Norton v. Ford of
Monica
Filed 12/28/12 Norton v. Ford of Santa Monica CA2/3
NOT TO BE PUBLISHED IN THE
OFFICIAL REPORTS
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
SECOND APPELLATE DISTRICT
DIVISION THREE
STEPHEN NORTON,
Plaintiff
and Respondent,
v.
FORD OF SANTA MONICA et al.,
Defendants
and Appellants.
B237273
(Los
Angeles County
Super. Ct.
No. BC453480)
APPEAL
from an order of the Superior Court of
County,
Rolf M. Treu, Judge. Affirmed.
Manning
Leaver Bruder & Berberich, Robert D. Daniels and Crystal S. Yagoobian for
Defendants and Appellants.
Rosner,
Barry & Babbitt, Hallen D. Rosner, Christopher P. Barry and Angela J. Smith for Plaintiff and
Respondent.
_____________________
INTRODUCTION
Defendants
Chase Auto Finance Corporation (Chase) and Ford of Santa Monica, Inc., dba
Subaru of Santa Monica (SSM) appeal from an order denying their motion to
compel arbitration pursuant to an arbitration agreement found in a vehicle
purchase contract executed by plaintiff Stephen Norton. Because we find that provisions of the
arbitration agreement were procedurally and substantively unconscionable, we
affirm the order denying defendants’ petition to compel arbitration.
FACTUAL
AND PROCEDURAL HISTORY
On January
21, 2011, Norton filed a complaint against defendants SSM,
Chase, and Chrysler Group, LLC (Chrysler).
with leave to amend was sustained, Norton filed a first amended complaint on July 28, 2011.
The first amended complaint contained the following
allegations. In May 2009, Norton saw
SSM’s advertisement for the sale of a used 2008 Dodge Avenger for $12,900. Norton went to SSM, test drove the vehicle,
and told a salesman he was interested in buying the vehicle and wanted to trade
in his 2003 Nissan Maxima. The salesman
offered him $1,000 to trade in his Nissan Maxima.
Norton told the salesman he wanted monthly payments of
$200 and he could make a $3,000 down payment.
After the salesman left to speak to a superior, he returned with a
document showing amounts for monthly payment, down payment, and other financial
terms. Norton stated he wanted to look
around more before purchasing a vehicle, and said $1,000 to trade in his Maxima
was not enough. The salesman told Norton
he would buy the Maxima himself for $1,500 because he knew someone who wanted
one. The complaint alleged that the
salesman falsely stated that SSM purchased the 2009 Dodge Avenger from its
prior owner who could not afford to keep it, when in fact SSM had purchased the
vehicle at an automobile auction a year earlier.
Norton agreed to buy the vehicle, A finance manager offered Norton an extended
warranty for $1,500 that would cover the vehicle up to 100,000 miles. Norton agreed to buy the extended warranty,
which was actually a service contract from Ford. Norton did not know that a Chrysler
3-year/36,000 mile warranty still covered the vehicle, and that a power train
warranty extended to 7 years/70,000 miles.
SSM’s finance manager prepared documents for Norton’s
vehicle purchase, which included a Retail Installment Sale Contract (RISC), and
instructed Norton where to sign and initial each document. The RISC contained an $8.75 charge for
“California Tire Fees.†None of the
tires on the vehicle were new. The RISC
also included $2,475 for an extended warranty that SSM had told Norton would
cost approximately $1,500. The RISC
included a $29 “Optional DMV Electronic Filing Fee,†which SSM never discussed
with Norton or informed him was an optional fee. Elsewhere SSM prepared a Pre-Contract
Disclosure Statement that the “optional fee for seller to electronically register
vehicle†was “N/A†or not applicable.
Not long after purchasing the vehicle, Norton experienced
problems including a rough idle, repeated stalling while the vehicle was
stopped or when accelerating from a stop, shaking or shuddering in the front end
and steering wheel, rattling and/or squeaking windows, and a rubbing sound and
vibration from the front of the vehicle.
