914 F. Supp. 2d 1067
N.D. Cal.2012Background
- Trompeter filed a putative California class action alleging Ally secretly recorded calls without consent in violation of California Penal Code § 632 and the UCL.
- Arbitration clause exists in Trompeter’s car purchase contract and was assigned to Ally; Ally moves to compel arbitration and for a stay.
- Court held a hearing and denied both the motion to compel arbitration and the motion to stay pending the California Supreme Court’s Sanchez v. Valencia Holding Co. decision.
- Arbitration clause requires bilateral arbitration, prohibits class action, and identifies AAA/NAF as possible forums; Ally would advance some arbitration costs up to a cap.
- Trompeter argues the clause is procedurally and substantively unconscionable under California law; court analyzes both facets and finds the clause unconscionable.
- Court declines severance of unconscionable provisions, concluding the agreement is tainted and unenforceable; leaves no room for arbitration of the claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is unconscionable and unenforceable | Trompeter asserts procedural and substantive unconscionability under CA law. | Ally contends the clause is valid and enforceable under FAA preemption limits. | Clause is unconscionable and unenforceable. |
| Severability of unconscionable provisions | Severance could preserve arbitration, removing only offending provisions. | Unconscionable provisions are severable if independent. | Severance not warranted; tainted contract. |
| Effect of Concepcion and Kilgore on enforceability | Concepcion and Kilgore do not require enforcement of an unconscionable CA arbitration clause. | Concepcion/Kilgore require enforcement consistent with FAA. | Concepcion and Kilgore do not preclude finding unconscionability here. |
| Whether a stay should be granted pending higher-court review | Litigation should proceed; stay unnecessary and harmful to Trompeter. | Stay pending Sanchez to avoid waste and protect arbitration rights. | Stay denied. |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (establishes procedural and substantive unconscionability framework)
- In re Concepcion, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011) (FAA preempts Discover Bank but allows generally applicable contract defenses)
- Gutierrez v. Autowest, Inc., 114 Cal.App.4th 77 (Cal. App. 2003) (absence of arbitration rules to which a party was bound supports unconscionability)
- Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (Cal. 2003) (one-sided arbitration provisions and fee-shifting considerations)
- Kilgore v. KeyBank, Nat'l Ass'n, 673 F.3d 947 (9th Cir. 2012) ( interacts with Concepcion on FAA preemption and public policy)
- Sanchez v. Valencia Holding Co., LLC, 201 Cal.App.4th 74 (Cal. App. 2011) (California appellate decision on similar arbitration clause)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (U.S. 2000) (costs and fee considerations in arbitration; silent cost provisions)
- Newton v. American Debt Services, 854 F. Supp. 2d 712 (N.D. Cal. 2012) (adhesive contract analysis and procedural unconscionability factors)