Stanford Law School - Robert Crown Law Library

Filed 8/3/15



IN THE SUPREME COURT OF CALIFORNIA



GIL SANCHEZ,

Plaintiff and Respondent,

S199119

v.

Ct.App. 2/1 B228027

VALENCIA HOLDING COMPANY, LLC, )


Los Angeles County

Defendant and Appellant.

Super. Ct. No. BC433634



The automobile sales contract in the present case has an arbitration

agreement that provides, among other things, that arbitral awards of $0 or over

$100,000 as well as grants but not denials of injunctive relief may be appealed to a

panel of arbitrators. The arbitration agreement also has provisions that require the

party appealing the award to front the costs of the appeal, preserve the right of the

parties to go to small claims court and to pursue self-help remedies, and waive the

right to class action litigation or arbitration. The agreement further provides that if

the class waiver is deemed unenforceable, then the entire arbitration agreement

shall be unenforceable.

In this dispute over the sale of a car, plaintiff Gil Sanchez filed a class

action lawsuit against defendant Valencia Holding Company (Valencia), and

Valencia moved to compel arbitration. The trial court denied the motion, finding

the class waiver and, in turn, the entire arbitration agreement unenforceable.

Subsequently, the United States Supreme Court held in AT&T Mobility LLC v.

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Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) that the Federal

Arbitration Act (FAA) preempts California‘s unconscionability rule prohibiting

class waivers in consumer arbitration agreements. In deciding Valencia‘s appeal

from the trial court‘s denial of the motion to compel arbitration, the Court of

Appeal declined to address whether the class waiver was enforceable and instead

held that the arbitration appeal provision and the arbitration agreement as a whole

were unconscionably one-sided. Valencia sought our review, relying on

Concepcion.

While circumscribing the ability of states to regulate the fairness of

arbitration agreements, Concepcion reaffirmed that the FAA does not preempt

― ‗generally applicable contract defenses, such as fraud, duress, or

unconscionability.‘ ‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at

p. 1746].) Under the FAA, these defenses may provide grounds for invalidating

an arbitration agreement if they are enforced evenhandedly and do not ―interfere[]

with fundamental attributes of arbitration.‖ (Concepcion, at p. __ [131 S.Ct. at

p. 1748]; see Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1143–

1145 (we will use common name, Sonic II).) In the present case, we hold that

Concepcion requires enforcement of the class waiver but does not limit the

unconscionability rules applicable to other provisions of the arbitration agreement.

Applying those rules, we agree with Valencia that the Court of Appeal erred as a

matter of state law in finding the agreement unconscionable. Accordingly, we

reverse the judgment below.

I.

Plaintiff Gil Sanchez filed this class action in March 2010. Two months

later, Sanchez filed a first amended complaint. The complaint arises from

Sanchez‘s purchase of a 2006 ―preowned‖ Mercedes-Benz S500V in 2008 for

$53,498.60. Sanchez alleged that Valencia violated the Consumer Legal

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Remedies Act (CLRA) (Civ. Code, §§ 1750–1784) by making false

representations about the condition of the automobile. Sanchez also alleged that

Valencia violated several other California laws by (1) failing to separately itemize

the amount of the down payment that is deferred to a date after the execution of

the sale contract, (2) failing to distinguish registration, transfer, and titling fees

from license fees, (3) charging the optional Department of Motor Vehicles

electronic filing fee without discussing it or asking if he wanted to pay it,

(4) charging new tire fees for used tires, and (5) requiring him to pay $3,700 to

have the vehicle certified so he could qualify for the 4.99 percent interest rate,

when that payment was actually for an optional extended warranty unrelated to the

interest rate. Sanchez alleged violations of the Automobile Sales Finance Act

(Civ. Code, §§ 2981–2984.6), the unfair competition law (UCL) (Bus. & Prof.

Code, §§ 17200–17210), the Song-Beverly Consumer Warranty Act (Civ. Code,

§§ 1790–1795.8), and Public Resources Code section 42885.

The complaint further alleged that a class action was appropriate based on

the large number of putative class members who have suffered similar violations,

the predominance of common questions of law and fact, the typicality of the

claims, and the superiority and benefits of class litigation. He proposed four

distinct classes based on the different types of violations Valencia allegedly

committed.

Valencia filed a motion to compel arbitration pursuant to an arbitration

clause in the sale contract that authorized either party to have any dispute between

the parties decided by arbitration. The arbitration clause had a class action waiver:

―If a dispute is arbitrated, you will give up your right to participate as a class

representative or class member on any class claim you may have against us

including any right to class arbitration or any consolidation of individual

arbitrations.‖

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The arbitration clause further provided: ―Arbitrators shall be attorneys or

retired judges and shall be selected pursuant to the applicable rules. The arbitrator

shall apply governing substantive law in making an award. The arbitration

hearing shall be conducted in the federal district in which you reside . . . . We will

advance your filing, administration, service or case management fee and your

arbitrator or hearing fee all up to a maximum of $2500, which may be reimbursed

by decision of the arbitrator at the arbitrator‘s discretion. Each party shall be

responsible for its own attorney, expert and other fees, unless awarded by the

arbitrator under applicable law. . . . Arbitrator‘s award shall be final and binding

on all parties, except that in the event the arbitrator‘s award for a party is $0 or

against a party is in excess of $100,000, or includes an award of injunctive relief

against a party, that party may request a new arbitration under the rules of the

arbitration organization by a three-arbitrator panel. The appealing party

requesting new arbitration shall be responsible for the filing fee and other

arbitration costs subject to a final determination by the arbitrators of a fair

apportionment of costs. Any arbitration under this Arbitration Clause shall be

governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state

law concerning arbitration.

―You and we retain any rights to self-help remedies, such as repossession.

You and we retain the right to seek remedies in small claims court for disputes or

claims within that court‘s jurisdiction, unless such action is transferred, removed

or appealed to a different court. Neither you nor we waive the right to arbitrate by

using self-help remedies or filing suit. Any court having jurisdiction may enter

judgment on the arbitrator‘s award. This Arbitration Clause shall survive any

termination, payoff or transfer of this contract. If any part of this Arbitration

Clause, other than waivers of class action rights, is deemed or found to be

unenforceable for any reason, the remainder shall remain enforceable. If a waiver

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of class action rights is deemed or found to be unenforceable for any reason in a

case in which class action allegations have been made, the remainder of this

Arbitration Clause shall be unenforceable.‖

As the Court of Appeal summarized: ―The Sale Contract is a preprinted

document consisting of one page, 8 1/2 inches wide and 26 inches long. There are

provisions on both sides that occupy the entire document, leaving little in the way

of margins. Sanchez signed or initialed the front in eight places, each related to a

different provision. No signatures, initials, or other handwriting appears on the

back. The arbitration provision, entitled ‗ARBITRATION CLAUSE,‘ is on the

back at the bottom of the page, outlined by a black box. It is the last provision of

the Sale Contract concerning the purchase transaction; a provision related to the

assignment of the contract appears below it. The buyer‘s final signature appears

near the bottom on the front side.‖

In opposing arbitration, Sanchez submitted a declaration that said: ―When I

signed the documents related to my purchase of the Subject Vehicle, I was

presented with a stack of documents, and was simply told by the Dealership‘s

employee where to sign and/or initial each one. All of the documents (including

the purchase contracts) were pre-printed form documents. When I signed the

documents, I was not given an opportunity to read any of the documents, nor was I

given an opportunity to negotiate any of the pre-printed terms. The documents

were presented to me on a take-it-or-leave-it basis, to either sign them or not buy

the car. . . . There was no question of choice on my part or of my being able to

‗negotiate‘ anything. And I had no reason to suspect that hidden on the back of

the contracts . . . was a section that prohibited me from being able to sue the

Dealership in court if I had a problem.

―. . . When I signed the purchase contract and related documents, the

Dealership did not ask me if I was willing to arbitrate any disputes with it, did not

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tell me that there was an ‗arbitration clause‘ on the back side of the purchase

contract, and I did not see any such clause before I signed the documents. The

Dealership did not explain to me what an arbitration clause was. I was not given

any opportunity at any time during my transaction with [the] Dealership to

negotiate whether or not I would agree to arbitrate any potential disputes. I was

not given an option whether to sign a contract with an arbitration clause or one

without.‖

The trial court denied the motion to compel arbitration. It held the class

waiver unenforceable on the ground that the CLRA expressly provides for class

action litigation and declares the right to a class action to be unwaivable. (See

Civ. Code, §§ 1751, 1781.) Because the arbitration clause provided that ―[i]f a

waiver of class action rights is deemed or found to be unenforceable for any

reason in a case in which class action allegations have been made, the remainder

of this Arbitration Clause shall be unenforceable,‖ the court denied the motion to

compel arbitration.

After the trial court‘s decision but before the Court of Appeal‘s opinion in

this case was filed, the United States Supreme Court in Concepcion, supra, 563

U.S. __ [131 S.Ct. 1740] held that the FAA requires enforcement of class waivers

in consumer arbitration agreements and preempts state law to the contrary. The

Court of Appeal declined to decide whether the class waiver at issue was

enforceable and instead affirmed the trial court‘s decision on different grounds.

First, the court concluded that the agreement contained elements of procedural

unconscionability, both oppression and surprise. Second, the court held that four

provisions made the agreement unfairly one-sided in favor of Valencia. ―First, a

party who loses before the single arbitrator may appeal to a panel of three

arbitrators if the award exceeds $100,000. Second, an appeal is permitted if the

award includes injunctive relief. Third, the appealing party must pay, in advance,

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‗the filing fee and other arbitration costs subject to a final determination by the

arbitrators of a fair apportionment of costs.‘ Fourth, the provision exempts

repossession from arbitration while requiring that a request for injunctive relief be

submitted to arbitration. Although these provisions may appear neutral on their

face, they have the effect of placing an unduly oppressive burden on the buyer.‖

We granted review.

II.

To aid understanding of the issues in this case, we begin by discussing

general principles of unconscionability. ― ‗One common formulation of

unconscionability is that it refers to ― ‗an absence of meaningful choice on the part

of one of the parties together with contract terms which are unreasonably

favorable to the other party.‘ ‖ [Citation.] As that formulation implicitly

recognizes, the doctrine of unconscionability has both a procedural and a

substantive element, the former focusing on oppression or surprise due to unequal

bargaining power, the latter on overly harsh or one-sided results.‘ ‖ (Sonic II,

supra, 57 Cal.4th at p. 1133.)

― ‗The prevailing view is that [procedural and substantive

unconscionability] must both be present in order for a court to exercise its

discretion to refuse to enforce a contract or clause under the doctrine of

unconscionability.‘ [Citation.] But they need not be present in the same degree.

‗Essentially a sliding scale is invoked which disregards the regularity of the

procedural process of the contract formation, that creates the terms, in proportion

to the greater harshness or unreasonableness of the substantive terms themselves.‘

[Citations.] In other words, the more substantively oppressive the contract term,

the less evidence of procedural unconscionability is required to come to the

conclusion that the term is unenforceable, and vice versa.‖ (Armendariz v.

Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114

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(Armendariz).) Courts may find a contract as a whole ―or any clause of the

contrat‖ to be unconscionable. (Civ. Code, § 1670.5, subd. (a).)

As we stated in Sonic II: ―The unconscionability doctrine ensures that

contracts, particularly contracts of adhesion, do not impose terms that have been

variously described as ‗ ― ‗overly harsh‘ ‖ ‘ (Stirlen v. Supercuts, Inc. (1997) 51

Cal.App.4th 1519, 1532), ‗ ―unduly oppressive‖ ‘ (Perdue v. Crocker National

Bank (1985) 38 Cal.3d 913, 925 (Perdue)), ‗ ―so one-sided as to ‗shock the

conscience‘ ‖ ‘ (Pinnacle Museum Tower Assn. v. Pinnacle Market Development

(2012) 55 Cal.4th 223, 246 (Pinnacle)), or ‗unfairly one-sided‘ (Little [v. Auto

Stiegler, Inc. (2003)] 29 Cal.4th [1064], 1071). All of these formulations point to

the central idea that unconscionability doctrine is concerned not with ‗a simple

old-fashioned bad bargain‘ (Schnuerle v. Insight Communications Co. (Ky. 2012)

376 S.W.3d 561, 575 (Schnuerle)), but with terms that are ‗unreasonably favorable

to the more powerful party‘ (8 Williston on Contracts (4th ed. 2010) § 18.10,

p. 91). These include ‗terms that impair the integrity of the bargaining process or

otherwise contravene the public interest or public policy; terms (usually of an

adhesion or boilerplate nature) that attempt to alter in an impermissible manner

fundamental duties otherwise imposed by the law, fine-print terms, or provisions

that seek to negate the reasonable expectations of the nondrafting party, or

unreasonably and unexpectedly harsh terms having to do with price or other

central aspects of the transaction.‘ (Ibid.)‖ (Sonic II, supra, 57 Cal.4th at

p. 1145.) Because unconscionability is a contract defense, the party asserting the

defense bears the burden of proof. (Id. at p. 1148.)