During 2009 and 2010, Norton brought the vehicle to a
Chrysler facility for repairs seven times.
Defendants were unable to repair the vehicle.
The first amended complaint alleged nine causes of action
against SSM: 1) a class claim for
violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et
seq.), alleging that SSM illegally charged customers California Tire Fees for
used rather than new tires; 2) a class claim and an individual claim for
violation of the Automobile Sales Finance Act, (AFSA) (Civ. Code, § 2981
et seq.), by charging Norton and class members California Tire Fees when none
were owed, by providing Norton with a false optional products and services
disclosure statement, and by violating the “single document rule†of Civil Code
section 2981.9 insofar as the RISC did not show the correct amount due and
owing for California tire Fees; 3) a class claim for violation of Business
& Professions Code section 17200 et seq. by charging California tire fees
in sales of used vehicles with used, not new, tires; 4) a class claim for
violation of Public Resources Code section 42885 by charging purchasers of used
cars with used tires $1.75 per new tire in the sale of a motor vehicle; 5) a
class claim for violation of the CLRA by selling motor vehicles to consumers
and representing that the transactions had been supplied in accordance with
previous representations when they had not, by representing that the
transactions involved obligations which they did not involve or which were
prohibited by law, and by inserting unconscionable provisions in purchase
contracts; 6) a class claim for violation of Business & Professions Code
section 17200 et seq. by charging customers an optional DMV electronic filing
fee without telling them they could refuse to pay this optional fee; 7) an
individual claim for violation of the CLRA by misrepresenting the
characteristics and quality of the vehicle sold to Norton, advertising goods
with intent not to sell them as advertised, misrepresenting that the
transaction conferred or involved rights, remedies, or obligations, and
inserting unconscionable provisions in purchase contracts; 8) an individual
claim for violation of Business and Professions Code section 17200 et seq.
against SSM and Chase by inserting an unconscionable arbitration clause on the
back of the RISC; violating the AFSA; misrepresenting after market products and
services, extended warranties, and factory warranties; misrepresenting the
title or ownership history of vehicles; providing customers with false
pre-contract disclosure statements; and failing to affix a buyer’s guide to
used vehicles for sale on SSM’s lot; 9) an individual claim for violation of
the Song-Beverly Consumer Warranty Act (Civ. Code, §1790 et seq.) for
delivering a vehicle with serious defects and non-conformities to warranty,
failing to conform the vehicle to applicable warranties, and refusing Norton’s
demands for a refund or replacement.
On August
17, 2011, SSM filed a petition for orders compelling binding
contractual arbitration of claims. The
petition quoted the arbitration clause in the RISC executed by plaintiff
Norton:
“
AFFECTS YOUR LEGAL RIGHTS
“1. EITHER YOU OR
WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN
COURT OR BY JURY TRIAL.
“2. 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.
“3. DISCOVERY AND
RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT,
AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN
ARBITRATION.
“Any claim or dispute, whether in contract, tort, statute
or otherwise (including the interpretation and scope of this Arbitration
Clause, and the arbitrability of the claim or dispute), between you and us or
our employees, agents, successors or assigns, which arises out of or relates to
your credit application, purchase or condition of this vehicle, this contract
or any resulting transaction or relationship (including any such relationship
with third parties who do not sign this contract) shall, at your or our
election, be resolved by neutral, binding arbitration and not by a court
action. If federal law provides that a
claim or dispute is not subject to binding arbitration, this Arbitration Clause
shall not apply to such claim or dispute.
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. You may choose one of the
following arbitration organizations and its applicable rules: the National Arbitration Forum, Box 50191, Minneapolis, MN 55405-0191
(www.arb-forum.com), the American Arbitration Association, 335 Madison Ave., Floor 10,
New York,
NY 10017-4605
(www.adr.org), or any other organization that you may choose subject to our
approval. You may get a copy of the
rules of these organizations by contacting the arbitration organization or
visiting its website.
