Judge: Stephen Morgan, Case: 23AVCV00873, Date: 2023-12-12 Tentative Ruling
Case Number: 23AVCV00873 Hearing Date: December 12, 2023 Dept: A14
Background
This is a lemon law action. Plaintiff
Leah Phillips (“Plaintiff”) alleges that on or about February 02, 2023, she
purchased a 2017 Mitsubishi Mirage, VIN Number: ML32F3J2HHF09373 (the “Subject
Vehicle”), from Defendant Camacho Auto Sales, Inc. dba Camacho Mitsubishi
(“Defendant”); the Subject Vehicle contained various defects; Plaintiff
provided Defendant with sufficient opportunities to repair the Subject Vehicle;
Defendant could not repair the Subject Vehicle; Plaintiff revoked acceptance of
the Subject Vehicle in writing on April 27, 2023; and Defendant refused
Plaintiff’s demand for revocation. Plaintiff presents that the Subject Vehicle
remains in a defective and unmerchantable condition and, as such, Plaintiff has
and will continue to be financially damaged due do Defendant’s failure to
comply with provisions of its express and implied warranties.
On August 08, 2023, Plaintiff
filed her Complaint alleging four causes of action for: (1) Breach of Written
Warranty Pursuant to the Magnuson-Moss Warranty Act; (2) Breach of Implied
Warranty Pursuant to the Magnuson-Moss Warranty Act; (3) Song-Beverly Consumer
Warranty Act; and (4) Song-Beverly Consumer Warranty Act.
The Court notes that the Third
Cause of Action and Fourth Cause of Action are titled the same, though the
content is different, and each contains a separate prayer for relief. The Court
inquires at the hearing.
On September 11, 2023, Defendant
filed this Motion to Compel Arbitration.
On November 29, 2023, Plaintiff
filed her Opposition.
On December 05, 2023, Defendant
filed its Reply.
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Legal Standard
Standard for
Compel Arbitration and Stay – California law incorporates many of the basic
policy objectives contained in the Federal Arbitration Act, including a
presumption in favor of arbitrability. (Engalla v. Permanente Medical Group,
Inc. (1997) 15 Cal.4th 951, 971-72.) Cal. Code¿Civ.¿Proc.¿§ 1281.2 permits a party to file a motion to
request that the Court order the parties to arbitrate a controversy. Under Cal.
Code¿Civ.¿Proc. § 1281.2, the Court shall order the
petitioner and the respondent to arbitrate the controversy if it determines
that an agreement to arbitrate the controversy exists, unless it determines
that:
(a) The right to
compel arbitration has been waived by the petitioner; or
(b) Grounds exist
for the revocation of the agreement.
(c) A party to the
arbitration agreement is also a party to a pending court action or special
proceeding with a third party, arising out of the same transaction or series of
related transactions and there is a possibility of conflicting rulings on a
common issue of law or fact. For purposes of this section, a pending court
action or special proceeding includes an action or proceeding initiated by the
party refusing to arbitrate after the petition to compel arbitration has been
filed, but on or before the date of the hearing on the petition. This
subdivision shall not be applicable to an agreement to arbitrate disputes as to
the professional negligence of a health care provider made pursuant to Section
1295.
(Cal. Code¿Civ.¿Proc.¿§ 1281.2.)
A second statute creates further impositions for arbitration for
uninsured or underinsured motor vehicles: “The policy or an endorsement added
thereto shall provide that the determination as to whether the insured shall be
legally entitled to recover damages, and if so entitled, the amount thereof,
shall be made by agreement between the insured and the insurer or, in the event
of disagreement, by arbitration. The arbitration shall be conducted by a single
neutral arbitrator. . .” (Cal. Ins. Code § 11580(f).)
Doubts as to
whether an arbitration clause applies to a particular dispute are to be
resolved in favor of sending the parties to arbitration.¿(Engineers & Architects Assn. v. Community
Development Dept. (1994) 30 Cal. App. 4th 644, 652-653)¿The Court should order them to arbitrate unless it
is clear that the arbitration clause cannot be interpreted to cover the
dispute.¿(Id., Cal.
Code Civ. Proc. § 1281.2 [“. . .unless it determines that: (a) The right to
compel arbitration has been waived by the petitioner; or (b) Grounds exist for
the revocation of the agreement”].)¿Unless the parties clearly and unmistakably provide otherwise, the
question of whether the parties agreed to arbitrate is to be decided by the
court, not the arbitrator.¿(Id.)
