Earlier today, the California Supreme Court issued its decision in Sanchez v. Valencia Holding Company, LLC, No. S199119 (Cal. Aug. 3, 2015) (click here for a copy of the decision), which involves an arbitration clause in an automobile sales contract. This decision is a must-read for anyone litigating unconscionability issues under California law in connection with arbitration agreements.
The California Supreme Court made several findings:
1) The Broughton-Cruz rule survives, at least for the time being:
The Court left open the issue of the continued validity of the Broughton-Cruz rule in light of the US Supreme Court’s Concepcion decision. Under the Broughton-Cruz rule, claims for public injunctive relief under California’s Consumers Legal Remedies Act and Unfair Competition Law are inarbitrable. Because the lower court did not address whether Concepcion abrogated the Broughton-Cruz rule, the California Supreme Court left this issue open.
2) Concepcion’s FAA preemption analysis overrides the anti-waiver provisions of the Consumers Legal Remedies Act with respect to class waivers. Applying Concepcion, the California Supreme Court held that the FAA preempts the invalidation of a class waiver pursuant to the CLRA’s anti-waiver provisions.
3) An arbitration provision, which provides for an appellate arbitral tribunal if an initial arbitral award is $0 or in excess of $100,000, is not unconscionable. The California Supreme Court found these dollar thresholds are not unfairly one-sided. The ability to appeal $0 awards may favor a consumer purchaser, while the ability to appeal $100,000 awards would tend to favor the seller. Thus, the risks imposed on the parties are not one-sided.
4) in the consumer context, an arbitration clause may be unconscionable if it imposes unreasonable filing fees or other arbitration costs, but this analysis must be conducted on a case-by-case basis. In this case, there was no evidence in the record that arbitration costs would be unaffordable for the plaintiff.
I found interesting the California Supreme Court’s discussion of the unconscionability doctrine in light of Concepcion. There are other cases that construe Concepcion very broadly and suggest that the Concepcion preemption analysis would override any unconscionability argument targeting arbitration or deriving its meaning from the fact that an arbitration clause is at issue. The car seller in this case tried to argue that under Concepcion, the FAA broadly prevents courts from assessing the fairness of arbitral procedures, and there are many lower court cases consistent with this expansive view of Concepcion. However, the California Supreme Court rejected this expansive view of Concepcion and found that even after Concepcion, courts can police the fairness of arbitral procedures under unconscionability principles. Also, there is some broad language at the beginning of the opinion where the Court suggests that perhaps Concepcion applies only to class waivers, but does not generally limit how unconscionability rules apply to other arbitral provisions.
Justice Chin wrote an opinion concurring in the result, but dissenting in several respects from the majority’s reasoning regarding unconscionability.