In Hernandez v. W.R. Thomas, Inc., 2015 WL 112799 (Cal.App. 4 Dist. 2015), the Court of Appeal found in an unpublished decision that a consumer failed to meet its burden of demonstrating that the arbitration clause found in the standard for automobile RISC was unconscionable.
After considering these submissions, the court issued an order scheduling an evidentiary hearing “on the limited issue of whether the negotiations for the purchase of the vehicle were conducted in Spanish or English, and whether [plaintiffs], or either of them, are able to communicate in English language.” All parties were represented at the ensuing (unreported) hearing. The hearing took approximately 90 minutes, and included examination and cross examination of several witnesses, including both plaintiffs, finance manager Guglielmini, and general manager Merrill. Numerous exhibits were introduced at the hearing. After considering this evidence, the court took the matter under submission. Several months later, the court issued an order finding the arbitration agreement was not unconscionable and granting Direct Auto’s petition to compel arbitration. On the procedural unconscionability issue, the court found the sales contract “is a contract of adhesion” that was presented on a “ ‘take it or leave it’ “ basis without any reasonable opportunity to negotiate. But the court found other factors supported the existence of only a “low” level of procedural unconscionability, including that plaintiffs had a choice of buying a used vehicle from a private party rather than from a dealer that used this form contract; the fact that Wendy’s signature was immediately below a sentence on the front of the contract referring to the arbitration provision on the back of the form; and the evidence showed the finance manager specifically recalled the negotiations were conducted in English. Under the evidence presented, the court found “the level of surprise [was] minimal or nonexistent.” On the substantive unconscionability issue, the court stated that “[s]ubstantive unconscionability will be found where the contract is so one-sided that it ‘shocks the conscience,’ “ and applied this rule to each of the challenged provisions, including the finality provisions, the arbitration cost provisions, and the exemption for self-help and small claims actions. After conducting this analysis, the court concluded that plaintiffs did not meet their burden to show any of the challenged provisions were substantively unconscionable.
The Court of Appeal affirmed the granting of the petition to compel arbitration, finding that the Plaintiff had failed to meet its burden of demonstrating procedural and substantive unconscionability.
We have found that plaintiffs did not meet their burden to show the court erred in finding there was only a low level of procedural unconscionability in this case. We have further found that the court correctly determined that the exclusion of small claims and self-help remedies did not render the arbitration provision substantively unconscionable, and that plaintiffs did not meet their appellate burden to show the court erred in rejecting their argument that the arbitration costs were so high as to preclude them from presenting their claims in the arbitration forum. But we have also found the arbitration clause’s exceptions-to-finality provisions appear to be one-sided and substantially benefit the stronger party (Direct Auto) to the detriment of the weaker parties (plaintiffs). The combination of the $100,000 trigger, the second-arbitration cost burdens, and the injunctive relief exception creates an agreement that is more favorable to the automobile dealer. On the other hand, as we have explained, because the dealer is the party more likely to trigger the second arbitration, the second-arbitration cost burden is more likely to fall on the dealer rather than the consumer. Additionally, the provisions limiting appeals only for a “$0” award or an award over $100,000 may provide a substantial benefit to the consumer and promote the advantages of arbitration by making it more likely the decision will be final with no appeal permitted. If plaintiffs were to litigate their case at trial, any award favorable to them would be subject to an appeal, with the attendant substantial costs and delay. As the Sonic II court recently observed, in evaluating an unconscionability claim, a court “must consider not only what features of dispute resolution the agreement eliminates but also what features it contemplates.” ( Sonic II, supra, 57 Cal.4th at p. 1146.) On our review of the entire record and mindful of the United States Supreme Court pronouncements, as well as our high court’s recent decisions in Sonic II and Pinnacle regarding the proper evaluation of unconscionability claims, we do not find the moderate substantive unconscionability inherent in the finality-exception provisions precludes the court from enforcing the arbitration agreement. On balance the arbitration clause provides the parties with greater efficiency and speed, lower costs, and a more focused dispute resolution forum than would litigation. Although the arbitration provisions are not perfectly fair and do tend to favor the stronger party in some respects, these facts do not preclude enforcement of the provision under the totality of the circumstances. Accordingly, we affirm the court’s order.
In Guzman v. Top Finance, 2015 WL 59146 (Cal.App. 2 Dist. 2015), the Court of Appeal similarly found an absence of unconscionability in a standard form automobile RISC, reversing the trial court’s decision to the contrary. The trial court had found:
Top Finance filed a petition to compel arbitration on July 26, 2013. 605 Auto and the individually named defendants joined in Top Finance’s petition to compel. Travelers opposed arbitration on the ground it was not a party to the sales contract. It alleged its sole involvement in the transaction arose from issuing a surety bond for $50,000 on behalf of 605 Auto Sales. After extensive briefing and oral argument, the trial court denied Top Finance’s petition. The trial court found the arbitration agreement was procedurally unconscionable because the provision was presented on a “take it or leave it” basis with no opportunity for Guzman to negotiate the provision; Guzman had no meaningful choice. The trial court also found the fee arrangement in the arbitration provision to be substantively unconscionable because no fee waiver was allowed and fees were reimbursed at the arbitrator’s discretion. Additionally, there was no provision requiring a written decision from the arbitrator or any reference to the rules applicable to the arbitration, including discovery rights. The trial court also found problematic the provision relating to an appeal to a three judge panel because there was no indication that was even allowed by the arbitration association. It also found inadequate mutuality because the arbitration provision allowed Top Finance to retain its rights to self-help remedies, including repossession, while buyers were forced to surrender their rights to recovery through the courts. Top Finance timely appealed.
The Court of Appeal reversed, finding no “surprise” to the consumer in the procedural unconscionability analysis, and finding that an absence of substantive unconscionability in the clause’s absence of a provision requiring a written decision or allowing discovery, the allocation of arbitration fees to a three-member panel, and the perceived lack of mutuality of self-help remedies.