ORDER DENYING DEFENDANT’S MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Docket Nos. 10 and 17)
Plaintiff John Trompeter has filed a putative class action against Defendant Ally Financial, Inc., alleging that Ally had a policy and practice of secretly recording telephone calls with persons located in California without their consent. Trompeter alleges in his First Amended Complaint two causes of action under this state’s Invasion of Privacy Act, California Penal Code § 632, and the state Unfair Competition Law (UCL), California Business and Professions Code section 17200 et seq. Trompeter seeks to represent all consumers who received a telephone call in which at least one party was in California and that telephone call was recorded or monitored without prior warning or consent.
Ally has moved to compel arbitration based on an arbitration agreement contained in the consumer contract to which Trompeter is a signatory and which was assigned to Ally. Docket No. 10. Trompeter opposes the motion. In addition, Ally has moved to stay the Court’s resolution of the motion, pending the California Supreme Court’s decision on the appeal of Sanchez v. Valencia Holding Company, LLC,
On May 11, 2007, Trompeter purchased a new Chevrolet Silverado truck from a dealership in Colma, California. Trompeter secured financing through the dealership. Soon after Trompeter executed the retail installment sales contract, the dealership assigned the contract to Ally. When Trompeter later defaulted on the contract by failing to make the required payments, Ally repossessed the truck in or about October 2010. After Trompeter failed to reinstate the contract or redeem the vehicle, Ally sold the truck at an auction and applied the sale proceeds to Trompeter’s account balance, leaving a deficiency in the amount of $12,246.85. Lynda Zitka, a Vice President for Ally, attested that any telephone calls on behalf of the company to Trompeter would have related to Trompeter’s default or the debt that he owed Ally pursuant to the contract.
Trompeter’s contract contained an arbitration clause on the reverse-side of a two page agreement. The clause stated the following,
ARBITRATION CLAUSE PLEASE REVIEW — IMPORTANT—AFFECTS YOUR LEGAL RIGHTS
1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN U.S. DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.
2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST U.S. INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBI-TRATIONS.
3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAW LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.
Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arise out of or relate 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. Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose one of the following arbitration organizations and its applicable rules: the National Arbitration Forum ... (www.arbforum.com), the American Arbitration Association ... (www.adr.org), or any other organization that you may choose subject to our approval ....
Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the applicable rules. The arbitrator shall apply governing substantive law in making an award. The arbitration hearing shall be conducted in the federal district in which you reside .... We will advance your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $1500, which may be reimbursed by decision of the arbitrator at the arbitrator’s discretion. 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 Clause, then the provisions of this Arbitration Clause shall control. The arbitrator’s award shall be final and binding on all parties, except that in the event the arbitrator’s award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party, that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel. The appealing party requesting new arbitration shall be responsible for the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs. Any arbitration under this Arbitration Clause shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state law concerning arbitration.
You and we retain any rights to self-help remedies, such as repossession. You and we retain the right to seek remedies in small claims court for disputes or claims within that court’s jurisdiction, unless such action is transferred, removed or appealed to a different court. Neither you nor we waive the right to arbitrate by using self-help remedies or filing suit. Any court having jurisdiction may enter judgment on the arbitrator’s award. This clause shall survive any termination, payoff or transfer of this contract. If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder of this arbitration clause shall be unenforceable.
DISCUSSION
I. Motion to Compel Arbitration
A. Legal Standard
Under the FAA, 9 U.S.C. § 1 et seq., written agreements that controversies between the parties shall be settled by arbitration are valid, irrevocable, and enforceable. 9 U.S.C. § 2. A party aggrieved by the refusal of another to arbitrate under a written arbitration agreement may petition the district court which would, save for the arbitration agreement, have jurisdiction over that action, for an order directing that arbitration proceed as provided for in the agreement. 9 U.S.C. § 4. A district court must compel arbitration under the FAA if it determines that: 1) there exists a valid agreement to arbitrate; and 2) the dispute falls within its terms. Stem v. Cingular Wireless Corp.,
The FAA reflects a “liberal federal policy favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp.,
B. Analysis
Trompeter does not argue that his claims against Ally fall outside of the arbitration clause. Rather, he contends the
The party opposing arbitration bears the burden of proving that the arbitration provision is unconscionable. Arguelles-Romero v. Superior Court,
1. Procedural Unconscionability
Procedural unconscionability focuses on the existence of oppression or surprise. Newton v. American Debt Services,
Trompeter first argues that the adhesive nature of the contract renders it procedurally unconscionable. “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Armendariz,
Trompeter also argues that the arbitration agreement is procedurally unconscionable because the relevant clause was placed at the bottom of the back page of the contract. Although Trompeter signed the agreement in eight different locations on the front page of the agreement, the only signature on the back of the agreement is one belonging to a representative of the dealership. An arbitration agreement placed in an inconspicuous location on the opposite side of a signature page adds to the procedurally unconscionable nature of the agreement. See e.g., Gutierrez v. Autowest, Inc.,
Trompeter has established a minimal degree of procedural unconscionability based on the adhesive nature of the form arbitration agreement and the lack of opportunity for him to negotiate its terms.