The right to
arbitration depends upon contract; a petition to compel arbitration is simply a
suit in equity seeking specific performance of that contract.¿(Id.)¿There is no public policy favoring arbitration of disputes which the
parties have not agreed to arbitrate.¿(Id.)
The party seeking
to enforce the arbitration agreement bears the burden of proving the existence
of a valid arbitration agreement by the preponderance of the evidence.¿(Giuliano v. Inland Empire Personnel, Inc.¿(2007) 149 Cal.App.4th 1276, 1284.)¿The trial court first decides whether an
enforceable arbitration agreement exists between the parties and then¿determine whether the plaintiff’s claims are
covered by the agreement.¿(Omar v. Ralphs
Grocery Co.¿(2004) 118
Cal.App.4th 955, 961.)
¿
The party opposing
the petition to compel arbitration bears the burden of proving by a
preponderance of the evidence any fact necessary to its defense.¿(Giuliano v. Inland Empire Personnel, Inc.,¿supra,¿at¿1284.)¿In these summary proceedings, the trial court sits as a trier of fact,
weighing all the affidavits, declarations, and other documentary evidence, as
well as oral testimony received at the court’s discretion, to reach a final
determination. (Id.)
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Discussion
Application – Defendant
presents that the parties entered into a Retail Installment Sales Contract
(“RISC”) which contained a mandatory arbitration provision, directing the
parties and the Court to the Decl. Gus Camacho at Exh. 2. Defendant emphasizes
that Plaintiff also signed a box that expressly states: “Agreement to
Arbitrate.” (See Ibid.) Defendant argues that, as such, Plaintiff is
aware of the arbitration agreement and cannot argue that she did not agree to
arbitrate or that she is surprised by its existence. Defendant highlights California’s
public policy favors arbitration. Defendant contends that the arbitration
agreement is not unconscionable as the arbitration agreement in this action is
arguably even more friendly that that in Sanchez v. Valencia Holding Co.,
LLC (2015) 61 Cal.4th 899 (“Sanchez”) in which the California
Supreme Court held the arbitration clause was enforceable.
Plaintiff presents that the
arbitration agreement is unconscionable because (1) the contract is an adhesion
contract, and (2) it is oppressive as Defendant likely retained attorneys to
draft the contract and Defendant is in a superior bargaining position.
Plaintiff further argues that the arbitration agreement is unconscionable
because it does not provide for fees over $5,000.00, directing the parties and
the Court to Cal. Code Civ. Proc. § 1284.3(a). Plaintiff believes that
$5,000.00 is an unreasonable cap and provides, as an example, the cost of a
single arbitrator proceeding.
Defendant, in reply, highlights
that Plaintiff does not dispute that she is bound by the arbitration agreement,
but, instead, believes that the arbitration agreement’s requirement that she
pay a portion of the arbitration fees in unconscionable. Defendant argues a
contract of adhesion does not mean that it will not be enforced; that courts
conduct an inquiry into the substantive terms of a such a contract; and that the
California Supreme Court in Sanchez has upheld the inquiry of
substantive terms set by various courts, clarifying that the different
formulations are substantively the same.
Here, neither party disputes that
there is an agreement to arbitrate. Both parties agree that there was a signed
arbitration clause, but dispute whether the arbitration clause is
unconscionable.
The Court notes that Garcia v.
Superior Court (2015) 236 Cal.App.4th 1138 holds that a Court must determine
whether Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., applies
to an arbitration agreement. “With respect to agreements to which the FAA
applies, the federal policy favoring arbitration preempts any state law
impediments to the policy's fulfillment. If a state law interferes with the
FAA's purpose of enforcing arbitration agreements according to their terms, the
FAA preempts the state law provision, no matter how laudable the state law's
objectives. (AT&T Mobility LLC v. Concepcion, supra, 563 U.S.
at p. 352 [131 S.Ct. at p. 1753]; Iskanian v. CLS Transportation Los
Angeles, LLC (2014) 59 Cal.4th 348, 384 [173 Cal. Rptr. 3d 289, 327 P.3d
129].) Under the supremacy clause of the United States Constitution (art. VI,
cl. 2), the FAA requires any conflicting state law to give way. (Nitro-Lift
Technologies, L. L. C. v. Howard (2012) 568 U.S. ___, ___ [184 L. Ed. 2d 328,
133 S.Ct. 500, 504]; Moses H. Cone Memorial Hospital v. Mercury Constr. Corp.
(1983) 460 U.S. 1, 24–25 [74 L.Ed.2d 765, 103 S.Ct. 927, 941] [Under FAA “any
doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration …”].” (Garcia, supra, 236 Cal.App.4th at 1144.) Here,
it appears the FAA applies as this is not a contract of “employment of seamen,
railroad employees, or any other class of workers engaged in foreign or
interstate commerce” (See 9 U.S.C. § 1.) The Court notes that the FAA preempts
“California's unconscionability rule prohibiting class waivers in consumer
arbitration agreements;” however, this action does not concern a class waiver.
