Goodridge v. KDF Automotive Group
Filed 8/24/12 Goodridge v. KDF Automotive Group CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
WILLIAM GOODRIDGE,
Plaintiff and Respondent,
v.
KDF AUTOMOTIVE GROUP, INC.,
Defendant and Appellant.
D060269
(Super. Ct.
No.
37-2010-00105355-CU-CO-CTL)
APPEAL from
an order of the Superior Court
of
County, John S. Meyer, Judge.
Affirmed.
Defendant
KDF Automotive Group, Inc. (KDF) appeals an order denying its
action filed against it by plaintiff William Goodridge arising out of his
purchase of a used automobile from KDF.
On appeal, KDF contends the trial court erred by concluding the
arbitration clause in the purchase contract was unconscionable and therefore
unenforceable.
title="">[1]
FACTUAL
AND PROCEDURAL BACKGROUND
On May 16, 2010, Goodridge attended an
automobile "tent sale" and signed a retail installment sale contract
(Contract) to purchase a 2008 Hyundai Elantra from KDF, an automobile
dealership doing business as El Cajon Mitsubishi. Goodridge was presented with a stack of
preprinted form documents and was told by a KDF employee where to sign and/or
initial each document. He was not given
an opportunity to read all of the documents in full or to negotiate any of the
documents' preprinted terms. The
documents were presented to Goodridge on a "take-it-or-leave-it"
basis. KDF did not ask him whether he
was willing to arbitrate any disputes or inform him there was an arbitration
clause on the back side of the Contract.
He did not see the arbitration clause before signing the Contract.
On or about
May 21, having concerns about the documents, Goodridge went to KDF and was
informed he needed to re-sign the sale documents. He was given and signed both an
acknowledgement of rewritten contract and a second Contract.
was dated May 16. As before, Goodridge
was not given an opportunity to read the documents in full or to negotiate any
of the documents' preprinted terms. The
documents were again presented to Goodridge on a
"take-it-or-leave-it" basis.
He was unaware there was an arbitration clause on the Contract's back
side.
The
Contract document consists of one piece of paper (i.e., preprinted Reynolds
& Reynolds Form No. 553-CA-ARB 1/10).
It apparently is about 26 inches long and has provisions on its front
and back sides. Goodridge signed or
initialed the front of the Contract in nine places. There are no signatures, initials, or other
handwriting on its back side. An
arbitration provision, entitled "ARBITRATION CLAUSE," is located near
the bottom of the back page and is outlined (like many other preceding
provisions) by black lines. The
arbitration clause provides:
"ARBITRATION
CLAUSE
"PLEASE REVIEW - IMPORTANT - 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 . . . (www.arbforum.com), the American Arbitration
Association . . . (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 . . . . 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
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.
arbitration shall be responsible for the
filing fee and other arbitration costs subject
to a final determination by the arbitrators of a fair apportionment of costs. Any arbitration under this Arbitration Clause
shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.)
and not by any state law concerning arbitration.
"You and we retain any rights to
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." (Italics added.)
On December
2, 2010, Goodridge, individually and on behalf of others similarly situated,
filed the instant complaint against KDF and Mission Federal Services LLC,
alleging 11 causes of action, including causes of action for violation of the
Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), violation
of the Automobile Sales Finance Act (Civ. Code, § 2981 et seq.), unlawful
and/or unfair business practices (Bus. & Prof. Code, § 17200 et seq.),
fraudulent misrepresentation, and negligent misrepresentation.
On January
10, 2011, KDF answered the complaint, denying each and every allegation and
asserting 25 affirmative defenses. The
answer did not assert any right to arbitrate the dispute as an affirmative
defense.
During the
period of February through May 2011, KDF responded to multiple sets of
Goodridge's discovery requests. None of
those responses mentioned any right to arbitrate the dispute or an intent to
require arbitration.
In May
2011, KDF filed a case management statement, requesting a jury trial and
estimating the trial would take 10 days.
