Nibler v. Monex Deposit Co.
Filed 5/13/13 Nibler v. Monex Deposit Co. CA4/3
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION THREE
DANIEL J.
NIBLER,
Plaintiff and Respondent,
v.
MONEX
DEPOSIT COMPANY et al.,
Defendants and Appellants.
G046511
(Super. Ct. No. 30-2011-00500383)
O P I N I O N
Appeal
from an order of the Superior
Court of
County, Gregory H. Lewis, Judge. Reversed and remanded.
Pistone
& Wolder, Thomas A. Pistone, Aaron C. Watts; Farella Braun + Martel and
Neil A. Goteiner for Defendants and Appellants.
Law
Offices of Marc I. Zussman and Marc I. Zussman for Plaintiff and Respondent.
* * *
Appellants
Monex Credit Company and Monex Deposit Company (Monex) appeal from an order denying
a motion to compel arbitration of a
dispute with one of its customers, respondent Daniel J. Nibler. Nibler sued Monex, a precious metals trading
company in which he had invested an inheritance, for nine causes of action
relating to losses suffered through margin trading with Monex. Monex, relying on account documents Nibler
signed at the time he invested his money, moved to compel arbitration.
The trial court denied
Monex’s motion, finding the arbitration provisions unconscionable. Nibler argues the arbitration provisions here
are nearly identical to those at issue in another case involving Monex,
Cal.App.4th 1554 (Parada). We find, however, that several important changes
have been made to the arbitration provisions, including the ability to opt out
completely, that preclude a finding of unconscionability. We therefore reverse.
I
FACTS
In June
2008, looking for an investment opportunity for the approximately $270,000
remaining from an inheritance he received several years earlier, Nibler
contacted Monex.
name="_ftnref1" title="">[1]
According to Nibler, he spoke with Antonio Moss, a Monex representative,
and explained that he was unemployed and had been for some time. Nibler told Moss he wanted a steady, low-risk
investment strategy, and he needed a financial advisor because he had no
previous investment experience. Moss
encouraged Nibler to open an Atlas Account, under which he could trade precious
metals on margin and store the metals at Monex.
Instead, Nibler initially purchased $150,000 of gold and silver which he
had delivered to him, as he felt this was the safer option.
Thereafter,
Moss “aggressively pursued†Nibler and encouraged him to open an Atlas
Account. Nibler later stated that Moss
repeatedly told him that large profits would be “virtually guaranteed,†and
risk was never discussed. Nibler
eventually agreed and opened the Atlas Account.
At the
time Nibler opened the Atlas Account, he signed two agreements (collectively
the Agreements) with Monex. The first is
a purchase and sale agreement, the second a loan and security agreement, each
of which included an arbitration provision.
With the exception of references to other numbered paragraphs in the
respective Agreements, the arbitration provisions are identical.
Both
provisions state: “The parties agree that any and all disputes, claims, or
controversies arising out of or relating to any transaction between them or to
the breach, termination, enforcement, interpretation or validity of this
Agreement, including the determination of the scope or applicability of this
agreement to arbitrate, shall be subject to the terms of the Federal
Arbitration Act and shall be submitted to final and binding arbitration before
JAMS [Judicial Arbitration and Mediation Services], or its successor, in Orange
County, California, in accordance with the laws of the State of California for
agreements made in and to be performed in California.â€
The
arbitration provisions called for the selection of an arbitrator under JAMS
rules, except that the arbitrator must be a retired California judge (either state or federal),
and either party could require a panel of three arbitrators. The costs of arbitration were to be split
evenly, unless one party requested a three-arbitrator panel, in which case that
party was required to pay all arbitrator fees.
The provisions allowed for an appeal of a single arbitrator’s decision
through an appellate process conducted by JAMS (three-arbitrator decisions were
final). All appellate costs were to be
borne by the party initiating the appeal.
The damages and remedies available under the arbitration provisions were
“limited to any actual contract damages and tort damages incurred by the party
and proximately caused by and resulting from the other party’s alleged
breach.†Each party was responsible for
its own attorney fees.
With
respect to arbitration rules and procedures, the arbitration provisions stated
any proceeding would be conducted under JAMS Comprehensive Arbitration Rules
and Procedures in effect at the time a petition to arbitrate was filed. The JAMS Web site address was provided, along
with a phone number customers could call to obtain copies of the rules and
information concerning administrative and arbitration fees.