“Arbitrators shall be attorneys or retired judges and
shall be selected pursuant to the applicable rules. The arbitrator shall apply governing
substantive law in making an award. The
arbitration hearing shall be conducted in the federal district in which you
reside unless the Creditor-Seller is a party to the claim or dispute, in which
case the hearing will be held in the federal district where this contract was
executed. We will advance your filing,
administration, service or case management fee and your arbitrator or hearing
fee all up to a maximum of $2500, which may be reimbursed by decision of the
arbitrator at the arbitrator’s discretion.
Each party shall be responsible for its own attorney, expert and other
fees, unless awarded by the arbitrator under applicable law. If the chosen arbitration organization’s
rules conflict with this Arbitration Clause, then the provisions of this
Arbitration Clause shall control. The
arbitrator’s award shall be final and binding on all parties, except that in
the event the arbitrator’s award for a party is $0 or against a party is in
excess of $100,000, or includes an award of injunctive relief against a party,
that party may request a new arbitration under the rules of the arbitration
organization by a three-arbitrator panel.
The appealing party requesting new arbitration shall be responsible for
the filing fee and other arbitration costs subject to a final determination by
the arbitrators of a fair apportionment of costs. Any arbitration under this Arbitration Clause
shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not
by any state law concerning arbitration.
“You and we retain any
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.â€
Norton signed a box on the first page of the contract
stating: “You agree to the terms of this
contract. You confirm that before you
signed this contract, we gave it to you, and you were free to take it and
review it. You acknowledge that you have
read both sides of this contract, including the arbitration clause on the
reverse side, before signing below. You
confirm that you received a completely filled-in copy when you signed it.â€
On September 14, 2011, the trial court denied the
petition to compel arbitration. The
trial court determined that pursuant to AT&T
Mobility LLC v. Concepcion (2011) 131 S.Ct.
1740, the Federal Arbitration Act (9 U.S.C. § et seq.) preempted the
prohibition of class action waivers in the CLRA and applied to the Norton-SSM
RISC. The trial court applied California
law and determined that the arbitration clause was procedurally and
substantively unconscionable. The trial
court found that by excepting cases that the dealership would likely bring,
including repossession and small claims cases, the arbitration clause made only
the weaker party’s likely claims arbitrable and was thus substantively
unconscionable. Moreover, requiring
defendants to advance up to $2500 of initial arbitration fees while potentially
requiring plaintiff to reimburse those fees was unconscionable under Code of
Civil Procedure section 1284.3, subdivision (a). The trial court denied the petition to compel
arbitration.
Defendants filed a timely notice of appeal on November
10, 2011.
ISSUE
Defendants claim on appeal that the order denying
defendant’s motion to compel arbitration because the arbitration clause was
unconscionable requires reversal because that arbitration clause was not
procedurally or substantively unconscionable.
DISCUSSION
1.
Where a court’s order denying a petition to compel
arbitration is based on a decision of fact, this court adopts a substantial
evidence standard of review. If the
order denying a petition to compel arbitration is based solely on a decision of
law, this court employs a de novo standard of review. (Laswell
v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406.)
2.
the Arbitration Agreement
Plaintiff claims that the order denying defendants’
petition to compel arbitration should be affirmed because provisions of the
arbitration agreement are unconscionable.
We agree.
A.
The Law of Unconscionability
Arbitration
agreements rely on the parties’ voluntary submission of disputes for resolution
in a non-judicial forum. (
Services, Inc. (2000) 24 Cal.4th 83, 115 (Armendariz); Fitz v. NCR Corp.
(2004) 118 Cal.App.4th 702, 711) “A
written agreement to submit to arbitration an existing controversy or a
controversy thereafter arising is valid, enforceable and irrevocable, save upon
such grounds as exist for the revocation of any contract.†(Code Civ. Proc., § 1281; see also
for invalidating arbitration agreements.
(Civ. Code, § 1670.5, subd. (a); Armendariz,
at pp. 113-114.)