KDF did not check any of the boxes indicating a willingness to
participate in mediation, arbitration, or other alternative dispute resolution
method. However, KDF indicated it was
willing to participate in an early settlement conference three to four weeks
before the trial date. KDF also
indicated it expected to file a "motion to compel (if needed) [and]
motions in limine." It also
indicated its intent to take Goodridge's deposition and engage in written
discovery.
On June 14,
2011, KDF filed a petition to compel arbitration of the instant action based on
the arbitration clause in the Contract.
It subsequently filed an application for a stay of proceedings in the
action pending a ruling on its petition to compel arbitration. The trial court granted the application and
stayed the proceedings pending its ruling on the petition to compel. Goodridge opposed the petition to compel
arbitration, arguing the arbitration clause was unconscionable and
unenforceable and that by delay KDF waived any right it had to arbitrate the
dispute. In support of his opposition,
Goodridge filed his declaration confirming the transactional facts described
above. His declaration further stated:
"The documents (including the purchase contract) were given to me and I
was just told 'sign here' in various places.
There was no question of choice on my part or of our being able to
'negotiate' anything. I had no reason to
suspect that hidden on the back of the contract that told me how much the
vehicle cost and how much my monthly payments would be was a section that
prohibited me from being able to sue in court if I had a problem." It further stated: "When I signed both
of the purchase contracts and related documents, [KDF] did not ask me if I was
willing to arbitrate any disputes with it or its assignees, [KDF] did not tell
me 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. . . . I was
not given any opportunity at any time during my transaction with [KDF] to
negotiate whether or not I would agree to arbitrate any potential disputes, or
any of the terms by which I would agree to arbitrate any disputes. I was never given an option whether to sign a
contract with an arbitration clause or one
without. . . ." It
further stated: "No one at [KDF] ever turned over either sale contract to
show me the writing on the back or asked me to sign any sections on the back of
the contract where [KDF] claims the arbitration clause is located."
Finally, his declaration addressed
the financial burden of arbitration costs, stating: "[I]f the Court were
to enforce the arbitration clause, it would create a financial burden on me and
my family that we simply could not afford. . . . [I]f the
defendants lose they may be allowed (without my consent) to request a new
arbitration with a three arbitrator panel―which would likely result in
three arbitrators simultaneously charging us for their time―and that we
could potentially be responsible for all of these costs if I do not win that
new arbitration. I am not financially
able to pay such potential arbitration fees." KDF replied to the opposition, arguing the
Contract was not unconscionable and that it had not waived its right to
arbitrate the dispute. KDF argued:
"The United States Supreme Court in [AT&T
Mobility LLC v. Concepcion (2011) ___ U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d
742] (AT&T)] makes it clear that
unconscionability is no longer a valid objection to an arbitration
agreement."
On July 15,
the trial court issued a tentative ruling denying the petition to compel arbitration
based on KDF's waiver of any right to arbitrate. Following oral argument by counsel (including
KDF's argument that it had not waived its right to arbitrate), the court took
the matter under submission.
On July 22,
the trial court issued a minute order denying the petition to compel
arbitration on grounds of unconscionability of the arbitration clause. The court stated in part:
"Unconscionability is a method in which courts can
refuse to enforce the contract.
California cases analyze unconscionability as having two separate
elements―procedural and substantive.
[Citations.] Substantive
unconscionability focuses on the actual terms of the agreement, while procedural
unconscionability focuses on the manner in which the contract was negotiated
and the circumstances of the parties.
California courts generally require a showing of both procedural and
substantive unconscionability at the time the contract was made. [Citations.]
"The arbitration clause is procedurally
unconscionable. The clause was on the
backside of a two-sided document.
[Citation.] [Goodridge] was not
advised of the arbitration clause nor was arbitration referenced on the front
of the contract, the only side where [Goodridge] was required to sign. [Citation.]