We further observed in Sonic II, and reaffirm today, that ―an examination

of the case law does not indicate that ‗shock the conscience‘ is a different standard

in practice than other formulations or that it is the one true, authoritative standard

for substantive unconscionability, exclusive of all others.‖ (Sonic II, supra, 57

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Cal.4th at p. 1159.) Nor do we see any conceptual difference among these

formulations. Rather, ―courts, including ours, have used various nonexclusive

formulations to capture the notion that unconscionability requires a substantial

degree of unfairness beyond ‘a simple old-fashioned bad bargain.’ ‖ (Id. at

p. 1160, italics added.) This latter qualification is important. Commerce depends

on the enforceability, in most instances, of a duly executed written contract. A

party cannot avoid a contractual obligation merely by complaining that the deal, in

retrospect, was unfair or a bad bargain. Not all one-sided contract provisions are

unconscionable; hence the various intensifiers in our formulations: ―overly

harsh,‖ ―unduly oppressive,‖ ―unreasonably favorable.‖ (See Pinnacle, supra, 55

Cal.4th at p. 246 [―A contract term is not substantively unconscionable when it

merely gives one side a greater benefit . . . .‖].) We clarify today that these

formulations, used throughout our case law, all mean the same thing.

An evaluation of unconscionability is highly dependent on context. (See

Williams v. Walker-Thomas Furniture Co. (D.C. Cir. 1965) 350 F.2d 445, 450

[―The test is not simple, nor can it be mechanically applied.‖].) The doctrine often

requires inquiry into the ―commercial setting, purpose, and effect‖ of the contract

or contract provision. (Civ. Code, § 1670.5, subd. (b); accord, Sonic II, supra, 57

Cal.4th at pp. 1147–1148; Walker-Thomas Furniture, at p. 450 [unconscionability

must ―be considered ‗in the light of the general commercial background and the

commercial needs of the particular trade or case‘ ‖].) As we have recognized, ― ‗a

contract can provide a ―margin of safety‖ that provides the party with superior

bargaining strength a type of extra protection for which it has a legitimate

commercial need without being unconscionable.‘ ‖ (Armendariz, supra, 24

Cal.4th at p. 117; see Walker-Thomas Furniture, at p. 450 [―where no meaningful

choice was exercised upon entering the contract,‖ the test is ―whether the terms are

‗so extreme as to appear unconscionable according to the mores and business

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practices of the time and place‘ ‖].) And, as noted, the substantive unfairness of

the terms must be considered in light of any procedural unconscionability. The

ultimate issue in every case is whether the terms of the contract are sufficiently

unfair, in view of all relevant circumstances, that a court should withhold

enforcement.

Moreover, our unconscionability standard is, as it must be, the same for

arbitration and nonarbitration agreements. (Concepcion, supra, 563 U.S. at p. __

[131 S.Ct. at p. 1747].) Of course, unconscionability can manifest itself in

different ways, depending on the contract term at issue. (See, e.g., Washington

Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 916–917 [choice of law

clause]); City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777

[waivers of liability provision]); Moreno v. Sanchez (2003) 106 Cal.App.4th 1415,

1434 [statutes of limitation provision]; Smith, Valentino & Smith, Inc. v. Superior

Court (1976) 17 Cal.3d 491, 495–496 [forum selection clause].) But the

application of unconscionability doctrine to an arbitration clause must proceed

from general principles that apply to any contract clause. In particular, the

standard for substantive unconscionability — the requisite degree of unfairness

beyond merely a bad bargain — must be as rigorous and demanding for arbitration

clauses as for any contract clause.

Valencia broadly contends that under Concepcion, ―absent exceptional

circumstances, states –– either judicially or legislatively –– may not, under the

guise of unconscionability, judge the supposed fairness of the parties‘ agreed

arbitration process.‖ In support of that assertion, Valencia cites ―the examples of

arbitration-process unconscionability evaluations (ranging from discovery to

evidentiary requirements) that the FAA precludes.‖ (See Concepcion, supra, 563

U.S. at p. __ [131 S.Ct. at p. 1747].)

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We recently considered the effect of Concepcion on state law

unconscionability doctrine and observed that ―after Concepcion, unconscionability

remains a valid defense to a petition to compel arbitration.‖ (Sonic II, supra, 57

Cal.4th at p. 1142, citing Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at

p. 1746].) ―What is new,‖ we said, ―is that Concepcion clarifies the limits the

FAA places on state unconscionability rules as they pertain to arbitration

agreements. It is well established that such rules must not facially discriminate

against arbitration and must be enforced evenhandedly. Concepcion goes further

to make clear that such rules, even when facially nondiscriminatory, must not

disfavor arbitration as applied by imposing procedural requirements that

‗interfere[] with fundamental attributes of arbitration,‘ especially its ‗ ―lower costs,

greater efficiency and speed, and the ability to choose expert adjudicators to

resolve specialized disputes.‖ [Citation.]‘ (Concepcion, supra, 563 U.S. at pp. __,

__ [131 S.Ct.at pp. 1748, 1751].)‖ (Sonic II, at p. 1143.)

We proceeded to give examples of ―state law rules that do not ‗interfere[]

with fundamental attributes of arbitration‘ ‖ and thus ―do not implicate

Concepcion‘s limits on state unconscionability rules.‖ (Sonic II, supra, 57 Cal.4th

at p. 1143.) ―In Little, for example, we found unconscionable a $50,000 threshold

for an arbitration appeal that decidedly favored defendants in employment contract

disputes. (Little [v. Auto Stiegler, Inc.], supra, 29 Cal.4th at pp. 1071–1074.)‖ (Id.

at p. 1144.) As our reference to Little suggests, Concepcion does not immunize

adhesive arbitration processes from state law unconscionability principles as

broadly as Valencia contends.

Justice Chin says allowing multiple formulations to capture the notion of

substantive unconscionability will undermine predictability and will subject

arbitration and nonarbitration provisions of a contract to different standards.

(Conc. & dis. opn., post, at pp. 14–15.) But we have just made clear that all the

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formulations ―mean the same thing‖ and ―must be as rigorous and demanding for

arbitration clauses as for any contract clause.‖ (Ante, at pp. 9, 10.) It seems the

main reason Justice Chin favors ―shock the conscience‖ as the sole formulation is

that he believes it is a higher standard than the alternatives. (Conc. & dis. opn.,

post, at p. 14.) Adopting his approach, however, would call into question a

number of cases where we have found substantive unconscionability under other

formulations. (See, e.g., Little, supra, 29 Cal.4th at p. 1074 [―unfairly one-

sided‖]; Armendariz, supra, 24 Cal.4th at p. 114 [― ‗ ―overly harsh‖ ‘ or ‗ ―one-

sided‖ ‘ ‖]; Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 820 (Scissor-Tail)

[―unduly oppressive‖].) We see no reason to disturb our precedents, and we reject

the view that ―shock the conscience‖ is a higher standard.

We turn now to Valencia‘s alternative argument that the arbitration

agreement in this case was not unconscionable under state law.

III.

Valencia does not dispute that the contract was adhesive; at oral argument,

Valencia said the contract ―meets the definition of adhesive in California.‖

Instead, Valencia argues that ―adhesion contracts are not per se procedurally

unconscionable,‖ noting that the car was a luxury item and that Sanchez was able

to negotiate the price. Although Valencia says Sanchez has not shown he was

unable to negotiate the arbitration provision (conc. & dis. opn., ante, at p. 12),

Valencia does not contend in this court that Sanchez could have opted out of the

arbitration agreement or that he could have negotiated a sales contract without an

arbitration agreement. Indeed, Valencia acknowledged at oral argument that

―[m]any people who are not legally trained do not understand the vast majority of

what is in this contract‖ and that ―if you asked that dealer about everything other

than the negotiable terms of price and interest, they probably don‘t understand that

either . . . .‖ Moreover, in the context of consumer contracts, we have never

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required, as a prerequisite to finding procedural unconscionability, that the

complaining party show it tried to negotiate standardized contract provisions.

(See, e.g., Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160,

disapproved of on other grounds in Concepcion, supra, 563 U.S. __ [131 S.Ct.

1740] [cardholder agreement in ―bill stuffer‖ had an element of procedural

unconscionability]; Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 924–

925 [signature card ―offered to the customer without negotiation is a classic

example of the contract of adhesion‖].) And although Valencia argues that 90

percent of the standardized contract was mandated by statute, it does not contend

that the arbitration agreement was so mandated.

As in many consumer transactions involving standard form contracts,

Sanchez apparently did not read the entirety of his contract, including the

arbitration clause. (See Consumer Financial Protection Bur., Arbitration Study:

Rep. to Congress Pursuant to the Dodd-Frank Act (Mar. 2015) § 3, p. 19 [fewer

than 7 percent of credit card consumers subject to predispute arbitration clauses

knew that they could not sue in court]; cf. Madden v. Kaiser Foundation Hospitals

(1976) 17 Cal.3d 699, 710–711 [applying ―the general rule that one who assents to

a contract is bound by its provisions and cannot complain of unfamiliarity with

[its] language‖ to a nonadhesive health care contract negotiated by the Board of

Administration of the State Employees Retirement System on the plaintiff‘s

behalf].)

On the other hand, Valencia was under no obligation to highlight the

arbitration clause of its contract, nor was it required to specifically call that clause

to Sanchez‘s attention. Any state law imposing such an obligation would be

preempted by the FAA. (See Doctor’s Associates, Inc. v. Casarotto (1996) 517

U.S. 681, 684, 687–688 [holding state statute requiring arbitration clause to be in

underlined capital letters on the first page of a contract is preempted]; but cf.

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Concepcion, supra, 563 U.S. at pp. __, fn. 6 [131 S.Ct. at p. 1750, fn. 6] [―States

remain free to take steps addressing the concerns that attend contracts of

adhesion—for example, requiring class-action-waiver provisions in adhesive

arbitration agreements to be highlighted.‖].) Furthermore, we have held that even

when a customer is assured it is not necessary to read a standard form contract

with an arbitration clause, ―it is generally unreasonable, in reliance on such

assurances, to neglect to read a written contract before signing it.‖ (Rosenthal v.

Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 424.)

Here the adhesive nature of the contract is sufficient to establish some

degree of procedural unconscionability. Yet ―a finding of procedural

unconscionability does not mean that a contract will not be enforced, but rather

that courts will scrutinize the substantive terms of the contract to ensure they are

not manifestly unfair or one-sided.‖ (Gentry, supra, 42 Cal.4th at p. 469.) We

now address each of Sanchez‘s claims of substantive unconscionability.

A.

The arbitration agreement in this case provides that an arbitrator‘s award

―shall be final and binding on all parties, except that in the event the arbitrator‘s

award for a party is $0 or against a party is in excess of $100,000, or includes an

award of injunctive relief against a party, that party may request a new arbitration

under the rules of the arbitration organization by a three-arbitrator panel.‖

Valencia challenges the Court of Appeal‘s holding that this provision was

unreasonably one-sided and unenforceable.

In Little, we unanimously found unconscionable an employment contract

provision that permitted an appeal to a second arbitrator only if the arbitral award

was greater than $50,000. (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at

p. 1073 (Little); id. at p. 1085 (conc. & dis. opn. of Baxter, J.); id. at p. 1089 (conc.

& dis. opn. of Brown, J.).) In so concluding, we discussed with approval two

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pertinent Court of Appeal cases. In Beynon v. Garden Grove Medical Group

(1980) 100 Cal.App.3d 698, 706 (Beynon), the court found unconscionable a

provision of a mandatory arbitration agreement between a medical group and a

patient that authorized the medical group, but not the patient, to reject the first

arbitration award and submit the dispute to a second arbitration panel. In Saika v.

Gold (1996) 49 Cal.App.4th 1074 (Saika), the court found unconscionable a

provision in a doctor-patient agreement that allowed a party to request a trial de

novo in superior court when the award was over $25,000. ―The [Saika] court

rejected the doctor‘s argument that the case was distinguishable from Beynon

because the challenged arbitration provision permitted either party to request a

trial de novo if the award exceeded the stated amount. ‗[I]n the vernacular of late

20th century America, let us ―get real.‖ As a practical matter, the benefit which

the trial de novo clause confers on patients is nothing more than a chimera. The

odds that an award will both (a) clear the $25,000 threshold but (b) still be so low

that the patient would want to have a trial de novo are so small as to be negligible.

Unless we are to assume that arbitrators in medical malpractice cases regularly and

capriciously make awards substantially below what justice requires –– and that is

an assumption which we will not indulge –– the cases where the trial de novo

clause could possibly benefit the patient are going to be rare indeed.‘ ‖ (Little, at

pp. 1072–1073, quoting Saika, at p. 1080.)

The employer in Little attempted to distinguish these cases on the ground

that ―an arbitration appeal is less objectionable than a second arbitration, as in

Benyon, or a trial de novo, as in Saika, because it is not permitting a wholly new

proceeding, making the first arbitration illusory, but only permitting limited

appellate review of the arbitral award.‖ (Little, supra, 29 Cal.4th at pp. 1073–

1074.) Rejecting this argument, we said: ―We fail to perceive a significant

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difference. Each of these provisions is geared toward giving the arbitral defendant

a substantial opportunity to overturn a sizable arbitration award.‖ (Id. at p. 1074.)

Valencia argues that the present agreement is distinguishable from Little in

three respects. First, it provides that a party who is awarded nothing may appeal.

