Lathrop v. Thor Motor Coach, Inc.Lathrop v. Thor Motor Coach, Inc.
Lawrence J. Hutchens and Shay Dinata-Hanson for Plaintiffs and Appellants.
Horvitz & Levy, Lisa Perrochet, Shane H. McKenzie, and Claire W. Sears; Bravo Law Group, Dolores E. Gonzales and James R. Robertson, for Defendants and Respondents.
Kenneth and Janet Lathrop bought a motorhome manufactured by Thor Motor Coach, Inc. from a dealer in California. The Lathrops sued the dealer and Thor under the Song-Beverly Consumers Warranty Act (
Thor acknowledged that the jury trial waiver was unenforceable under California law and that the choice-of-law clause was unenforceable because any waiver of the provisions of the Song-Beverly Act or the CLRA was contrary to public policy. To address these problems, Thor offered to stipulate the substantive provisions of the Song-Beverly Act and the CLRA, and “all other unwaivable California substantive rights,” would apply in an Indiana court. The trial court granted the motion to stay, and the Lathrops appealed.
We conclude that the trial court erred in placing the burden on the Lathrops to show enforcing the forum selection clause was unreasonable and that Thor did not meet its burden to show litigating in Indiana would not substantially diminish the Lathrops’ rights in violation of public policy. We also conclude that enforcing the forum selection clause in reliance on Thor‘s proposed stipulation would violate California public policy and that, even if it didn‘t, Thor‘s proposed stipulation was insufficient to protect the Lathrops’ unwaivable statutory rights. Therefore, we reverse.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Lathrops Purchase a Motorhome Manufactured by Thor
In May 2021 the Lathrops bought a new Thor motorhome for $212,391.78 from Mike Thompson RV in Santa Fe Springs, California. The Lathrops made a $20,000 downpayment and signed a retail installment sales contract for the balance. The Lathrops also signed a two-page Thor Motor Coach Product Warranty Registration Form (Warranty Registration Form). The second page
- Before I purchased my motorhome, I received, read and agreed to the terms and conditions of the Thor Motor Coach Limited Warranty and the Thor Motor Coach Structural Limited Warranty. I understand I can read and print a copy of the Owner‘s Manual and Limited Warranties from the Thor Motor Coach website.
- I understand and agree to the forum selection clause and choice of law clause set forth in the Thor Motor Coach Limited Warranty and the Thor Motor Coach Structural Limited Warranty.
- I AGREE THAT ANY AND ALL ACTIONS OF ANY KIND RELATED TO OUR MOTORHOME SHALL BE DECIDED BY A JUDGE RATHER THAN BY A JURY.
- I UNDERSTAND THAT EXCLUSIVE JURISDICTION FOR DECIDING LEGAL DISPUTES RELATING TO ALLEGED BREACH OF EXPRESS WARRANTY AND IMPLIED WARRANTIES THAT ARISE BY OPERATION OF LAW AS WELL AS THOSE RELATING TO REPRESENTATIONS OF ANY NATURE RESTS IN THE COURTS WITHIN THE STATE OF MANUFACTURE, WHICH IS INDIANA.
One week later, the Lathrops picked up their motorhome at Mike Thompson RV and received an owner‘s manual and a 16-page Warranty Guide.2 Included in the Warranty Guide was a four-page Thor Motor Coach Limited Warranty (Limited Warranty). The Limited Warranty, under the heading “Legal Remedies,” contained forum selection and choice-of-law provisions:
EXCLUSIVE JURISDICTION FOR DECIDING LEGAL DISPUTES RELATING TO ALLEGED BREACH OF EXPRESS WARRANTY AND BREACH OF IMPLIED WARRANTIES ARISING BY OPERATION OF LAW AS WELL AS THOSE RELATING TO REPRESENTATIONS OF ANY NATURE MUST BE FILED IN A STATE OR FEDERAL COURT WITHIN THE STATE OF MANUFACTURE, WHICH IS INDIANA. ALSO, THIS LIMITED WARRANTY SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA. ANY AND ALL CLAIMS, CONTROVERSIES AND CAUSES OF ACTION ARISING OUT OF OR RELATING TO THIS LIMITED WARRANTY,
WHETHER SOUNDING IN CONTRACT, TORT, OR STATUTE, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF INDIANA, INCLUDING ITS STATUTE OF LIMITATIONS, WITHOUT GIVING EFFECT TO ANY CONFLICT-OF-LAW RULE THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.