The arbitration clause is also substantively unconscionable since the
clause is unfairly one-sided. The clause
permits [KDF] to avoid arbitration as to some claims but forces [Goodridge] to
arbitrate all claims. [KDF] argues the
right to repossession or 'self-help' applies to both parties, but as a
realistic matter, only [KDF] would pursue repossession. No self-help options are available to
[Goodridge]. Further, if the claim is
forced into arbitration, [KDF] does not give up any rights but, for example,
[Goodridge] cannot appeal losing a claim for injunctive relief. [Goodridge] can only appeal an award of
damages if he receives nothing.
"[KDF] argues [Goodridge's] argument regarding
unconscionability has been preempted by the US Supreme Court's ruling in
clearly abrogates the California Supreme Court's ruling on the
unconscionability of class action waivers in arbitration clauses as discussed
in Discover Bank [
(Discover Bank)], it does not go so
far as to preempt all decisional law on unconscionability."
On the issue of waiver, the court stated: "[T]he court
does not find [KDF] waived its right to arbitrate. . . . [KDF's] right to enforce the arbitration
clause was confirmed as of April 27, 2011[,] when the US Supreme Court
issued its opinion in [AT&T],
which overruled the California Supreme Court's decision in [
Accordingly, although the conduct of [KDF] may be characterized as
disingenuous, the court simply cannot conclude [KDF] waived its right to compel
arbitration, having filed it[s] petition some two months after the change in
the law." KDF timely filed a
DISCUSSION
I
On appeal
from an order denying a motion to compel arbitration, "[u]nconscionability
findings are reviewed de novo if they are based on declarations that raise 'no
meaningful factual disputes.'
[Citation.] However, where an
unconscionability determination 'is based upon the trial court's resolution of
conflicts in the evidence, or on the factual inferences which may be drawn
therefrom, we consider the evidence in the light most favorable to the court's
determination and review those aspects of the determination for substantial
evidence.' [Citation.] The ruling on severance is reviewed for abuse
of discretion." (
(2007) 156 Cal.App.4th 138, 144.)
Considering all disputed factual findings supported by substantial
evidence favorably to the trial court's determination, the question of whether,
based on those facts, a contract's arbitration provision is unconscionable is a
question of law we determine de novo or independently. (Baker
v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892.) To the extent the extrinsic evidence is
undisputed, we independently review the contract to determine whether it is
unconscionable. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579.)
II
Federal and
state law reflect a strong public policy favoring arbitration as a speedy and
relatively inexpensive means of dispute resolution. (St.
Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187,
1204; Lewis v. Fletcher Jones Motor Cars,
Inc. (2012) 205 Cal.App.4th 436, 443.)
"Nonetheless, federal and California courts may refuse to enforce
an arbitration agreement 'upon such grounds as exist at law or in equity for
the revocation of any contract,' including waiver [and unconscionability]. (9 U.S.C. § 2; see also Code Civ. Proc.,
§ 1281; St. Agnes, at pp.
1194-1195.)" (Lewis, at pp. 443-444.)
Section 2 of the Federal Arbitration Act (FAA) provides that agreements
to arbitrate disputes are "valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any
contract." (9 U.S.C.
§ 2.) That provision allows a court
to revoke an arbitration agreement if generally applicable contract defenses,
such as fraud, duress, or unconscionability apply. (Iskanian
v. CLS Transportation Los Angeles, LLC (2012) 206 Cal.App.4th 949, 956;
provides: "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." Civil Code section
1670.5, subdivision (a), provides: "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."
Accordingly, "California law . . . favors enforcement of
arbitration agreements, save upon grounds that exist at law or in equity for
the revocation of any contract, such as unconscionability." (Iskanian,
at p. 956.)