Second, the upper threshold for an appeal is $100,000 instead of $50,000. Third,

this is an auto sales agreement, not an employment contract. According to

Valencia, because the purchase price of an automobile averages around $30,000,

the vast majority of awards are below $100,000, in contrast to typically greater

awards in employment cases. (See, e.g., Roitz v. Coldwell Banker Residential

Brothers (1998) 62 Cal.App.4th 716, 721, 726 [upholding a $260,000 arbitral

award for wrongful termination].) Thus, Valencia contends, both an award of $0

and an award greater than $100,000 are outliers in disputes between automobile

buyers and sellers, so the appeal thresholds are not significantly more beneficial to

the seller, who is likely to be the defendant, than to the buyer, who is likely to be

the plaintiff.

We agree with Valencia that the appeal threshold provision does not, on its

face, obviously favor the drafting party. Assuming, as the parties do, the likely

scenario of the buyer as plaintiff and the seller as defendant, the unavailability of

an appeal from an award that is greater than $0 but not greater than $100,000

means that the buyer may not appeal from a non-$0 award that he or she believes

to be too small, nor may the seller appeal from a quite substantial award (up to

$100,000) that it believes to be too big. It may be reasonable to assume that the

ability to appeal a $0 award will favor the buyer, while the ability to appeal a

$100,000 or greater award will favor the seller. But nothing in the record indicates

that the latter provision is substantially more likely to be invoked than the former.

We cannot say that the risks imposed on the parties are one-sided, much less

unreasonably so.

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As to the contract term providing that only arbitral grants of injunctive

relief are subject to a second arbitration, Valencia notes that car sellers sometimes

must seek an injunction in order to repossess a car from the buyer. But Valencia

acknowledged at oral argument that overall the car buyer is more likely than the

seller to seek injunctive relief. Nevertheless, we find significant Valencia‘s

concern that the scope of an injunction can extend well beyond the transaction at

issue and can compel a car seller to change its business practices. Because of the

broad impact that injunctive relief may have on the car seller‘s business, the

additional arbitral review when such relief is granted furnishes ― ‗a ―margin of

safety‖ that provides the party with superior bargaining strength a type of extra

protection for which it has a legitimate commercial need.‘ ‖ (Armendariz, supra,

24 Cal.4th at p. 117.) The potentially far-reaching nature of an injunctive relief

remedy, which Sanchez does not dispute, is sufficiently apparent here to justify the

extra protection of additional arbitral review.

Of course, apart from the parties‘ particular interests, the public has a

strong interest in ensuring that fraudulent business practices are enjoined. In

Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1082–1084, and Cruz v.

PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 316, we held that claims

seeking injunctive relief designed to protect the public by stopping ongoing

practices unlawful under the CLRA and the UCL, respectively, were inarbitrable.

Valencia argues that Broughton and Cruz are no longer good law in light of

Concepcion. (See Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d

928, 932–937.) The Court of Appeal below did not address whether Broughton or

Cruz has been abrogated, and Sanchez takes no position on the issue in this appeal,

focusing instead on the asymmetry of affording arbitral appeals to grants but not

denials of injunctive relief. We likewise do not address the continued viability of

Broughton and Cruz in this case.

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B.

The Court of Appeal also held that the provision concerning appellate

arbitration filing fees and costs contributed to the unconscionability of the

arbitration agreement. As noted, the arbitration clause provides that Valencia will

advance the car buyer‘s filing, administration, service, and case management fees

and arbitrator or hearing fees ―up to a maximum of $2,500, which may be

reimbursed‖ at the arbitrator‘s discretion. The clause also provides that in case of

an appeal to a three-arbitrator panel, the appealing party ―shall be responsible for

the filing fee and other arbitration costs subject to a final determination by the

arbitrators of a fair apportionment of costs.‖ The Court of Appeal held that this

latter provision is inadequate for consumers ― ‗who cannot afford to initiate the

[appeal] process in the first place‘ ‖ given large arbitration costs. ―Items covered

by an appeal payment made in advance include, as stated in the Sale Contract, ‗the

filing fee and other arbitration costs.‘ Arbitrator fees in Los Angeles average

around $450 per hour. [Citation.])‖ Contrasting this arbitral scheme with the

American Arbitration Association rules, which do not require consumers to front

arbitration fees, the Court of Appeal concluded that ―[t]he requirement that the

appealing party pay the filing fee and arbitration costs of both parties in advance

puts an unduly harsh burden on the buyer.‖

In the context of mandatory employment arbitration of unwaivable

statutory rights, we have held that arbitration agreements ―cannot generally require

the employee to bear any type of expense that the employee would not be required

to bear if he or she were free to bring the action in court.‖ (Armendariz, supra, 24

Cal.4th at pp. 110–111.) In the area of consumer arbitration, the Legislature has

addressed costs in a different way. In 2002, shortly after Armendariz was decided,

the Legislature enacted Code of Civil Procedure section 1284.3 to address fees and

costs in consumer arbitration. Subdivision (a) of section 1284.3 provides that

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―[n]o neutral arbitrator or private arbitration company shall administer a consumer

arbitration under any agreement or rule requiring that a consumer who is a party to

the arbitration pay the fees and costs incurred by an opposing party if the

consumer does not prevail in the arbitration, including, but not limited to, the fees

and costs of the arbitrator, provider organization, attorney, or witnesses.‖ Most

pertinently, section 1284.3, subdivision (b)(1) provides that ―[a]ll fees and costs

charged to or assessed upon a consumer party by a private arbitration company in

a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent

consumer. For the purposes of this section, ‗indigent consumer‘ means a person

having a gross monthly income that is less than 300 percent of the federal poverty

guidelines. Nothing in this section shall affect the ability of a private arbitration

company to shift fees that would otherwise be charged or assessed upon a

consumer party to a nonconsumer party.‖ Subdivision (b)(2) requires the

arbitration provider to give notice of the fee waiver provision, and subdivision

(b)(3) provides that ―[a]ny consumer requesting a waiver of fees or costs may

establish his or her eligibility by making a declaration under oath on a form

provided to the consumer by the private arbitration company for signature stating

his or her monthly income and the number of persons living in his or her

household. No private arbitration company may require a consumer to provide

any further statement or evidence of indigence.‖ (Code Civ. Proc., § 1284.3,

subd. (b)(2) & (3).)

The legislative history shows that the statute‘s specific provisions were part

of a general concern about the affordability of arbitration: ―One of the primary

arguments advanced in support of mandatory consumer arbitration is that it is less

costly than civil litigation. However, this argument is cast into significant doubt

by the available evidence. In fact, arbitration costs are so high that many people

drop their complaints because they can‘t afford to pursue them, a recent study by

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Public Citizen found.‖ (Assem. floor analysis, Assem. Bill No. 2915 (Reg. Sess.

2001–2002) as amended Aug. 26, 2002, at p. 2.) The analysis observed that

―unlike civil court, private arbitration is subject to no fee limitations. As a result,

access to the system may be greatly affected by the wealth of the consumer. The

author states that this bill addresses these inequities by prohibiting large private

judging companies from conducting mandatory consumer arbitrations where a

consumer who loses the case must pay the winning company‘s fees and costs.

This bill also implements a fee waiver policy for indigent consumers akin to the

long-standing practice in public courts. This bill does not affect commercial

arbitrations between businesses.‖ (Ibid.)

As noted in Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77

(Gutierrez), on which the Court of Appeal below relied, the Legislature in

enacting Code of Civil Procedure section 1284.3 ―did not adopt the Armendariz

categorical approach and direct that all administrative fees be paid by

nonconsumer parties without regard to the size of the costs or the wealth of the

consumer. . . . [T]he Legislature did adopt an ability-to-pay approach, which,

though limited in this statute to indigents, provides direction for a rule applicable

to all consumers faced with arbitral forum fees that are prohibitively high. In

Armendariz the court signaled its deference to the Legislature in selecting a

categorical rule. (Armendariz, supra, 24 Cal.4th at pp. 112–113.) In this

consumer case, that same deference leads us to adopt a case-by-case determination

of affordability: plaintiffs suing under the [consumer protection] statutes may

resist enforcement of an arbitration agreement that imposes unaffordable fees.‖

(Gutierrez, at pp. 97–98.)

We agree with Gutierrez‘s approach. As Gutierrez said in distinguishing

Armendariz‘s categorical rule in the employment context, ―jobseekers are more

likely to face ‗particularly acute‘ economic pressure to sign an employment

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contract with a predispute arbitration provision, ‗for the arbitration agreement

stands between the employee and necessary employment, and few employees are

in a position to refuse a job because of an arbitration requirement.‘ (Armendariz,

supra, 24 Cal.4th at p. 115.) A family in search of a job confronts a very different

set of burdens than one seeking a new vehicle. Consumers, who face significantly

less economic pressure[,] would seem to require measurably less protection.‖

(Gutierrez, supra, 114 Cal.App.4th at p. 97.) In enacting Code of Civil Procedure

section 1284.3, the Legislature concluded that an ability-to-pay approach is

appropriate in the context of consumer arbitration agreements. Although the

statute specifically addresses the affordability of consumer arbitration for people

who are indigent, high arbitration fees can be unaffordable for nonindigent as well

as indigent consumers, and nothing in the statute‘s text or legislative history

precludes courts from using unconscionability doctrine on a case-by-case basis to

protect nonindigent consumers against fees that unreasonably limit access to

arbitration. (See Sonic II, supra, 57 Cal.4th at p. 1145 [endorsing Gutierrez‘s

view that unaffordable arbitration costs that ―effectively blocks every forum for

the redress of disputes‖ may render an arbitration agreement unconscionable].)

In the present case, the arbitration agreement did not have to provide for an

appeal. But having done so, the agreement may not structure the appeal process so

that it unreasonably favors one party, just as the agreement may not authorize only

one party and not the other to take an appeal. (Little, supra, 29 Cal.4th at

pp. 1073–1074.) We agree with the Court of Appeal below that a requirement that

a consumer front any appellate filing fees or other arbitration costs — recall that

an appeal here requires not one but three arbitrators — has the potential to deter

the consumer from using the appeal process. But given the Legislature‘s approach

to the affordability of consumer arbitration, the provision cannot be held

unconscionable absent a showing that appellate fees and costs in fact would be

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unaffordable or would have a substantial deterrent effect in Sanchez‘s case. (See

Gutierrez, supra, 114 Cal.App.4th at pp. 90–91.)

Moreover, courts are required to determine the unconscionability of the

contract ―at the time it was made.‖ (Civ. Code, § 1670.5.) In light of this

requirement, we recently clarified the proper affordability inquiry in Sonic II in the

context of employment arbitration: ―Because a predispute arbitration agreement is

an agreement to settle future disputes by arbitration, the proper inquiry is what

dispute resolution mechanism the parties reasonably expected the employee to be

able to afford. Absent unforeseeable (and thus not reasonably expected)

circumstances, there is no reason to think that what an employee can afford when

a wage dispute arises will materially differ from the parties‘ understanding of what

the employee could afford at the time of entering the agreement.‖ (Sonic II, supra,

57 Cal.4th at p. 1164.) The same principle applies to consumer arbitration.

Justice Chin says American Express Co. v. Italian Colors Restaurant

(2013) 570 U.S. __, __–__ [133 S.Ct. 2304, 2310–2311] (Italian Colors) entails

that ―if a cost provision does not impose fees that ‗make access to the forum

impracticable‘ [citation], then the FAA precludes a court from invalidating it as

unconscionable because of a subjective determination that it will, in a particular

case, ‗have a substantial deterrent effect‘ on a party‘s exercise of the right to

request a second arbitration.‖ (Conc. & dis. opn., post, at pp. 23–24.) But it is not

clear that the notion of ―impracticab[ility]‖ mentioned in passing in Italian Colors

(Italian Colors, at p. __ [133 S.Ct. at p. 2311]) differs from ―a substantial deterrent

effect‖ (ante, at p. 21). In any event, we explained in Sonic II that Italian Colors

reaffirmed the principle stated in Concepcion that ―[w]here a state-law rule

interferes with fundamental attributes of arbitration, the FAA preempts the state-

law rule even if the rule is designed to facilitate prosecution of certain kinds of

claims.‖ (Sonic II, supra, 57 Cal.4th at p. 1157.) Neither Concepcion nor Italian

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Colors precludes states from ensuring, through rules that do not interfere with

arbitration‘s fundamental attributes, that the arbitral scheme set forth in a contract

is in practice ―an accessible, affordable process for resolving . . . disputes.‖ (Sonic

II, at p. 1158.)

The dispute in this case concerns a high-end luxury item. Sanchez does not

claim, and no evidence in the record suggests, that the cost of appellate arbitration

filing fees were unaffordable for him, such that it would thwart his ability to take

an appeal in the limited circumstances where such appeal is available. We

therefore conclude on the record before us that the arbitral appeal fee provision is

not unconscionable.

C.

The arbitration agreement further provides: ―You and we retain any rights

to self-help remedies, such as repossession.‖ The Court of Appeal held that this

provision also contributed to the unconscionability of the arbitration agreement.

We disagree.