The doctrine of unconscionability
has both a procedural and a substantive element. The procedural element focuses on
“oppression†or “surprise†due to the parties’ unequal bargaining power. The substantive element focuses on “overly
harsh†or “one-sided†results. (
Cal.4th 1064, 1071 (Little).)
The procedural element of
unconscionability generally takes the form of a contract of adhesion (
1071). A contract of adhesion signifies
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.]†(Ibid.) Such a contract is procedurally
unconscionable because the “inequality of bargaining power of the parties to
the contract†creates “an absence of real negotiation or a meaningful choice on
the part of the weaker party.†(
(1999) 70 Cal.App.4th 1322, 1329.)
Substantive unconscionability
focuses on whether the terms of the agreement are so one-sided as to “shock the
conscience.†Mutuality is the paramount
consideration in assessing substantive conscionability. Substantive unconscionability can take
various forms but can generally be described as unfairly one-sided. (Nyulassy
v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281; see
(2004) 115 Cal.App.4th 638, 656-658.)
For a court to exercise its
discretion to refuse to enforce an arbitration clause because of its
unconscionability, both procedural and substantive unconscionability must be
present. Both need not be present in the
same degree, however, and a “sliding scale†test applies to their relative
importance. Pursuant to this sliding
scale test, “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,
supra, 29 Cal.4th at p. 114.)
The party seeking to compel
arbitration bears the burden of proving the existence of a valid arbitration
agreement. (Fagelbaum & Heller LLP v. Smylie (2009) 174 Cal.App.4th
1351, 1363.)
Whether a contract is unconscionable
is a question of law, and where there are no factual disputes the appellate
court reviews the issue of unconscionability de novo. (Lanigan
v. City of Los Angeles (2011) 199 Cal.App.4th 1020, 1035.)
B. The
Arbitration Clause Was Procedurally Unconscionable Because It
Contains Elements of Surprise
The analysis of procedural
unconscionability concerns the manner in which the contract was negotiated and
the parties’ circumstances at that time.
(Gatton v. T-Mobile USA, Inc.
(2007) 152 Cal.App.4th 571, 581.)
Procedural unconscionability arises from oppression and surprise. Oppression arises in circumstances where the
parties have unequal bargaining power that results in no real negotiation and
the weaker party’s absence of meaningful choice. Surprise arises from terms of the bargain
being hidden in a prolix form drafted by the party occupying a superior
bargaining position. (
Cal.App.4th 608, 621.)
The vehicle purchase contract
contains elements of surprise. Placement
of the arbitration agreement was inconspicuous, on the reverse of the page that
Norton signed. Although he was required
to sign the first page of the vehicle purchase contract seven times, he was not
required to sign or initial the arbitration clause on the reverse side. There was actual surprise because of SSM’s
failure to call the arbitration clause to the attention of its customer. (A
& M Produce Co. v. FMC Corp. (1980)
135 Cal.App.3d 473, 490.) Under
these circumstances, the arbitration clause was procedurally
unconscionable. (Ibid.; Gutierrez v. Autowest,
Inc. (2003) 114 Cal.App.4th 77, 89 (Gutierrez).)
Because the vehicle purchase
contract contained an elements of surprise, the contract was procedurally
unconscionable.
C.
The Arbitration Clause Was
Substantively Unconscionable
i.
Substantive Unconscionability
Substantive
unconscionability make take several forms, but is generally described as a
contractual term that is unfairly one-sided (Little, supra, 29 Cal.4th at p. 1071) so as to shock the conscience
or as imposing harsh or oppressive terms.
(Wherry v. Award, Inc. (2011)
192 Cal.App.4th 1242, 1248.)
“Substantive unconscionability pertains to the fairness of an
agreement’s actual terms and to assessments of whether they are overly harsh or
one-sided.†(Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012)
55 Cal.4th 223, 246.)
Unconscionability may occur when an agreement lacks a “modicum of
bilaterality,†as when one party’s claims are subject to arbitration but the
other party’s claims are excluded or exempted from the arbitration
requirement. (Little, at pp. 1071-1072.)