B. The Lathrops File This Action, and the Trial Court Grants Thor‘s Motion To Stay
In December 2022 the Lathrops filed this action against Thor, Mike Thompson RV, and U.S. Bank National Association (the assignee of the sales contract). The Lathrops alleged the defendants violated the Song-Beverly Act by not performing necessary repairs to correct defects in their motorhome within a reasonable time or in a reasonable number of attempts and by not returning the Lathrops’ money or replacing the motorhome. The Lathrops also alleged Thor violated the CLRA by inserting an unconscionable provision in the Limited Warranty and by not providing the Limited Warranty at the time of sale.
Thor filed a motion (joined by the other defendants) under
“By this motion, THOR, MIKE THOMPSON RECREATIONAL VEHICLES, and U.S. BANK NATIONAL ASSOCIATION stipulate that (1) the substantive provisions of the Song Beverly Consumer Warranty Act (
CA Civil Code section 1790 , et seq) and the CA Consumers Legal Remedies Act (CA Civil Code section 1750 , et seq), along with all other unwaivable California substantive rights, will apply to Plaintiffs’ currently enumerated claims when pursued in an action against them in Indiana; and (2) these Defendants will not oppose a request that the Indiana court utilize the Song Beverly Consumer Warranty Act and Consumers Legal Remedies Act to adjudicate those allegations. Further, should Plaintiffs wish, THOR, MIKE THOMPSON RECREATIONAL VEHICLES, and U.S. BANK NATIONAL ASSOCIATION will enter into a separate written stipulation to that effect.”
The Lathrops opposed the motion, arguing that the forum selection clause was permissive, not mandatory; that they did not freely and voluntarily agree
The trial court granted the motion to stay. The court found the Lathrops signed the Warranty Registration Form, which included a mandatory forum selection clause giving Indiana exclusive jurisdiction over the Lathrops’ causes of action. The court stated the clause appeared in large, bold type “right above the signature line.” The court ruled enforcing the forum selection clause was not “unreasonable given the circumstances of this case.” The Lathrops timely appealed from the order granting the motion to stay the action.3
DISCUSSION
A. Applicable Law and Standard of Review
“California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable.” (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 146 (Verdugo); see Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496; Rheinhart v. Nissan North America, Inc. (2023) 92 Cal.App.5th 1016, 1031.) “This favorable treatment is attributed to our law‘s devotion to the concept of one‘s free right to contract, and flows from the important practical effect such contractual rights have on commerce generally.” (America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11 (America Online).) A court will typically enforce a forum selection clause unless it is “unfair or unreasonable.” (EpicentRx,Inc. v. Superior Court (2023) 95 Cal.App.5th 890, 899 (EpicentRx), review granted Dec. 13, 2023, S282521; see Verdugo, at p. 147.)
“Nonetheless, ‘California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state‘s public policy.‘” (Verdugo, supra, 237 Cal.App.4th at p. 147; see EpicentRx, supra, 95 Cal.App.5th at p. 899, review granted.) “The party opposing enforcement of a forum selection clause ordinarily ‘bears the “substantial” burden of proving why it should not be enforced.’ [Citations.] That burden, however, is reversed when the claims at issue are based on unwaivable rights created by California statutes. In that
We review an order enforcing a forum selection clause for abuse of discretion. (Schmidt v. Trinit Farm Management, Inc. (2023) 92 Cal.App.5th 997, 1006; Verdugo, supra, 237 Cal.App.4th at p. 148.) We review de novo whether the trial court applied the correct legal standard in exercising its discretion. (Esparza v. Safeway, Inc. (2019) 36 Cal.App.5th 42, 59.)
B. The Trial Court Applied the Wrong Standard in Ruling on Thor‘s Motion To Enforce the Forum Selection Clause
The Lathrops argue the trial court erred in requiring them to “demonstrate that enforcement of the clause would be unreasonable,” rather than requiring Thor to show litigating in Indiana would not diminish the Lathrops’ rights under California law. Because their causes of action were based on unwaivable statutory rights, the Lathrops are correct.