(See Shanchez, supra, 61 Cal.4th at 906.)
Sanchez, which discusses
arbitration agreements in light of the FAA, held that (1) unconscionability
remains a defense to a petition to compel arbitration; and (2) the adhesive
nature of a contract is sufficient to establish some degree of procedural
unconscionability, yet “ ‘a finding of procedural unconscionability does not
mean that a contract will not be enforced, but rather that courts will
scrutinize the substantive terms of the contract to ensure they are not
manifestly unfair or one-sided.’ ” (Id. at 913 [internal citations
omitted].)
At issue in this case, as
presented by the parties, is whether the provision stating, “[w]e will pay your
filing, administration, service or case management fee and your arbitrator or
hearing fee all up to a maximum of $5000, unless the law or the rules of the
chosen arbitration organization require us to pay more,” is unconscionable.
(See Decl. of Gus Camacho at Exh. 2 and Plaintiff’s Opposition.) However, the
Court cannot look at the arbitration agreement in part. The full arbitration
agreement reads, in relevant part:
We will pay your
filing, administration, service or case management fee and your arbitrator or
hearing fee all up to a maximum of $5000, unless the law or the rules of the
chosen arbitration organization require us to pay more,” is unconscionable. You
and we will pay the filing, administration, service, or case management fee and
the arbitrator or hearing fee over $5,000.00 in accordance with the rules and
procedures of the chosen arbitration organization. The amount we pay may be
reimbursed in whole or in part by the decision of the arbitrator if the
arbitrator finds that any of your 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. If the chosen
arbitration organization’s rules conflict with this Arbitration Provision, then
the provisions of this Arbitration Provision shall control. Any arbitration
under this Arbitration Provision shall be governed by the Federal Arbitration
Act (9 U.S.C. §§ 1 et seq.) and not by any state law concerning arbitration.
Any award by the arbitrator shall be in writing and will be final and binding
on all parties subject to any limited right to appeal under the Federal
Arbitration Act.
(Decl. Gus Camacho at Exh. 2.)
The arbitration clause in Sanchez
provided that the defendant “ ‘will advance the car buyer's filing,
administration, service, and case management fees and arbitrator or hearing
fees “up to a maximum of $ 2500, which may be reimbursed’ ” at the arbitrator's
discretion.” (Sanchez, supra, 61 Cal.4th at 917-18.) The Sanchez
court emphasized the requirement of “ ‘an accessible, affordable process for
resolving … disputes,’ ” while taking into consideration both state and federal
law, and held that such a clause was not unconscionable as the plaintiff did
not show that the cost of sch fees were unaffordable to him. (See Id. at
921.) The Court notes that the provision analyzed in Sanchez was
discussing arbitral appeal fees whereas the arbitration agreement at hand
discusses initial arbitration fees. However, the basic principles of
unconscionability and the case law surrounding them as discussed in Sanchez
apply to this action.
The doctrine of unconscionability refers to
“an absence of meaningful choice on the part of one of the parties together
with contract terms which are unreasonably favorable to the other party.”¿ (Sonic-Calabasas
A, Inc. v. Moreno¿(2013) 57 Cal.4th 1109, 1133.) It consists of both
procedural and substantive components – “the former focusing on oppression or
surprise due to unequal bargaining power, the latter on overly harsh or
one-sided results.”¿ (Ibid.)¿¿¿“The decision of unconscionability is
left to the court, not an arbitrator.” (Bickel v. Sunrise Assisted Living
(2012) 206 Cal.App.4th 1, 8.) “Courts may refuse to enforce unconscionable
contracts and this doctrine applies to arbitration agreements. [Citation.]” (Salgado
v. Carrows Restaurants, Inc. (2019) 33 Cal.App.5th 356, 362.)
¿
Both substantial and procedural
unconscionability must be present to invalidate an arbitration agreement;
however, they do not need to be present in the same degree. (Armendariz v.