The
arbitration provisions also included the following opt-out provision: “Voluntary
Agreement; Revocation. Each
party’s agreement to arbitrate is voluntary. Customer may revoke Customer’s
agreement to arbitrate to arbitrate under Section 15.11 [Section 31] by written
notice delivered to [Monex] . . . within 30 days of Customer’s first
transaction with [Monex].â€
Just
before the signature blocks, the Agreements included a number of statements in
bold text. Among them was the
following: “I have carefully read and understand the foregoing, I understand that I
am agreeing to submit all disputes, claims and controversies arising out of,
relating to, my transactions with [Monex] or this Agreement to binding
arbitration before JAMS, which is a private dispute resolution procedure, as
set forth in Section 15.11 [31] above. I
understand that by agreeing thereto, I am also agreeing to pay JAMS
administrative fees and arbitrators fees according to the terms of Subsection
15.11 [31], and to give up my rights to a jury trial of any claims. (See Section 15.11 [31].)†(Boldface omitted.)
Nibler
signed the agreements on June 11, 2008.
There is no indication in the record that he exercised the opt-out
provision. From June to October 2008,
Nibler engaged in margin trading with Monex, eventually trading in the gold and
silver he had already purchased.
Although he made some trades with initial profits, by October, he had no
funds left in his account.
In August
2011, Nibler filed the instant complaint alleging nine causes of action against
Monex, including fraud, negligence,
deceit, constructive fraud, breach of fiduciary duty, negligent
misrepresentation, breach of contract, commodities fraud and unfair business
practices. Monex filed a motion to
compel arbitration, attaching the Agreements as evidence of consent to
arbitrate. Nibler opposed, arguing the
arbitration provisions were unconscionable.
The opposition included Nibler’s declaration, which emphasized his lack
of experience and sophistication, and his current poor financial
situation. He stated that if required to
arbitrate, he could not afford to pursue his claims. In its reply, Monex emphasized the presence
of the opt-out provision.
On December
12, 2011, after oral
argument, the trial court denied Monex’s motion, finding the arbitration
provision “procedurally and substantively unconscionable.†Monex now appeals.
II
DISCUSSION
California has a strong
public policy in favor of arbitration as an expeditious and cost-effective way
of resolving disputes. (Moncharsh v.
Heily & Blase (1992) 3 Cal.4th 1, 9.)
Code of Civil Procedure section 1281.2
requires a court to order arbitration “if it determines that an agreement to
arbitrate . . . exists . . . .†(§
1281.2.) On appeal, “[w]e review de novo
a trial court’s determination of the validity of an agreement to arbitrate when
the evidence presented to the trial court was undisputed. [Citations.]
We review under the substantial evidence standard the trial court’s
resolution of disputed facts.
[Citation.] ‘Whether an
arbitration provision is unconscionable is ultimately a question of law. [Citations.]’
[Citation.]†(
Thus, while the parties make much of what the trial court did or did not
find, it is ultimately of little import here because the key facts are
undisputed.
title="">[3]
Parties
can only be compelled to arbitrate when they have agreed to do so. (Westra
v. Marcus & Millichap Real Estate Investment Brokerage Co.,
763.) In Rosenthal v.
14 Cal.4th 394, the California Supreme Court stated, “[W]hen a petition to
compel arbitration is filed and accompanied by prima facie evidence of a
written agreement to arbitrate the controversy, the court itself must determine
whether the agreement exists
. . . .
Because the existence of the agreement is a statutory prerequisite to
granting the petition, the petitioner bears the burden of proving its existence
by a preponderance of the evidence.†(
Monex
provided such prima facie evidence in the form of the arbitration provisions in
the Agreements. Those provisions
state in relevant part that: “The parties agree
that any and all disputes, claims, or controversies arising out of or relating
to any transaction between them or to the breach, termination, enforcement,
interpretation or validity of this Agreement . . . shall be submitted to final
and binding arbitration . . . in accordance with the laws of the State of
California for agreements made in and to be performed in California.†Given
the existence of a valid contract containing a clear and conspicuous
arbitration provision, we find that Monex has met its burden under Rosenthal
to establish prima facie evidence of an agreement to arbitrate. (Rosenthal v. Great Western Fin. Securities Corp.,
Unconscionability
If the arbitration
clause is to be found invalid, Nibler must establish a defense to its
enforcement. The grounds upon which the
trial court based its decision, and which Nibler relies here, is
unconscionability. As the party opposing
arbitration, Nibler has the burden of establishing the arbitration provision is
unconscionable. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC
(2012) 55 Cal.4th 223, 246 (Pinnacle).)