The Court of Appeal explained its conclusion as follows: ―By exempting

repossession — to which only the car dealer would resort — from arbitration,

while subjecting a request for injunctive relief — the buyer‘s comparable

remedy — to arbitration, the Sale Contract creates an unduly oppressive

distinction in remedies. This is especially so given that the California Arbitration

Act (Code Civ. Proc., §§ 1280–1294.2) exempts preliminary injunctions from

arbitration, allowing an application for ‗provisional‘ remedies to be filed directly

in court (id., § 1281.8, subd. (b)). Nevertheless, the Sale Contract dictates

otherwise. As several courts have held, arbitration provisions are unconscionable

if they provide for the arbitration of claims most likely to be brought by the

weaker party but exempt from arbitration claims most likely to be filed by the

stronger party.‖

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As an initial matter, the arbitration agreement does not appear to preclude

provisional injunctive relief authorized by statute. Code of Civil Procedure

section 1281.8, subdivisions (a) and (b) authorize a court to issue before

arbitration ―a provisional remedy . . . upon the ground that the award to which the

applicant may be entitled may be rendered ineffectual without provisional relief.‖

Although the arbitration agreement in the present case provides that the arbitration

is to be governed by the FAA and not California law, generally the California

Arbitration Act governs arbitral procedures brought in California courts. (See

Cronus Investments, Inc. v. Concert Services (2005) 35 Cal.4th 376, 389–390.)

Even if FAA procedures apply, federal courts have concluded that a court may

―issue interim injunctive relief on arbitrable claims if interim relief is necessary to

preserve the status quo and the meaningfulness of the arbitration process.‖ (Toyo

Tire Holdings v. Continental Tire North Amer. (9th Cir. 2010) 609 F.3d 975, 981,

and cases cited therein.) Regardless of whether an arbitration agreement could

deprive a court of the power to grant preliminary injunctive relief, the present

agreement does not do so. It addresses injunctive relief in connection with the

relief granted by the arbitrator, subjecting such a remedy to review by a panel of

three arbitrators. The agreement does not purport to limit a court‘s power to issue

preliminary injunctive relief to preserve the status quo pending a final judgment.

Moreover, we see nothing unconscionable about exempting the self-help

remedy of repossession from arbitration. First, although this remedy is favorable

to the drafting party, the contract provision that preserves the ability of the parties

to go to small claims court likely favors the car buyer. Second, arbitration is

intended as an alternative to litigation, and the unconscionability of an arbitration

agreement is viewed in the context of the rights and remedies that otherwise would

have been available to the parties. (See Sonic II, supra, 57 Cal.4th at pp. 1146–

1148.) Self-help remedies are, by definition, sought outside of litigation, and they

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are expressly authorized by statute. Commercial Code section 9609, subdivisions

(a)(1) and (b)(2) authorize a secured creditor ―[a]fter default‖ to ―[t]ake possession

of the collateral‖ ―[w]ithout judicial process, if it proceeds without breach of the

peace.‖ Civil Code sections 2983.2 and 2983.3 set forth the requirements for post-

repossession notice and opportunity to cure default in the case of automobile

loans. Moreover, it is undisputed that the remedy of repossession of collateral is

an integral part of the business of selling automobiles on credit and fulfills a

― ‗legitimate commercial need.‘ ‖ (Armendariz, supra, 24 Cal.4th at p. 117.) We

thus conclude that the exclusion of such a remedy from an arbitration agreement,

while favorable to Valencia, is not unconscionable.

IV.

The trial court held, prior to Concepcion, that the class waiver was

unconscionable and invalidated the entire arbitration agreement based on a poison

pill provision that said: ―If a waiver of class action rights is deemed or found to be

unenforceable for any reason in a case in which class action allegations have been

made, the remainder of this Arbitration Clause shall be unenforceable.‖ The Court

of Appeal, deciding the case after Concepcion, took no position on the

enforceability of the class waiver. Sanchez now advances several arguments for

why the trial court‘s decision was correct, but none is persuasive.

In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, we announced a

rule that class arbitration waivers in consumer contracts are unconscionable when

they are found ―in a setting in which disputes between the contracting parties

predictably involve small amounts of damages and when it is alleged that the party

with the superior bargaining power has carried out a scheme to deliberately cheat

large numbers of consumers out of individually small sums of money.‖ (Id. at

pp. 162–163.) This rule was abrogated by Concepcion, supra, 563 U.S. at p. __

[131 S.Ct. at p. 1753]; see Sonic II, supra, 57 Cal.4th at pp. 1137–1139.) As

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noted, the imposition of class action arbitration or litigation interferes ―with

fundamental attributes of arbitration and thus creates a scheme inconsistent with

the FAA.‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1748].) To find

the class waiver here unconscionable would run afoul of Concepcion.

Sanchez correctly notes that the CLRA sets forth a number of unwaivable

rights, including the right to a class action. The anti-waiver provision is found in

Civil Code section 1751: ―Any waiver by a consumer of the provisions of this

title is contrary to public policy and shall be unenforceable and void.‖ Civil Code

section 1780 permits the consumer damaged by certain enumerated practices to

seek various remedies including damages and injunctive relief. Civil Code section

1781, subdivision (a) provides: ―Any consumer entitled to bring an action under

Section 1780 may, if the unlawful method, act, or practice has caused damage to

other consumers similarly situated, bring an action on behalf of himself and such

other consumers to recover damages or obtain other relief as provided for in

Section 1780.‖ Thus, class actions are among the provisions of the CLRA that

may not be waived. (See Fisher v. DCH Temecula Imports LLC (2010) 187

Cal.App.4th 601, 613.)

Nonetheless, Concepcion‘s rule that states may not require a procedure that

interferes with fundamental attributes of arbitration, ―even if it is desirable for

unrelated reasons‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753]),

applies equally to requirements imposed by statute or judicial rule. We conclude

that the CLRA‘s anti-waiver provision is preempted insofar as it bars class waivers

in arbitration agreements covered by the FAA. Sanchez‘s argument that enforcing

the CLRA‘s anti-waiver provision merely puts arbitration agreements on an equal

footing with other contracts is unavailing. Concepcion held that a state rule can be

preempted not only when it facially discriminates against arbitration but also when

it disfavors arbitration as applied. (Concepcion, supra, 563 U.S. at p. __ [131

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S.Ct. at pp. 1747].) Concepcion further held that a state rule invalidating class

waivers interferes with arbitration‘s fundamental attributes of speed and

efficiency, and thus disfavors arbitration as a practical matter. (Id. at pp. 1750–

1753.)

Finally, Sanchez contends that the language of the arbitration agreement ––

―If a waiver of class action rights is deemed or found to be unenforceable for any

reason . . . , the remainder of this Arbitration Clause shall be unenforceable‖ ––

means that once a class action waiver is deemed unenforceable, as the trial court

ruled here, then the rest of the agreement is likewise unenforceable. But plainly

the quoted provision was not meant to apply when a trial court erroneously holds

the class waiver unenforceable and the error is corrected on appeal. Rather, the

provision is most reasonably interpreted to permit the parties to choose class

litigation over class arbitration in the event that the class waiver turns out to be

legally invalid. Because we conclude in light of Concepcion that the FAA

preempts the trial court‘s invalidation of the class waiver on unconscionability

grounds, the agreement‘s poison pill provision is inoperable.

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CONCLUSION

The judgment of the Court of Appeal is reversed, and the cause is remanded

for proceedings not inconsistent with this opinion.

LIU, J.


WE CONCUR:


CANTIL-SAKAUYE, C. J.



WERDEGAR, J.



CORRIGAN, J.



CUÉLLAR, J.



KRUGER, J.

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CONCURRING AND DISSENTING OPINION BY CHIN, J.




I agree with the majority that, under the high court‘s decision in AT&T

Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion),

the Federal Arbitration Act (FAA) requires enforcement of the class arbitration

waiver in the contract between plaintiff Gil Sanchez and defendant Valencia

Holding Company, LLC (Valencia). I also agree with the majority that Sanchez

has failed to carry his burden of establishing that the arbitration agreement in that

contract is unconscionable. However, as explained below, my analysis of these

issues differs from the majority‘s in several respects, and I do not endorse all of

the majority‘s reasoning. Therefore, I concur only in the judgment.

FACTUAL AND PROCEDURAL BACKGROUND




On August 8, 2008, Sanchez went to Valencia‘s Mercedes-Benz dealership

to shop for a certified preowned car. In response to his inquiry, a sales

representative showed him a 2006 Mercedes-Benz S500V with an advertised price

of approximately $48,000. After negotiations regarding various terms of the

purchase, Sanchez signed a contract entitled ―RETAIL INSTALLMENT SALE

CONTRACT — SIMPLE FINANCE CHARGE,‖ which specified the total

amount financed as $47,032.99. This amount included a price for the car of

approximately $39,800, sales tax of approximately $3,330, a service contract price

of $3,700, a cash down payment of $15,000, and a net trade-in amount for

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Sanchez‘s 2004 Cadillac of -$14,800 (reflecting the amount Sanchez still owed on

the car ($20,800) offset by its value ($6,000)).

Sanchez later filed a class action against Valencia asserting violations of the

Consumer Legal Remedies Act (CLRA) (Civ. Code, §§ 1750–1784), the

Automobile Sales Finance Act (Civ. Code, §§ 2981–2984.6), the unfair

competition law (UCL) (Bus. & Prof. Code, §§ 17200–17210), the Song-Beverly

Consumer Warranty Act (Civ. Code, §§ 1790–1795.8), and Public Resources

Code section 42885. He alleged that Valencia had (1) made false representations

about the car‘s condition, (2) failed separately to itemize the amount of the down

payment that was deferred, (3) failed to distinguish registration, transfer, and

titling fees from license fees, (4) charged an optional electronic filing fee without

discussing it with him, (5) charged new tire fees for used tires, and (6) required

payment of $3,700 to have the car certified so he could qualify for a 4.99 percent

interest rate, when that payment was actually for an optional extended warranty

unrelated to the interest rate.

Valencia moved to compel arbitration pursuant to a provision in the

contract that provided in relevant part: ―Any claim or dispute, whether in contract,

tort, statute or otherwise . . . between you and us . . . which arises out of or relates

to your credit application, purchase or condition of this vehicle, this contract or

any resulting transaction or relationship . . . shall, at your or our election, be

resolved by neutral, binding arbitration and not by a court action. . . . Any claim

or dispute is to be arbitrated by a single arbitrator on an individual basis and not as

a class action. You expressly waive any right you may have to arbitrate a class

action.‖

Sanchez opposed the motion, principally asserting that the arbitration

provision was illegal and unenforceable insofar as it required him ―to waive his

unwaivable right to file a class action under the CLRA.‖ The unenforceability of

this waiver, he argued, rendered the entire arbitration agreement unenforceable

under a clause stating, ―If a waiver of class action rights is deemed or found to be

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unenforceable for any reason in a case in which class action allegations have been

made, the remainder of this Arbitration Clause shall be unenforceable.‖ As an

alternative ground for opposing the motion, Sanchez argued that the arbitration

agreement was unenforceable because it was ―both procedurally and substantively

unconscionable.‖

Based solely on the invalidity of the class arbitration waiver, the trial court

denied the motion to compel, explaining: ―As the CLRA contains a right to bring

class actions, a waiver of such right is contrary to public policy and is

unenforceable. [Citation.] Thus, the class action waiver herein is unenforceable.

As such, the entire clause is unenforceable, as specifically provided for in that

clause.‖ The trial court did not address Sanchez‘s unconscionability claim.

The Court of Appeal affirmed, but took the opposite approach, i.e., it

declined to consider whether the class arbitration waiver was unenforceable and

held instead that ―the arbitration clause as a whole is unconscionable.‖ It is

―procedurally unconscionable,‖ the court reasoned, ―because it is adhesive and

satisfies the elements of oppression and surprise; it is substantively

unconscionable because it contains harsh terms that are one-sided in favor of the

car dealer to the detriment of the buyer.‖ ―First, a party who loses before the

single arbitrator may appeal to a panel of three arbitrators if the award exceeds

$100,000. Second, an appeal is permitted if the award includes injunctive relief.

Third, the appealing party must pay, in advance, ‗the filing fee and other

arbitration costs subject to a final determination by the arbitrators of a fair

apportionment of costs.‘ Fourth, the provision exempts repossession from

arbitration while requiring that a request for injunctive relief be submitted to

arbitration. Although these provisions may appear neutral on their face, they have

the effect of placing an unduly oppressive burden on the buyer.‖

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DISCUSSION



I. The FAA Requires Enforcement of the Class Arbitration
Waiver.




In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 161 (Discover

Bank), a four-to-three majority of this court held that certain waivers of classwide

arbitration procedures are unconscionable and unenforceable because they ―may

operate effectively as exculpatory contract clauses that are contrary to public

policy.‖ This rule, the Discover Bank majority concluded, is not preempted by the

FAA because (1) enforcement of arbitration provisions under the FAA ―is limited

by certain general contract principles ‗ ―at law or in equity for the revocation of

any contract‖ ‘ ‖ (id. at p. 163), and (2) ―the principle that class action waivers are,

under certain circumstances, unconscionable as unlawfully exculpatory is a

principle of California law that does not specifically apply to arbitration

agreements, but to contracts generally,‖ i.e., ―it applies equally to class action

litigation waivers in contracts without arbitration agreements as it does to class

arbitration waivers in contracts with such agreements‖ (id. at pp. 165-166). The

Discover Bank majority found ―[n]othing in‖ the high court‘s decisions

―suggest[ing] that state courts are obliged to enforce contractual terms even if

those terms are found to be unconscionable or contrary to public policy under

general contract law principles.‖ (Id. at p. 166.) In other words, the Discover

Bank majority declared, ―the FAA does not federalize the law of unconscionability

or related contract defenses except to the extent that it forbids the use of such

defenses to discriminate against arbitration clauses.‖ (Id. at p. 167.)