Found Health¿Psychcare¿Services, Inc.¿(2000) 24 Cal.4th 83, 114; Parada
v. Superior Court (2009) 176 Cal.App.4th 1554, 1570.)¿ “Essentially a
sliding scale is invoked which disregards the regularity of the procedural
process of the contract formation, that creates the terms, in proportion to the
greater harshness or unreasonableness of the substantive terms themselves. In
other words, the more substantively unconscionable 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, supra,
(2000) 24 Cal.4th 83 at 114.)¿
As noted in Sanchez, a dealership is
under no obligation to highlight or explain to buyers the arbitration clause in
the sale contract. (Id. at 914.) There are no allegations or evidence
that Plaintiff was pressured, rushed, or denied the ability to negotiate the
terms of the RISC. The procedural unconscionability due to the adhesive nature
of the Sale Contract is low. Because the level of procedural unconscionability
is low, Plaintiff must demonstrate a higher degree of substantive
unconscionability to support a finding that the Arbitration Provision in the RISC
is unconscionable. Assuming, Defendant adheres to this clause, such “an
ability-to-pay approach is appropriate in the context of consumer arbitration
agreements.” (Sanchez, supra, 61 Cal.4th at 920.) The analysis of
fee shifting should be analyzed on a case-by-case basis to determine if the
fees are so unreasonably high as to limit access to the arbitration remedy. (Ibid.)
The provision cannot be deemed unconscionable “absent a showing that appellate
fees and costs in fact would be unaffordable or would have a substantial
deterrent effect.” (Ibid.) Gutierrez v. Autowest, Inc. (2003) 114
Cal.App.4th 77 (“Gutierrez”) does not deviate from these principles.
Rather, Gutierrez holds: (1) the California Supreme Court has not
decided whether consumers required to arbitrate unwaivable public rights are
protected from having to pay any type of expense that they would not be
required to bear if they were free to bring the action in court; and (2) the
determination that arbitral fees in consumer cases are unreasonable should be
made on a case-by-case basis, with the consumer carrying the burden of proof.
(See Guitierrez, supra, 114 Cal.App.4th at 97.) As such, the
inquiry is not if Plaintiff will have to bear costs over the $5,000.00, but if
Plaintiff has the ability to pay the costs. No presentation has been made by
Plaintiff that she would be unable to pay the arbitration costs over the $
5,000.00. As such, the provision in question has not been shown to be
substantively unconscionable.
Without some finding of substantive
unconscionability, the Arbitration Provision in the RISC cannot be deemed
unconscionable.
Plaintiff takes issue with using the American
Arbitration Association (“AAA”) as the arbitrating body. The Arbitration
Provision in the RISC provides for the use of either the AAA, the National
Arbitration and Medication, or an arbitration organization chosen by either
party as the arbitration organization to conduct the arbitration agreement. The
Court inquires at the hearing.
Accordingly, the Motion to Compel
Arbitration is GRANTED.
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Recovery of Costs
Defendant seeks $1,562.96 [$435.00 first
appearance fee + $11.96 reservation fee + 4 hrs of attorney time @ $279.00/hr] in
connection with Plaintiff’s refusal to arbitrate the claim. Defendant presents
that the refusal to arbitrate while knowing that the Arbitration Provision in
the RISC and relevant law requires arbitration constitutes bad faith. Defendant
presents that Cal. Code Civ. Proc. § 1293.2 allows for a court to award costs
upon any judicial proceeding under this title.
Plaintiff argues that (1) her challenge of
this provision is not bad faith as she was protecting her right to challenge an
unconscionable agreement and (2) Cal. Code Civ. Proc. § 1293.2 does not apply
to sanctions against a plaintiff for challenging a motion to compel arbitration
on the basis of unconscionability.
Cal. Code Civ. Proc. § 1293.2 provides: “The
court shall award costs upon any judicial proceeding under this title as
provided in Chapter 6 (commencing with Section 1021) of Title 14 of Part 2 of
this code.” It appears the statute applies to a party’s necessarily incurred
costs; however, this is upon a final determination of the action. (See Squire's
Dep't Store, Inc. v. Dudum (1953) 115 Cal.App.2d 320, 332 [“Upon final
determination that arbitration was not in order, the losing party, Ramallah,
who prematurely brought the arbitration proceeding, should bear such costs
necessarily incurred by the opposite party.”]; Carole Ring & Assocs.
v. Nicastro (2001) 87 Cal.App.4th 253, 261 [“Because Nicastro was the prevailing party as a matter of law, the
mandatory language of the contractual attorney fees clause and section 1293.2
entitle Nicastro to reasonable attorney fees and costs incurred in
postarbitration judicial proceedings.”].)