common law contract defense of unconscionability whenever an arbitration clause
is involved. Rather, [
clause preserves generally applicable contract defenses such as
unconscionability, so long as those doctrines are not 'applied in a fashion
that disfavors arbitration.' " (
673 F.3d 947, 963, quoting AT&T,
p. 1747].) In overruling the
§ 2's saving clause preserves generally applicable contract defenses,
nothing in it suggests an intent to preserve state-law rules that stand as an
obstacle to the accomplishment of the FAA's objectives." (AT&T,
___ U.S. at p. ___ [131 S.Ct. at p. 1748.)
AT&T held, in effect, that
the FAA preempts any California or other state law or rule that disfavors, or
stands as an obstacle to, arbitration by deeming unconscionable an arbitration
agreement that waives, explicitly or implicitly, class arbitration. Based on AT&T's
reasoning, we conclude the FAA likewise precludes a state law that disfavors
arbitration of a particular type of claim (e.g., consumer contract dispute)
when arbitration of other types of disputes is not so disfavored. To the extent California's doctrine of
unconscionability is applied to the consumer contract dispute in this case in
the same manner as it would be applied to contract disputes in general, neither
AT&T nor the FAA bars a court
from applying the doctrine of unconscionability to an arbitration agreement
and, based on a finding of unconscionability, refusing to enforce that
arbitration agreement (or, in appropriate circumstances, severing the
unconscionable and unenforceable portion(s) and enforcing the remainder of the
arbitration agreement).
We are unpersuaded by KDF's
argument that California courts have generally disfavored arbitration
agreements by applying the doctrine of unconscionability differently, or more
stringently, to arbitration agreements than to contracts in general. In any event, in deciding this case, we apply
controlling California case law regarding the doctrine of unconscionability as
it applies to contracts in general and therefore comply with
Under
California's doctrine of unconscionability, a court may refuse to enforce a
contract it determines to be unconscionable.
(Civ. Code, § 1670.5, subd. (a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83, 113-114 (Armendariz).) Unconscionability generally includes an
absence of meaningful choice by one party together with contract terms that are
unreasonably favorable to the other party.
(Lhotka v. Geographic Expeditions,
Inc. (2010) 181 Cal.App.4th 816, 821.)
Alternatively stated, unconscionability has both procedural and
substantive elements. (
Cal.App.3d 473, 486.) To refuse to
enforce a contract for unconscionability, a court generally must find the
contract is both procedurally and substantively unconscionable. (Armendariz,
at p. 114; Gutierrez v. Autowest, Inc.
(2003) 114 Cal.App.4th 77, 87 (Gutierrez).)
unconscionability] focuses on 'oppression' or 'surprise.' [Citations.]
Where the parties to a contract have unequal bargaining power and the
contract is not the result of real negotiation or meaningful choice, it is
oppressive. 'Surprise' is defined as
'the extent to which the supposedly agreed-upon terms of the bargain are hidden
in the prolix printed form drafted by the party seeking to enforce the disputed
terms.' [Citations.] 'The procedural element of an unconscionable contract
generally takes the form of a contract of adhesion.' [Citations.]
An adhesive contract is defined as ' "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.]' " (
within a contract of adhesion is not read or understood by the nondrafting
party does not justify a refusal to enforce it.
The unbargained-for term may only be denied enforcement if it is also
Substantive unconscionability focuses on whether the provision is overly
harsh or one-sided and is shown if the disputed provision of the contract falls
outside the 'reasonable expectations' of the nondrafting party or is 'unduly
oppressive.' [Citations.] Some courts have imposed a higher
standard: the terms must be ' "so
one-sided as to shock the conscience." [Citation.]'
[Citation.] Where a party with
superior bargaining power has imposed contractual terms on another, courts must
carefully assess claims that one or more of these provisions are one-sided and
unreasonable." (
"Though
courts refuse to enforce only those agreements that are both procedurally and
substantively unconscionable, the two factors need not each exist to the same
degree. '[T]he 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, 24
Cal.4th at p. 114.)" (
Alternatively stated, a sliding scale is applied so that the more
substantively unconscionable a contract is, the less procedural
unconscionability is required for it to be unenforceable as
unconscionable. (Armendariz, at p. 114; Morris
v. Redwood Empire Bancorp. (2005) 128 Cal.App.4th 1305, 1317.) In turn, the more procedurally unconscionable
a contract is, the less substantive unconscionability is required for it to be
unenforceable as unconscionable. (
III
Clause
KDF
contends the trial court erred by concluding the Contract's arbitration clause
was unconscionable and therefore unenforceable.