Civil
Code section 1670.5, subdivision (a), codifies unconscionability as a reason
for refusing a contract’s enforcement.
It states: “If the court as a
matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the
contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result.â€
Unconscionability
“has ‘“both a ‘procedural’ and a ‘substantive’ element,†the former focusing on
‘“oppressionâ€â€™ or ‘“surpriseâ€â€™ due to unequal bargaining power, the latter on
‘“overly harshâ€â€™ or “‘one-sided’†results.’
[Citation.]†(Little v. Auto
Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) Both the procedural and substantive elements
must be met before a contract or term will be deemed unconscionable. (Parada,
Substantive and procedural unconscionability need not be present to the
same degree. Rather, the two elements
work together in a sliding scale relationship so that “‘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.’ [Citation.]†(Ibid.)
Procedural unconscionability focuses on the
manner in which the contract was negotiated and the circumstances of the
parties at the time. (
at p. 1570.) It “requires
oppression or surprise.†(
“The procedural element of an unconscionable contract generally takes
the form of a contract of adhesion, ‘“which, imposed and drafted by the party
of superior bargaining strength, relegates to the subscribing party only the
opportunity to adhere to the contract or reject it.â€â€™ [Citation.]â€
(Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p.
1071.)
We begin by
determining whether the Agreements were contracts of adhesion. An adhesive contract is “‘a
standardized contract, which, imposed and drafted by the party of superior
bargaining strength, relegates to the subscribing party only the opportunity to
adhere to the contract or reject it.’
[Citation.]†(
v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 113.)
In
account agreements, this court noted “[t]he Atlas Account Agreements are
printed, standardized forms drafted by Monex.â€
(Parada, supra, 176
Cal.App.4th at p. 1570.) That has not
changed. We also observed that “the
front page of the Atlas Account Agreements contains a proviso stating: ‘Any
deletions from, additions to or cutting or mutilation of any portion of this
Agreement will render the Agreement unacceptable.’†(Ibid.) That also remains the case here. While the plaintiffs in Parada began their relationship with Monex with less cash than
Nibler (see id. at p. 1562), Nibler’s
initial relative wealth does not preclude a finding that Monex was still the
party with superior bargaining strength, and unless he consented to the
Agreements, he could not open a margin account.
(Id. at p. 1571.) We therefore conclude the Agreements were
contracts of adhesion.
As
we noted in Parada, however, a
finding of adhesion does not conclude our procedural unconscionability inquiry. We must also consider the question of
surprise and oppression. (
challenged term is hidden in a prolix printed form or is otherwise beyond the
reasonable expectation of the weaker party.’
[Citation.] The arbitration
provisions in the Atlas Account Agreements are not hidden, but consist of 11
paragraphs, each with a heading in bold typeface accurately describing the
substance of the paragraph. The
arbitration provisions are in the same typeface and font size as the rest of
the provisions. Arbitration itself is a
fairly common means of dispute resolution and would not be beyond the
reasonable expectation of the weaker party.â€
(Ibid.) All
of the above remains true here.
In
addition, each agreement also included, in the area immediately before the
signature block, another sentence referencing the arbitration provision and
thereby calling attention to it.
Further, here, as in Parada,
there was no evidence that Nibler was not given ample time to read and
understand the Agreements before signing them.
He had the time, and the resources, if he so wished, to conduct
research, seek the advice of an independent professional, consider
alternatives, and ask questions about the Agreements.
