In Sanchez v. Valencia Holding Co., the California Supreme Court addressed the enforceability of arbitration provisions with class action waivers in consumer agreements, in particular, a sale contract used by car dealerships.  The trial court initially ruled the contract provision as unenforceable and denied a motion to compel arbitration.  Subsequently, the U.S. Supreme Court issued its ruling in AT&T Mobility LLC v. Concepcion, a decision which made it harder for California courts to not enforce arbitration clauses. The Court of Appeal then held, despite Concepcion, that the arbitration clause was unenforceable as numerous clauses were substantively unconscionable. It also found procedurally unconscionability.  The California Supreme Court granted review.

Initially, the California Supreme Court made clear that despite the Concepciondecision by the U.S. Supreme Court, California courts could apply the unconscionability doctrine to invalidate arbitration clauses as long as the rules in doing so do not facially discriminate against arbitration clauses and are applied to all types of contracts; moreover, the rules cannot disfavor arbitration. It further clarified that a contract is not substantively unconscionable simply because it was a “bad bargain.” The standard must be that the provisions at issue must be overly harsh, or unduly oppressive, or unreasonably favorable, or shock the conscience, noting that under the law, they all mean the same thing.   Importantly, the Court made clear that the ruling in Concepcion preempts the CLRA’s “no-waiver” provision which bars class waivers in arbitration agreements covered by the FAA.  In other words, California’s consumer protection statute that barred class action waivers was no longer good law. As such, the Court had to do a detailed analysis of the factors and the clauses.

After outlining the tests, the California Supreme Court agreed that it was procedurally unconscionable, but in this important decision it found that none of the clauses in the arbitration provision were substantively unconscionable. The details of each clause at issue and the reasons they were deemed legal are extensively covered in the decision. While there are some good things here for consumers, the decision as a whole is not beneficial, in large part because of the limitations put on California by the U.S. Supreme Court.

For more information, or if you need legal assistance, please contact the Wagner Legal Group, P.C. at (310) 857-5293 or fill out our contact form on the website.