Sanchez v. Valencia Holding Co.
61 Cal. 4th 899
| Cal. | 2015Background
- Sanchez purchased a preowned Mercedes for about $53,500 and sued Valencia in a putative class action alleging CLRA, UCL, Song-Beverly, Automobile Sales Finance Act, and related claims based on disclosures and charges in the sales contract.
- The retail installment sale contract contained a boxed arbitration clause with (1) a class-action waiver, (2) an appeal mechanism to a three-arbitrator panel for awards of $0 or over $100,000 (and for grants, but not denials, of injunctive relief), (3) a requirement that the appealing party be responsible for appellate arbitration costs, (4) a $2,500 cap on fees advanced by the dealer for initial arbitration, preservation of small claims and self-help remedies (e.g., repossession), and (5) a poison-pill making the whole clause unenforceable if the class waiver were held unenforceable.
- Valencia moved to compel arbitration; the trial court denied the motion because it found the class waiver unenforceable under state law and therefore invalidated the arbitration clause via the poison-pill.
- The U.S. Supreme Court decided Concepcion (preempting California’s Discover Bank rule against class-waiver enforcement). On appeal, the Court of Appeal avoided deciding enforceability of the class waiver and instead found the arbitration agreement unconscionably one-sided (procedural unconscionability + several substantively oppressive provisions).
- The California Supreme Court granted review and, applying Concepcion and state unconscionability doctrine as constrained by the FAA, held the class waiver must be enforced under Concepcion but examined other unconscionability challenges and reversed the Court of Appeal, ordering arbitration.
Issues
| Issue | Plaintiff's Argument (Sanchez) | Defendant's Argument (Valencia) | Held |
|---|---|---|---|
| Enforceability of class-action waiver | CLRA makes the right to bring class actions unwaivable; waiver is unconscionable and poison-pill voids arbitration clause | Concepcion preempts state rules invalidating class-waivers; FAA requires enforcement | Court: Concepcion controls — FAA preempts state rule; class waiver enforceable; poison-pill inoperable |
| Procedural unconscionability of the contract | Contract was adhesive, presented on a take-it-or-leave-it basis; buyer didn’t read or negotiate arbitration clause | Contract was a standard form but not necessarily adhesive in the relevant sense; buyer could negotiate price and had alternatives | Court: Some procedural unconscionability exists given adhesion context, but that alone does not decide enforceability; must assess substantive unconscionability |
| Appeal-to-panel and injunctive-relief asymmetry | Appeal provision (only $0 or >$100,000; only grants of injunctions) and related cost-shifting favor dealer and are one-sided | Provision is bilateral in effect (both sides can appeal in the applicable ranges); injunctive-review protection addresses legitimate commercial interests and outlier results | Court: Appeal thresholds and injunctive-review rule are not unconscionable on this record; they can serve legitimate commercial needs and are not shown to be one-sided in practice |
| Requirement that appealing party front appellate arbitration fees | Up-front cost requirement will deter consumers from appealing and makes arbitration unaffordable | Legislative and arbitral rules (and fee-waiver statutory scheme) control affordability; buyer must prove fees were unaffordable at time of contracting | Court: Cost-shifting raises unconscionability concerns only if fees would have been unaffordable or would substantially deter at formation; no record showing Sanchez could not afford appeal costs, so provision not unconscionable here |
| Exemption of self-help (repossession) from arbitration | Exempting repossession while submitting injunctive relief to arbitration is one-sided and favors dealer | Repossession is a statutorily authorized self-help commercial remedy integral to auto sales and not part of litigation/arbitration; small claims and provisional remedies preserved | Court: Excluding repossession is not unconscionable; provisional relief and small claims preserved and repossession meets legitimate commercial need |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that invalidate class-waivers when they interfere with arbitration’s fundamental attributes)
- Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (Cal. 2013) (state unconscionability principles apply to arbitration clauses but must be enforced evenhandedly and not interfere with arbitration’s core attributes)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (framework for procedural and substantive unconscionability; employment-arbitration limits on cost-shifting tied to public policy)
- Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (Cal. 2003) (arbitration provisions permitting appeal only above a monetary threshold can be substantively unconscionable)
- Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005) (previous California rule invalidating certain class-waivers in consumer arbitration; later preempted by Concepcion)
- Broughton v. Cigna Healthplans, 21 Cal.4th 1066 (Cal. 1999) (discussion of arbitrability of public-interest injunctive relief under consumer-protection statutes)