Because KDF did not submit any evidence disputing the evidence submitted
by Goodridge, we decide the question of unconscionability of the Contract's
arbitration clause de novo, or independently, based on the undisputed facts in
this case.
A
factors: oppression and surprise. Based
on our independent review of the
undisputed facts in this case, we, like the trial court, conclude the
Contract's arbitration clause is procedurally unconscionable. First, the evidence shows there was
bargaining power that resulted in no real negotiation and an absence of
meaningful choice for Goodridge regarding the arbitration clause). (Gutierrez,
supra, 114 Cal.App.4th at p.
87.) The facts in this case are similar
to those in Gutierrez, which involved
a vehicle lease contract. (
found substantial evidence to support the trial court's finding the lease was
adhesive. (Id. at p. 89.)
"The lease was presented to plaintiffs for
signature on a 'take it or leave it' basis.
Plaintiffs were given no opportunity to negotiate any of the preprinted
terms in the lease. The arbitration
clause was particularly inconspicuous, printed in eight-point typeface on the
opposite side of the signature page of the lease. [The plaintiff] was never informed that the
lease contained an arbitration clause, much less offered an opportunity to
negotiate its inclusion within the lease or to agree upon its specific
terms. He was not required to initial
the arbitration clause. [Citation.] He either had to accept the arbitration
clause and the other preprinted terms, or reject the lease entirely. Under these circumstances, the arbitration
clause was procedurally unconscionable."
(Gutierrez,
In this
case, Goodridge submitted a declaration describing the circumstances of his
execution of the Contract. Because KDF
did not submit any declaration or other evidence disputing Goodridge's
description, we accept his version of events.
Goodridge stated: "The documents (including the purchase contract)
were given to me and I was just told 'sign here' in various places. There was no question of choice on my part or
of our being able to 'negotiate' anything." He further stated: "When I signed both
of the purchase contracts and related documents, [KDF] did not ask me if I was
willing to arbitrate any disputes with it or its assignees, [KDF] did not tell
me 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. . . . I was not given any opportunity at any time
during my transaction with [KDF] to negotiate whether or not I would agree to
arbitrate any potential disputes, or any of the terms by which I would agree to
arbitrate any disputes. I was never
given an option whether to sign a contract with an arbitration clause or one
without. . . ." He
further stated: "No one at [KDF] ever turned over either sale contract to
show me the writing on the back or asked me to sign any sections on the back of
the contract where [KDF] claims the arbitration clause is located." Because the Contract was presented to
Goodridge for signature on a "take it or leave it" basis and he had
no meaningful opportunity to negotiate any of its preprinted terms (including
the arbitration clause on its back side), the evidence shows KDF used its
superior bargaining power such that there was no real negotiation and an
absence of meaningful choice by Goodridge regarding the arbitration clause and
the other preprinted terms of the Contract. We conclude there was oppression of Goodridge
in this transaction.
Second, we
further conclude there also was surprise
regarding the arbitration provision. The
arbitration clause was hidden within the lengthy prolix of the printed form
presented by KDF to Goodridge. That
clause is found on the back side of the two-sided, preprinted Contract near the
end of the page. All nine signatures
and/or initials of Goodridge appear on the front side of the Contract. There are no provisions for any signatures or
initials by Goodridge (or for any buyer) on the back side of the preprinted
Contract, much less under or adjacent to the arbitration clause. The fact the arbitration clause was contained
within a black-lined box does not show it was not hidden. Because it was on the back side of the
Contract, did not require Goodridge's signature or initials, and there were
many other "boxed-in" provisions on the front and back sides of the
Contract, we conclude the arbitration clause was not prominent or otherwise
generally noticeable by a typical buyer, but was instead "hidden"
within the meaning of procedural unconscionability. Furthermore, Goodridge's declaration shows
KDF made no attempt to bring the hidden arbitration clause to his
attention. He stated he "was just
told 'sign here' in various places. . . . [KDF] did not tell me 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." He further stated: "No one at [KDF] ever
turned over either sale contract to show me the writing on the back or asked me
to sign any sections on the back of the contract where [KDF] claims the
arbitration clause is located."
