The California Court Of Appeal Disagrees With The U.S. Supreme Court On The Enforceability Of Arbitration Agreements

In Sanchez v. Valencia Holding Company, LLC, --- Cal.Rptr.3d ----, 2011 WL 5027488 (Cal.App. 2 Dist. Oct. 24, 2011), the California Court of Appeal attempts an end run around the U.S. Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). In Concepcion, the Supreme Court found that the Federal Arbitration Act (the "FAA") preempts state efforts to invalidate or re-write arbitration agreements by applying rules that would not result in the invalidation of other contracts. "The principal purpose of the FAA is to ensure that private arbitration agreements are enforced according to their terms." Id. at 1748. Specifically, the U.S. Supreme Court held that the FAA preempts state law restrictions on class action waivers in consumer arbitration agreements.

Sanchez also involves an arbitration agreement containing a class action waiver. In it, a consumer filed a putative class action against an automotive dealership, alleging disclosure violations in the purchase of his vehicle. The dealership moved to compel arbitration and enforce the class action waiver contained in a form contract widely used by dealerships throughout California. Before Concepcion, the trial court denied the motion on the ground the class action waiver was unconscionable under California law. The dealership appealed, and while that appeal was pending Concepcion was decided.

Side-stepping the class action waiver, the Court of Appeal in Sanchez affirmed the denial of the motion to compel arbitration on other grounds. It began by finding procedural unconscionability in part because the contract was a take-it-or-leave-it contract not open to negotiation. Sanchez, 2011 WL 5027488 at *9. The Supreme Court in Concepcion gave short shrift to such concerns, observing that the "times in which consumer contracts were anything but adhesive are long past." Concepcion, 131 S.Ct. at 1750.

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