supra, 55 Cal.4th at p. 246.) The ― ‗ ―shock the conscience‖ ‘ ‖ standard we
applied in Pinnacle is the standard this court has been applying for well over 100
years. (E.g., Herbert v. Lankershim (1937) 9 Cal.2d 409, 475 [inadequacy of
consideration must be ― ‗so gross as to shock the conscience and common sense of
all men‘ ‖]; Boyce v. Fisk (1895) 110 Cal. 107, 116 [contract must be ― ‗grossly
against conscience,‘ ‖ and ― ‗the mere fact that the bargain is a very hard or
unreasonable one is not generally sufficient‘ ‖]; see also Tarver v. State Bar
(1984) 37 Cal.3d 122, 134 [test for whether an attorney‘s fee is unconscionable is
whether it is ― ‗ ― ‗so exorbitant and wholly disproportionate to the services
performed as to shock the conscience‘ ‖ ‘ ‖].) It is ―derivative of the term
‗unconscionable.‘ ‖ (California Grocers Assn. v. Bank of America (1994) 22
Cal.App.4th 205, 215.) It is the standard we should continue to apply. I thus
agree with the majority‘s discussion insofar as it reaffirms the validity of the shock
the conscience standard. (Maj. opn., ante, at pp. 8-9.)
However, I part company with the majority insofar as it continues to
endorse several alternative formulations for substantive unconscionability. i.e.,
overly harsh, unduly oppressive, unfairly one-sided. (Maj. opn., ante, at pp.8-9.)
As the majority observes, this court has sometimes used these formulations instead
of the shock the conscience standard. (Ibid.) This practice has generated
16
confusion and uncertainty, because our lower courts have understood these
different formulations as stating a lower standard for substantive unconscionability
than ―shock the conscience.‖ (Sonic II, supra, 57 Cal.4th at p. 1178 (conc. & dis.
opn. of Chin, J.) [―our Courts of Appeal have consistently recognized [that] shock
the conscience is not . . . ‗synonymous with ―unreasonable‖ ‘ ‖]; Peng v. First
Republic Bank (2013) 219 Cal.App.4th 1462, 1469 [shock the conscience is ― ‗a
higher standard‘ ‖ than one-sided or overly harsh]; Gutierrez v. Autowest, Inc.
(2003) 114 Cal.App.4th 77, 88 (Gutierrez) [same].) Today, the majority declares
that these alternative formulations ―all mean the same thing‖ as ―shock the
conscience.‖ (Maj. opn., ante, at p. 9.) If that is true, then why not settle on the
traditional ―shock the conscience‖ test as the single formulation? Why perpetuate
the uncertainty that arises from having multiple formulations?
The majority‘s only answer — that adopting ―shock the conscience‖ as the
sole formulation somehow ―would call into question‖ decisions in which we have
used ―other formulations‖ (maj. opn., ante, at p. 12) — is unpersuasive. If, as the
majority states, those other formulations are not conceptually or practically
different from, and mean the same thing as, ―shock the conscience‖ (id. at pp. 8-
9), then why would adopting a single standard call any of our prior decisions into
question? We could simply make clear that we are clarifying the law, without
suggesting that our earlier cases were wrongly decided.
Moreover, maintaining multiple formulations is problematic for several
reasons. First, although, as the majority recognizes, ―[c]ommerce depends on the
enforceability, in most instances, of a duly executed, written contract‖ (maj. opn.,
ante, at p. 9), it also depends on ―certainty and predictability‖ of enforcement
(Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1269.) As we have
explained, ―[p]arties enter into contracts to allocate risks and to bring certainty,
order, and predictability to their mutual relations. One of the principal aims of
contract law is to assist contracting parties in achieving this objective by making
the outcome of legal disputes clear and predictable.‖ (Nedlloyd Lines B.V. v.
17
Superior Court (1992) 3 Cal.4th 459, 494.) Having multiple formulations for
determining whether a contract is substantively unconscionable, and therefore
unenforceable, undermines the certainty and predictability that are vital to
commerce.
Second, the need for a uniform standard is crucial in light of the FAA. As
already explained, the FAA requires that our standard for unconscionability be
―the same for arbitration and nonarbitration agreements,‖ i.e., that it be ―as
rigorous and demanding for arbitration clauses as for any contract clause.‖ (Maj.
opn., ante, at p. 10.) However, as Valencia argues, ―[i]f there are multiple
unconscionability standards, then arbitration provisions may well be subjected, in
practice, to a different standard than other contract provisions.‖ Indeed, this court
first articulated the ―unfairly one-sided‖ formulation specifically in the context of
an unconscionability challenge to an arbitration provision (Armendariz v.
Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117
(Armendariz)), and the formulation has since been used almost exclusively in that
context. Notably, in Concepcion, the high court, immediately after explaining that
―judicial hostility‖ towards arbitration has ―manifested itself in ‗a great variety‘ of
‗devices and formulas,‘ ‖ observed ―that California‘s courts have been more likely
to hold contracts to arbitrate unconscionable than other contracts. [Citations.]‖
(Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1747].) Having multiple
formulations lends substantial credence to the ―loud chorus of courts and
commentators‖ who assert that, contrary to the high court‘s decisions, we are
using unconscionability ―as a ruse for a ‗new judicial hostility‘ toward
arbitration.‖ (Aragaki, AT&T Mobility v. Concepcion and the Antidiscrimination
Theory of FAA Preemption (2012-2013) 4 Y.B. Arb. & Mediation 39, 60.)
Although the majority‘s endorsement of multiple formulations is
problematic for these reasons, several of its related comments are worthy of note.
First and foremost is the majority‘s statement, as noted above, that all of the
alternative formulations ―mean the same thing‖ as ―shock the conscience.‖ (Maj.
18
opn., ante, at p. 9.) Second, the majority emphasizes that ― ‗central‘ ‖ to all of its
formulations is that substantive unconscionability is more than just ― ‗ ―a simple
old-fashioned bad bargain.‖ ‘ ‖ (Id. at p. 8.) Thus, ―[a] party cannot avoid a
contractual obligation merely by complaining that the deal, in retrospect, was
unfair or a bad bargain.‖ (Id. at p. 9.) Instead, the party resisting contract
enforcement must prove, and a court must find, ― ‗a substantial degree of
unfairness beyond ―a simple old-fashioned bad bargain.‖ ‘ ‖ (Ibid.) A contractual
term does not meet this test merely because it can be characterized as being ―one-
sided‖ or ― ‗giv[ing] one side a greater benefit.‘ ‖ (Ibid.) Moreover, one-sidedness
is not unconscionable if it ― ‗ ―provides the party with superior bargaining strength
a type of extra protection for which it has a legitimate commercial need.‖ ‘ ‖
(Ibid.) The majority‘s endorsement of various alterative formulations must be
understood in light of these statements.
I also part company with the majority insofar as its one-sidedness analysis
focuses separately on each of the challenged provisions in isolation, rather than the
parties‘ bargain as a whole. Our decisions establish that, in assessing a claim that
a contract or a clause in a contract is unconscionable, a court must ―examine the
totality of the agreement’s substantive terms as well as the circumstances of its
formation to determine whether the overall bargain was‖ so one-sided as to be
substantively unconscionable. (Sonic II, supra, 57 Cal.4th at p. 1146, italics
added.) As Valencia explains, ―[t]here are trade-offs in every contract. Lien and
security rights favor one party. Payment favors the seller; required delivery of
goods favors the buyer. Notice and an opportunity to cure usually favor the party
in the position to default. But these types of provisions are almost inevitably not
unconscionable, because in the context of the transaction as a whole, they are fair
and reasonable. . . . [¶] The same is true of arbitration provisions. They, too, must
be evaluated as a whole. The provision itself may contain trade-offs, e.g., one side
pays certain fees, the other side gains a measure of protection from outlier results,
such that the entire provision needs to be examined based on its overall effect.
19
And, even then the arbitration provision needs to be evaluated in the context of the
overall transaction.‖
Taking this approach, I conclude that the arbitration clause, viewed as a
whole, is not substantively unconscionable under any of the formulations the
majority endorses. As Valencia argues, the clause ―is even-handed. It is well
justified by the business realities of the buyer-dealer relationship and the threats
posed by outlier results. . . . It involves mutual tradeoffs and a rational relationship
to the nature of automobile purchases in general and to the specific transaction at
issue — the purchase of a $50,000 pre-owned luxury automobile.‖ ―There is a
balance of clauses. There is an opportunity for further arbitral scrutiny for outlier
results. But given the nature of the disputes, that will be the exception, not the
rule. And, further review works both ways; both buyers and dealers can seek
review of outlier awards. Self-help remedies, such as repossession, that would be
more often invoked by the dealer are excluded, but they are by definition outside
even the litigation process; and comparable small claims remedies more likely
invoked by the customer are also excluded. [¶] Finally, the dealer pays the
buyer‘s initial arbitration expenses, up to $2,500. Only if the buyer loses a first
round and wants to seek further arbitral review does the buyer have to advance
further arbitration expenses (the review arbitrators ultimately allocate expenses).
