LIU, J. —
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, LLC (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. 333 [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion) that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) 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 [163 Cal.Rptr.3d 269, 311 P.3d 184] (we will use
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 Consumers Legal 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."
"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 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 `
"... 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 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
"`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 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz).) Courts may find a contract as a whole "or any clause of the contract" to be unconscionable. (Civ. Code, § 1670.5, subd. (a).)
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].)
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 p. 934.) But we have just made clear that all the formulations "mean the same thing" and "must be as rigorous and demanding for arbitration clauses as for any contract clause." (Ante, at pp. 911, 913.) 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. (See conc. & dis. opn., post, at p. 934.) 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 v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1071 ["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 [171 Cal.Rptr. 604, 623 P.2d 165] (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.
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 Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a) (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 [131 Cal.Rptr. 882, 552 P.2d 1178] [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 [134 L.Ed.2d 902, 116 S.Ct. 1652] [holding state statute requiring arbitration clause to be in underlined capital letters on the first page of a contract is preempted]; but see Concepcion, supra, 563 U.S. at p. ___, fn. 6 [131 S.Ct. at p. 1750, fn. 6] ["States remain free to
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 pertinent Court of Appeal cases. In Beynon v. Garden Grove Medical Group (1980) 100 Cal.App.3d 698, 706 [161 Cal.Rptr. 146] (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 [56 Cal.Rptr.2d 922] (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 distinguished 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
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 Beynon, 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 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 Brokerage Co. (1998) 62 Cal.App.4th 716, 721, 726 [73 Cal.Rptr.2d 85] [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 the plaintiff and the seller as the 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
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 [90 Cal.Rptr.2d 334, 988 P.2d 67], and Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 316 [133 Cal.Rptr.2d 58, 66 P.3d 1157], 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.
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 $2500, which
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 "[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
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 Public Citizen found." (Assem. Conc. Sen. Amends. to Assem. Bill No. 2915 (Reg. Sess. 2001-2002) as amended Aug. 26, 2002, 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.)
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 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
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."
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 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.
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.
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.
The judgment of the Court of Appeal is reversed, and the cause is remanded for proceedings not inconsistent with this opinion.
Cantil-Sakauye, C. J., Werdegar, J., Corrigan, J., Cuéllar, J., and Kruger, J., concurred.
CHIN, J., Concurring and Dissenting.
I agree with the majority that, under the high court's decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion), the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) 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,
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 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 Consumers 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
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."
I. The FAA Requires Enforcement of the Class Arbitration Waiver.
In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 161 [30 Cal.Rptr.3d 76, 113 P.3d 1100] (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)
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 "extend[s] even to grounds" "normally thought to be generally applicable, such as ... unconscionability." (563 U.S. 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." (563 U.S. 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.]" (563 U.S. at p. ___ [131 S.Ct. at p. 1748], italics added.) Second, it frustrates the FAA's goal of encouraging "efficient, streamlined," speedy procedures. (563 U.S. 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. (563 U.S. 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. 907.)
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. 912), 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. 907). Indeed, as the majority later explains, under Concepcion, in order to avoid FAA
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 [145 Cal.Rptr.3d 514, 282 P.3d 1217] (Pinnacle); Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 [64 Cal.Rptr.2d 843, 938 P.2d 903] (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. 906.) Because, as explained above, a showing of both procedural and substantive unconscionability is required to render a contract unenforceable, a contract that is not substantively unconscionable is fully
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 [58 Cal.Rptr.2d 875, 926 P.2d 1061].) 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.
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."
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, 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."
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
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....' [Citation.] 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 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
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 p. 914, 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 [64 Cal.Rptr.3d 773, 165 P.3d 556].) Notably, the decision we cited in support of this statement — Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758 [259 Cal.Rptr. 789] — involved "the context of consumer contracts" (maj. opn., ante, at p. 914), 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).
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. 914.) 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 [118 Cal.Rptr.2d 862]. 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
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 [216 Cal.Rptr. 345, 702 P.2d 503]. (Maj. opn., ante, at p. 914.) 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." (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 [34 Cal.Rptr.2d 695]; Union Bank v. Ross (1976) 54 Cal.App.3d 290, 296 [126 Cal.Rptr. 646] (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. 914) 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. 914.) 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
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. & citations 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 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. 933), 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 [27 Cal.Rptr.3d 797] ["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
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 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.) foll. § 1670.5, p. 74 (Official Comment).)" (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1176 [163 Cal.Rptr.3d 269, 311 P.3d 184] (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"'" (ibid.) 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 [71 P.2d 220] [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 [42 P. 473] [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 Tarver v. State Bar (1984) 37 Cal.3d 122, 134 [207 Cal.Rptr. 302, 688 P.2d 911] [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
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 p. 913.) As the majority observes, this court has sometimes used these formulations instead of the shock the conscience standard. (Ibid.) This practice has generated 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"'"]; see Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1469 [162 Cal.Rptr.3d 545] [shock the conscience is "`a higher standard'" than one-sided or overly harsh]; Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 88 [7 Cal.Rptr.3d 267] (Gutierrez) [same].) Today, the majority declares that these alternative formulations "all mean the same thing" as "shock the conscience." (Maj. opn., ante, at p. 911.) 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. 913) — 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 p. 911), 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. 911), it also depends on "certainty and predictability" of enforcement (Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1269 [241 Cal.Rptr. 22, 743 P.2d 1279].) 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
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. 912.) 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 [99 Cal.Rptr.2d 745, 6 P.3d 669] (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 (Apr. 26, 2012) 4 Y.B. Arb. & Med. 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." 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."'" (Maj. opn., ante, at p. 911.) Thus, "[a] party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain." (Ibid.) 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.'"
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. 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
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 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. 917.) 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 [130 Cal.Rptr.2d 892, 63 P.3d 979] (Little)), regardless of whether Valencia is "more likely" (maj. opn., ante, at p. 917) or even "substantially more likely" to invoke them (ibid.).
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. 922.) Because, as the majority explains, this
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.
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. 921.) On the contrary, as earlier explained, the record indicates that Sanchez had significant financial means when 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, rule O-8, Administrative Fees) and had provided for reduction or elimination of administrative fees in cases of hardship.
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. 920.) 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. 911.) In my view, this convoluted and complicated inquiry is unnecessary; that the provision might have a greater "deterrent effect" (id. at p. 921) 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
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. 921.) In American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. ___ [186 L.Ed.2d 417, 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 the 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." (570 U.S. 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 p. ___ [133 S.Ct. at pp. 2310-2311], some italics omitted.) 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 deterrent effect" on a party's exercise of the right to request a second arbitration.
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. 920.) As the majority correctly recognizes
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, which is not. As the majority explains (maj. opn., ante, at p. 917), 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. 919-920) 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, 686-687 [121 Cal.Rptr.3d 58, 247 P.3d 130] (Sonic I).) The majority loses sight of these differences in its discussion of Armendariz and Gutierrez.
For the preceding reasons, I agree that Sanchez has failed to establish substantive unconscionability. I therefore concur in the judgment.