Therefore, not only was the arbitration clause hidden on the back side
of the preprinted Contract, but KDF made no attempt to inform Goodridge of its
existence (or of any of the terms on the back side of the Contract).
We conclude the brief mention of
the arbitration clause on the front side of the preprinted Contract was, in the
circumstances of this case, insufficient to bring that clause to Goodridge's
attention. The following language
appears adjacent to the right margin of the Contract's front side in an area
limited to one-third of page's width and is near the bottom of that front page:
"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."
However, there is no provision for Goodridge's signature or
initials under or adjacent to that language.
Rather, his signature appears on the opposite side of the page under a
larger, "boxed-in" provision regarding the lack of a
"cooling-off" period (unless otherwise agreed) that appears to the
left of above-quoted language in the two-thirds width of the page adjacent to
the left margin. In the circumstances of
this case, we conclude that front-side reference to the back-side arbitration
clause was hidden within the prolix of the Contract in such a manner as to not
reasonably notify Goodridge of the existence of the arbitration clause. Based on the above factors, we conclude the
element of surprise existed regarding the Contract's arbitration clause. Because both oppression and surprise existed,
the Contract's arbitration clause is procedurally unconscionable. (Gutierrez,
supra, 114 Cal.App.4th at pp.
87-88.) Furthermore, based on the
circumstances discussed above, we conclude there is a high degree of procedural
unconscionability.
B
whether the arbitration provision is overly harsh or one-sided and is outside
the reasonable expectations of Goodridge (the nondrafting party) or is unduly
oppressive.
title="">[4] (Gutierrez,
supra, 114 Cal.App.4th at p.
88.) Based on our independent review of
the undisputed facts in this case, we, like the trial court, conclude the
Contract's arbitration clause is also substantively unconscionable.
There are
four provisions in the arbitration clause that fall outside the reasonable
expectations of Goodridge as the nondrafting party and are unduly
oppressive. First, the arbitration
clause provides that either party may appeal an arbitrator's award against it
if the award is in excess of $100,000 against that party. Although that provision is ostensibly
bilateral and applies to both parties, its practical effect is to favor KDF as
the only party that realistically could suffer an award against it in excess of
$100,000. Awards against vehicle buyers
(e.g., Goodridge) in excess of $100,000 are highly unlikely given the current
values of most vehicles and/or financing costs.
In Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, the
California Supreme Court found a similar provision unconscionable, stating:
"[T]he $50,000 [appeal] threshold inordinately benefits defendants. Given the fact that [the employer] was the
party imposing the arbitration agreement and the $50,000 threshold, it is
reasonable to conclude it imposed the threshold with the knowledge or belief
that it would generally be the defendant."
(Id. at p. 1073.) In this case it is reasonable to conclude KDF
imposed arbitration and its $100,000 appeal threshold with the knowledge or
belief it would generally be the defendant or party that would suffer
imposition of an award in excess of that amount. (Ibid.;
see also Saika v. Gold (1996) 49
Cal.App.4th 1074, 1080 [$25,000 trial de novo threshold favors
physician/defendant and "the benefit which the trial de novo clause
confers on patients is nothing more than a chimera"].) A reasonable or fair provision would allow a
buyer (e.g., Goodridge) to appeal an arbitration award less than $100,000. Furthermore, KDF does not present any
reasonable justification for imposing the $100,000 appeal threshold. Rather, the clause merely works to relieve
KDF of liability it deems excessive. The
arbitration clause's $100,000 appeal threshold has "the same 'heads I win,
tails you lose' " effect condemned by other courts. (Saika,
at p. 1080; Beynon v. Garden Grove
Medical Group (1980) 100 Cal.App.3d 698, 706.) "[P]ublic confidence in arbitration in
large part depends on the idea that arbitration provides a fair alternative to the courts.