In Concepcion, the high court rejected the Discover Bank majority‘s

preemption analysis and held that the FAA does, in fact, preempt Discover Bank‘s

rule against enforcement, on grounds of unconscionability, of class arbitration

waivers. (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753].) The court

explained that, under certain circumstances, the FAA‘s preemptive effect

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―extend[s] even to grounds‖ ―normally thought to be generally applicable, such

as . . . unconscionability.‖ (Id. at p. __ [131 S.Ct. at p. 1747].) The FAA preempts

such ―generally applicable contract defenses‖ if they ―stand as an obstacle to the

accomplishment of the FAA‘s objectives.‖ (Id. at p. __ [131 S.Ct. at p. 1748].)

The Discover Bank rule stands as such an obstacle for two reasons. First, it

contravenes the FAA‘s ― ‗principal purpose,‘ ‖ which ―is to ‗ensur[e] that private

arbitration agreements are enforced according to their terms.‘ [Citations.]‖ (Id. at

p. __ [131 S.Ct. at p. 1748], italics added.) Second, it frustrates the FAA‘s goal of

encouraging ―efficient, streamlined,‖ speedy procedures. (Id. at p. __ [131 S.Ct. at

p. 1749].) Because, in these respects, the Discover Bank rule ― ‗stands as an

obstacle to the accomplishment and execution of the full purposes and objectives

of Congress,‘ ‖ the FAA preempts it. (Id. at p. __ [131 S.Ct. at p. 1753].) As the

majority explains, under Concepcion, the FAA ―requires enforcement‖ of the class

arbitration waiver at issue in this case. (Maj. opn., ante, at p. 2.)

Although I also agree with the majority that, under Concepcion,

unconscionability remains a valid defense to a petition to compel arbitration (maj.

opn., ante, at p. 11), I do not subscribe to the majority‘s broad dictum that

Concepcion ―does not limit the unconscionability rules applicable to other

provisions of the arbitration agreement‖ (maj. opn., ante, at p. 2). Indeed, as the

majority later explains, under Concepcion, in order to avoid FAA preemption, our

standard for unconscionability ―must be[] the same for arbitration and

nonarbitration agreements.‖ (Maj. opn., ante, at p. 10.) In other words, ―the

application of unconscionability doctrine to an arbitration clause must proceed

from general principles that apply to any contract clause. In particular, the

standard for substantive unconscionability . . . must be as rigorous and demanding

for arbitration clauses as for any contract clause.‖ (Ibid.) Moreover, Concepcion

declares that, although ―[s]tates remain free to take steps addressing the concerns

that attend contracts of adhesion,‖ those steps ―cannot . . . conflict with the FAA

or frustrate its purpose to ensure that private arbitration agreements are enforced

5

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according to their terms.‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p.

1750], fn. 6.) Concepcion also declares that ―[w]hen state law prohibits outright

the arbitration of a particular type of claim,‖ the state law ―is displaced by the

FAA.‖ (Id. at p. __ [131 S.Ct. at p. 1747].) The high court has subsequently made

clear that this principle precludes courts from basing a finding of

unconscionability on a state rule that precludes, as a matter of state public policy,

arbitration of certain types of claims. (Marmet Health Care Center Inc. v. Brown

(2012) __ U.S. __, __ [132 S.Ct. 1201, 1204].) These general principles from

Concepcion do, in fact, ―limit the unconscionability rules applicable to‖ provisions

of arbitration agreements other than class arbitration waivers. (Maj. opn., ante, at

p. 2.)

II. Sanchez Has Not Established Unconscionability.




Unconscionability has both a procedural and substantive element, and the

party asserting the defense bears the burden of proving both by a preponderance of

the evidence. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development

(US), LLC (2012) 55 Cal.4th 223, 246-247 (Pinnacle); Engalla v. Permanente

Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla).) Below, I explain my

reasons for agreeing with the majority that Sanchez has failed to establish

substantive unconscionability. Before that, I explain why I do not endorse the

majority‘s discussion of procedural unconscionability.

1. We need not decide, and the record fails to establish, procedural

unconscionability.




Initially, it is both unnecessary and, on the state of the record here,

improper under our case law to decide that the agreement was procedurally

unconscionable. It is unnecessary given the majority‘s conclusion, with which I

agree, that the arbitration provision is not substantively unconscionable. (Maj.

opn., ante, at p. 2.) Because, as explained above, a showing of both procedural

6

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and substantive unconscionability is required to render a contract unenforceable, a

contract that is not substantively unconscionable is fully enforceable regardless of

procedural unconscionability. Given our unanimous conclusion regarding

substantive unconscionability, ―adherence to judicial restraint and economy

counsels against an unnecessary detour into an analysis‖ of procedural

unconscionability. (People v. Mosley (2015) 60 Cal.4th 1044, 1055, fn. 7; see

Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938, 956 [declining to

consider procedural unconscionability given finding of no substantive

unconscionability]; Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th

1159, 1167 (Crippen) [declining to consider substantive unconscionability given

finding of no procedural unconscionability].)

It is improper to decide the issue because, as explained earlier, the trial

court made no findings regarding unconscionability and denied Valencia‘s motion

to compel based solely on its conclusion that the class arbitration waiver

constituted an illegal and unenforceable waiver of Sanchez‘s ―unwaivable right to

file a class action under the CLRA.‖ Thus, the trial court has never resolved

factual conflicts that must be resolved in Sanchez‘s favor in order to warrant a

finding of procedural unconscionability (discussed post). Our decisions establish

that where a trial court fails to resolve factual conflicts that must be resolved in

favor of a party who alleges that an arbitration provision is unenforceable, the

proper course for an appellate court is to remand the case to the trial court to

determine those factual issues, not to determine them itself in the first instance.

(Engalla, supra, 15 Cal.4th at pp. 972-973; Rosenthal v. Great Western Fin.

Securities Corp. (1996) 14 Cal.4th 394, 414.) Under these decisions, were a

finding on procedural unconscionability necessary, the majority should remand for

the trial court to consider the issue rather than resolve it in Sanchez‘s favor in the

first instance on appeal. The majority offers no explanation for departing from our

precedents.

7

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On the merits, the majority‘s summary dicta is incomplete and

unpersuasive. The only basis the majority offers for finding ―some degree of

procedural unconscionability‖ is the ―adhesive nature of the contract.‖1 (Maj.

opn., ante, at p. 14.) But the majority offers no independent legal analysis for

establishing that the contract was adhesive, asserting instead that ―Valencia does

not dispute that the contract was adhesive.‖ (Id. at p. 12.) It is true that Valencia‘s

counsel stated at oral argument that the contract was ―adhesive in the sense that it

is . . . a form contract.‖ But the circumstance that a contract is ―standardized in

form‖ does not alone establish adhesiveness. (Izzi v. Mesquite Country Club

(1986) 186 Cal.App.3d 1309, 1318 (Izzi); see Federico v. Frick (1970) 3

Cal.App.3d 872, 875 [―nothing in the record provid[es] evidentiary support for

th[e] conclusion‖ that ―[t]he standard union employment contract before us‖ is ―a

contract of adhesion‖].) The additional characteristics of adhesiveness are that the

contract was drafted and imposed ― ‗by the party of superior bargaining strength‘ ‖

(Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817) ― ‗on essentially a ―take

it or leave it‖ basis without affording the consumer a realistic opportunity to

bargain and under such conditions that the consumer cannot obtain the desired

product or services except by acquiescing in the form contract‘ ‖ (Victoria v.

Superior Court (1985) 40 Cal.3d 734, 743 (Victoria)).

At all levels of this litigation, Valencia clearly has disputed whether

Sanchez has met his burden to prove by a preponderance of the evidence that these

additional characteristics of adhesiveness are present. In the Court of Appeal,


1

The majority states that ―Sanchez apparently did not read the entirety of his

contract, including the arbitration clause‖ (maj. opn., ante, at p. 13), but it does not
conclude that this circumstance contributes to a finding of procedural
unconscionability. I agree. As the majority explains, ―even where a customer is
assured it is not necessary to read a standard form contract with an arbitration
clause, ‗it is generally unreasonable, in reliance on such assurances, to neglect to
read a written contract before signing it.‘ ‖ (Id. at p. 14.)


8

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Valencia argued that the contract, although ―a pre-printed form contract,‖ was

―not a contract of adhesion‖ and that, as relevant to this issue, Sanchez had failed

to show that he ―had no realistic choice,‖ that he could not have ―negotiate[d] a

contract term‖ had he attempted to do so, that ―he was under any compulsion to

finalize the purchase of a vehicle at any particular point in time,‖ that the car ―was

unique,‖ or that he could not have purchased it without agreeing to arbitration

from either a private individual or from one of the other five Mercedes-Benz

dealers ―[w]ithin 25 miles of‖ Valencia. Valencia made the same arguments in the

trial court` and asserted in its opening brief in this court that Sanchez had failed to

satisfy his ―burden of proof‖ because he ―made no showing that he could not

negotiate the arbitration provision or that he lacked other alternatives, such as

going to another dealer.‖ Thus, the record reflects that Valencia does, in fact,

―dispute that the contract was adhesive‖ and that, as part of its argument, has

emphasized both in the lower courts and ―in this court‖ Sanchez‘s failure to show

he could not ―have opted out of the arbitration agreement‖ or ―negotiated a sales

contract without an arbitration agreement.‖2 (Maj. opn., ante, at p. 12.)

Indeed, the majority‘s discussion overlooks the legal significance of the

fact that the burden of proof was on Sanchez to establish procedural

unconscionability. Valencia‘s asserted failure to ―dispute‖ the contract‘s adhesive

nature or to ―contend in this court‖ that Sanchez could have obtained the car

without accepting the arbitration agreement (maj. opn., ante, at p. 12), even if

consistent with the record, does not substitute for evidence that satisfies Sanchez’s

burden to establish procedural unconscionability. This is especially true given the


2

After stating at oral argument that the contract was ―adhesive in the sense

that it is . . . a form contract,‖ Valencia‘s counsel added: ―I think that meets the
definition of adhesive in California. But I think adhesive without more does not
get . . . one unconscionability.‖ Unlike the majority (see maj. opn., ante, at p. 12),
I do not, in the context of the entire record, view these additional statements as a
basis for dispensing with a proper and complete analysis of adhesiveness.

9

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procedural posture of this case, i.e., the trial court made no findings regarding

unconscionability, and the majority is deciding the issue on appeal in the first

instance.

The majority also overlooks the fact that case law strongly supports

Valencia‘s arguments. In Crippen, supra, 124 Cal.App.4th at page 1165, the

Court of Appeal, in ordering enforcement of an arbitration agreement between a

dealer and the purchaser of a motor home, rejected the argument that the

agreement was ―a contract of adhesion and therefore procedurally

unconscionable‖ simply ―because [it] was a form contract [the dealer] used with

many customers.‖ The court explained: ―[T]here is no general rule that a form

contract used by a party for many transactions is procedurally unconscionable.

Rather, ‗[p]rocedural unconscionability focuses on the manner in which the

disputed clause is presented to the party in the weaker bargaining position. . . .

There is no reason in this case to conclude that plaintiff lacked power to bargain.

In general, nothing prevents purchasers of . . . vehicles from bargaining with

dealers, even though dealers use form contracts, and nothing in the record shows

that plaintiff could not bargain in this case.‖ (Id. at pp. 1165-1166.) ―There is

nothing in this buyer-seller relationship from which we can infer a great disparity

of bargaining power.‖ (Id. at p. 1166; cf. Izzi, supra, 186 Cal.App.3d at p. 1318

[although the contract was standardized, ―no presumption is warranted that

plaintiffs had no choice or power to negotiate as to the terms of their purchase

agreement or that they could not obtain comparable or superior terms on a suitable

condominium nearby‖] .)

Indeed, the record here is consistent with the analysis in Crippen and

supports Valencia‘s arguments. It indicates that Sanchez had significant financial

means when he signed the contract, which is the relevant time for judging

unconscionability (Civ. Code, § 1670.5, subd. (a)). He contracted to pay nearly

$50,000 for a luxury automobile for personal use, traded in a relatively new (four-

year old) luxury automobile as part of the purchase and, at the time he signed the

10

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contract, wrote a $10,000 check for the down payment and agreed to put down

more money within 30 days if necessary. Over the course of the next week, he

returned to Valencia and increased his down payment by $5,000, for a total of

$15,000. The record also shows that Sanchez actually bargained for a substantial

reduction in the car‘s purchase price. Finally, the record contains evidence —

submitted by Sanchez — that, during the time period when he executed the

contract, contracts without an arbitration provision were available to Valencia‘s

buyers; that Valencia had not used contracts with arbitration clauses since August

29, 2008, a few weeks after Sanchez signed the contract; and that Valencia no

longer uses contracts with arbitration clauses. Thus, the record fails to show that

Sanchez lacked bargaining power or that he could not have obtained the car, either

from Valencia or elsewhere, ― ‗except by acquiescing in the form contract.‘ ‖

(Victoria, supra, 40 Cal.3d at p. 743.)