That‘s reasonable: That the party (buyer or dealer) losing the first round has to
bear the expense of the finality round is common sense and furthers the interests of
formality. Indeed, that‘s how the judicial system handles appeals — the appellant
pays for the record on appeal and pays a higher fee than the respondent. [¶] And,
in return, individuals get a speedy, cheaper, surer mechanism for resolving
disputes.‖ I agree with this analysis and would hold that the arbitration provision,
evaluated as a whole, is not substantively unconscionable.
Nevertheless, I also agree with the majority that each of the challenged
provisions, considered individually, is not substantively unconscionable, although
I do not endorse all of the majority‘s reasoning. Regarding the provision allowing
20
a second arbitration if the arbitrator‘s award is either $0 or over $100,000, as noted
above, this provision benefits both Valencia and Sanchez by protecting them in
most cases from the cost of a second arbitration while offering both access to
further review of extreme, outlier awards. Also mutually beneficial is the
provision making grants, but not denials, of injunctive relief subject to a second
arbitration. The Court of Appeal invalidated this provision based on the view that
it benefits ―only‖ Valencia because ―the buyer, not the car dealer, . . . would be
seeking preliminary or permanent injunctive relief.‖ But, as the majority correctly
notes, ―car sellers sometimes must seek an injunction in order to repossess a car
from the buyer.‖ (Maj. opn., ante, at p. 17.) Thus, while it is true, as the majority
observes, that injunctive relief may have a ―broad impact‖ on Valencia by
requiring it to ―change its business practices‖ (ibid.), such relief also may have a
substantial impact on buyers by forcing them to surrender their means of
transportation. Accordingly, as Valencia argues, ―both [parties] would benefit
from a process that allows second-level review when their liberty is constrained by
arbitral decisions requiring them to do or refrain from doing certain activities.‖
Because these provisions do not ―inordinately benefit‖ Valencia, under our
decisions, they are not ―unconscionably one-sided‖ (Little v. Auto Stiegler, Inc.
(2003) 29 Cal.4th 1064, 1075, fn. 1 (Little)), regardless of whether Valencia is
―more likely‖ (maj. opn., ante, at p. 17) or even ―substantially more likely‖ to
invoke them (id. at p. 16).3
3 Although mentioning the public‘s interest in injunctive relief, the majority
notes that this case does not involve the ―continued viability,‖ in light of
Concepcion, of Broughton and Cruz v. PacifiCare Health Systems, Inc. (2003) 30
Cal.4th 303, in which a majority of this court held that the FAA permits California
to prohibit arbitration of claims for injunctive relief under the CLRA and the UCL.
(Maj. opn., ante, at p. 17.) That question is pending before us in McGill v.
Citibank, N.A. (S224086, review granted Apr. 1, 2015.)
21
As my earlier discussion indicates, I also agree with the majority that there
is ―nothing unconscionable‖ about the provision exempting repossession from
arbitration. (Maj. opn., ante, at p. 24.) Because, as the majority explains, this self-
help remedy is ―outside of litigation,‖ there is nothing unconscionable about not
making it subject to arbitration, which is a litigation substitute. (Ibid.) Moreover,
as the majority also explains, the provision that preserves the parties‘ ability to go
to small claims court ―likely favors the car buyer.‖ (Ibid.) Thus, the exclusion of
repossession from arbitration is not unfair, one-sided, or unconscionable.