2. Substantive Unconscionability
“Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.” Little v. Auto Stiegler Inc.,
Trompeter does not challenge the class action waiver in the arbitration agreement, but asserts that the agreement is substantively unconscionable based on the following provisions: (1) a party does not waive the right to arbitrate by using self-help remedies or filing suit; (2) if the arbitrator’s award against a party is in excess of $100,000, that party may request a new arbitration by a three-arbitrator panel under the rules of the arbitration organization; (3) if the arbitration award includes injunctive relief, the enjoined party may demand a re-arbitration by the three-arbitrator panel; and (4) the appealing party requesting a new arbitration shall be responsible for the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs. The Court considers each of these provisions, as well Trompeter’s contention that the agreement provided an illusory choice as to the type of arbitration available.
The arbitration agreement provides that a party does not waive the right to arbitrate by using self-help remedies or filing suit in small claims court. Thus, a creditor could repossess a vehicle or file suit to collect a debt owed by a defaulting car buyer, but still reserve the right to seek arbitration of a dispute in which it was named as a defendant. As a practical matter, a debtor has no corresponding remedy. If the consumer stops paying on the debt, his or her vehicle will likely be repossessed and the consumer could be held liable for any deficiency after disposition of the repossessed vehicle, pursuant to California Civil Code section 2983.2(a). As
Trompeter is also correct that the provision that allows a party to seek a re-arbitration by panel if the arbitrator issues an award against that party in an amount exceeding $100,000 favors creditors, such as Ally, over car buyers. Trompeter contends that a defect in the vehicle could give rise to a claim exceeding $100,000. A claim by Ally against the purchaser of a single vehicle is unlikely to exceed $100,000. Ally, however, asserts that by contract and statute a creditor that prevails in an action against a defaulting ear buyer is entitled to attorneys’ fees and costs and, thus, could obtain an award exceeding $100,000. Trompeter financed $27,931.43 of his truck’s purchase price and the litigation necessary to collect on a consumer debt, in general, is not highly complex and, thus, is unlikely to give rise to disproportionately high attorneys’ fees and costs, such as an amount that exceeds the value of the debt.
The California Supreme Court’s decision in Little supports a finding of substantive unconscionability. There, the party that imposed an arbitration agreement on a plaintiff employee argued that the $50,000 threshold amount for a right to an arbitral appeal applied even-handedly to both parties.
In the present case it is likewise reasonable to conclude that the $100,000 threshold was imposed because the drafter believed that such a requirement would serve the creditor, such as Ally, in that it would typically be the defendant in a dispute exceeding the threshold amount. Although the re-arbitration provision in question also allows a party to appeal an arbitrator’s determination if the award is zero, even assuming that a consumer and creditor are equally likely to benefit from
Another aspect of the arbitration agreement identified by Trompeter, the provision that when an arbitrator has awarded injunctive relief an enjoined party may seek re-arbitration by the three-arbitrator panel, also benefits creditors over consumers. If a creditor seeks to block a car buyer’s use of the vehicle, the creditor is authorized under the arbitration agreement to repossess the vehicle without proceeding through arbitration or waiving its right to the arbitral forum. Injunctive relief, on the other hand, is a remedy often sought in consumer actions to protect the public from further unlawful actions by a defendant. Thus, compared to creditors, consumers are more likely to seek injunctive relief in a dispute subject to the arbitration agreement.
Furthermore, the arbitration agreement’s provision for an appeal when injunctive relief is awarded offers an additional opportunity for delay for the benefit of creditors at the expense of consumers. Although Ally cites Food & Grocery Bureau of Southern California v. Garfield,
On balance, the provision allowing an appeal of an award granting injunctive relief is designed to benefit the creditor and, thus, contributes to a finding of substantive unconscionability.
