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Unconscionable arbitration provisions: Sanchez v. Valencia Holding Company, LLC


In a recent decision (Sanchez v. Valencia Holding Company, LLC) the Court of Appeal of the State of California (Second District, Division One) found an arbitration provision in an auto sale contract to be both “procedurally and substantively unconscionable”, which requires voiding of the entire provision and refusal to compel arbitration.

The plaintiff, a car buyer, filed this class action against a car dealer, alleging violations of the Consumers Legal Remedies Act, the Automobile Sales Finance Act, the unfair competition law, the Song-Beverly Consumer Warranty Act and Public Resources Code. The car dealer filed a motion to compel arbitration pursuant to a provision in the sales contract, which also contained a class action waiver. The trial court determined that the class action waiver was unenforceable on the ground that a consumer is statutorily entitled to maintain a CLRA suit as a class action (Civil Code, § 1781.) The arbitration provision in the sales contract stated that if the class action waiver was declared unenforceable, the entire arbitration provision was not to be enforced. Pursuant to this “poison pill” clause, the trial court denied the petition to compel arbitration. The car dealer appealed. The Court of Appeal concluded that “the arbitration provision is unconscionable: the provision is adhesive — involving oppression and surprise due to unequal bargaining power — and contains harsh one-sided terms that favor the car dealer to the detriment of the buyer. Because the provision contains multiple invalid clauses, it is permeated with unconscionability and unenforceable. We cannot sever all of the offending language. Thus, regardless of the validity of the class action waiver, the trial court properly declined to compel arbitration”. The decision is available here.


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