Regarding the costs of a second arbitration, I first note that the Court of
Appeal erred in stating that provision in question requires the party requesting the
second arbitration to pay filing fees and other arbitration costs ―in advance.‖ The
provision states that the requesting party ―shall be responsible for‖ such fees and
costs, but says nothing about the time of payment. The record otherwise provides
no support for the Court of Appeal‘s statement.4
Moreover, I agree with the majority that the record contains ―no evidence‖
that, at the time Sanchez signed the contract, the cost of a second arbitration would
be ―unaffordable‖ to him. (Maj. opn., ante, at p. 23.) On the contrary, as earlier
explained, the record indicates that Sanchez had significant financial means when
4 The contract gives Sanchez the option of having arbitration conducted by,
and under the rules of, the American Arbitration Association (AAA), the National
Arbitration Forum, ―or any other organization that [he] may choose subject to
[Valencia‘s] approval.‖ There is no basis to conclude or assume that, at the time
the contract was executed, the selected organization would have required advance
payment of all filing fees and other costs. Indeed, although the AAA rules in
effect in 2008 called for advance payment of certain costs (AAA, Commercial
Arbitration Rules and Mediation Procedures (amend. & eff. Sept. 1, 2007) rules R-
4(a)(ii), R-49, O-8 (AAA General Rules); AAA, Supplementary Procedures for
Consumer-Related Disputes (2005) rules C-2(a), C-2(e), C-8 (AAA
Supplementary Rules)), they also provided for ―defer[ral]‖ of this payment ―in the
event of extreme hardship on the part of any party‖ (AAA, General Rules, rule R-
49). As to other arbitration expenses, the rules made advance payment subject to
the AAA‘s discretion. (Id., rule R-52.)
22
he signed the contract. In addition, at that time, one of the organizations the
contract authorized to conduct the arbitration had established a substantially
reduced fee schedule ―for consumer-related disputes‖ in order ―to make arbitration
costs reasonable for consumers‖ (AAA General Rules, Administrative Fees) and
had provided for reduction or elimination of administrative fees in cases of
hardship.5 Given these circumstances, the provision regarding the costs of a
second arbitration does not support a finding of unconscionability.
Although I agree with the majority that the provision is not unconscionable,
I disagree with the majority‘s analysis in several respects. The majority suggests
that a finding of substantive unconscionability may be premised on a finding that
the fee provision ―would have a substantial deterrent effect in Sanchez‘s case.‖
(Maj. opn., ante, at p. 22.) But deterrence is surely an important — and
permissible — purpose of the provision. After all, at issue here are the costs of a
second, de novo arbitration based on one party‘s dissatisfaction with the results of
the first. Moreover, the provision‘s deterrent effect applies mutually to both
parties; if Valencia is dissatisfied with an award and seeks a new arbitration, then
it also is ―responsible for the filing fee and other arbitration costs subject to a final
determination by the arbitrators of a fair apportionment of costs.‖ In order to
promote finality and secure the cost benefits of arbitration, parties to an arbitration
agreement may want to discourage each other from invoking a contractual right to
5 The AAA‘s generally applicable rules provided: ―The AAA may, in the
event of extreme hardship on the part of any party, . . . reduce the administrative
fees.‖ (AAA General Rules, rule R-49.) Its Supplementary Rules for consumer-
related disputes expressly incorporated Civil Code section 1284.3, stating:
―Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers
with a gross monthly income of less than 300% of the federal poverty guidelines
are entitled to a waiver of arbitration fees and costs, exclusive of arbitrator fees.
This law applies to all consumer agreements subject to the California Arbitration
Act, and to all consumer arbitrations conducted in California.‖ (AAA
Supplementary Rules, rule C-8.)
23
a second, new arbitration. Indeed, litigants wanting to appeal in court face similar
deterrence, as they are responsible for appellate filing fees and, if unsuccessful, the
other party‘s appellate costs. (Cal. Rules of Court, rules 8.25, 8.278(a).) Surely
such mutual deterrence is permissible if, as the majority correctly states, ―the
arbitration clause did not have to provide for an appeal‖ at all. (Maj. opn., ante, at
p. 21.)
