In Sanchez v. Valencia Holding Co., LLC, 2011 WL 5027488 (2011), the California Court of Appeal found that Concepcion did not eliminate states’ rights to address issues of unconcionability in arbitration clauses and, therefore, found that the arbitration clause in a LawPrinting retail installment sales contract for the purchase of an automobile was procedurally and substantively unconscionable. Sanchez involved a class action filed against an automobile dealership arising out of, among other things failing to disclose a deferred down payment and ‘lumping’ amounts paid to public officials into a single line on the RISC. The dealer petitioned to compel arbitration, which the trial court denied pre-Concepcion. The Court of Appeal affirmed, finding the arbitration clause procedurally and substantively unconscionable. The Court of Appeal held that the clause was procedurally unconscionable because the contract was presented on a take-it-or-leave-it basis and the arbitration clause was printed on the back of the form where a car buyer was unlikely to read it:
For its part, Valencia argues procedural unconscionability is lacking because Sanchez could have gone elsewhere to buy a Mercedes–Benz from a dealer who did not require arbitration. But “absent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives…. [C]ourts are not obligated to enforce highly unfair provisions that undermine important public policies simply because there is some degree of consumer choice in the market.” ( Gatton v. T–Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 585, fn. omitted; see id. at pp. 583–585 [discussing cases].) “The California Court of Appeal has rejected the notion that the availability in the marketplace of substitute employment, goods, or services alone can defeat a claim of procedural unconscionability.” ( Nagrampa v.. MailCoups, Inc. (9th Cir.2006) 469 F.3d 1257, 1283 (en banc).) And here, there is no evidence Sanchez could have purchased a Mercedes–Benz from a dealer who did not mandate arbitration. Far from it, in arguing that the arbitration provision involved no surprise, Valencia relies on case author-ity for the proposition that “arbitration per se may be within the reasonable expectation of most consumers.” ( Patterson v. ITT Consumer Financial Corp. (1993) 14 Cal.App.4th 1659, 1665; accord, Gutierrez, supra, 114 Cal.App.4th at p. 90.) If this is true, a potential buyer might reasonably assume that all Mercedes–Benz dealers would insist on arbitration and that there were no market alternatives, but a buyer would not expect to be bound by a provision as harsh as the one here. In short, the arbitration provision satisfies the two elements of procedural unconscionability: oppression and surprise. Its location on the back of the last page in small font with reduced line spacing made it unnoticeable to the buyer.
The Court of Appeal held that the arbitration clause was substantively unconscionable because of its provision for appeal of an arbitration award to a three-arbitrator panel if the award is $0 or exceeds $100,000 or grants injunctive relief. Only a dealer is likely to suffer an award over $100,000 and an injunction is necessary to enforce consumer protection statutes. The arbitration clause did not indicate what happened to the injunction during the appeal. The clause was also unconscionable in providing that the appellant must pay all costs of the appeal to the three-arbitrator panel and the AAA rules did not give the consumer relief from this provision as they do from ordinary arbitration costs if the consumer could not afford them. Finally, the clause was unconscionable in providing that the dealer’s most important remedy, repossession was not subject to arbitration. These four defects all favored the dealer and could not be cleanly severed from the arbitration provision–there is no way to cure the lack of a provision for costs on appeal. Hence, the Court of Appeal held the whole clause unenforceable.