Moreover,
and critical to our analysis, there are a number of key differences between the
Agreements here and those at issue in Parada. The first is that the “weaker party would not
reasonably expect any dispute arising under the Atlas Account Agreements to be
arbitrated before a panel of three private arbitrators, the fees for
whom are not expressly set forth in the agreements.†(Parada,
1571.) That provision does not exist in
the Agreements Nibler signed; only one arbitrator is required, and although
either party may elect to proceed with a three-arbitrator panel, if it does,
that party is responsible for all arbitrator fees. We cannot conclude that the cost of a single
retired judge arbitrator would constitute the same “nasty shock†as the costs
of a three-arbitrator panel present in Parada. (Id.
at p. 1572.) Nibler fails to establish
that the cost of the arbitrator here is so far out of line with the reasonable
expectations of an explicit cost-sharing arbitration provision as to constitute
surprise.
There is another important difference between
the arbitration provisions here and those present in Parada — the 30-day opt-out provision. As noted above, the Agreements had a
provision stating: “Voluntary Agreement; Revocation. Each party’s agreement to
arbitrate is voluntary. Customer may
revoke Customer’s agreement to arbitrate to arbitrate under Section 15.11
[Section 31] by written notice delivered to [Monex] . . . within 30 days of Customer’s
first transaction with [Monex].â€
In
arguing that the opt-out provisions do not preclude a finding of procedural
unconscionability, Nibler argues they are a “cynical ploy†to circumvent
insufficient amount of time for a customer to “realize his losses and Monex’s
wrongful practices.†It is not, however,
an insufficient amount of time for a customer to look into JAMS procedures and
costs, or to simply decide for any reason, or none at all, that he or she does
not wish to arbitrate. It is a
get-out-of-arbitration-free card. It is
the very opposite of the kind of oppression
we would need to find in order to conclude the Agreements were procedurally
unconscionable.
title="">[6]
At oral argument,
Nibler’s counsel asserted the opt-out provision is illusory because opting out
precludes the customer from any further margin trading. In effect, he argued, opting out of
arbitration results in Monex closing the Atlas account. Monex’s counsel denied this, and we cannot
find any evidence supporting this argument in the record. While the front page of the Agreements
states: “Any deletions from, additions
to or cutting or mutilation of any portion of this Agreement will render the
Agreement unacceptable,†it is inapplicable to Nibler’s argument. Exercising a clause in the Agreements is not
tantamount to crossing or cutting out portions of it, which is the only
reasonable interpretation of that provision.
(See Southern Cal. Edison Co. v.
Superior Court (1995) 37 Cal.App.4th, 839, 847-848 [contractual language
must be “reasonably susceptible†to urged interpretation].)
Thus,
contrary to Nibler’s argument, the arbitration provisions at issue here are not
“nearly identical to the agreement the Parada
court has already found to be procedurally unconscionable.†These differences — the single arbitrator
provision and the option to opt out within 30 days — are critical ones. To sum up, on the one hand, the Agreements
are contracts of adhesion, and Nibler was in the weaker bargaining position. On the other, the arbitration provisions were
not hidden. Indeed, they were repeated
immediately before the signature block; there were no elements that would have
constituted surprise or oppression; and Nibler had the ability to opt out of
arbitration completely within 30 days without voiding the remainder of the
contracts.
We
cannot, on this record, conclude the Agreements were procedurally
unconscionable. Thus, we need not
consider the issue of substantive unconscionability. (See Monex Deposit Co. v. Gilliam
(C.D. Cal. 2009) 671 F.Supp.2d 1137, 1144, fn. 5 [holding that the finding of
no procedural unconscionability “alone was enough to find that the contract is
not unconscionable.â€].)
III
DISPOSITION
The order
is reversed, and the case remanded to the trial court for further
proceedings. In the interests of
justice, each party is to bear its own costs on appeal.
MOORE,
ACTING P. J.
I CONCUR:
FYBEL, J.
ARONSON,
J., dissenting:
I
respectfully dissent from the majority’s decision. The majority correctly notes both procedural
and substantive unconscionability are required to invalidate an arbitration
clause, but need not be present to the same degree. (Parada
v. Superior Court (2009) 176 Cal.App.4th 1554, 1570 (
which balances the two elements. (
The more evidence a contract’s terms are substantively unconscionable,
the less evidence of procedural unconscionability is required, and vice
versa. (Ibid.) The majority, however,
misapplies the test to find no procedural unconscionability, and therefore does
not address the substantively unconscionable elements in Monex’s Atlas Account
Agreement.
