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Vargas v. SAI Monrovia B, Inc.

California Court of Appeals, Second District, First Division

June 4, 2013

JORGE A. VARGAS et al., Plaintiffs and Appellants,
SAI MONROVIA B, INC., et al., Defendants and Respondents.

APPEAL from an order of the Superior Court of Los Angeles County Super. Ct. No. BC452879, Richard E. Rico, Judge.

Rosner, Barry & Babbitt, Hallen D. Rosner, Christopher P. Barry and Angela J. Smith for Plaintiffs and Appellants.

Arent Fox, Aaron H. Jacoby, Christian J. Scali, Victor P. Danhi; The Scali Law Firm and Christian J. Scali for Defendants and Respondents.


In this appeal, we revisit our holding in Sanchez v. Valencia Holding Co., LLC (2012) 201 Cal.App.4th 74 (Sanchez), review granted March 21, 2012, S199119, that a “Retail Installment Sale Contract” used to purchase an automobile is unconscionable and unenforceable. Having considered the decisions of other California appellate courts handed down after Sanchez, we have refined our analysis and again conclude that the identical sale contract does not require the arbitration of disputes between a purchaser and a car dealer because it is permeated by unconscionability.



The allegations and facts in this appeal are taken from the pleadings and the exhibits submitted in connection with the motion to compel arbitration.

A. Complaint

Plaintiffs, Jorge Vargas and Guadalupe Carcamo, filed this putative class action on January 12, 2011. Two months later, plaintiffs filed a first amended complaint (complaint), which alleged as follows.

On or about September 20, 2008, plaintiffs went to the automobile dealership owned by defendant SAI Monrovia B, Inc., doing business as Assael BMW Mini of Monrovia (Assael BMW). Plaintiffs were interested in buying a new Mini Cooper S. A salesman, “Roger, ” showed them a 2008 model on the lot. Plaintiffs completed a credit application to obtain financing. As required by law (Civ. Code, § 2981.9), plaintiffs should have been given a copy of the signed credit application, but Assael BMW did not give them one. Plaintiff Vargas took the car for a test drive. Upon returning to the dealership, plaintiffs told Roger they were interested in purchasing the car. In response to plaintiffs’ inquiries about financing, Roger told them that to keep their monthly payments below $500, they would have to make a down payment of $1, 500, and the loan would have to be for a term of six years. Because the finance office had closed for the day, Roger told plaintiffs to return the following day to complete the paperwork.

On September 21, 2008, plaintiffs returned to Assael BMW. Roger introduced them to one of the dealership’s finance managers. During discussions with the manager, plaintiffs agreed to purchase an extended warranty, otherwise known as a service contract, for $1, 845. Plaintiffs gave the manager $1, 500 in cash as a down payment.

The manager presented plaintiffs with a “Retail Installment Sale Contract” (Sale Contract), which was a preprinted document consisting of one page, 8½ inches wide and 26 inches long. There were numerous and extensive provisions on both sides of the Sale Contract, leaving little in the way of margins. Plaintiffs signed or initialed the front side in 12 places, each relating to a different provision. No signatures or initials of the buyers were required on the back; there were no places on the back for the buyers to initial or sign. The arbitration provision, entitled, “ARBITRATION CLAUSE, ” was on the back at the bottom of the page, outlined by a black box; the arbitration provision was the last provision in the Sale Contract concerning the purchase of the vehicle; a provision related to the assignment of the contract appeared below it. The buyers’ final signatures appeared near the bottom of the front side. The only signature line on the back was at the very bottom of the page; it required the seller’s signature to assign the contract to a third party. The Sale Contract was written by The Reynolds and Reynolds Company and, in this case, was designated Form No. 553-CA-ARB, effective May 2008.

The Sale Contract listed the price of the car as $25, 900, the amount financed as $28, 721.04, the monthly payments as $492.47, the term of the loan as 72 months, and an annual percentage rate of 7.10 percent. The Sale Contract listed a charge of $8.75 for “California Tire Fees” and a charge of $28 for “Optional DMV Electronic Filing Fee.” Assael BMW was required by law to charge plaintiffs $1.75 for each new tire purchased (see Pub. Resources Code, § 42885, subds. (b)(1), (d)); it unlawfully charged them for five new tires when the car had only four (see id., subd. (e)). Further, Assael BMW did not discuss the electronic filing fee with either plaintiff or tell them it was optional. If plaintiffs had been so informed, they would have declined to pay the fee. In addition, Assael BMW did not provide plaintiffs with a disclosure statement showing them what their monthly payments would be with and without the service contract, violating applicable law (see Civ. Code, § 2982.2).

At some point after September 21, 2008, Assael BMW assigned the Sale Contract to Chase Auto Finance Corporation (Chase).

Shortly after purchasing the car, plaintiffs experienced problems with it, including an intermittently inoperable window, inoperable headlamps, a repeatedly illuminated “check engine light, ” sluggish acceleration, poor gas mileage, and a “knocking noise.” Plaintiffs took the car to Assael BMW to be repaired, but the dealer did not correct the problems. Plaintiff Carcamo then contacted BMW of North America, LLC, and complained about Assael BMW’s failure to fix the car. Notwithstanding plaintiffs’ efforts, the car was never fixed.

