Arbitration Clauses Are Enforceable Despite Waiver Of Classwide Arbitration Rights

Flores v. West Covina Auto Group, 2013 WL 139200 (Cal. App. Jan. 11, 2013)

Israel Flores and Andrea Naasz sued West Covina Toyota (WCT) and Toyota Motor Sales for selling them a “lemon,” alleging both individual and class action claims, including claims for violations of the Consumer Legal Remedies Act (CLRA). WCT filed a motion to compel arbitration and enforce the class action waiver contained in the arbitration clause of the parties’ preprinted form contract. Flores and Naasz opposed the motion, contending that the CLRA, which grants consumers the right to file class actions to enforce the CLRA’s terms, barred enforcement of the class action waiver. Flores and Naasz also contended that the arbitration agreement was unconscionable and thus unenforceable. The trial court granted WCT’s motion and compelled arbitration. The Court of Appeal affirmed, extending the U.S. Supreme Court’s decision in AT&T Mobility, Inc. v. Concepcion, 131 S. Ct. 1740 (2011) by holding that the Federal Arbitration Act (FAA) preempts any right to a class action under the CLRA, and that arbitration clauses governed by the FAA are enforceable despite the waiver of classwide arbitration rights.

The Court of Appeal further held that the arbitration clause was not unconscionable. Flores and Naasz pointed to four terms that they alleged were substantively conscionable: (1) either party could request a new arbitration by a three-arbitrator panel if the award were $0, exceeded $100,000, or granted injunctive relief; (2) WCT only was required to pay a maximum of $2,500 of the buyers’ costs, which could be reimbursed at the arbitrator’s discretion; (3) the buyers could choose only certain arbitration organizations without WCT’s approval; and (4) self-help remedies such as repossession were excluded from arbitration. The Court of Appeal concluded the agreement was enforceable because none of the four terms was “so one-sided as to shock the conscience.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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