Judge: Robert S. Draper, Case: 21STCV36263, Date: 2022-08-19 Tentative Ruling

Case Number: 21STCV36263    Hearing Date: August 19, 2022    Dept: 78

 Superior Court of California 

County of Los Angeles 

Department 78 

Defendant Sonic Calabasas M, Inc.’s Motion for an Order Compelling Arbitration is GRANTED. All future proceedings are stayed pending arbitration.

FACTUAL BACKGROUND 

This is an action for the fraudulent sale of a used vehicle. The Complaint alleges as follows.

Plaintiff Triumphal Javon Bridges (“Plaintiff”) purchased a used 2018 Lexus RC 350 (the “Subject Vehicle”) from Defendant dealership Sonic Calabasas M, Inc. (the “Dealership”). (Compl. ¶ 13.) The Dealership, through its General Manager and Finance Manager, informed Plaintiff that the Subject Vehicle had been subject to a rigorous and thorough inspection and that it was safe, reliable, and fit for its ordinary purpose. (Compl. ¶ 17.) The Dealership did not inform Plaintiff that the subject vehicle was not in excellent mechanical condition, did not have all its original parts and paint, and that the manufacturer’s warranty did not cover all components of the Subject Vehicle. (Compl. ¶ 18.) Plaintiff attempted to revoke acceptance of the Subject Vehicle in writing, but the Dealership refused to rescind the contract or accept the return of the Subject Vehicle. (Compl. ¶¶ 32-34.)

PROCEDURAL HISTORY

On October 1, 2021, Plaintiff filed the Complaint asserting six causes of action:

1.    Fraud and Deceit;

2.    Breach of Implied Covenant of Good Faith and Fair Dealing;

3.    Negligence;

4.    Violation of Business and Professions Code § 17200, et seq.;

5.    Violation of Business and Professions Code § 17500, et seq.; and

6.    Violation of California Consumer Legal Remedies Act.

On December 7, 2021, the Dealership filed an Answer.

On July 25, 2022, the Dealership filed the instant Motion to Compel Arbitration.

On August 8, 2022, Plaintiff filed an Opposition.

On August 12, 2022, the Dealership filed a Reply.

DISCUSSION 

I.               MOTION TO COMPEL ARBITRATION

Defendant moves the Court to compel arbitration pursuant to an Arbitration Provision (the “Provision”) in the Retail Installment Sale Contract (the “Contract”).

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, California Code of Civil Procedure section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 [citations omitted]; Code Civ. Proc. § 1281.2.)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) The trial court “sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) 

A.  Existence of a Valid Agreement

Here, Defendant attaches a copy of the Contract containing the Provision. (Muller Decl., Ex. A). The Provision is on the final page of the five-page Contract and is labeled, in capitalized and bolded font, “ARBITRATION PROVISION – PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS.” (Id. at p. 5.)

Plaintiff signed and dated the Contract on the bottom of the page containing the Provision. (Ibid.)

By attaching the signed and dated Contract to its filing, Defendant has shown by a preponderance of the evidence the existence of a valid arbitration agreement. Plaintiff does not dispute the existence of the arbitration agreement.

B.  Applicability of Agreement as to Instant Claims

The Provision states, in relevant part:

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.

The Provision explicitly applies to the “purchase or condition of [the Subject [V]ehicle.” As the entirety of Plaintiff’s Complaint arises from the purchase and condition of the Subject Vehicle, the Provision clearly applies to the instant dispute.

C.  Defenses

Plaintiff argues that several defenses to the contract’s formation and conscionability preclude the Dealership from compelling arbitration. The Court will address these arguments in the order they are presented in the Opposition.

1.    Fraudulently Induced Agreement

First, Plaintiff argues that the Court should refuse to enforce the arbitration agreement because it was fraudulently induced. Plaintiff contends that, as he did not know the actual condition of the Subject Vehicle when he purchased it, there exist grounds to render the purchase contract voidable. Plaintiff cites MZM Constr. Co. v. N.J. Bldg. LSBF, 974 F.3d 386 (3d Cir. 2020) as supporting this contention.