In
my view, Monex injected a low to medium degree of procedural unconscionability
in its arbitration provisions. The Atlas
Agreement is an adhesive contract with built-in fees and costs beyond the
reasonable expectations of the party with the weaker bargaining position. By merely referencing the arbitration rules
and fees of Judicial Arbitration and Mediation Services (JAMS), the Atlas
Agreement conceals the full extent of those fees and costs. The high arbitral forum fees, including an
arbitration appeal, and the provision limiting damages demonstrate a high
degree of substantive unconscionability.
This conclusion is reinforced when considering plaintiff Daniel Nibler’s
inability to pay these costs when he signed the agreement. In misapplying the governing principles for
determining unconscionability, however, the majority’s decision “effectively
blocks every forum for [Nibler’s] redress of disputes, including arbitration
itself.†(See Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89-90 (
court’s ruling.
Procedural Unconscionability
“‘“Procedural
unconscionability†concerns the manner in which the contract was negotiated and
the circumstances of the parties at that time.
[Citation.] It focuses on factors
of oppression and surprise.
[Citation.]†(
128 Cal.App.4th 1305, 1319 (Morris).) As the majority acknowledges, an analysis of
procedural unconscionability must begin with a determination whether the
contract is a contract of adhesion. (
“A contract of
adhesion is ‘“a standardized contract, which, imposed and drafted by the party
of superior bargaining strength, relegates to the subscribing party only the
opportunity to adhere to the contract or reject it.â€â€™ [Citation.]â€
(Parada, supra, 176 Cal.App.4th at p. 1570.) In Parada,
we found the Atlas Agreement was a contract of adhesion and the majority again
reaches that conclusion here because Monex held the superior bargaining
position and the Atlas Agreement is a standardized, printed form offered to
Nibler and other customers on a take-it-or-leave-it basis. The majority’s concession that the Atlas
Agreement is a contract of adhesion, with which I agree, establishes at least a
minimal degree of procedural unconscionability.
(Vasquez v. Greene Motors, Inc.
(2013) 214 Cal.App.4th 1172, 1184 & fn. 5 (Vasquez); Gatton v. T-Mobile
USA, Inc. (2007) 152 Cal.App.4th 571, 585 (Gatton).)
The conclusion
the Atlas Agreement is a contract of adhesion, however, is merely the beginning
of the inquiry into the Agreement’s procedural unconscionability. (Morris,
supra, 128 Cal.App.4th at
p. 1319; Parada,
p. 1571.) Indeed, a contract’s
adhesive nature is just one factor to be considered in determining the overall
degree of procedural unconscionability that exists. (Parada,
at pp. 1569-1570.) One also must
consider whether any element of oppression or surprise regarding any particular
provision in the Atlas Agreement adds to the degree of procedural
unconscionability.
“Procedural surprise
focuses on whether the challenged term is hidden in a prolix printed form or is
otherwise beyond the reasonable expectation of the weaker party.†(Morris,
supra, 128 Cal.App.4th at
p. 1321.) Surprise exists when a
contractual provision would defeat the “‘strong’ expectation of the weaker
party†and the party with the superior bargaining position fails to call the
provision to the weaker party’s attention.
(Parada, supra, 176 Cal.App.4th at p. 1571.) Oppression, on the other hand, refers to the weaker
party’s inability to negotiate contract terms and the absence of reasonable
alternatives. (Morris, at p. 1320.)
Here, section
15.11, subdivision (j)(1), of the Atlas Agreement provides that each side “will
share equally in the basic arbitration costs, including administrative fees and
the fees of the arbitrator.†The
agreement also provides for an appeal to a panel of three appellate
arbitrators, and subdivision (j)(2) mandates that the party appealing an arbitrator’s
award “shall be responsible for all costs of the appeal, including the fees of
the appellate arbitrators.†Under
section 15.11, subdivision (d), the JAMS’s rules and procedures in existence at
the time of the arbitration demand will govern the arbitration. These and the other
the 30 pages of contract terms and conditions in the Atlas Agreement. None of the foregoing provisions were
highlighted or otherwise called to Nibler’s attention and no details about the
fees or costs of an initial arbitration or appeal were provided. The arbitration provisions list JAMS’s Web
site and telephone number, presumably so the consumer could learn the current
rules and fee schedules for arbitration, but the provisions fail to emphasize
the current rules and fee schedules will not necessarily govern any arbitration
between the parties.
