It’s not an auto finance case, as it involves the CLRA and enforcement of an arbitration clause post-Concepcion, and both issues arise in automobile and personal property finance, I’m reporting on it for my readers. 


In Khan v. Orkin Exterminating Co., Inc., 2011 WL 4853365 (N.D.Cal. 2011), Judge Armstrong held that Concepcion preempted required enforcement of an arbitration clause with a class action waiver in a consumer contract, notwithstanding plaintiff’s claims under the CLRA.  On November 2006, plaintiff entered into a Residential Single Family Dwelling California 10–Year Drywood Termite or Subterranean Termite Program Directed Liquid Bait Control Service Agreement. The Service Agreement provided for initial treatment of Plaintiff’s property for drywood or subterranean termites, and retreatment at no cost if termites returned to the treated structure. Plaintiff paid $2,108 as the initial fee for the service, which was renewable for ten years annually upon payment of a $496 renewal fee. Id. Plaintiff alleges that he has re-newed the service annually.    Paragraph 4 of the Service Agreement sets forth an arbitration clause, which includes a class action waiver. 


In Concepcion, the Supreme Court reviewed the Ninth Circuit’s decision in Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009), rev’d sub nom., Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742, which had held that a class action waiver provision in an arbitration agreement was unenforceable under the test for unconscionability set forth in Discover Bank. The Supreme Court reversed Laster, and held that the Discover Bank rule was preempted because “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Concepcion, 131 S.Ct. at 1748. As such, “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” Id. at 1747. After Concepcion, a challenge to an arbitration clause is limited to “generally applicable contract defenses, such as fraud, duress, or unconscionability. Id. at 1746. Defenses “that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue” are preempted by the FAA. Id. ¶  Plaintiff contends that Concepcion is inapt because Defendants’ arbitration clause expressly provides that arbitration is permitted only to the extent that it does not conflict with state law. In support of his contention, Plaintiff cites the final sentence of the Paragraph 5 of the Service Agreement, entitled, Limitation of Liability,” which states: “Nothing in this Agreement shall be construed as depriving the Customer of remedies available under applicable state consumer protection laws.” Defs.’ Ex. A ¶ 5. According to Plaintiff, California’s CLRA authorizes class actions, see Cal. Civ.Code § § 1781(a), and expressly renders as “unenforceable and void” any waiver of statutory rights, including the right to bring class actions, provided for under the CLRA, id. § 1751. In view of these CLRA provisions, Plaintiff contends that enforcement of the class action waiver contained in the arbitration clause would deprive him of rights codified under state law, thereby rendering the arbitration clause unenforceable. The Court disagrees.    As a threshold matter, “[t]he class action device is a procedural mechanism to aggregate individual claims for purposes of judicial efficiency.” Dukes v. Wal–Mart Stores, Inc., 603 F.3d 571, 651 (9th Cir.2010)), rev’d on other grounds, ––– U.S. ––––, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011) (emphasis added). As such, it is unclear whether Defendants’ class action waiver actually deprives Plaintiff of any substantive remedies under the CLRA. But even if it did, Plaintiff’s contention that the purported carve-out in Paragraph 5 of the Service Agreement allows “the consumer laws of the state take precedence” over the class action waiver is misplaced. See Pl .’s Opp’n at 4. It is a well settled canon of contract interpretation that specific terms of an agreement control its general terms. See, e.g., Cent. Ga. Elec. Membership Corp. v. Ga. Power Co., 217 Ga. 171, 121 S.E.2d 644, 646 (1961) (citing Restatement (First) of Contracts, § 236(c) (1932)).FN1 Here, the arbitration clause expressly provides that the parties agree “that this arbitration provision … shall be governed by the Federal Arbitration Act.” Compl. Ex. A ¶ 4 (emphasis added). The Ninth Circuit has held that the FAA preempts the CLRA’s prohibition against class action waivers. Ting v. AT & T, 319 F.3d 1126, 1148 (9th Cir.2003). Because the arbitration clause expressly relies upon the FAA, and because the FAA preempts the CLRA’s class action waiver, the carve-out contained in the separate Limitation of Liability section of the Service Agreement cannot be interpreted as a bar to the enforcement of its arbitration clause.


The Court also held that Plaintiff’s demand for discovery from the arbitration clause on the issue of unconscionability would add nothing to the equation.


To the extent that Plaintiff is seeking to establish that it is too costly for him to pursue consumer protection claims on an individual as opposed to a class basis, the Court notes that post-Concepcion decisions have rejected the cost of litigation as a basis for invalidating a class action waiver. See, e.g., In re Apple and AT & T iPad Unlimited Data Plan Litig., No. C 10–2553 RMW, 2011 WL 2886407, at *3 (N.D.Cal. July 19, 2011) (“Plaintiffs’ contention that their modest claims ‘simply do not provide sufficient motivation for an aggrieved customer to seek redress’ on an individual basis (Opp. at 10) is the very argument that was struck down in Concepcion.” ) (Whyte, J.); Arellano v. T–Mobile USA, Inc., No. C 10–5663 WHA, 2011 WL 1842712, at *2 (N.D.Cal. May 16, 2011) (finding that Concepcion forecloses argument that an arbitration agreement is void because small claims might be prohibitively expensive to pursue on an individual basis) (Alsup, J.).     Plaintiff also posits that the evidence necessary to establish that Defendants’ arbitration clause is unconscionable “is exclusively within the possession of the Defendant[s],” as ostensibly shown by the fact that Defendants supported their motion with declarations of their employees. Pl.’s Opp’n at 9–10. The only supporting employee declaration proffered by Defendants, however, is from Sonja Rice, a litigation specialist with Defendant Rollins. Rice Decl., Dkt. 40–1.FN2 In her declaration, Ms. Rice simply confirmed that Plaintiff entered into a Service Agreement on November 3, 2006, that he made an initial payment of $3,100 and that he renewed his service twice at a cost of $496 per year. Id. ¶¶ 2–5. These facts obviously are within Plaintiff’s possession. There simply is nothing in Ms. Rice’s declaration or anything else in the record to support the conclusion that Defendants possess facts unavailable to him that bear upon the enforceability of the Service Agreement.