That confidence is manifestly undermined when provisions in arbitration
clauses provide that when one side wins the game doesn't count." (Saika,
at p. 1081.) We conclude the arbitration
provision in the Contract is unduly harsh and oppressive and was beyond
Goodridge's reasonable expectations.
Second, the
arbitration clause provides that either party may appeal an arbitrator's award
of injunctive relief against it.
Although that provision is ostensibly bilateral and applies to both
parties, its practical effect is to favor KDF as the only party that
realistically could suffer an award of injunctive relief against it. Preliminary and permanent injunctive relief
is often essential to protect consumers.
(People v. Pacific Land Research
Co. (1977) 20 Cal.3d 10, 20.) In
cases involving new and used car sales and financing, buyers are the parties
likely to seek injunctive relief (e.g., to enforce consumer laws such as the
CLRA). Therefore, an arbitration
provision allowing a party to appeal an award of injunctive relief against it
has the effect of unduly benefitting a car dealer, and not a buyer, as the
party likely to invoke that special appeal right. That one-sided provision allows the car dealer
to delay the effect of an injunction while it appeals the initial award to a
three-arbitrator panel. Furthermore,
because the appeal provision does not limit its application to permanent
injunctions in final arbitration awards, it is possible an arbitrator could
award preliminary injunctive relief as an interim award against the car dealer
and then the car dealer could immediately invoke its appeal right, placing the
car dealer appeals the injunctive relief award to a three-arbitrator
panel. Such a delay in arbitration
proceedings is inconsistent with the objective of arbitration to quickly and
inexpensively decide disputes and the goals of consumer protection statutes to
protect consumer rights. (
mandatory arbitration include efficient, streamlined, informal proceedings that
reduce the cost and increase the speed of dispute resolution].) Because the injunctive relief appeal
provision unfairly favors KDF and denies Goodridge the benefits of arbitration,
that provision is unduly harsh and oppressive and was beyond his reasonable
expectations.
Third, the
arbitration clause provides that an appealing party must pay the filing fees
and other arbitration costs for appeal, subject to a final determination by the
three-arbitrator panel of a fair apportionment of costs. Therefore, in the event Goodridge were to
appeal an arbitration award (e.g., an award of $0), he would be responsible for
advancing the costs and fees of that appeal for both parties. Given the
common hourly rates of private arbitrators (in the hundreds of dollars), it is
within the realm of possibility that Goodridge could face the prospect of
paying $10,000 or more up front to appeal an arbitration award. Furthermore, the arbitration provision does
not inform Goodridge of the exact amount required to file an appeal and
therefore may have the effect of discouraging him from appealing. In his declaration, Goodridge stated he was
"not financially able to pay such potential arbitration fees." Because KDF presumably has the financial
ability to advance appeal costs and Goodridge does not, the provision requiring
the appealing party to pay the appeal filing fees and costs up front on behalf
of both parties benefits KDF and is unduly harsh and oppressive to Goodridge.
supra, 114 Cal.App.4th at p. 89, fn.
omitted ["[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."].) Any reapportionment of those costs on
conclusion of an appeal is inadequate. (
provide any mechanism providing Goodridge with relief from unaffordable appeal
fees. (Id. at pp. 91-92.)
Finally,
the arbitration clause excludes applicability to self-help remedies, including
repossession, from arbitration. Although
that provision is ostensibly bilateral and applies to both parties, its
practical effect is to favor KDF as the only party that realistically would
resort to self-help remedies such as repossession. Repossession is one of the most important
remedies from a car dealer's perspective.
In turn, a buyer has no self-help remedies against a car dealer. Accordingly, by exempting self-help remedies
from arbitration, KDF has attempted to maximize its advantage over Goodridge by
avoiding arbitration of its claims. (Cf.
Flores v. Transamerica HomeFirst, Inc.