The majority‘s response to my analysis — that ―in the context of consumer

contracts, we have never required‖ a party asserting procedural unconscionability

to ―show it tried to negotiate standardized contract provisions‖ (maj. opn., ante, at

pp. 12-13, italics added) — is unpersuasive. Although we may never have

required such proof, we have expressly stated that ―freedom to choose whether or

not to enter a contract of adhesion is a factor weighing against a finding of

procedural unconscionability.‖ (Gentry v. Superior Court (2007) 42 Cal.4th 443,

470.) Notably, the decision we cited in support of this statement — Dean Witter

Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758 — involved ―the

context of consumer contracts‖ (maj. opn., ante, at p. 12), a circumstance we

expressly acknowledged in our explanation of that decision: ―agreement between

brokerage house and sophisticated consumer of financial services that included a

$50 termination fee on an IRA account was not unconscionable where competing

IRA‘s without the challenged fee were freely available.‖ (Gentry, supra, at p. 470,

italics added.)

11

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Indeed, Discover Bank, which the majority cites in support of its response,

actually confirms the validity of this principle ―in the context of consumer

contracts.‖ (Maj. opn., ante, at p. 12.) There, a majority of this court stated that

―when a consumer is given an amendment to its cardholder agreement in the form

of a ‗bill stuffer‘ that he would be deemed to accept if he did not close his account,

an element of procedural unconscionability is present.‖ (Discover Bank, supra, 36

Cal.4th at p. 160.) In making this statement, we relied on Szetela v. Discover Bank

(2002) 97 Cal.App.4th 1094. There, consistent with our precedents, the Court of

Appeal stated that ―[t]he availability of similar goods or services elsewhere may

be relevant to whether the contract is one of adhesion . . . .‖ (Id. at p. 1100.) The

court then explained that, on ―the [particular] facts in the case,‖ this was ―not the

deciding factor‖ because of the ―oppressive‖ manner in which the defendant had

―imposed‖ the arbitration provision; the record showed that the consumer, who

already had a ―Cardholder Agreement‖ with the defendant, subsequently

―received‖ an ―amendment‖ imposing the arbitration provision ―in a bill stuffer‖

and ―was told to ‗take it or leave it.‘ His only option, if he did not wish to accept

the amendment, was to close his account.‖ (Ibid.) The facts in Discover Bank

were virtually identical. (Discover Bank, supra, at pp. 153-154.) The facts in this

case are completely different. Thus, although Discover Bank is factually

distinguishable, legally, it confirms that Sanchez‘s failure to show he was unable

to obtain the car from Valencia or elsewhere without agreeing to arbitration is an

important factor in determining procedural unconscionability.

Even more supportive of this conclusion is the other decision the majority

cites in support of its response: Perdue v. Crocker National Bank (1985) 38

Cal.3d 913. (Maj. opn., ante, at p. 13.) There, we considered the legal sufficiency

of the plaintiff‘s claim that the fee the defendant bank charged customers for

returned checks was unconscionable. (Perdue, supra, 38 Cal.3d at pp. 920-921.)

In addressing this question, we first reaffirmed the principle that the determination

of procedural unconscionability ―may turn on the absence of meaningful choice.‖

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(Id. at p. 927.) In holding that the plaintiff had sufficiently stated a claim for

relief, we then stressed that he had ―alleged . . . that similar arrangements would

be imposed by other banks.‖ (Id. at p. 927, fn. 12, italics added.) This

―allegation[],‖ we explained, rendered ―distinguish[able]‖ a decision in which a

court had ―reject[ed]‖ a similar unconscionability claim because of the plaintiffs‘

― ‗fail[ure] to show that they were deprived of a meaningful choice of banks with

which they could do business.‘ ‖ (Ibid.) Thus, like Discover Bank, Perdue

confirms the significance of Sanchez‘s failure to show (or even allege) that he

either tried to negotiate with Valencia or could not have obtained a similar car

elsewhere without agreeing to arbitration.

Consistent with these precedents, our Courts of Appeal have, in rejecting

claims of adhesiveness, relied in part on the absence of evidence that the

complaining parties tried to negotiate the terms they were seeking to invalidate.

(Spinello v. Amblin Entertainment (1994) 29 Cal.App.4th 1390, 1397; Union Bank

v. Ross (1976) 54 Cal.App.3d 290, 296 (Union Bank).) Thus, under existing

California case law, Sanchez‘s failure to show that he ―tried to negotiate‖ the

arbitration provisions (maj. opn., ante, at p. 13) is an important factor in

determining whether he has established adhesivenesss. The majority‘s contrary

view, which is not supported by our precedents, effectively disapproves these

decisions.

I also disagree with the majority that the statements of Valencia‘s counsel

at oral argument regarding the clarity of the contract are relevant. (Maj. opn.,

ante, at p. 12.) Counsel stated: ―I think many people who are not legally trained

don‘t understand the vast majority of what is in this contract. My guess is that if

you asked that dealer about everything other than the negotiable terms of price and

interest they probably don‘t understand that either, even though that language is

required by statute.‖ Unlike the majority, I would not rely on counsel‘s ―guess‖

about these matters, which lacks any evidentiary support in the record. Indeed, the

contract here clearly provided for arbitration of ―[a]ny claim or dispute . . .

13

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between‖ Sanchez and Valencia, and there is no reason Sanchez would have been

unable to understand this had he read the contract. Moreover, if, as the majority

asserts, Sanchez ―did not read‖ the contract (see maj. opn., ante, at p. 13), then

under existing case law, he ―may not,‖ in asserting adhesiveness, ―properly argue

that he did not give an ‗understanding consent.‘ ‖ (Union Bank, supra, 54

Cal.App.3d at p. 296.) Finally, ―[t]he general rule‖ in California, established now

for over 100 years, ―is that, when a person with the capacity of reading and

understanding an instrument signs it, he is, in the absence of fraud and imposition,

bound by its contents, and is estopped from saying that its provisions are contrary

to his intentions or understanding.‖ (Smith v. Occidental etc. Steamship (1893) 99

Cal. 462, 470-71.) For these reasons, the majority‘s reliance on counsel‘s ―guess‖

during oral argument is misplaced.

In any event, our prior decisions establish that adhesiveness does not alone

necessarily establish procedural unconscionability. In Pinnacle, the trial court, on

grounds of unconscionability, refused to enforce against a condominium

homeowners association an arbitration provision in the condominium‘s covenants,

conditions, and restrictions (CC&R‘s). (Pinnacle, supra, 55 Cal.4th at p. 234.) It

based a finding of procedural unconscionability on the fact that ―the [a]ssociation

had no opportunity to participate in the drafting of‖ the CC&R‘s because they

were recorded ―before the [a]ssociation was formed.‖ (Id. at p. 247.) We

disagreed with the trial court‘s conclusion, explaining: ―That the . . . CC&R‘s

were drafted and recorded before the sale of any unit and without input from the

[a]ssociation was a circumstance dictated by the legislative policy choices

embodied in the Davis–Stirling Act. . . . Thus, while a condominium declaration

may perhaps be viewed as adhesive, a developer‘s procedural compliance with the

Davis–Stirling Act provides a sufficient basis for rejecting an association‘s claim

of procedural unconscionability.‖ (Id. at pp. 247-248, italics added, fn. omitted.)

Here, Valencia asserts — and Sanchez does not dispute — ―that over 90% of the

contract is statutorily dictated in both form and content‖ by the Automobile Sales

14

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Finance Act (Civ. Code, § 2981 et seq.). Therefore, as Valencia argues, under

Pinnacle, the contract is not procedurally unconscionable even if it could ―be

viewed as adhesive.‖ (Pinnacle, supra, at p. 248.) This conclusion does not, as

the majority suggests, depend on whether the arbitration agreement ―was

mandated by statute‖ (maj. opn., ante, at p. 13), because the arbitration agreement

in Pinnacle was not statutorily required (Pinnacle, supra, at pp. 235-242; see

Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1320

[―adhesion contracts‖ are ―not always‖ procedurally unconscionable]).

California has a ―strong public policy in favor of enforcing arbitration

agreements.‖ (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1073.)

―In keeping with [this] strong public policy . . . , any doubts regarding the validity

of an arbitration agreement [must be] resolved in favor of arbitration.‖

(Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1144; Lhotka v.

Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 821.) Consistent with

these principles, were it either necessary or appropriate to decide the issue, I

would, for the reasons set forth above, find that Sanchez has failed to prove

adhesiveness that supports a finding of procedural unconscionability.

2. Sanchez has not established substantive unconscionability.


―Civil Code section 1670.5, subdivision (a), authorizes a court, upon

finding ‗as a matter of law‘ that a ‗contract or any clause of the contract‘ was

‗unconscionable at the time it was made,‘ to ‗refuse to enforce the contract,‘ to

‗enforce the remainder of the contract without the unconscionable clause,‘ or to

‗so limit the application of any unconscionable clause as to avoid any

unconscionable result.‘ The official Assembly comment accompanying this

section explains: ‗The basic test [of unconscionability] is whether, in the light of

the general background and the needs of the particular case, the clauses involved

are so one-sided as to be unconscionable under the circumstances existing at the

time of the making of the contract. . . . The principle is one of prevention of

15

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oppression and unfair surprise [citation] and not of disturbance of allocation of

risks because of superior bargaining power.‘ (Rep. on Assem. Bill No. 510

(1979–1980 Reg. Sess.) 5 Assem. J. (1979–1980 Reg. Sess.) p. 9231, reprinted as

Legis. Com. com., 9 West‘s Ann. Civ. Code (2011 ed.) p. 74 (Official

Comment).)‖ (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1176

(conc. & dis. opn. of Chin, J.) (commonly known as Sonic II).)

Consistent with these legislative pronouncements, in Pinnacle, we recently

explained that ―[a] contract term,‖ including an arbitration provision, ―is not

substantively unconscionable when it merely gives one side a greater benefit;

rather, the term must be ‗so one-sided as to ―shock the conscience.‖ ‘ ‖ (Pinnacle,

supra, 55 Cal.4th at p. 246.) The ― ‗ ―shock the conscience‖ ‘ ‖ standard we

applied in Pinnacle is the standard this court has been applying for well over 100

years. (E.g., Herbert v. Lankershim (1937) 9 Cal.2d 409, 475 [inadequacy of

consideration must be ― ‗so gross as to shock the conscience and common sense of

all men‘ ‖]; Boyce v. Fisk (1895) 110 Cal. 107, 116 [contract must be ― ‗grossly

against conscience,‘ ‖ and ― ‗the mere fact that the bargain is a very hard or

unreasonable one is not generally sufficient‘ ‖]; see also Tarver v. State Bar

(1984) 37 Cal.3d 122, 134 [test for whether an attorney‘s fee is unconscionable is

whether it is ― ‗ ― ‗so exorbitant and wholly disproportionate to the services

performed as to shock the conscience‘ ‖ ‘ ‖].) It is ―derivative of the term

‗unconscionable.‘ ‖ (California Grocers Assn. v. Bank of America (1994) 22

Cal.App.4th 205, 215.) It is the standard we should continue to apply. I thus

agree with the majority‘s discussion insofar as it reaffirms the validity of the shock

the conscience standard. (Maj. opn., ante, at pp. 8-9.)

However, I part company with the majority insofar as it continues to

endorse several alternative formulations for substantive unconscionability. i.e.,

overly harsh, unduly oppressive, unfairly one-sided. (Maj. opn., ante, at pp.8-9.)

As the majority observes, this court has sometimes used these formulations instead

of the shock the conscience standard. (Ibid.) This practice has generated

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confusion and uncertainty, because our lower courts have understood these

different formulations as stating a lower standard for substantive unconscionability

than ―shock the conscience.‖ (Sonic II, supra, 57 Cal.4th at p. 1178 (conc. & dis.

opn. of Chin, J.) [―our Courts of Appeal have consistently recognized [that] shock

the conscience is not . . . ‗synonymous with ―unreasonable‖ ‘ ‖]; Peng v. First

Republic Bank (2013) 219 Cal.App.4th 1462, 1469 [shock the conscience is ― ‗a

higher standard‘ ‖ than one-sided or overly harsh]; Gutierrez v. Autowest, Inc.

(2003) 114 Cal.App.4th 77, 88 (Gutierrez) [same].) Today, the majority declares

that these alternative formulations ―all mean the same thing‖ as ―shock the

conscience.‖ (Maj. opn., ante, at p. 9.) If that is true, then why not settle on the

traditional ―shock the conscience‖ test as the single formulation? Why perpetuate

the uncertainty that arises from having multiple formulations?

The majority‘s only answer — that adopting ―shock the conscience‖ as the

sole formulation somehow ―would call into question‖ decisions in which we have

used ―other formulations‖ (maj. opn., ante, at p. 12) — is unpersuasive. If, as the

majority states, those other formulations are not conceptually or practically

different from, and mean the same thing as, ―shock the conscience‖ (id. at pp. 8-

9), then why would adopting a single standard call any of our prior decisions into

question? We could simply make clear that we are clarifying the law, without

suggesting that our earlier cases were wrongly decided.