In MZM, plaintiff signed a short form-agreement regarding a construction project to be completed by defendant. That short-form agreement incorporated two longer agreements. One of those agreements, which plaintiff did not sign, contained an arbitration agreement.

Plaintiff alleged that while defendant was working on the construction project, defendant’s agent approached plaintiff and asked her to “sign a single-project agreement . . . because the union had nothing on record for [plaintiff] for the [project].” (MZM Constr. at p. 393.) Defendant assured plaintiff that the short form agreement was only for the project and did not relate to the longer agreements. (Ibid.) Additionally, defendant told plaintiff that “if she did not sign the Short Form Agreement, [defendant] would pull its workers from the job.” (Ibid.)

The MZM Court, in finding that the Trial Court properly denied defendant’s Motion to Compel Arbitration, stated that the short form agreement “purports to incorporate the full terms of an unattached and unsigned CBA with an arbitration provision.” (Id. at 403.) The Court found that, as plaintiff “signed the [Short Form Agreement] incorporating the [larger contracts] with an arbitration provision in reliance on [defendant’s] assurance that it was a single-project agreement without any mention of arbitration,” the trial court properly found that there was fraud in the execution sufficient to void the arbitration agreement.

Here, though Plaintiff alleges that the Dealership fraudulently misrepresented the condition of the car, there is no indication that the Dealership fraudulently induced Plaintiff to sign the arbitration agreement. Indeed, whereas in MZM the arbitration agreement was hidden in a much longer contract that plaintiff neither read nor signed, here Plaintiff signed and dated the Arbitration Agreement on the page the Provision was presented, underneath bold font indicating its legal nature. Simply put, MZM is inapposite here, and there are no indications of fraud in the execution sufficient to void the contract.

2.    Unconscionability

Next, Plaintiff argues the Provision is unenforceable as it is both procedurally and substantively unconscionable.

Unconscionability generally includes the absence of meaningful choice on the part of one of the parties together with contract terms that unreasonably favor the other party. (Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 82-83.) As the party asserting unconscionability, Plaintiff has the burden of proving both procedural and substantive unconscionability. (Crippen v. Central Valley RV Outlet. Inc. (2004) 124 Cal.App.4th 1159, 1165). Courts analyze the unconscionability standard in Civil Code section 1670.5 as invoking elements of procedural and substantive unconscionability. (See id. at 1280-81.)

Procedural unconscionability focuses on whether there is ‘oppression’ arising from an inequality of bargaining power or ‘surprise’ arising from buried terms in a complex printed form. (Id.) The substantive element addresses the existence of overly harsh or one-sided terms. (Id.) An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533.) However, Armendariz held, ‘[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’ (Armendariz, at 114).”  (McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87 (citations omitted).)  

As to procedural unconscionability, Plaintiff argues that the arbitration agreement was an adhesion contract, offered on a take it or leave it basis. Additionally, Plaintiff argues that he was simply told by Defendant’s employee where to sign the contract and was deprived the opportunity to thoroughly read the Provision.

“[T]he adhesive nature of the agreements does not, in and of itself, render the arbitration agreements unconscionable. (See Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981; McManus, supra, 109 Cal.App.4th at 89.) The adhesive nature of an agreement is just the beginning, not the end, of the inquiry into its enforceability. (Pinela v. Neiman Marcus Group., Inc. (2015) 238 Cal.App.4th 227, 242.)

As a general rule under California law, arguments that arbitration provisions are unenforceable because the party did not carefully read the agreements, did not understand the significance of the arbitration provisions, and did not knowingly waive their right to a jury trial may not be used to invalidate a written arbitration provision. (Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1109.) 

While the Court finds a small amount of procedural unconscionability due to the adhesive nature of the contract, Plaintiff’s failure to read a contract clearly labeled on the page which he signed is not an indication of procedural unconscionability.

As to substantive unconscionability, Plaintiff makes several arguments.

First, Plaintiff argues that the “arbitration provision contains terms that give Defendant the right to pick the single arbitrator on an individual basis.”