Another kind of substantive unconscionability may occur when the party
imposing arbitration requires a post-arbitration proceeding which is wholly or
largely to its benefit at the expense of the party on which the arbitration is
imposed. (Id. at p. 1072.) These forms
of substantive unconscionability are present in the arbitration clause at issue
in this appeal.
ii.
The Provision for a New
Arbitration in Some Circumstances Is Substantively
Unconscionable Because It Primarily Benefits
the Automobile Dealer and
Because of Its Allocation of
Responsibility for the Filing Fee and Other
Arbitration Costs
Norton claims that the following
provision is substantively unconscionable:
“The arbitrator’s award shall
be final and binding on all parties, except that in the event the arbitrator’s
award for a party is $0 or against a party is in excess of $100,000, or
includes an award of injunctive relief
against a party, that party may request a new arbitration under the rules of
the arbitration organization by a three-arbitrator panel. The appealing party requesting new
arbitration shall be responsible for the filing fee and other arbitration costs
subject to a final determination by the arbitrators of a fair apportionment of
costs.â€
Although superficially bilateral insofar as in some
circumstance, each party is provided a method for requesting a new arbitration
after an arbitrator’s award, this provision of the arbitration agreement has
the effect of benefiting the party with superior bargaining power, the
automobile dealer. A car buyer does not
benefit from a provision allowing the dealership to seek a new arbitration of
an award of more than $100,000 because the buyer, not the dealer, will be the
party more likely to recover an award of that size. If the buyer obtains an award under the
$100,000 threshold but believes it is too low, the buyer has no option to
request a new arbitration unless the award is $0. Therefore in practical terms, this provision
makes a new arbitration available only to the dealer.
Additionally, this arbitration provision requiring the
party requesting a new arbitration to advance filing fees and arbitration costs
is unconscionable because it allows a financially strong automobile dealership
to request a new arbitration while discouraging or preventing a cash-strapped
consumer from doing so.
In the trial court, Norton’s declaration stated that
arbitrators typically charged hundreds of dollars per hour, and that if SSM
lost it could request a new arbitration with a three-arbitrator panel and that
Norton could be responsible for all the costs of those three arbitrators if he
did not win that new arbitration. Norton
stated that he was not financially able to pay such potential arbitration
fees. This was sufficient evidence of
the amount of filing fees and other costs for a new three-arbitrator
arbitration, and that this amount would exceed plaintiff’s ability to pay. (Gutierrez,
supra, 114 Cal.App.4th at p. 90.)
Gutierrez holds
that it is substantively unconscionable to require a consumer to give up the
right to utilize the judicial system while imposing prohibitively high arbitral
forum fees. (Gutierrez, supra, 114 Cal.App.4th at p. 90.) Gutierrez
also found that despite the potential for imposition of a substantial
administrative fee on plaintiff, the arbitration agreement had no effective
procedure for a consumer to obtain a fee waiver or reduction. Gutierrez
found that the arbitration agreement must provide some effective avenue of
relief from unaffordable fees and that the arbitration agreement before it did
not do so. (Id. at pp. 91-92.) The
absence of any procedure for a consumer to obtain a fee waiver or reduction or
of some effective avenue of relief from unaffordable fees makes the arbitration
agreement in the SSM-Norton vehicle purchase contract substantively
unconscionable.
DISPOSITION
The
order denying the petition to compel arbitration is affirmed. Costs on appeal are awarded to plaintiff Stephen
Norton.
KITCHING,
J.
We concur:
KLEIN, P. J.
ALDRICH, J.
against Chrysler Group, LLC and that dismissal was entered on April 3, 2012.
appealable order. (Code Civ. Proc., §
1294, subd. (a); Birl v. Heritage Care,
LLC (2009) 172 Cal.App.4th 1313, 1318.)