Further, a finding of substantive unconscionablity is supported by the provision that a party requesting re-arbitration shall be responsible for the filing fee and other re-arbitration costs, subject to a final determination by the arbitrators of a fair apportionment of costs. See Little,
Ally argues that under Green Tree Financial Corp.-Alabama v, Randolph,
In this case, because the National Arbitration Forum refuses to hear consumer disputes, the American Arbitration Association rules are the best indicator of the costs that Trompeter would incur if he were to pursue an appeal. Ally does not dispute that, under the AAA’s fee schedule, the minimum fees for any case having three or more arbitrators includes a $2,800 initial filing fee and a $1,250 final fee, as well as the hourly rate for three arbitra
Finally, as noted earlier, Trompeter argues that the arbitration agreement is unconscionable because it provided him with an illusory choice of arbitration services. “A single arbitrator unilaterally selected by a contracting party adverse to the other is presumed to be biased.” Sehulster Tunnels/Pre-Con v. Traylor Bros., Inc/Obayashi Corp.,
Nonetheless, Trompeter has demonstrated that the arbitration agreement is substantively unconscionable based on the other factors discussed above. Multiple elements render the agreement procedurally and substantively unconscionable, such that the arbitration agreement is void under California law.
3. Severability
Although Ally asserts that the unconscionable aspects of the agreement may be severed, as in Armendariz,
4. Concepcion and Kilgore
Ally argues that the Supreme Court’s decision in Concepcion and the Ninth Circuit’s ruling in Kilgore v. KeyBank, National Association,
Ally’s reading of Concepcion is over-broad. Concepcion overturned the rule established by the California Supreme Court in Discover Bank v. Superior Court,
Nor does the Ninth Circuit’s decision in Kilgore change the outcome of this Court’s determination to deny enforcement of the arbitration agreement. Kilgore held that the FAA, in light of the Supreme Court’s decision in Concepcion, preempted the California state law principles announced in Broughton v. Cigna Healthplans of California,
The present case is distinguishable from Kilgore because it does not involve a categorical rule barring arbitration of a specific type of claim or remedy and the Court’s ruling does not rest on an independent state public policy disfavoring arbitration. The Court has not determined that the arbitration agreement is unenforceable because Trompeter has sued for injunctive relief under the UCL or California’s Privacy Act. As noted earlier, the Court’s unconscionability analysis does not disfavor arbitration as a forum for dispute resolution generally.
Neither Concepcion nor Kilgore precludes a finding that the arbitration agreement here is unconscionable.
II. Motion for a Stay
Ally has moved to stay this action pending the California Supreme Court’s disposition of the appeal in Sanchez,
“A stay is not a matter of right, even if irreparable injury might otherwise result.” Nken v. Holder,
Ally contends that a stay is warranted to protect it from burdensome expenses and procedures in litigating this action, and to prevent the unnecessary waste of resources, including the Court’s time. Ally asserts that a stay will prevent prejudice of its contractual rights under the arbitration agreement.
With respect to the first factor, Ally has not established that it is likely to succeed on the merits. The California Supreme Court’s decision to grant review does not indicate whether it will affirm or reverse the decision in full or in part, or remand the action for further proceedings. Having reviewed Sanchez and considered the arbitration agreement independently from that decision, the Court has found that the contention that the arbitration clause is unconscionable is well-supported by longstanding case law. Moreover, the finding of unconscionability is not foreclosed by the recent decisions in Concepcion and Kilgore.
Although allowing the case to proceed will require Ally to incur some costs of litigation, Ally has not established that it is likely to suffer irreparable harm in the absence of a stay of the Court’s ruling on its motion to compel arbitration. Most likely, the next steps in the litigation will require the exchange of initial discovery and perhaps motion practice. Ally has not demonstrated that the procedures in arbitration provide for less costly discovery and motion practice. It is Ally’s burden to show that a stay is warranted, and it has not made a clear showing of irreparable harm.
On the other hand, there is evidence that a delay in resolving the action could cause harm to Trompeter and the putative class. This case involves allegations that Ally or its agents surreptitiously recorded telephone calls made to numerous consumers, including out-of-state consumers to whom Ally or its agent placed a call from within California. Critical information and records regarding the phone calls and related policies and practices could be lost if the proceedings are stayed. Sanchez is likely to remain before the California Supreme Court for at least a year, and in Brinker Restaurant Corp. v. Superior Court of San Diego County,
Pursuant to 9 U.S.C. § 16(a)(1)(B), Ally has a right to an interlocutory appeal of an order denying a petition to compel arbitration. See Green Tree,
CONCLUSION
Ally’s motion to compel arbitration or, in the alternative, dismiss the complaint, and its motion for a stay of the proceedings are denied. The parties shall appear for a case management conference on June 6, 2012 at 2:00 pm.
IT IS SO ORDERED.
Notes
. Trompeter also argues that the arbitration agreement is procedurally unconscionable because it provided him with an illusory choice of arbitration services. Because this argument relates to the one-sided nature of the agreement and whether Ally sought to use the arbitration agreement to gain leverage in the dispute, the Court considers this issue below, in context of its substantive unconscionability analysis. See e.g., Newton,