The Song-Beverly Act, California‘s lemon law, “protects consumers who purchase defective vehicles or other goods.” (Niedermeier v. FCA US LLC (2024) 15 Cal.5th 792, 800.) A consumer‘s rights under the Song-Beverly Act are unwaivable. (See
The CLRA “prohibits ‘unfair methods of competition and unfair or deceptive acts or practices’ in transactions involving the sale of goods or services to any consumer.” (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1249; see
Therefore, in cases brought under the Song-Beverly Act or the CLRA, the party seeking to enforce a forum selection clause has the burden to show
Rather than analyzing whether Thor met that burden, the trial court applied the rules applicable to enforcing a forum selection clause where unwaivable statutory rights are not involved. In its order granting Thor‘s motion to stay, the trial court quoted Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490, 1493: “‘Given the importance of forum selection clauses, both the United States Supreme Court and the California Supreme Court have placed a heavy burden on a plaintiff seeking to defeat such a clause, requiring it to demonstrate that enforcement of the clause would be unreasonable under the circumstances of the case.‘” The trial court stated it would “limit its analysis to determining whether [the forum selection clause‘s] enforcement is unreasonable giventhe circumstances of this case.” The court also stated: “There is no public policy which would compel denial of a forum selection clause in a contract which has been entered into freely and voluntarily by the parties who have negotiated at arms’ length.” The court did not mention the Song-Beverly Act or the CLRA; did not mention that those statutes provide unwaivable rights; and did not state that, when unwaivable rights are involved, the defendant has the burden to show litigating in a different forum will not diminish those rights.
Thor tries mightily to explain away the trial court‘s error by attempting to rewrite the court‘s order to say what it doesn‘t say. Thor contends that, when the court mentioned the plaintiff‘s “heavy burden,” the trial court was merely “laying out the general principles” and that “the court did not state that, in this case, plaintiffs bore the initial burden.” That contention might have had a modicum of merit had the court gone on to articulate more specific principles that applied to this case, but the court did not do that. Thor also contends the “trial court was aware that the ‘burden is reversed when the claims at issue are based on unwaivable rights created by California statutes‘” because [the Lathrops] emphasized that point in bold font in their trial court briefing and defendants agreed.” But Thor, in its motion to stay, argued the opposite: “Because the forum selection clause in Thor‘s limited express warranty is mandatory and because an Indiana court can provide the relief [the Lathrops
Thor also argues it “would be improper to assume the trial court ignored the parties’ briefs and applied an improper burden analysis, when its discussion hinged on the defendants’ stipulation, which is the key to defendants meeting their burden where unwaivable rights are in play.” Assuming Thor is referring to the trial court‘s written order (there is no transcript of the hearing on the motion to stay), the court only briefly mentioned the offer to stipulate and did not discuss its significance, did not mention unwaivable rights, and did not suggest Thor had the burden to show the forum selection clause was enforceable.
Although we “presume the trial court knew and properly applied the law absent evidence to the contrary” (McDermott Will & Emery LLP v. Superior Court (2017) 10 Cal.App.5th 1083, 1103), the trial court‘s order granting Thor‘s motion to stay is clear evidence to the contrary. The trial court erred in failing to consider whether Thor met its burden to show litigating in Indiana would not diminish the Lathrops’ unwaivable rights under the Song-Beverly Act or the CLRA.
C. Thor Failed To Show Litigating in Indiana Would Not Substantially Diminish the Lathrops’ Unwaivable Statutory Rights
To meet its burden, Thor had to show an Indiana court would provide “the same or greater rights than California” or would “apply California law on the claims at issue.” (Verdugo, supra, 237 Cal.App.4th at p. 157.) Because the Limited Warranty contained not only an Indiana forum selection clause but also an Indiana choice-of-law clause, an Indiana court couldenforce several terms of the Limited Warranty that would be unenforceable under the Song-Beverly Act.4
The Limited Warranty offered the Lathrops less protection than the Song-Beverly Act. For example, under the Limited Warranty Thor could require the buyer to deliver the motorhome to a service facility in Indiana or “another authorized service center or dealership for certain repairs“; the Song-Beverly Act requires a manufacturer to provide service facilities and repair facilities “reasonably close to all areas where its consumer goods are sold” (
Given the consumer-protection deficit between the terms of the Limited Warranty and the Song-Beverly Act, Indiana did not provide the Lathrops the same or greater rights than California. (See America Online, supra, 90 Cal.App.4th at p. 15 [forum selection clause in a contract with a Virginia choice-of-law clause was unenforceable in a CLRA class action because “Virginia‘s law provides significantly less consumer protection to its citizens than California law provides for our own“]; see also Verdugo, supra, 237 Cal.App.4th at p. 160 [trial court erred in enforcingTexas forum selection and choice-of-law clauses where the employer failed “to show the remedies Texas law provides are ‘adequate,’ let alone that enforcing the forum selection clause would not diminish,” the employee‘s unwaivable rights under the