However, the majority continues, having provided for ―an appeal,‖ the
arbitration clause ―may not structure the appeal process so that it unreasonably
favors‖ Valencia. (Maj. opn., ante, at p. 21.) Under this analysis, the question
should not be, as the majority suggests, whether the provision would substantially
deter Sanchez from requesting a second arbitration — which, as just explained, is
one of its permissible and mutually applicable purposes — but should be whether
the level of deterrence ―unreasonably favors‖ Valencia. (Ibid.) In other words, a
finding of substantive unconscionability would, under the majority‘s analysis,
require determination of (1) the provision‘s relative deterrent effect on Valencia
and Sanchez — which, in turn, would require evidence of the provision‘s deterrent
effect at the time the contract was signed on both Valencia and Sanchez — and (2)
whether the difference, if any, in deterrent effect was unjustified by ― ‗ ―a
legitimate commercial need‖ ‘ ‖ and established ― ‗a substantial degree of
unfairness beyond ―a simple old-fashioned bad bargain.‖ ‘ ‖ (Id. at p. 9.) In my
view, this convoluted and complicated inquiry is unnecessary; that the provision
might have a greater ―deterrent effect‖ (id. at p. 22) on one of the parties to this
contract for a $50,000 luxury car does not render it one-sided or substantively
unconscionable. Indeed, given, as noted above, that litigants wanting to appeal in
court face similar deterrence — in that they are responsible for appellate filing
fees and, if unsuccessful, the other party‘s appellate costs — to the extent the
provision would deter Valencia less than Sanchez from requesting a second
arbitration, it ―confer[s] no more of an advantage than would be the case had the
24
action been brought in court,‖ and thus is not unconscionable. (Little, supra, 29
Cal.4th at p. 1075, fn. 1.)
Moreover, the FAA preempts the majority‘s rule insofar as it makes a
―substantial deterrent effect‖ sufficient to establish substantive unconscionability.
(Maj. opn., ante, at p. 22.) In American Exp. Co. v. Italian Colors Restaurant
(2013) __ U.S. __ [133 S.Ct. 2304, 2308-2311] (Italian Colors), the high court
held that the FAA required enforcement of an arbitration clause notwithstanding
uncontested proof that it would impose prohibitive costs on plaintiffs suing under
the federal antitrust laws. The plaintiffs, in resisting enforcement, relied on ―a
judge-made exception to the FAA‖ — known as ―[t]he ‗effective vindication‘
exception‖ — which allows federal courts to invalidate arbitration agreements
―that prevent the ‗effective vindication‘ of a federal statutory right.‖ (Id. at p. __
[133 S.Ct. at p. 2310].) This exception, the high court explained, ―finds its origin
in the desire to prevent ‗prospective waiver of a party‘s right to pursue statutory
remedies,‘ [citation]. That would certainly cover a provision in an arbitration
agreement forbidding the assertion of certain statutory rights. And it would
perhaps cover filing and administrative fees attached to arbitration that are so high
as to make access to the forum impracticable. [Citation.] But the fact that it is not
worth the expense involved in proving a statutory remedy does not constitute the
elimination of the right to pursue that remedy. [Citation.]‖ (Id. at pp. __ [133
S.Ct. at pp. 2310–2311].) Under this binding precedent, if a cost provision does
not impose fees that ―make access to the forum impracticable‖ (ibid.), then the
FAA precludes a court from invalidating it as unconscionable because of a
subjective determination that it will, in a particular case, ―have a substantial
25
deterrent effect‖ on a party‘s exercise of the right to request a second arbitration.6
(Maj. opn., ante, at p. 22.)
I also disagree with the majority‘s view that parties asserting
unconscionability based on their inability to afford arbitration costs may satisfy
their burden with evidence of their financial situation at the time a ― ‗dispute
arises.‘ ‖ (Maj. opn., ante, at p. 22.) As the majority correctly recognizes (ibid.),
a determination of unconscionability must be based on the circumstances that
existed ―at the time [the contract] was made‖ (Civ. Code, § 1670.5, subd. (a)), not
on hindsight in light of subsequent events. (Setzer v. Robinson (1962) 57 Cal.2d
213, 217; Colton v. Stanford (1890) 82 Cal. 351.) Thus, in determining
affordability, Sanchez must submit evidence showing, not what he (and, under the
majority‘s approach, Valencia) could afford when the dispute arose, but what he
could have afforded at the time he signed the contract. The majority‘s assertion
otherwise ―is contrary to statute.‖ (Parada v. Superior Court (2009) 176
Cal.App.4th 1554, 1583.)