The Provision states that Plaintiff “may choose the American Arbitration Association . . . or any other organization to conduct the arbitration subject to [the dealership’s] approval.” (Muller Decl., Ex. A at p. 5.) While the Provision does provide Plaintiff a unilateral right to approval, it also allows Plaintiff to select a provider, and preapproves the American Arbitration Association.

Plaintiff does not argue why the American Arbitration Association is not a neutral provider. Accordingly, there is no substantive unconscionability here.

Next, Plaintiff argues that the RISC allows Defendant to take advantage of self-help remedies. Plaintiff argues that while the Provision is facially neutral, Defendant is much more likely to take advantage of self-help remedies such as vehicle repossession.

As Defendant notes in its Reply, the California Supreme Court has explicitly held that an arbitration agreement that allows self-help remedies, including repossession of collateral, is not unconscionable. (See Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4^th 899, 914.)

Finally, Plaintiff argues that the arbitration-cost provisions are substantively unconscionable in that they favor Defendant.

The Provision provides that the Dealership:

[W]ill pay [Plaintiff’s] filing, administration, service or case management fee and [Plaintiff’s] arbitrator or hearing fee all up to a maximum of $5000, unless the law or the rules of the chosen arbitration organization require [the Dealership] to pay more. The amount [the Dealership] pay[s] may be reimbursed in whole or in part by decision of the arbitrator if the arbitrator finds that any of [Plaintiff’s] claims is frivolous under applicable law. Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law.

Plaintiff argues that the cost-shifting clause “is not in accordance with certain consumer protection statutes that prohibit shifting arbitral expenses and costs to a consumer that he or she cannot afford or that are prohibitively high.” (Opposition at p. 11.) Plaintiff contends that the fee shifting provision is in express violation of Code of Civil Procedure section 1284.3(a)

Section 1284.3(a) states that:

No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses.

Here, the Provision explicitly states that each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law. This is in full compliance with the requirements of section 1284.3(a).

Plaintiff also notes that the Provision would not satisfy the JAMS Consumer Arbitration Rules, which require a company to pay all but the initial fee in any arbitration brought by a consumer. Of course, as the Provision explicitly states that the $5000 cap applies unless the law or selected arbitration provider’s rules provide otherwise, Plaintiff is free to select JAMS as a provider; in this case, JAMS rules would supersede the Provision. Otherwise, Plaintiff provides no authority stating that JAMS rules have any bearing on substantive unconscionability as to all other providers.

Accordingly, the Court finds no substantive unconscionability in the Provision. As there is minimal procedural unconscionability, and no substantive unconscionability, the Provision is not void as unconscionable.

D.  Cost Bearing

Plaintiff also argues that, should this court grant the Dealership’s Motion, the Dealership should be required to bear the cost of arbitration. Plaintiff does not contend that he is indigent, but argues that, pursuant to Sanchez, supra, the Court should use its discretion to require the Dealership to bear all costs of arbitration.

In Sanchez, the Court stated that though CCP section 1284.3 only requires a company to bear the cost of arbitration where a consumer is indigent, “nothing in the statute’s text or legislative history precludes courts from using unconscionability doctrine on a case-by-case basis to protect nonindigent consumers against fees that unreasonably limit access to arbitration.” (Sanchez at 919-920.)

Plaintiff argues that arbitration costs could exceed $30,000 dollars in the instant case, and that cost is prohibitive if the Dealership only covers $5000 as provided in the Provision.

Absent any indicators of substantive unconscionability or evidence of Plaintiff’s inability to pay arbitration costs, the Court declines to modify the agreement both parties agreed to when Plaintiff purchased the vehicle. The Arbitration Agreement states that “[e]ach party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law.” The Court sees no reason why it should not be left to the mutually selected arbitrator to determine the proper allocation of costs.

Accordingly, Defendant Sonic Calabasas M, Inc.’s Motion for an Order Compelling Arbitration is GRANTED. All future proceedings are stayed pending arbitration.

DATED: August 19, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court