Moreover, maintaining multiple formulations is problematic for several

reasons. First, although, as the majority recognizes, ―[c]ommerce depends on the

enforceability, in most instances, of a duly executed, written contract‖ (maj. opn.,

ante, at p. 9), it also depends on ―certainty and predictability‖ of enforcement

(Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1269.) As we have

explained, ―[p]arties enter into contracts to allocate risks and to bring certainty,

order, and predictability to their mutual relations. One of the principal aims of

contract law is to assist contracting parties in achieving this objective by making

the outcome of legal disputes clear and predictable.‖ (Nedlloyd Lines B.V. v.

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Superior Court (1992) 3 Cal.4th 459, 494.) Having multiple formulations for

determining whether a contract is substantively unconscionable, and therefore

unenforceable, undermines the certainty and predictability that are vital to

commerce.

Second, the need for a uniform standard is crucial in light of the FAA. As

already explained, the FAA requires that our standard for unconscionability be

―the same for arbitration and nonarbitration agreements,‖ i.e., that it be ―as

rigorous and demanding for arbitration clauses as for any contract clause.‖ (Maj.

opn., ante, at p. 10.) However, as Valencia argues, ―[i]f there are multiple

unconscionability standards, then arbitration provisions may well be subjected, in

practice, to a different standard than other contract provisions.‖ Indeed, this court

first articulated the ―unfairly one-sided‖ formulation specifically in the context of

an unconscionability challenge to an arbitration provision (Armendariz v.

Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117

(Armendariz)), and the formulation has since been used almost exclusively in that

context. Notably, in Concepcion, the high court, immediately after explaining that

―judicial hostility‖ towards arbitration has ―manifested itself in ‗a great variety‘ of

‗devices and formulas,‘ ‖ observed ―that California‘s courts have been more likely

to hold contracts to arbitrate unconscionable than other contracts. [Citations.]‖

(Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1747].) Having multiple

formulations lends substantial credence to the ―loud chorus of courts and

commentators‖ who assert that, contrary to the high court‘s decisions, we are

using unconscionability ―as a ruse for a ‗new judicial hostility‘ toward

arbitration.‖ (Aragaki, AT&T Mobility v. Concepcion and the Antidiscrimination

Theory of FAA Preemption (2012-2013) 4 Y.B. Arb. & Mediation 39, 60.)

Although the majority‘s endorsement of multiple formulations is

problematic for these reasons, several of its related comments are worthy of note.

First and foremost is the majority‘s statement, as noted above, that all of the

alternative formulations ―mean the same thing‖ as ―shock the conscience.‖ (Maj.

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opn., ante, at p. 9.) Second, the majority emphasizes that ― ‗central‘ ‖ to all of its

formulations is that substantive unconscionability is more than just ― ‗ ―a simple

old-fashioned bad bargain.‖ ‘ ‖ (Id. at p. 8.) Thus, ―[a] party cannot avoid a

contractual obligation merely by complaining that the deal, in retrospect, was

unfair or a bad bargain.‖ (Id. at p. 9.) Instead, the party resisting contract

enforcement must prove, and a court must find, ― ‗a substantial degree of

unfairness beyond ―a simple old-fashioned bad bargain.‖ ‘ ‖ (Ibid.) A contractual

term does not meet this test merely because it can be characterized as being ―one-

sided‖ or ― ‗giv[ing] one side a greater benefit.‘ ‖ (Ibid.) Moreover, one-sidedness

is not unconscionable if it ― ‗ ―provides the party with superior bargaining strength

a type of extra protection for which it has a legitimate commercial need.‖ ‘ ‖

(Ibid.) The majority‘s endorsement of various alterative formulations must be

understood in light of these statements.

I also part company with the majority insofar as its one-sidedness analysis

focuses separately on each of the challenged provisions in isolation, rather than the

parties‘ bargain as a whole. Our decisions establish that, in assessing a claim that

a contract or a clause in a contract is unconscionable, a court must ―examine the

totality of the agreement’s substantive terms as well as the circumstances of its

formation to determine whether the overall bargain was‖ so one-sided as to be

substantively unconscionable. (Sonic II, supra, 57 Cal.4th at p. 1146, italics

added.) As Valencia explains, ―[t]here are trade-offs in every contract. Lien and

security rights favor one party. Payment favors the seller; required delivery of

goods favors the buyer. Notice and an opportunity to cure usually favor the party

in the position to default. But these types of provisions are almost inevitably not

unconscionable, because in the context of the transaction as a whole, they are fair

and reasonable. . . . [¶] The same is true of arbitration provisions. They, too, must

be evaluated as a whole. The provision itself may contain trade-offs, e.g., one side

pays certain fees, the other side gains a measure of protection from outlier results,

such that the entire provision needs to be examined based on its overall effect.

19

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And, even then the arbitration provision needs to be evaluated in the context of the

overall transaction.‖

Taking this approach, I conclude that the arbitration clause, viewed as a

whole, is not substantively unconscionable under any of the formulations the

majority endorses. As Valencia argues, the clause ―is even-handed. It is well

justified by the business realities of the buyer-dealer relationship and the threats

posed by outlier results. . . . It involves mutual tradeoffs and a rational relationship

to the nature of automobile purchases in general and to the specific transaction at

issue — the purchase of a $50,000 pre-owned luxury automobile.‖ ―There is a

balance of clauses. There is an opportunity for further arbitral scrutiny for outlier

results. But given the nature of the disputes, that will be the exception, not the

rule. And, further review works both ways; both buyers and dealers can seek

review of outlier awards. Self-help remedies, such as repossession, that would be

more often invoked by the dealer are excluded, but they are by definition outside

even the litigation process; and comparable small claims remedies more likely

invoked by the customer are also excluded. [¶] Finally, the dealer pays the

buyer‘s initial arbitration expenses, up to $2,500. Only if the buyer loses a first

round and wants to seek further arbitral review does the buyer have to advance

further arbitration expenses (the review arbitrators ultimately allocate expenses).

That‘s reasonable: That the party (buyer or dealer) losing the first round has to

bear the expense of the finality round is common sense and furthers the interests of

formality. Indeed, that‘s how the judicial system handles appeals — the appellant

pays for the record on appeal and pays a higher fee than the respondent. [¶] And,

in return, individuals get a speedy, cheaper, surer mechanism for resolving

disputes.‖ I agree with this analysis and would hold that the arbitration provision,

evaluated as a whole, is not substantively unconscionable.

Nevertheless, I also agree with the majority that each of the challenged

provisions, considered individually, is not substantively unconscionable, although

I do not endorse all of the majority‘s reasoning. Regarding the provision allowing

20

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a second arbitration if the arbitrator‘s award is either $0 or over $100,000, as noted

above, this provision benefits both Valencia and Sanchez by protecting them in

most cases from the cost of a second arbitration while offering both access to

further review of extreme, outlier awards. Also mutually beneficial is the

provision making grants, but not denials, of injunctive relief subject to a second

arbitration. The Court of Appeal invalidated this provision based on the view that

it benefits ―only‖ Valencia because ―the buyer, not the car dealer, . . . would be

seeking preliminary or permanent injunctive relief.‖ But, as the majority correctly

notes, ―car sellers sometimes must seek an injunction in order to repossess a car

from the buyer.‖ (Maj. opn., ante, at p. 17.) Thus, while it is true, as the majority

observes, that injunctive relief may have a ―broad impact‖ on Valencia by

requiring it to ―change its business practices‖ (ibid.), such relief also may have a

substantial impact on buyers by forcing them to surrender their means of

transportation. Accordingly, as Valencia argues, ―both [parties] would benefit

from a process that allows second-level review when their liberty is constrained by

arbitral decisions requiring them to do or refrain from doing certain activities.‖

Because these provisions do not ―inordinately benefit‖ Valencia, under our

decisions, they are not ―unconscionably one-sided‖ (Little v. Auto Stiegler, Inc.

(2003) 29 Cal.4th 1064, 1075, fn. 1 (Little)), regardless of whether Valencia is

―more likely‖ (maj. opn., ante, at p. 17) or even ―substantially more likely‖ to

invoke them (id. at p. 16).3


3

Although mentioning the public‘s interest in injunctive relief, the majority

notes that this case does not involve the ―continued viability,‖ in light of
Concepcion, of Broughton and Cruz v. PacifiCare Health Systems, Inc. (2003) 30
Cal.4th 303, in which a majority of this court held that the FAA permits California
to prohibit arbitration of claims for injunctive relief under the CLRA and the UCL.
(Maj. opn., ante, at p. 17.) That question is pending before us in McGill v.
Citibank, N.A. (S224086, review granted Apr. 1, 2015.)

21

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As my earlier discussion indicates, I also agree with the majority that there

is ―nothing unconscionable‖ about the provision exempting repossession from

arbitration. (Maj. opn., ante, at p. 24.) Because, as the majority explains, this self-

help remedy is ―outside of litigation,‖ there is nothing unconscionable about not

making it subject to arbitration, which is a litigation substitute. (Ibid.) Moreover,

as the majority also explains, the provision that preserves the parties‘ ability to go

to small claims court ―likely favors the car buyer.‖ (Ibid.) Thus, the exclusion of

repossession from arbitration is not unfair, one-sided, or unconscionable.

Regarding the costs of a second arbitration, I first note that the Court of

Appeal erred in stating that provision in question requires the party requesting the

second arbitration to pay filing fees and other arbitration costs ―in advance.‖ The

provision states that the requesting party ―shall be responsible for‖ such fees and

costs, but says nothing about the time of payment. The record otherwise provides

no support for the Court of Appeal‘s statement.4

Moreover, I agree with the majority that the record contains ―no evidence‖

that, at the time Sanchez signed the contract, the cost of a second arbitration would

be ―unaffordable‖ to him. (Maj. opn., ante, at p. 23.) On the contrary, as earlier

explained, the record indicates that Sanchez had significant financial means when


4

The contract gives Sanchez the option of having arbitration conducted by,

and under the rules of, the American Arbitration Association (AAA), the National
Arbitration Forum, ―or any other organization that [he] may choose subject to
[Valencia‘s] approval.‖ There is no basis to conclude or assume that, at the time
the contract was executed, the selected organization would have required advance
payment of all filing fees and other costs. Indeed, although the AAA rules in
effect in 2008 called for advance payment of certain costs (AAA, Commercial
Arbitration Rules and Mediation Procedures (amend. & eff. Sept. 1, 2007) rules R-
4(a)(ii), R-49, O-8 (AAA General Rules); AAA, Supplementary Procedures for
Consumer-Related Disputes (2005) rules C-2(a), C-2(e), C-8 (AAA
Supplementary Rules)), they also provided for ―defer[ral]‖ of this payment ―in the
event of extreme hardship on the part of any party‖ (AAA, General Rules, rule R-
49). As to other arbitration expenses, the rules made advance payment subject to
the AAA‘s discretion. (Id., rule R-52.)

22

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he signed the contract. In addition, at that time, one of the organizations the

contract authorized to conduct the arbitration had established a substantially

reduced fee schedule ―for consumer-related disputes‖ in order ―to make arbitration

costs reasonable for consumers‖ (AAA General Rules, Administrative Fees) and

had provided for reduction or elimination of administrative fees in cases of

hardship.5 Given these circumstances, the provision regarding the costs of a

second arbitration does not support a finding of unconscionability.

Although I agree with the majority that the provision is not unconscionable,

I disagree with the majority‘s analysis in several respects. The majority suggests

that a finding of substantive unconscionability may be premised on a finding that

the fee provision ―would have a substantial deterrent effect in Sanchez‘s case.‖

(Maj. opn., ante, at p. 22.) But deterrence is surely an important — and

permissible — purpose of the provision. After all, at issue here are the costs of a

second, de novo arbitration based on one party‘s dissatisfaction with the results of

the first. Moreover, the provision‘s deterrent effect applies mutually to both

parties; if Valencia is dissatisfied with an award and seeks a new arbitration, then

it also is ―responsible for the filing fee and other arbitration costs subject to a final

determination by the arbitrators of a fair apportionment of costs.‖ In order to

promote finality and secure the cost benefits of arbitration, parties to an arbitration

agreement may want to discourage each other from invoking a contractual right to


5

The AAA‘s generally applicable rules provided: ―The AAA may, in the

event of extreme hardship on the part of any party, . . . reduce the administrative
fees.‖ (AAA General Rules, rule R-49.) Its Supplementary Rules for consumer-
related disputes expressly incorporated Civil Code section 1284.3, stating:
―Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers
with a gross monthly income of less than 300% of the federal poverty guidelines
are entitled to a waiver of arbitration fees and costs, exclusive of arbitrator fees.
This law applies to all consumer agreements subject to the California Arbitration
Act, and to all consumer arbitrations conducted in California.‖ (AAA
Supplementary Rules, rule C-8.)

23

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a second, new arbitration. Indeed, litigants wanting to appeal in court face similar

deterrence, as they are responsible for appellate filing fees and, if unsuccessful, the

other party‘s appellate costs. (Cal. Rules of Court, rules 8.25, 8.278(a).) Surely

such mutual deterrence is permissible if, as the majority correctly states, ―the

arbitration clause did not have to provide for an appeal‖ at all. (Maj. opn., ante, at

p. 21.)