These
provisions add to the degree of procedural unconscionability because they
effectively required Nibler to uncover the necessary information about
arbitration and administrative fees. In
113 Cal.App.4th 1402, 1405, we found the element of surprise where an
arbitration agreement referenced the Better Business Bureau arbitration rules
but did not attach them to the contract.
(See also Zullo v. Superior Court
(2011) 197 Cal.App.4th 477, 486 [“it [is] oppressive to require the
[weaker] party to make an independent inquiry to find the applicable rules in
order to fully understand what she was about to signâ€]; Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387,
393 [noting a “failure to provide a copy of the arbitration rules
. . . supported a finding of procedural unconscionability];
118 Cal.App.4th 702. 721.)
The foregoing
provisions add further procedural unconscionability because they impose on the
appealing party all the costs of an appeal, including the fees of the three
appellate arbitrators. In
agreement procedurally unconscionably because it required a three-arbitrator
panel to hear the arbitration, but failed to disclose the substantial fees and
costs imposed on the weaker party. We
explained “the weaker party would not reasonably expect any dispute arising
under the Atlas Account Agreements to be arbitrated before a panel of
whom are not expressly set forth in the agreements.†(Parada,
supra, 176 Cal.App.4th at
pp. 1571-1572, original italics.)
This reasoning applies here with even greater force.
In
required the parties to share the fees and costs of the three-arbitrator
panel. Here, the Atlas Agreement
requires the appealing party to bear all of the fees and costs associated with
the three-arbitrator appellate panel and there is no evidence to show Monex
called Nibler’s attention to this provision.
It is beyond a consumer’s reasonable expectations that he or she would
have to pay all the fees and costs to appeal.
In sum, an adhesion contract that places the burden on the weaker party
to learn, and in this case anticipate, future arbitration costs and fees
injects a low to moderate degree of procedural unconscionability.
The majority
does not explain why, under Vasquez
and Gatton, its concession the Atlas
Agreement is a contract of adhesion does not also establish at least a minimal
degree of unconscionability. Similarly,
the majority does not discuss the cases cited above that find a degree of
procedural unconscionability when the weaker party bore the burden of (1) discovering
arbitration rules incorporated by reference, and (2) paying significant
fees and costs beyond that party’s reasonable expectations. Instead, the majority finds the 30-day opt
out clause crucial in distinguishing this case from the holding in
Nibler a further opportunity to investigate the current costs and fees for JAMS
arbitrators and anticipate potential increases in those costs and fees. In Parada,
however, we concluded Monex’s arbitration provisions were unconscionable
despite finding the weaker party received “ample time to read and study the
Atlas Account Agreements before signing themâ€
(Parada, supra, 176 Cal.App.4th at p. 1571.) Thus, in Parada
the weaker party had sufficient time to learn whether the proposed arbitration
would impose costs beyond their expectations, but this did not prevent the
The only other
difference between the Atlas Agreements we found unconscionable in
permissible here is the modification requiring one arbitrator instead of
three. That modification, however, does
not impact the foregoing analysis regarding the procedural unconscionability
created by the Atlas Agreement’s adhesive nature, its failure to provide the
governing rules and fee schedules, and its cost provision regarding the
three-arbitrator appeal.
I am not
unmindful of factors adverse to a finding of procedural unconscionability, such
as the availability of other investment alternatives. An arbitration conducted by one arbitrator is
within the reasonable expectations of the parties, and the costs here may be
within reasonable expectations depending on the circumstances. But the facts and authorities discussed above
preclude a finding that the Atlas Agreement presents no procedural
unconscionability at all. The foregoing
facts and authority demonstrate a low to moderate degree of procedural
unconscionability that requires an analysis of whether the Atlas Agreement is
substantively unconscionable. (
a minimal degree of procedural unconscionability requires court to determine
whether, and to what degree, the agreement also is substantively
unconscionable].)
Substantive Unconscionability
“‘A
provision is substantively unconscionable if it “involves contract terms that
are so one-sided as to ‘shock the conscience,’ or that impose harsh or
oppressive terms.â€â€™ [Citation.] Substantive unconscionability may be shown if
the disputed contract provision falls outside the nondrafting party’s
reasonable expectations.
