Bad for Consumers: CA Court Upholds Arbitration in Consumer Contracts
By Larry Bodine, Editor in Chief
Make no mistake, arbitration clauses in contracts are bad for consumers. Arbitration is a black-box, secret hearing designed to make a consumer lose in a dispute with a company. Making things worse, the California Supreme Court just upheld arbitration clauses, turning aside arguments that they are unconscionable.
An arbitration clause in an auto sales contract is enforceable, including an agreement not to file a class action lawsuit, despite four supposedly one-sided arbitration provisions in the agreement, the California Supreme Court decided in Sanchez v. Valencia Holding Co., LLC, No. S199119 (Aug. 3, 2015).
Dealer violated laws
Plaintiff Gil Sanchez filed a class action in 2010 arising from his purchase of a 2006 preowned Mercedes-Benz S500V in 2008 for $53,498. He charged that the dealer violated several other California laws by:
(1) failing to separately itemize the amount of the down payment that is deferred to a date after the execution of the sale contract.
(2) failing to distinguish registration, transfer, and titling fees from license fees.
(3) charging the optional Department of Motor Vehicles electronic filing fee without discussing it or asking if he wanted to pay it.
(4) charging new tire fees for used tires.
(5) requiring him to pay $3,700 to have the vehicle certified so he could qualify for the 4.99 percent interest rate, when that payment was actually for an optional extended warranty unrelated to the interest rate.
Presented with a stack of documents
The sales contract had an arbitration clause with a class action waiver: "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."
Sanchez said, "When I signed the documents related to my purchase of the subject vehicle, I was presented with a stack of documents, and was simply told by the dealership‘s employee where to sign and/or initial each one. All of the documents (including the purchase contracts) were pre-printed form documents. When I signed the documents, I was not given an opportunity to read any of the documents, nor was I given an opportunity to negotiate any of the pre-printed terms. The documents were presented to me on a take-it-or-leave-it basis, to either sign them or not buy the car."
A trial court ruled that the arbitration clause was unconscionable and oppressive, and refused to enforce it. But the Supreme Court reversed, saying that a contract is substantively unconscionable where there is unfairness beyond a “simple old-fashioned bad bargain.” It added that, “the Federal Arbitration Act preempts California’s unconscionability rule prohibiting class waivers in consumer arbitration agreements."
Watch President and CEO Michael J. Swanson‘s recent interview with Larry Bodine from PersonalInjury.com as he talks about arbitration clauses in consumer contracts and how it affects your 7th Amendment rights.