Litigating in Indiana under Indiana law would deprive the Lathrops not only of their rights under the Song-Beverly Act, but also their right to a jury trial. Because a predispute jury trial waiver, such as the one in the Warranty Registration Form, is unenforceable under California law (see Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 951), California courts refuse to enforce forum selection clauses that result in a waiver of the right to a jury trial. (See EpicentRx, supra, 95 Cal.App.5th at p. 908 [“the trial court properly declined to enforce the forum selection clauses because they constituted implied predispute jury trial waivers—waivers of an inviolate, fundamental, and constitutionally protected right“], review granted;5 Handoush v. Lease Finance Group, LLC (2019) 41 Cal.App.5th 729, 741 [“the trial court erred in enforcing the forum selection clause in favor of a New York forum where the clause includes a predispute jury trial waiver, which [Grafton Partners v. Superior Court] instructs is unenforceable under California law“].)6
1. Requiring the Lathrops To Accept Thor‘s Stipulation Would Violate Public Policy
Acknowledging Indiana does not provide the same or greater rights than California, Thor argues “a party seeking to enforce a forum selection clause may stipulate that California law will apply in the new forum, which is sufficient to establish that enforcement of the forum selection clause will not diminish a plaintiff‘s non-waivable rights.” The Lathrops argue that, because “Thor‘s stipulation offer amounted to an evasion of . . . consumers’ unwaivable rights, . . . endorsing the stipulation itself is contrary to California public policy.” The Lathrops contend that, if the court allows Thor to stipulate to sever clauses Thor knows are unenforceable in California, Thor “will not be deterred from drafting the illegal clauses in the first place.” No California case yet has directly addressed whether a stipulation to apply California law renders an otherwise unenforceable forum selection clause enforceable. We hold it does not.
Because Thor‘s offer to stipulate (which the Lathrops did not accept) was essentially a request the trial court sever the unenforceable portions of the Warranty Registration Form and Limited Warranty and enforce the remainder, we look to case law governing severance of unlawful or unconscionable provisions in a contract. (See
Assuming without deciding the unenforceable provisions of the Warranty Registration Form and Limited Warranty can be cured purely by severance or restriction, approving Thor‘s proposed stipulation, and requiring the Lathrops to accept it, would not further the interests of justice. Thor acknowledges its
Accepting Thor‘s proposed stipulation and enforcing its forum selection clause would also create an incentive for Thor tocontinue to include admittedly unenforceable provisions in its warranties and would deter Thor from revising its warranty to comply with California law. (See Ramirez v. Charter Communications, Inc., supra, 16 Cal.5th at p. 517 [“severing multiple unconscionable provisions from an agreement and enforcing the remainder could ‘create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place‘“]; Mills v. Facility Solutions Group, Inc. (2022) 84 Cal.App.5th 1035, 1045 [same]; see also Armendariz, supra, 24 Cal.4th at p. 124, fn. 13 [“An employer will not be deterred from routinely inserting [an unlawful] clause into the arbitration agreements it mandates for its employees if it knows that the worst penalty
Thor argues including the Indiana choice-of-law provision in the Limited Warranty was not improper because, although the provision is unenforceable under the Song-Beverly Act, it is enforceable under other statutes, such as
Thor also argues it “is not surprising that warranty agreements . . . intended to apply in all 50 states . . . may include provisions—like the jury waiver provision—that are not enforceable in some individual states.” Thor contends its warranty “puts California consumers on notice that California substantive law may apply, including the right to a jury trial or California‘s lemon law,” by including language required by the federal Magnuson-Moss Warranty Act
apply to you.” The “other rights” disclosure, which appears below the Indiana choice-of-law clause, does not inform a California consumer that Indiana law may not govern or that the consumer may bring a cause of action under California‘s Song-Beverly Act or the CLRA.11 Moreover, the “other rights” disclosure in the Legal Remedies section of the Limited Warranty does nothing to notify California consumers they may have the right to a jury trial; the jury waiver appears in the Warranty Registration Form, which does not have an “other rights” disclosure.
Thor relies on Verdugo, supra, 237 Cal.App.4th 141, which discussed the possibility a defendant might be able to stipulate to apply California law, but did not squarely decide whether such a stipulation would make a forum selection clause enforceable. In Verdugo an employee asserted causes of action under the
Texas court would apply by stipulating to have a Texas court apply California law in deciding Verdugo‘s claims, but [the employer] did not do so.” (Ibid.) The court concluded the employer‘s “failure to stipulate that California law applies, coupled with its efforts to minimize the significance of the public policy underlying [the employee‘s] Labor Code rights,” undermined the employer‘s contention a Texas court would likely apply California law. (Id. at p. 159.)