[Citation.]†(
Agreement combine to create a high degree of substantive
unconscionability.
First,
section 15.11, subdivision (k), describes the damages and remedies available to
Nibler: “The parties agree that the
damages available to any party bringing an action under this Agreement shall be
limited to any actual contract damages and tort damages incurred by the party
and proximately caused by and
resulting from the other party’s alleged breach. This paragraph states the exclusive damage
remedies available to the parties.â€
(Italics added.) This clause
eliminates Nibler’s punitive damage remedy because “[p]unitive damages are
punish the defendant and to deter future wrongdoing.’†(Marron
v. Superior Court (2003) 108 Cal.App.4th 1049, 1059, original italics;
see also State Farm Mut. Ins. Co. v.
Campbell (2003) 538 U.S. 408, 416 [“Compensatory damages ‘are intended
to redress the concrete loss that the plaintiff has suffered by reason of the
defendant’s wrongful conduct.’
[Citation.] By contrast, punitive
damages serve a broader function; they are aimed at deterrence and
retributionâ€]; Ferguson v. Lieff,
Cabraser, Heimann & Bernstein (2003) 30 Cal.4th 1037, 1046.)
In
passing, the majority rejects Nibler’s limitation of damages claim, in part
because Monex concedes it would not oppose a punitive damage claim. But Parada
counsels courts not to consider after-the-fact offers by the drafter of the
agreement. “If the provision, as
drafted, would deter potential litigants, then it is unenforceable, regardless
of whether, in a particular case, the [drafter] agrees†to forego reliance on
an unconscionable term. (
p. 1584.) Monex’s willingness to
not enforce the remedies limitations provision does not alter its
unconscionable character. (
The majority also interprets the clause to allow punitive damages, but
does not discuss the proximate causation language. Such an interpretation makes the clause
superfluous, contrary to contract interpretation principles. (Founding
Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc.
(2003) 109 Cal.App.4th 944, 957.)
Second,
the requirement that the appealing party must pay all the costs of an
arbitration appeal, including the fees of the three-judge appellate panel,
further adds to the degree of substantive unconscionability. The provision in effect gives Monex the
unilateral right to appeal because the costs are prohibitive for Nibler and
other similarly‑situated consumers.
Courts reject as unconscionable one-sided provisions designed to
maximize the drafter’s advantage. (See
29 Cal.4th 1064, 1071-1072 [postarbitration proceeding declared
unconscionable because it “wholly or largely†benefited the stronger party “at
the expense of the party on which arbitration is imposedâ€].)
Finally,
it is substantively unconscionable to impose undefined and as yet undetermined
costs that exceed the financial ability of the weaker party: “[W]here a consumer enters into an adhesive
contract that mandates arbitration, it is unconscionable to condition that
process on the consumer posting fees he or she cannot pay. It is self‑evident that such a
provision is unduly harsh and one-sided, defeats the expectations of the
nondrafting party, and shocks the conscience.
While arbitration may be within the reasonable expectations of
consumers, a process that builds prohibitively expensive fees into the
arbitration process is not.†(
unconscionability rule to Monex’s Atlas Agreement].)
Here,
JAMS charges each party a $400 filing fee and a $400 case management fee for
every 10 hours. In addition, Nibler
produced evidence the average rate for a JAMS retired judge is between $450 and
$600 an hour. Based on the time estimate
to conclude Nibler’s arbitration, his share would be, at a minimum,
$15,000. Nibler also presented
that the arbitration costs dramatically exceeded his ability to pay at the time
he signed the agreement.
name="_ftnref7" title="">[7] For people in Nibler’s economic condition,
the unanticipated fee structure is oppressive.
Based on Nibler’s declaration, it is clear he would not have agreed to
arbitration had he been warned these fees could be imposed.
Conclusion
Measuring procedural and
substantive unconscionability on a sliding scale, I conclude, as did the trial
court, that Monex’s arbitration provisions are unconscionable and should not be
enforced. I would affirm the trial
court’s order.
ARONSON,
J.
name="_ftn1" title="">[1]
As of October 2011, Nibler was 34 years old.
Accordingly, he would have been 30 or 31 when he first contacted
Monex.
name="_ftn2" title="">[2]
Subsequent statutory references are to the Code of Civil Procedure.
