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Israel Flores et al v. West Covina Auto Group

January 11, 2013

ISRAEL FLORES ET AL., PLAINTIFFS AND APPELLANTS,
v.
WEST COVINA AUTO GROUP, DEFENDANT AND RESPONDENT.



APPEAL from an order of the Superior Court of Los Angeles County, Maureen Duffy-Lewis, Judge. (Los Angeles County Super. Ct. No. BC 441761)

The opinion of the court was delivered by: Flier, J.

CERTIFIED FOR PUBLICATION

Affirmed.

Israel Flores and Andrea Naasz appeal from the trial court's order compelling arbitration. This lawsuit arises from their purchase of a previously owned vehicle from West Covina Auto Group, LLC, doing business as West Covina Toyota (WCT), and alleges both individual and class action claims. WCT moved to compel arbitration based on an arbitration clause in the sales contract between the parties. Appellants contend that the trial court erred in compelling arbitration because (1) a "poison pill" provision in the arbitration clause prohibits arbitration; (2) WCT waived its right to arbitration; (3) the arbitration clause is unconscionable; (4) there was no meeting of the minds or mutual consent regarding the arbitration clause; and (5) as an unexpected term in an contract of adhesion, the arbitration clause is unenforceable. We hold the trial court did not err and affirm.

facts and procedural history

1. Allegations of the First Amended Complaint

Naasz was looking to replace her 2004 Chrysler Pacifica in February 2010. She telephoned WCT and spoke to a salesman. She told him she was "upside down" on her current vehicle but wanted to trade it in and purchase a new one. He invited her to WCT and told her WCT could help her purchase another vehicle.

On or about February 19, 2010, Naasz and her husband went to WCT and met with the salesman. She told him she still owed approximately $13,675 on her current vehicle and wanted her monthly payments for her new vehicle to be no more than $500 to $600 a month. Naasz and her husband met with the WCT fleet manager, who explained that WCT could not work her negative equity in her trade-in vehicle into a contract for a brand new vehicle. He explained that she had a choice between two previously owned vehicles -- a Nissan Titan or a Toyota Sequoia. WCT told Naasz and her husband that the Sequoia was a "certified" vehicle. Naasz and her husband test drove the Sequoia. Once back at the dealership, WCT told her that the monthly payments would be well over what she wanted, in light of the negative equity in her trade-in vehicle. If she found a cosigner for the purchase, however, her payments would be lower. Naasz and her husband left WCT and returned the same day with Naasz's father, Israel Flores, who agreed to be a cosigner.

A WCT finance manager prepared the retail installment sale contract for the Sequoia. WCT instructed Naasz and Flores where to sign and initial the documents. It was late at night by the time they signed the contract, so Naasz left the vehicle at the dealership to be washed and detailed and decided to retrieve it the following day. Naasz's husband returned to pick up the vehicle the following day.

On or about March 4, 2010, a salesperson from WCT called Naasz and Flores and told them that WCT had lowered the price of the vehicle, and they needed to return to WCT to sign a new contract. WCT told them that the lender required more money as a down payment, but knowing that Naasz had no more to put down, WCT had decided to lower the price of the vehicle. Naasz and Flores went to WCT and met with a different finance manager, who presented them with an "Acknowledgement of Rewritten Contract" stating that the original contract between WCT and appellants had been mutually rescinded. They signed that and also a new retail installment sale contract that was backdated to February 19, 2010.

After the purchase, Naasz experienced a number of problems with her vehicle. Naasz took the vehicle to Toyota Motor Sales authorized repair facilities on numerous occasions, but Toyota Motor Sales had been unable to repair it or conform it to the express and implied warranties. She also requested that Toyota Motor Sales buy the vehicle back from her, which it refused to do.

Naasz and Flores filed a complaint against WCT and Toyota Motor Sales alleging both individual and class claims. They alleged class claims for violations of the Consumer Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.), and the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.). They alleged individual claims for violations of the CLRA and UCL, violations of Vehicle Code sections 11713.18, 11713, and 24007, subdivision (b), fraudulent misrepresentation, negligent misrepresentation, and violations of the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.).

2. First 11 Months of Litigation

Appellants filed their complaint in July 2010 and the first amended complaint (FAC) in September 2010. WCT filed a case management statement in October 2010 stating that it was willing to participate in mediation but not arbitration, was requesting a jury trial, expected to file a motion for summary judgment or summary adjudication, and intended to complete the depositions of appellants and written discovery by January 2011. In November 2010, WCT demurred to all five of the class action causes of action. It also filed a motion to strike the portions of the FAC requesting classwide rescission of any sales contracts signed by putative class members. The court overruled the demurrers but granted the motion to strike. Appellants filed a writ petition seeking review of the court's ruling granting the motion to strike, and WCT filed a response to the petition.

