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Gustavo E. Vasquez v. Greene Motors

March 27, 2013


Trial Court: Solano County Superior Court Trial Judge: Hon. Robert S. Bowers Super. Ct. No. FCS038384)

The opinion of the court was delivered by: Margulies, Acting P.J.


(Solano County

After plaintiff Gustavo E. Vasquez purchased a used car on credit from defendant Greene Motors, Inc. (Greene), the vehicle's financing was assigned to defendant American Honda Finance Corporation (Honda). When Vasquez later sued Greene and Honda in connection with the terms of the financing, defendants petitioned the superior court to compel arbitration of the matter under a clause in the sales agreement. Vasquez opposed the petition on the ground the arbitration clause, contained on the back of a complex, one-page, preprinted document, was procedurally and substantively unconscionable. The trial court agreed and denied the petition to compel.

Because the arbitration agreement was imposed on Vasquez without the opportunity for negotiation, and was therefore adhesive, we agree the transaction was procedurally unconscionable. In light of the minimal level of procedural unconscionability and the absence of significant substantive unconscionability, however, we reverse the trial court's denial of the petition to compel.


Vasquez sued Greene and Honda in a complaint filed August 18, 2011, alleging causes of action under the Rees-Levering Automobile Sales Finance Act (Civ. Code,*fn1 § 2981 et seq.), the Consumers Legal Remedies Act (§ 1750 et seq.), and the unfair competition law (Bus. & Prof. Code, § 17200 et seq.). The complaint alleged Vasquez purchased a used vehicle on credit from Greene, a car dealership, on January 31, 2009, executing a retail installment sale contract. Soon after, Greene contacted Vasquez, told him it had been unable to find third party financing for the transaction, and asked him to execute a second retail installment sales contract. This second contract (hereafter the Contract) was on an identical form to the first but contained somewhat different financial terms. The sales contract was eventually assigned to Honda.

Although the Contract was executed on February 2, 2009, Vasquez alleged, Greene backdated it to January 31, 2009, the date of the original sale. According to the complaint, the backdating caused the financing terms in the Contract to be inaccurate, and "[t]he actual annual percentage rate, based on a contract consummation date of the final purchase contract, may have varied from the disclosed annual percentage rate by more than Regulation Z [(12 C.F.R. § 226.1 (2013))] permits." Based on the variance created by the three-day discrepancy, Vasquez sought unspecified consequential and general damages, restitution, punitive damages, interest, an injunction against future similar conduct, and attorney fees.

Greene and Honda filed a petition to compel arbitration on the basis of an arbitration clause contained in the Contract. Vasquez opposed the petition on grounds the arbitration clause was unconscionable.

The Contract was a preprinted form that is apparently commonly used by vehicle sellers in California.*fn2 It is a single piece of paper, 26 inches long, with dense printing on both sides. On the upper half of the front page, contained in a series of boxes, are provisions relating largely to the financial terms of sale, credit, and insurance. Many contain blank spaces filled in by the seller for the particular transaction. The buyer is required to sign the Contract in 10 different places. Four signed provisions concern the purchase (or declining) of optional items, such as insurance and a service contract. The remaining signed provisions are acknowledgments of various legal matters: the contract can be amended in writing only, the buyer must obtain liability insurance, the seller is relying on the buyer's representations, the seller may cancel if the agreement cannot be assigned, and the buyer has certain legal remedies. Some of these signatures are required by law. (See §§ 2982, subd. (h); 2984.1.) Above the final signature line, on the right-hand side, is a statement in all capital letters acknowledging the buyer was given an opportunity to "take and review" the contract and has read "BOTH SIDES" of it and noting the presence of an arbitration clause "ON THE REVERSE SIDE."

The reverse side, also dense with text, contains a number of provisions in separate boxes, many dealing with typical "boilerplate" legal matters, such as warranties, applicable law, and buyer and seller remedies. None of the provisions on the back page requires a buyer's signature. Toward the bottom of the page is the arbitration clause. The entire text of the clause is outlined in a black border. In all capital letters and bold type at the top is written, "ARBITRATION CLAUSE [¶] PLEASE REVIEW--IMPORTANT--AFFECTS YOUR LEGAL RIGHTS." Immediately below, three numbered provisions, also in all capital letters, inform the buyer either party may request arbitration, this would prevent a court or class-wide proceeding, and it might limit discovery. Below these, in smaller type, are the actual terms of the clause. Pursuant to these terms, the arbitration may be conducted under the auspices of the National Arbitration Forum or the American Arbitration Association (AAA), at the election of the buyer, or by any other mutually agreeable organization; the initial arbitration will be conducted by a single arbitrator; it will occur in the federal district of the buyer's residence; the seller must advance up to $2,500 of the buyer's arbitration costs; the award is binding unless it is $0 or more than $100,000 or includes injunctive relief, in which case either party can request a second arbitration before three arbitrators; and the use of self-help remedies and small claims court is exempted.*fn3

Vasquez submitted a declaration stating that at the closing of the purchase, he "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. . . . I had no reason to suspect that hidden on the back of the contracts that told me how much the vehicle cost and how much my monthly payments would be was a section that prohibited me from being able to sue the Dealership in court if I had a problem. [¶] . . . [T]he Dealership did not ask me if I was willing to arbitrate any disputes with it, did not tell me that there was an 'arbitration clause' on the back side of the purchase contracts, and I did not see any such clause before I signed the documents."

The trial court denied the petition to compel arbitration, relying on a since-depublished opinion, Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74 (Sanchez), review granted March 21, 2012, S199119, in finding the arbitration clause unconscionable by reason of "adhesion, oppression, and surprise."*fn4


Greene and Honda contend the trial court erred in denying enforcement of the arbitration clause on grounds of unconscionability.

A. Legal Background

Through enactment of a comprehensive statutory scheme regulating private arbitration, the Legislature "has expressed a 'strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' " (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) "The policy of [California's] law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing." (Utah Const. Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156, 159, disapproved on other grounds in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 27.) Thus, California law establishes "a presumption in favor of arbitrability." (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971.)

When seeking to compel arbitration, the petitioner bears the burden of proving that an agreement to arbitrate exists, while the opponent has the burden of proving the facts of any defense to enforceability. (Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 708.) Notwithstanding the "highly favored" status of arbitration (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 189), an agreement to arbitrate may be avoided on the same "grounds as exist for the revocation of any contract" (Code Civ. Proc., § 1281). The most commonly asserted ground for refusing to enforce an arbitration agreement is the one asserted here, unconscionability. "Unconscionability is ultimately a question of law, which we review de novo when no meaningful factual disputes exist as to the evidence." (Chin, at p. 708; see § 1670.5.)

" '[U]nconscionability 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. [Citation.] '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 Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)

"Procedural unconscionability focuses on the elements of oppression and surprise. [Citation.] Oppression occurs where there is an inequality of bargaining power which results in a lack of real negotiation and an absence of meaningful choice." (Lanigan v. City of Los Angeles (2011) 199 Cal.App.4th 1020, 1035 (Lanigan).) The classic example of oppression is the use of a contract of adhesion--a contract presented without the option of negotiation, on a take-it-or-leave-it basis. "The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, ' "which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." ' " (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little).) Surprise is " 'a function of the disappointed reasonable expectations of the weaker party' " (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1252) and "results from misleading bargaining conduct or other circumstances indicating that a party's consent was not an informed choice" (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 980). Most often, "[s]urprise involves the extent to which the terms of the bargain are hidden in a verbose printed form drafted by the party in a superior bargaining position." (Lanigan, at p. 1035.)

"Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A contract term 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 Museum ...

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