(2001) 93 Cal.App.4th 846, 855.) While
exempting KDF's repossession from arbitration and requiring Goodridge to seek
injunctive relief from an arbitrator, the Contract creates an unduly oppressive
disparity in remedies. (
702, 725 ["The [arbitration agreement] is unfairly one-sided because it
compels arbitration of the claims more likely to be brought by [the employee],
the weaker party, but exempts from arbitration the types of claims that are
more likely to be brought by [the employer], the stronger party."].)
Because the
above four provisions in the arbitration clause fall outside the reasonable
expectations of Goodridge and are unduly harsh and oppressive, the Contract's
arbitration clause is substantively unconscionable. Furthermore, we conclude there is a moderate
to high degree of substantive unconscionability.
C
substantive unconscionability, we conclude the Contract's arbitration clause is
unconscionable under California's doctrine of unconscionability that generally
applies to all contracts. (
Cal.App.4th at pp. 87-88.) Because
there is a high degree of procedural unconscionability, less evidence of
substantive unconscionability is required.
(Armendariz, at p. 114.) However, as discussed above, there is ample
evidence of substantive unconscionability, resulting in our conclusion there is
a moderate to high degree of substantive unconscionability. We conclude the arbitration provision is
unconscionable and therefore unenforceable under California law.
arbitration based on the unconscionability of the arbitration clause, the trial
court implicitly exercised its discretion and concluded severance of the
unconscionable provisions would not be an appropriate remedy and the entire
arbitration clause must be stricken. We
conclude the court properly concluded severance was not appropriate.
A trial
court has discretion under Civil Code section 1670.5, subdivision (a), to
refuse to enforce an entire agreement if it is "permeated" by
unconscionability. (Armendariz, supra, 24
Cal.4th at p. 122; Lhotka v. Geographic
Expeditions, Inc., supra, 181
Cal.App.4th at p. 826.) "An
arbitration agreement can be considered permeated by unconscionability if it
'contains more than one unlawful provision . . . . Such multiple defects indicate a systematic
effort to impose arbitration . . . not simply as an alternative to
litigation, but as an inferior forum that works to the [stronger party's]
advantage.' [Citations.] 'The overarching inquiry is whether "
'the interests of justice . . . would be furthered' " by
severance.' " (
In the
circumstances of this case, we, like the trial court, identified multiple
elements of the arbitration agreement that indicate KDF designed its
arbitration clause to impose arbitration not simply as an alternative to
litigation, but as an inferior forum that would give it an advantage over its
buyers. Accordingly, the trial court
acted within its discretion by implicitly concluding the arbitration clause was
so permeated by unconscionability that the interests of justice would not be
furthered by severing the unconscionable elements from that clause and
enforcing the remainder. (
v. Geographic Expeditions, Inc., supra,
181 Cal.App.4th at p. 826.)
unconscionable elements should be severed from the arbitration clause and the
remainder enforced, we would have concluded the court abused its discretion
because those unconscionable elements so permeate the arbitration clause that
it is both impractical and unjust to sever only those portions and enforce the
remainder. Because the arbitration
clause is "permeated by unconscionability, or . . . contains
unconscionable aspects that cannot be cured by severance, restriction, or duly
authorized reformation," we conclude it should not be enforced.
supra, 24 Cal.4th at p. 126.)
IV
Because we
decide this case based on the unconscionability of the Contract's arbitration
clause, we do not address the parties' remaining arguments.
DISPOSITION
The order
is affirmed. Goodridge is entitled to
costs on appeal.
McDONALD,
Acting P. J.
WE CONCUR:
O'ROURKE,
J.
IRION, J.
name="_ftn1" title="">[1] We
note the circumstances (e.g., preprinted contract and arbitration clause) and
issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74,
review granted Mar. 21, 2012, S199119 (Sanchez). The California Supreme Court will likely make
the ultimate determination of the issues discussed in this case.
name="_ftn2" title="">[2] For
purposes of this opinion, the two purchase contracts are virtually identical
and therefore we use the term "Contract" to refer to both contracts.