WCT filed another case management statement in January 2011 requesting a jury trial, stating that it was willing to engage in mediation but not arbitration, and anticipating the same motions and discovery it identified in the prior case management statement. In February 2011, WCT filed an answer to the FAC asserting 46 affirmative defenses, none of which referenced a right to arbitrate.

In March 2011, WCT filed a third case management statement in which it again requested a jury trial, stated that it was willing to do mediation but not arbitration, anticipated the same motion practice, and anticipated written discovery and a vehicle inspection.

WCT noticed the depositions of Naasz and Flores in March 2011 and served them both with 25 requests for production of documents. It deposed them both on March 22, 2011, at which time both produced documents. Appellants served interrogatories, requests for documents, and requests for admission on WCT, to which WCT responded. Appellants also noticed the deposition of WCT's person most knowledgeable on certain topics and requested documents to be produced at the deposition. WCT objected to appellants' notice. Appellants deposed WCT's person most knowledgeable in May 2011.

3. WCT's Motion to Compel Arbitration

WCT filed a motion to compel arbitration and stay the action on or around June 10, 2011. The sales contract between appellants and WCT is a preprinted form contract produced by the Reynolds Company. The contract contains an arbitration clause with a waiver of the right to classwide arbitration. The clause reads in part:

"ARBITRATION CLAUSE

"PLEASE REVIEW - IMPORTANT - AFFECTS YOUR LEGAL RIGHTS

"1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

"2. 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.

"3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

". . . If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Clause shall not apply to such claim or dispute. 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. . . . [¶] . . . [¶]

". . . 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 sales contract provides in another part, separate from the arbitration clause, that "[f]ederal law and California law apply to this contract." In the arbitration clause, it states: "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."

WCT asserted that it was precluded from moving to compel arbitration earlier in light of the decision in Fisher v. DCH Temecula Imports LLC (2010) 187 Cal.App.4th 601 (Fisher), which was decided on August 13, 2010, just after appellants filed their original complaint. In Fisher, also a putative class action, the plaintiff had purchased a used car and signed a sales contract containing an arbitration clause identical to the one in appellants' contract. (Id. at p. 607.) In particular, the arbitration clause contained the same "poison pill" provision stating that if the waiver of class action rights was found to be unenforceable, the entire arbitration clause would be unenforceable. (Ibid.) The Fisher plaintiff had also alleged class claims under the CLRA. (Fisher, at p. 606.) The court held that the right to a class action lawsuit or classwide arbitration was an unwaivable statutory right under the CLRA. (Fisher, at p. 613.) The waiver of the class action rights in the arbitration clause was thus unenforceable, which, according to the poison pill provision, meant that the entire arbitration clause was unenforceable. (Id. at pp. 617-618.) The Fisher court therefore affirmed the trial court's denial of the petition to compel arbitration.

WCT argued that Fisher precluded it from moving to compel arbitration until the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 (Concepcion). The court decided Concepcion on April 27, 2011, and WCT filed its motion to compel arbitration on or about June 10, 2011. According to WCT, Concepcion held that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempted California law and that courts must uphold the terms of an arbitration clause even when it contains a class action waiver. At a status conference on May 11, 2011, WCT informed the court and appellants of its intent to compel arbitration in light of Concepcion. WCT requested that appellants stipulate to arbitration pursuant to Concepcion, and when they declined to stipulate, WCT filed its motion seeking to compel arbitration. WCT asserted that it should be an individual arbitration, not a class arbitration, in light of the waiver of classwide arbitration in the sales contract.

Appellants argued that the court should decline to compel arbitration for several reasons. First, they asserted WCT had waived its right to compel arbitration by substantially invoking the litigation process for almost a year, which delay prejudiced appellants. Second, they argued that the parties did not consent to arbitration because there was no meeting of the minds on the issue. Third, they argued that the arbitration clause was unconscionable and thus unenforceable. Fourth, they argued that Fisher was still applicable, the poison pill provision made the arbitration clause unenforceable, and Concepcion did not overrule Fisher.

The trial court heard argument and granted the motion to compel arbitration on July 15, 2011. In a minute order issued the same date, the court cited Concepcion and explained that Concepcion determined the courts must uphold an arbitration provision even if there is a class action waiver. Further, the court stated that there was no waiver of the right to arbitration because WCT did not have the right to invoke the arbitration clause until April. The court also found "no substantive unconscionability."

discussion

1. Appealability

Ordinarily, an order compelling arbitration is not appealable and may be reviewed only after the parties complete arbitration and appeal from the judgment. (Muao v. Grosvenor Properties, Ltd. (2002) 99 Cal.App.4th 1085, 1089.) But appellants contend that the trial court's order is appealable under the so-called death knell doctrine. We agree.

