Since the Supreme Court handed down AT&T Mobility LLC v. Concepcion, many consumer product and services companies have hoped to insulate themselves from consumer class actions by including a mandatory non-class arbitration provision in their sales and services contracts. Such companies expect that, if faced with a class action complaint, they can move to compel arbitration by relying on the takeaways from Concepcion, that state laws banning class waiver provisions as unconscionable are preempted by the FAA and that class waiver provisions in arbitration agreements must be enforced according to their terms. If all goes according to plan, the court will dismiss the case and compel the consumer to arbitrate in an individual capacity, destroying the possibility of a class action swiftly and efficiently.
A recent California Court of Appeal decision illustrates how this plan can go awry. In Sanchez v. Valencia Holding Company, LLC, a purchaser of a used Mercedes-Benz sued the dealership that sold him the car, asserting that the dealer made numerous false representations in connection with the purchase. The consumer brought a purported class action and alleged various violations of state law. The dealership moved to compel arbitration, pointing to Concepcion and a class action waiver in the arbitration agreement the consumer signed. The Court of Appeal rejected the dealership’s argument.
As the Court of Appeal explained, Concepcion left open the possibility arbitration provisions could be invalid under the doctrine of unconscionability. In fact, the Court of Appeal stated, Concepcion is inapplicable where a court’s decision does not address a class action waiver or a judicially imposed procedure that conflicts with the purposes of the FAA. The Court went on to find that the dealership’s arbitration provision was unconscionable in numerous respects. The provision was procedurally unconscionable because the dealership presented the provision on a take-it-or-leave-it basis, and it appeared on the back of the last page of the agreement in a small font with reduced line spacing. The provision was substantively unconscionable because it imposed the following facially-neutral terms that in reality favored the dealership: (1) either party may appeal an award exceeding $100,000; (2) either party may appeal an award of injunctive relief; (3) the appealing party must advance the filing fee and any arbitration costs; and (4) self-help remedies, including the right to repossession, are excluded from arbitration.
It is unclear that other courts would have reached the same results. Indeed, some post-Concepcion decisions have upheld arbitration provisions with class action waivers, without considering much more than whether the consumer signed the contract. Other decisions have compelled arbitration, after lamenting how Concepcion rejected the idea that arbitration agreements are per se unconscionable when found in adhesion contracts. Yet, as the Sanchez decision shows, not all courts will shy away from a rigorous analysis of an arbitration provision under the unconscionability doctrine. Consumer product and services companies that intend to rely on Concepcion to defeat class actions by compelling arbitration should consider whether their arbitration agreements are sufficiently balanced to survive such an analysis.