Yesterday, the California Supreme Court heard oral argument in Sanchez (Gil) v. Valencia Holding Co. LLC, S199119. (B228027; 201 Cal.App.4th 74; Superior Court of Los Angeles County; BC433634) on whether the Federal Arbitration Act (9 U.S.C. § 2), as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U. S. __, 131 S.Ct. 1740, preempts state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable.  The Supreme Court focused largely on how the Court should formulate a standard for determining whether a contract or contract term — specifically, the arbitration clause in the standard form Retail Installment Sales Contract — is substantively unconscionable.  In a February 19, 2014 order requesting supplemental briefing, the Court framed the issues as follows:

 In formulating the standard for determining whether a contract or contract term is substantively unconscionable, this court has used a variety of terms, including “unreasonably favorable” to one party (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145); “so one-sided as to shock the conscience” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (2012) 55 Cal.4th 223, 246); “unfairly one-sided” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071-1072; “overly harsh” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114; and “unduly oppressive” (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 925). Should the court use only one of these formulations in describing the test for substantive unconscionability and, if so, which one? Are there any terms the court should not use? Is there a formulation not included among those above that the court should use? What differences, if any, exist among these formulations either facially or as applied?

  The Dealer argued that the “shocks the conscience” standard outlined in Pinnacle is generally accepted by the “vast majority” of California courts as the standard for unconscionability and that the contract at issue is not substantively unconscionable under this standard.  The other terms used by the Court to determine whether a contract or contract term is substantively unconscionable are derivative of the “shocks the conscience” standard and therefore equate to “lesser” standards.  Justice Liu asked whether the Dealer advocated a “change in the law” (i.e., what standard is used) as opposed to a “cosmetic change” (i.e., how the standard is discussed “terminologically”).  Justice Cuellar similarly asked whether the standard set forth in Sonic-Calabasas (majority decision authored by Justice Liu) should be revised to reflect a new standard.  The Dealer responded that, instead, it was only a change in “how the standard is expressed”.   The Consumer argued that the “unreasonably favorable” standard set forth in Sonic Calabasas was sufficient by comparison to the Pinnacle test, which he agreed, upon further prompting from Justice Liu, was a “less used” standard in prior Supreme Court cases.  He addressed questions from Justices Corrigan and Chin regarding how the two tests differed by observing that, while the “shocks the conscience” test might have been useful in early English jurisprudence, the standard was unworkable under today’s modern societal norms and moral standards. The Court shifted its focus to practical applications of any standard that might be adopted by the Court.  Both parties argued that they should prevail on the merits regardless of which test was applied.  Justices Cuellar, Liu and Kruger referred to specific provisions in the arbitration clause, such as those allowing for appeals except in cases involving awards under $100,000, or where injunctive relief is granted (but not where it is denied), in asking whether they render the contract unconscionable.  The Dealer conceded that the contract at issue might be considered asymmetrical in some respects, but that unconscionability does not necessarily result, since the buyer could be better advantaged by the aforementioned appeal provisions.   Conversely, the Consumer conceded upon inquiry by Justice Werdegar, that while the RISC is, by its very nature, one of adhesion (as a “take-it-or-leave-it” proposition), it is not necessarily substantively unconscionable.  Nevertheless, the Consumer argued that the RISC still should be deemed procedurally unconscionable because of the parties’ unequal bargaining positions.  The Consumer rejected Justice Cuellar’s suggestion that severance of offending provisions resolved the problem, arguing instead that finding any single term unconscionable is enough for the Consumer to prevail.   Responding Justice Cuellar, the Consumer argued that the RISC was procedurally unconscionable due to “surprise” because the arbitration clause was on the back of the form, and the plaintiff did not see it and was not told about it.  The Dealer agreed with Justice Chin’s observation, however, that the fact that the clause was in a box, in bold letters, in the center of the form obviated any surprise and, besides, the length of the form was due to content required by law.   Several justices questioned the effect of any ruling the Court made which either adopted or rejected the proffered standards for determining unconscionability.  Chief Justice Cantil-Sakauye repeatedly asked whether remand would be required, both given lower court rulings and the issue at bar.  Both sides agreed that remand would not be required to secure new evidence.  The Dealer initially requested that the Court remand to the trial court with instructions to compel arbitration, but later suggested that the Court could apply a newly-adopted standard of review to the evidence on the record without remand, arguing that to require further discovery on the merits (particularly regarding procedural unconscionability) would “defeat the purpose” of arbitration as a quick remedy.   A ruling is expected within ninety days.