Finally, the majority‘s analysis of the cost provision improperly blurs
distinct grounds on which this court has relied in prior decisions to invalidate
arbitration provisions: unconscionability, which is at issue here, and public policy,
6 Even under the view of the dissent in Italian Colors, the FAA would, for
two reasons, preempt the majority‘s rule. First, the effective vindication exception
is inapplicable when a party ―could feasibly vindicate‖ his or her claim in
arbitration. (Italian Colors, supra, __ U.S. at p. __ [133 S.Ct. at p. 2320] (dis.
opn. of Kagan, J.).) A second arbitration is not infeasible merely because a cost
provision has ―a substantial deterrent effect‖ on a party‘s decision to request a
second arbitration. (Maj. opn., ante, at p. 22.) Second, concerns about enforcing
―state law‖ do not even ―implicate the effective-vindication rule. When a state
rule allegedly conflicts with the FAA, [courts] apply standard preemption
principles, asking whether the state law frustrates the FAA‘s purposes and
objectives. If the state rule does so — as . . . in [Concepcion] — the Supremacy
Clause requires its invalidation.‖ (Italian Colors, supra, at p. __ [133 S.Ct. at p.
2320] (dis. opn. of Kagan, J.), final italics added.)
26
which is not. As the majority explains (maj. opn., ante, at p. 18), in Armendariz,
supra, 24 Cal.4th at pages 110-111, this court held that ―when an employer
imposes mandatory arbitration as a condition of employment, the arbitration
agreement or arbitration process cannot generally require the employee to bear any
type of expense that the employee would not be required to bear if he or she were
free to bring the action in court.‖ However, contrary to what the majority‘s
discussion suggests, this holding was not based on unconscionability. Rather, it
was based on the view that forcing employees to pay costs in arbitration they
would not have to pay in court would be ―contrary to public policy‖ (id. at p. 110)
in that it would ―effectively prevent[] them from vindicating‖ (id. at p. 107)
unwaivable statutory rights established for a public reason (id. at pp. 100-101).
(See Little, supra, 29 Cal.4th at p. 1084 [Armendariz‘s rule ―is derived from state
contract law principles regarding the unwaivability of certain public rights‖].)
Similarly, the discussion from Gutierrez on which the majority relies (maj. opn.,
ante, at pp. 20-21) addressed, not unconscionability, but whether contractual
terms, by ―undercut[ting] unwaivable state statutory rights,‖ ―violate[d] the public
policy underlying [those] rights.‖ (Gutierrez, supra, 114 Cal.App.4th at pp. 94-
95.) ―[T]he public policy and unconscionability defenses‖ this court has
announced ―are different in important respects. A public policy defense is
concerned with the relationship of the contract to society as a whole, and targets
contractual provisions that undermine a clear public policy, such as an unwaivable
statutory right designed to accomplish a public purpose. [Citation.]
Unconscionability is concerned with the relationship between the contracting
parties and one-sided terms [citation], such that consent in any real sense appears
to be lacking. Contracts can be contrary to public policy but not unconscionable
[citation] and vice versa [citation].‖ (Sonic-Calabasas A, Inc. v. Moreno (2011)
51 Cal.4th 659, 686 (Sonic I).) The majority loses sight of these differences in its
discussion of Armendariz and Gutierrez.
27
But there is another important reason for not applying Armendariz‘s
categorical rule here, in addition to the fact that it is not based on
unconscionability: under Italian Colors, the FAA preempts it. As earlier
explained, the high court held in that case that the FAA required enforcement of
an arbitration clause notwithstanding uncontested proof that it would impose
prohibitive costs on plaintiffs, thus preventing them from effectively vindicating
their rights under the federal antitrust laws. (Italian Colors, supra, __ U.S. at pp.
__ [133 S.Ct. at pp. 2308-2311.) The effective vindication exception, the high
court held, ―perhaps‖ covers cost provisions that make access to arbitration
―impracticable,‖ but does not cover provisions that merely make a federal claim
―not worth the expense‖ to prove. (Id. at pp. __ [133 S.Ct. at pp. 2310–2311].)
Armendariz‘s categorical rule is based, not on proof that arbitration would, in fact,
be financially impracticable for a particular employee, but on the view that the
mere ―possibility‖ employees ―will be charged substantial forum costs‖ in
arbitration would ―chill[] the exercise‖ of their statutory right. (Armendariz,
supra, 24 Cal.4th at p. 110.) If, as Italian Colors holds, the FAA requires
enforcement of an arbitration provision despite actual proof it would impose
prohibitive costs, then surely it precludes courts from invalidating an arbitration
clause based on the theoretical, unproven chilling effect of imposing ―any type of
expense that the [party resisting arbitration] would not be required to bear‖ in a
court action.7 (Armendariz, supra, 24 Cal.4th at p. 110.)