Thor cites several cases where federal district courts, relying on stipulations offered by Thor, have transferred actions under
2. Even if Thor‘s Proposed Stipulation Did Not Violate Public Policy, It Was Insufficient
Even if a stipulation to apply California law rather than Indiana law could salvage an otherwise unenforceable forum selection clause, Thor‘s proposed stipulation was not sufficient. Thor agreed “the substantive provisions” of the Song-Beverly Act and the CLRA “along with all other unwaivable California substantive rights will apply to [the Lathrops‘] currently enumerated claims when pursued in an action against them in Indiana.” This stipulation, however, created several opportunities for unwaivable rights mischief in Indiana.
For example, Thor‘s inclusion of the modifier “substantive” creates the potential for disputes over which rights are substantive and which are procedural. Thor asserts the phrase “other unwaivable California substantive rights” includes the right to a jury trial (which, as discussed, the Warranty Registration Form waived), but an Indiana court could rule that right is not a “substantive right.” (See Handoush v. Lease Finance Group, LLC, supra, 41 Cal.App.5th at p. 737 [“Whether the right to a jury trial in a civil case is a substantive or procedural right is an open question.“];12 Hayworth v. Bromwell
(1959) 239 Ind. 430, 435 [“While the right itself is a substantive matter, the method or manner in which it may be waived or exercised is clearly a procedural question.“].) In addition, an Indiana court could apply Indiana law to cap the Lathrops’ damages or apply a higher burden of proof on the ground those issues are not “substantive.” (CompareAnd there‘s more: Thor‘s proposed stipulation also directs an Indiana court to apply Indiana law in interpreting the warranty. The Legal Remedies section of the Limited Warranty contained two choice-of-law provisions: (1) a specific or narrow provision stating the warranty “shall be interpreted and construed in accordance with the laws of the state of Indiana”
and (2) a general provision stating Indiana law applied to all claims “arising out of or relating to” the warranty, “whether sounding in contract, tort, or statute.” (See Narayan v. EGL, Inc. (9th Cir. 2010) 616 F.3d 895, 898 [“narrow choice-of-law clauses, providing under what law an agreement ‘shall be interpreted and enforced,’ apply only to the interpretation and enforcement of the contract itself; they do not ‘encompass all disputes between the parties‘“]; Benchmark Electronics, Inc. v. J.M. Huber Corp. (5th Cir. 2003) 343 F.3d 719, 726 [choice-of-law provision addressing only “the construction and interpretation of the contract” did not govern claims for fraud and negligent misrepresentation].) Thor‘s proposed stipulation modified only the second provision by stating California law would govern the Lathrops’ causes of action under the Song-Beverly Act and the CLRA. But the stipulation left intact the first provision, allowing an Indiana court to interpret a provision in the warranty under Indiana law in a way that might diminish or eliminate one of the Lathrops’ unwaivable statutory rights under California law. For example,
Finally, Thor cannot guarantee an Indiana court will apply California law to the Lathrops’ Song-Beverly and CLRA causes of action. As stated, Thor offered to stipulate it would “not oppose a request that the Indiana court utilize the Song Beverly Consumer Warranty Act and Consumers Legal Remedies Act to adjudicate those allegations.” But even if Thor said it would not oppose the Lathrops’ request that a court in Indiana apply the Song-Beverly Act and the CLRA, Thor did not say it would join that request, and ultimately it will be up to the courts in Indiana to decide whether to honor all or part of the proposed stipulation. Claiming “Indiana courts routinely apply California law in cases just like this one,” Thor cites (not Indiana state court cases, but) three federal cases from the Northern District of Indiana, two of which applied the Song-Beverly Act or the CLRA (before granting motions by the defendants in those cases to dismiss or for summary judgment on those claims).13 But none of these cases sheds light on how an Indiana court would interpret Thor‘s
stipulation or apply California law in this case, nor did any of them mention a forum selection clause or whether the case was originally filed in California.DISPOSITION
The order granting Thor‘s motion to stay is reversed, and the trial court is directed to enter a new order denying the motion. The Lathrops’ motion to
SEGAL, J.
We concur:
MARTINEZ, P. J.
FEUER, J.