The death knell doctrine holds that an order effectively terminating class claims while allowing individual claims to proceed is immediately appealable. (In re Baycol Cases I & II (2011) 51 Cal.4th 751, 757.) What matters is not the form of the order but its impact. An order that effectively rings the death knell for class claims is in essence a final judgment on those claims. (Ibid.) In Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277 (Franco), the court applied the death knell doctrine to an order compelling arbitration. The Franco plaintiff filed a putative class action alleging Labor Code violations against his former employer. (Id. at p. 1282.) The employer filed a petition to compel arbitration based on a written arbitration agreement, which contained a waiver of class arbitrations. (Ibid.) The trial court granted the petition, "effectively limiting the arbitration to plaintiff's claims." (Ibid.) The Franco court held that the order compelling arbitration and enforcing the class arbitration waiver was the "'death knell' of class litigation through arbitration." (Id. at p. 1288.) The order was thus appealable.

Here, the court's order granting the motion to compel arbitration had the same effect. The sales contract's arbitration clause contains an express waiver of class arbitrations. The court's order did not state that it was compelling only certain claims to arbitration or that it was severing the class claims and staying litigation on those. It simply granted WCT's motion. In light of the class arbitration waiver, the order compelling arbitration effectively rang the death knell for the class claims. (Franco, supra, 171 Cal.App.4th at pp. 1282, 1288.)

WCT contends that Franco "is no longer the law" and we should follow a more recent case, Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825. Arguelles-Romero does not assist WCT. Arguelles-Romero reviewed a trial court order compelling arbitration, but the case contained no analysis of Franco or appealability. As part of the factual and procedural background section, the court recited the following history. The plaintiffs filed a notice of appeal from the order compelling arbitration. (Arguelles-Romero, supra, at p. 835.) The defendant moved to dismiss the appeal as taken from a non-appealable order. (Ibid.) The plaintiffs thereafter filed a petition for writ of mandate, challenging the same order. (Ibid.) The court granted the motion to dismiss the appeal and issued an order to show cause in the writ proceeding. (Ibid.) The court did not analyze the appealability issue beyond this recitation of procedural history. To say that the case rendered Franco bad law or determined that the death knell doctrine does not apply in this circumstance is inaccurate. It is axiomatic that a "decision . . . does not stand for a proposition not considered by the court." (Nolan v. City of Anaheim (2004) 33 Cal.4th 335, 343.)

Having determined that we have jurisdiction over this appeal, we now turn to the merits of appellants' claims.

2. The Poison Pill Provision Does Not Prohibit Arbitration

Appellants contend that the sales contract itself prohibits arbitration by way of the poison pill provision -- that is, the provision stating that if a waiver of class action rights is deemed unenforceable for any reason, the remainder of the arbitration cause shall also be unenforceable. Here, they contend, a waiver of class action rights is unenforceable under the CLRA, thus triggering the poison pill provision.

The parties dispute whether state law or federal law, and specifically the FAA, applies to our interpretation and application of the arbitration clause. The sales contract contains a general choice of law provision stating that both federal law and California law apply to the contract. To the extent the two conflict, the supremacy clause of the United States Constitution mandates that federal law preempts state law. (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612.) Moreover, section 2 of the FAA provides that state laws inconsistent with the FAA's provisions and objectives are preempted. (Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 498, citing Perry v. Thomas (1987) 482 U.S. 483, 489.) As we discuss below, Concepcion reveals a conflict between the FAA and the state law on which appellants rely. The FAA and Concepcion thus control here.*fn1 (Baker v. Aubry (1989) 216 Cal.App.3d 1259, 1263 [when an arbitration agreement is subject to the FAA, "questions concerning the construction and scope of the arbitration clause are determined by federal law"].)

The effect of the FAA, Concepcion, and the poison pill provision is a legal question we review de novo. (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406; Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1567.) Applying this standard, we conclude that the arbitration clause is enforceable despite the waiver of classwide arbitration rights.

a. The CLRA and Fisher

Our analysis begins with the state law on which appellants rely, the CLRA and Fisher. Like appellants, the Fisher plaintiff was a consumer who had purchased a previously owned vehicle and alleged CLRA class claims, among others, against the dealership. (Fisher, supra, 187 Cal.App.4th at p. 606.) Also like appellants, the Fisher plaintiff had signed a sales contract with an arbitration clause expressly waiving the right to classwide arbitration. (Id. at p. 607.) Finally, the sales contract also contained a poison pill provision stating that "if the waiver of class action lawsuits or classwide arbitration was found unenforceable, the entire arbitration clause was unenforceable." (Ibid.)

The CLRA provides that any consumer entitled to bring an action under the CLRA may also bring his or her claims as a class action suit. (Civ. Code, ยง 1781.) It also provides that "[a]ny waiver by a consumer of the provisions of [the CLRA] is contrary to public ...


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