For the preceding reasons, I agree that Sanchez has failed to establish
substantive unconscionability. I therefore concur in the judgment.
CHIN, J.
7 For the same reasons previously discussed in connection with the
majority‘s substantial deterrence standard (ante, p. 26, fn. 6), even under the view
of the dissent in Italian Colors, the FAA would preempt Armendariz’s
prophylactic, categorical rule.
28
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Sanchez v. Valencia Holding Company, LLC
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 201 Cal.App.4th 74
Rehearing Granted
__________________________________________________________________________________
Opinion No. S199119
Date Filed: August 3, 2015
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: Rex Heeseman
__________________________________________________________________________________
Counsel:
Tharpe & Howell, Christopher S. Maile, Soojin Kang; Callahan Thompson Sherman & Caudill, Robert W.
Thompson, Charles S. Russell; Atkinson, Andelson, Loya, Ruud & Romo, Kellie S. Christianson; Greines,
Martin, Stein & Richland, Robert A. Olson, Edward L. Xanders, Meehan R. Rasch and David E. Hackett
for Defendant and Appellant.
Sheppard, Mullin, Richter & Hampton and Anna S. McLean for Toyota Motor Credit Corporation and
General Motors Financial Company, Inc., as Amici Curiae on behalf of Defendant and Appellant.
Pillsbury Winthrop Shaw Pittman, Richard M. Segal and Nathaniel R. Smith for Nissan Motor Acceptance
Corporation as Amicus Curiae on behalf of Defendant and Appellant.
Littler Mendelson, Henry D. Lederman, Alexa L. Woerner, Anthony Ly; Simpson, Cameron, Medina &
Autrey and Erin Nemirovsky Medina for Volt Management Corp. and Volt Information Sciences, Inc., as
Amici Curiae on behalf of Defendant and Appellant.
Horvitz & Levy, Lisa Perrochet, Felix Shafir, Robert H. Wright and John F. Querio for California New Car
Dealers Association as Amicus Curiae on behalf of Defendant and Appellant.
Severson & Werson, Jan T. Chilton and Donald J. Querio for American Financial Services Association,
California Financial Services Association and California Bankers Association as Amici Curiae on behalf of
Defendant and Appellant.
Erika C. Frank and Fred J. Hiestand for The California Chamber of Commerce and The Civil Justice
Association of California as Amici Curiae on behalf of Defendant and Appellant.
Mayer Brown, Donald M. Falk, Andrew J. Pincus, Evan M. Tager, Archis A. Parasharami and Brian J.
Wong for The Chamber of Commerce of the United States of America, The Association of Global
Automakers, Inc., and The Alliance of Automobile Manufacturers as Amici Curiae on behalf of Defendant
and Appellant.
1
Page 2 – S199119 – counsel continued
Counsel:
Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Appellant.
Toschi, Sidran, Collins & Doyle, David R Sidran, Thomas M. Crowell; Manning Leaver Bruder &
Berberich, Robert D. Daniels and Crystal S. Yagoobian for Federated Mutual Insurance Company as Amici
Curiae on behalf of Defendant and Appellant.
Rosner, Barry & Babbitt, Hallen D. Rosner, Christopher P. Barry and Angela J. Smith for Plaintiff and
Respondent.
Kreindler & Kreindler, Gretchen M. Nelson and Jacob H. Mensch for Consumer Attorneys of California as
Amicus Curiae on behalf of Plaintiff and Respondent.
Chavez & Gertler, Mark A. Chavez and Nance F. Becker for Arthur Lovett as Amicus Curiae on behalf of
Plaintiff and Respondent.
Aimee Feinberg for Consumers for Auto Reliability and Safety as Amicus Curiae on behalf of Plaintiff and
Respondent.
Arbogast Law and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of
Plaintiff and Respondent.
McKenna Long & Aldridge and J. Alan Warfield for Association of Southern California Defense Counsel
as Amicus Curiae.
2
Counsel who argued in Supreme Court (not intended for publication with opinion):
Robert A. Olson
Greines, Martin, Stein & Richland
5900 Wilshire Boulevard, 12th Floor
Los Angeles, CA 90036
(310) 859-7811
Hallen D. Rosner
Rosner, Barry & Babbitt
10085 Carroll Canyon Road, Suite 100
San Diego, CA 92131
(858) 348-1005
3