However, the majority continues, having provided for ―an appeal,‖ the

arbitration clause ―may not structure the appeal process so that it unreasonably

favors‖ Valencia. (Maj. opn., ante, at p. 21.) Under this analysis, the question

should not be, as the majority suggests, whether the provision would substantially

deter Sanchez from requesting a second arbitration — which, as just explained, is

one of its permissible and mutually applicable purposes — but should be whether

the level of deterrence ―unreasonably favors‖ Valencia. (Ibid.) In other words, a

finding of substantive unconscionability would, under the majority‘s analysis,

require determination of (1) the provision‘s relative deterrent effect on Valencia

and Sanchez — which, in turn, would require evidence of the provision‘s deterrent

effect at the time the contract was signed on both Valencia and Sanchez — and (2)

whether the difference, if any, in deterrent effect was unjustified by ― ‗ ―a

legitimate commercial need‖ ‘ ‖ and established ― ‗a substantial degree of

unfairness beyond ―a simple old-fashioned bad bargain.‖ ‘ ‖ (Id. at p. 9.) In my

view, this convoluted and complicated inquiry is unnecessary; that the provision

might have a greater ―deterrent effect‖ (id. at p. 22) on one of the parties to this

contract for a $50,000 luxury car does not render it one-sided or substantively

unconscionable. Indeed, given, as noted above, that litigants wanting to appeal in

court face similar deterrence — in that they are responsible for appellate filing

fees and, if unsuccessful, the other party‘s appellate costs — to the extent the

provision would deter Valencia less than Sanchez from requesting a second

arbitration, it ―confer[s] no more of an advantage than would be the case had the

24

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action been brought in court,‖ and thus is not unconscionable. (Little, supra, 29

Cal.4th at p. 1075, fn. 1.)

Moreover, the FAA preempts the majority‘s rule insofar as it makes a

―substantial deterrent effect‖ sufficient to establish substantive unconscionability.

(Maj. opn., ante, at p. 22.) In American Exp. Co. v. Italian Colors Restaurant

(2013) __ U.S. __ [133 S.Ct. 2304, 2308-2311] (Italian Colors), the high court

held that the FAA required enforcement of an arbitration clause notwithstanding

uncontested proof that it would impose prohibitive costs on plaintiffs suing under

the federal antitrust laws. The plaintiffs, in resisting enforcement, relied on ―a

judge-made exception to the FAA‖ — known as ―[t]he ‗effective vindication‘

exception‖ — which allows federal courts to invalidate arbitration agreements

―that prevent the ‗effective vindication‘ of a federal statutory right.‖ (Id. at p. __

[133 S.Ct. at p. 2310].) This exception, the high court explained, ―finds its origin

in the desire to prevent ‗prospective waiver of a party‘s right to pursue statutory

remedies,‘ [citation]. That would certainly cover a provision in an arbitration

agreement forbidding the assertion of certain statutory rights. And it would

perhaps cover filing and administrative fees attached to arbitration that are so high

as to make access to the forum impracticable. [Citation.] But the fact that it is not

worth the expense involved in proving a statutory remedy does not constitute the

elimination of the right to pursue that remedy. [Citation.]‖ (Id. at pp. __ [133

S.Ct. at pp. 2310–2311].) Under this binding precedent, if a cost provision does

not impose fees that ―make access to the forum impracticable‖ (ibid.), then the

FAA precludes a court from invalidating it as unconscionable because of a

subjective determination that it will, in a particular case, ―have a substantial

25

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deterrent effect‖ on a party‘s exercise of the right to request a second arbitration.6

(Maj. opn., ante, at p. 22.)

I also disagree with the majority‘s view that parties asserting

unconscionability based on their inability to afford arbitration costs may satisfy

their burden with evidence of their financial situation at the time a ― ‗dispute

arises.‘ ‖ (Maj. opn., ante, at p. 22.) As the majority correctly recognizes (ibid.),

a determination of unconscionability must be based on the circumstances that

existed ―at the time [the contract] was made‖ (Civ. Code, § 1670.5, subd. (a)), not

on hindsight in light of subsequent events. (Setzer v. Robinson (1962) 57 Cal.2d

213, 217; Colton v. Stanford (1890) 82 Cal. 351.) Thus, in determining

affordability, Sanchez must submit evidence showing, not what he (and, under the

majority‘s approach, Valencia) could afford when the dispute arose, but what he

could have afforded at the time he signed the contract. The majority‘s assertion

otherwise ―is contrary to statute.‖ (Parada v. Superior Court (2009) 176

Cal.App.4th 1554, 1583.)

Finally, the majority‘s analysis of the cost provision improperly blurs

distinct grounds on which this court has relied in prior decisions to invalidate

arbitration provisions: unconscionability, which is at issue here, and public policy,


6

Even under the view of the dissent in Italian Colors, the FAA would, for

two reasons, preempt the majority‘s rule. First, the effective vindication exception
is inapplicable when a party ―could feasibly vindicate‖ his or her claim in
arbitration. (Italian Colors, supra, __ U.S. at p. __ [133 S.Ct. at p. 2320] (dis.
opn. of Kagan, J.).) A second arbitration is not infeasible merely because a cost
provision has ―a substantial deterrent effect‖ on a party‘s decision to request a
second arbitration. (Maj. opn., ante, at p. 22.) Second, concerns about enforcing
―state law‖ do not even ―implicate the effective-vindication rule. When a state
rule allegedly conflicts with the FAA, [courts] apply standard preemption
principles, asking whether the state law frustrates the FAA‘s purposes and
objectives. If the state rule does so — as . . . in [Concepcion] — the Supremacy
Clause requires its invalidation.‖ (Italian Colors, supra, at p. __ [133 S.Ct. at p.
2320] (dis. opn. of Kagan, J.), final italics added.)

26

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which is not. As the majority explains (maj. opn., ante, at p. 18), in Armendariz,

supra, 24 Cal.4th at pages 110-111, this court held that ―when an employer

imposes mandatory arbitration as a condition of employment, the arbitration

agreement or arbitration process cannot generally require the employee to bear any

type of expense that the employee would not be required to bear if he or she were

free to bring the action in court.‖ However, contrary to what the majority‘s

discussion suggests, this holding was not based on unconscionability. Rather, it

was based on the view that forcing employees to pay costs in arbitration they

would not have to pay in court would be ―contrary to public policy‖ (id. at p. 110)

in that it would ―effectively prevent[] them from vindicating‖ (id. at p. 107)

unwaivable statutory rights established for a public reason (id. at pp. 100-101).

(See Little, supra, 29 Cal.4th at p. 1084 [Armendariz‘s rule ―is derived from state

contract law principles regarding the unwaivability of certain public rights‖].)

Similarly, the discussion from Gutierrez on which the majority relies (maj. opn.,

ante, at pp. 20-21) addressed, not unconscionability, but whether contractual

terms, by ―undercut[ting] unwaivable state statutory rights,‖ ―violate[d] the public

policy underlying [those] rights.‖ (Gutierrez, supra, 114 Cal.App.4th at pp. 94-

95.) ―[T]he public policy and unconscionability defenses‖ this court has

announced ―are different in important respects. A public policy defense is

concerned with the relationship of the contract to society as a whole, and targets

contractual provisions that undermine a clear public policy, such as an unwaivable

statutory right designed to accomplish a public purpose. [Citation.]

Unconscionability is concerned with the relationship between the contracting

parties and one-sided terms [citation], such that consent in any real sense appears

to be lacking. Contracts can be contrary to public policy but not unconscionable

[citation] and vice versa [citation].‖ (Sonic-Calabasas A, Inc. v. Moreno (2011)

51 Cal.4th 659, 686 (Sonic I).) The majority loses sight of these differences in its

discussion of Armendariz and Gutierrez.

27

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But there is another important reason for not applying Armendariz‘s

categorical rule here, in addition to the fact that it is not based on

unconscionability: under Italian Colors, the FAA preempts it. As earlier

explained, the high court held in that case that the FAA required enforcement of

an arbitration clause notwithstanding uncontested proof that it would impose

prohibitive costs on plaintiffs, thus preventing them from effectively vindicating

their rights under the federal antitrust laws. (Italian Colors, supra, __ U.S. at pp.

__ [133 S.Ct. at pp. 2308-2311.) The effective vindication exception, the high

court held, ―perhaps‖ covers cost provisions that make access to arbitration

―impracticable,‖ but does not cover provisions that merely make a federal claim

―not worth the expense‖ to prove. (Id. at pp. __ [133 S.Ct. at pp. 2310–2311].)

Armendariz‘s categorical rule is based, not on proof that arbitration would, in fact,

be financially impracticable for a particular employee, but on the view that the

mere ―possibility‖ employees ―will be charged substantial forum costs‖ in

arbitration would ―chill[] the exercise‖ of their statutory right. (Armendariz,

supra, 24 Cal.4th at p. 110.) If, as Italian Colors holds, the FAA requires

enforcement of an arbitration provision despite actual proof it would impose

prohibitive costs, then surely it precludes courts from invalidating an arbitration

clause based on the theoretical, unproven chilling effect of imposing ―any type of

expense that the [party resisting arbitration] would not be required to bear‖ in a

court action.7 (Armendariz, supra, 24 Cal.4th at p. 110.)

For the preceding reasons, I agree that Sanchez has failed to establish

substantive unconscionability. I therefore concur in the judgment.

CHIN, J.


7

For the same reasons previously discussed in connection with the

majority‘s substantial deterrence standard (ante, p. 26, fn. 6), even under the view
of the dissent in Italian Colors, the FAA would preempt Armendariz’s
prophylactic, categorical rule.

28

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See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Sanchez v. Valencia Holding Company, LLC
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 201 Cal.App.4th 74
Rehearing Granted

__________________________________________________________________________________

Opinion No. S199119
Date Filed: August 3, 2015
__________________________________________________________________________________

Court: Superior
County: Los Angeles
Judge: Rex Heeseman

__________________________________________________________________________________

Counsel:

Tharpe & Howell, Christopher S. Maile, Soojin Kang; Callahan Thompson Sherman & Caudill, Robert W.
Thompson, Charles S. Russell; Atkinson, Andelson, Loya, Ruud & Romo, Kellie S. Christianson; Greines,
Martin, Stein & Richland, Robert A. Olson, Edward L. Xanders, Meehan R. Rasch and David E. Hackett
for Defendant and Appellant.

Sheppard, Mullin, Richter & Hampton and Anna S. McLean for Toyota Motor Credit Corporation and
General Motors Financial Company, Inc., as Amici Curiae on behalf of Defendant and Appellant.

Pillsbury Winthrop Shaw Pittman, Richard M. Segal and Nathaniel R. Smith for Nissan Motor Acceptance
Corporation as Amicus Curiae on behalf of Defendant and Appellant.

Littler Mendelson, Henry D. Lederman, Alexa L. Woerner, Anthony Ly; Simpson, Cameron, Medina &
Autrey and Erin Nemirovsky Medina for Volt Management Corp. and Volt Information Sciences, Inc., as
Amici Curiae on behalf of Defendant and Appellant.

Horvitz & Levy, Lisa Perrochet, Felix Shafir, Robert H. Wright and John F. Querio for California New Car
Dealers Association as Amicus Curiae on behalf of Defendant and Appellant.

Severson & Werson, Jan T. Chilton and Donald J. Querio for American Financial Services Association,
California Financial Services Association and California Bankers Association as Amici Curiae on behalf of
Defendant and Appellant.

Erika C. Frank and Fred J. Hiestand for The California Chamber of Commerce and The Civil Justice
Association of California as Amici Curiae on behalf of Defendant and Appellant.

Mayer Brown, Donald M. Falk, Andrew J. Pincus, Evan M. Tager, Archis A. Parasharami and Brian J.
Wong for The Chamber of Commerce of the United States of America, The Association of Global
Automakers, Inc., and The Alliance of Automobile Manufacturers as Amici Curiae on behalf of Defendant
and Appellant.



1

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Page 2 – S199119 – counsel continued

Counsel:

Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Appellant.

Toschi, Sidran, Collins & Doyle, David R Sidran, Thomas M. Crowell; Manning Leaver Bruder &
Berberich, Robert D. Daniels and Crystal S. Yagoobian for Federated Mutual Insurance Company as Amici
Curiae on behalf of Defendant and Appellant.

Rosner, Barry & Babbitt, Hallen D. Rosner, Christopher P. Barry and Angela J. Smith for Plaintiff and
Respondent.

Kreindler & Kreindler, Gretchen M. Nelson and Jacob H. Mensch for Consumer Attorneys of California as
Amicus Curiae on behalf of Plaintiff and Respondent.

Chavez & Gertler, Mark A. Chavez and Nance F. Becker for Arthur Lovett as Amicus Curiae on behalf of
Plaintiff and Respondent.

Aimee Feinberg for Consumers for Auto Reliability and Safety as Amicus Curiae on behalf of Plaintiff and
Respondent.

Arbogast Law and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of
Plaintiff and Respondent.

McKenna Long & Aldridge and J. Alan Warfield for Association of Southern California Defense Counsel
as Amicus Curiae.






2

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Robert A. Olson
Greines, Martin, Stein & Richland
5900 Wilshire Boulevard, 12th Floor
Los Angeles, CA 90036
(310) 859-7811

Hallen D. Rosner
Rosner, Barry & Babbitt
10085 Carroll Canyon Road, Suite 100
San Diego, CA 92131
(858) 348-1005



3

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Opinion Information

Date:	Docket Number:
Mon, 08/03/2015	S199119