The complaint contained nine causes of action, alleging violations of the Consumers Legal Remedies Act (CLRA) (Civ. Code, §§ 1750–1784), the Automobile Sales Finance Act (Civ. Code, §§ 2981–2984.6), the California Unfair Competition Law (UCL) (Bus. & Prof. Code, §§ 17200–17210), the Song-Beverly Consumer Warranty Act (Song-Beverly Act) (Civ. Code, §§ 1790–1795.8), and the California Tire Recycling Act (Tire Recycling Act) (Pub. Resources Code, §§ 42860–42895).[1] Some of the causes of action were brought against only Assael BMW; some were brought against Assael BMW and Chase; and the last cause of action, for violation of the Song-Beverly Act, was brought against both Assael BMW and BMW of North America, LLC. Plaintiffs sought injunctive relief for violations of the CLRA and the UCL. Under the heading, “CLASS ALLEGATIONS, ” plaintiffs alleged that their causes of action satisfied the class action requirements of numerosity, predominate questions of law and fact, typicality, superiority of a class action over individual actions, and adequate class representation. At the end of the complaint, the prayer requested actual damages, restitution, punitive damages, and prejudgment interest, among other remedies. Plaintiffs also sought an award of attorney fees.

B. Motion to Compel Arbitration

On or about July 1, 2011, Assael BMW and JP Morgan Chase Bank, N.A. (erroneously sued as Chase), filed a motion to compel arbitration pursuant to the arbitration provision in the Sale Contract. As used in the arbitration provision, “you” referred to the buyer or cobuyers, and “we” or “us” referred to the seller. The provision stated: “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.

“Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Clause, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, 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. You may choose one of the following arbitration organizations and its applicable rules: the National Arbitration Forum... (, the American Arbitration Association... (, or any other organization that you may choose subject to our approval....[2]

“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. If the chosen arbitration organization’s rules conflict with this Arbitration Clause, then the provisions of this Arbitration Clause shall control. The 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 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.” (Italics added, some capitalization omitted.)

Assael BMW and JP Morgan Chase Bank (collectively Assael BMW) argued in their memorandum of points and authorities that the class action waiver in the Sale Contract was valid, the arbitration provision covered all of plaintiffs’ causes of action, and the suit should be stayed pending the issuance of an arbitration award.

In their opposition papers, plaintiffs asserted that the arbitration provision was procedurally and substantively unconscionable and should not be enforced. In the alternative, they argued that the CLRA entitled them to maintain a class action. More specifically, as stated in the CLRA, a consumer may “bring an action on behalf of himself and such other consumers to recover damages or obtain other relief as provided for [under the CLRA, and]... [¶]... [t]he court shall permit the suit to be maintained on behalf of all members of the represented class if [certain] conditions exist.” (Civ. Code, § 1781, subds. (a)–(b).) The CLRA also provides: “Any waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.” (Id., § 1751; see Fisher v. DCH Temecula Imports, LLC (2010) 187 Cal.App.4th 601, 613–617 [CLRA entitles consumers to maintain class actions and is not preempted by Federal Arbitration Act].) Plaintiffs claimed that the CLRA invalidated the class action waiver in the Sale Contract and that pursuant to the “poison pill” clause in the contract—stating that the entire arbitration provision “shall be unenforceable” if the class action waiver is found unenforceable—plaintiffs were entitled to have all of their causes of action heard in a judicial forum.

Plaintiffs Vargas and Carcamo submitted virtually identical declarations. For example, Vargas’s declaration stated: “... When Ms. Carcamo and I signed a sale contract for the Mini Cooper, we were presented with a stack of documents, and were simply told by Assael BMW’s employee where to sign and/or initial each one. All of the documents (including the purchase contract) were pre-printed form documents. When we signed the documents, we were not given an opportunity to negotiate any of the pre-printed terms. The documents were presented to us on a take-it-or-leave-it basis. The documents (including the purchase contract) were given to us and we were simply told ‘sign here’ in various places. There was no question of choice on our part or of our being able to ‘negotiate’ anything. I did not even realize the contract had a second, back side with additional terms. I had no reason to suspect that hidden on the back of the form was a section that prohibited us from being able to sue in court if we had a problem.

“... When we signed the purchase contract and related documents, Assael BMW did not ask us if we were willing to arbitrate any disputes with it or its assignees. Assael BMW did not tell us 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. Assael BMW did not explain to us what an arbitration clause or agreement was. We were not given any opportunity at any time during our transaction with Assael BMW to negotiate whether or not we would agree to arbitrate any potential disputes, or any of the terms by which we would agree to arbitrate any disputes. We were never given an option whether to sign a contract with an arbitration clause or one without....

“... At no point during our interactions with Assael BMW were we presented with a separate arbitration agreement to review and sign. No one at Assael BMW turned the sale contract over to show me and Ms. Carcamo the writing on the back or asked us to sign any sections on the back of the contract where Assael BMW apparently now says an arbitration clause is located. I was not aware there was a clause in the sale contract supposedly requiring me to arbitrate any disputes.

“... Prior to the filing of Defendants’ motion [to compel arbitration], I had never heard of the National Arbitration Forum or American Arbitration Association. When Ms. Carcamo and I were at Assael BMW to sign the sale contract, we did not have, nor were we given, an opportunity to use a computer to download any information about these or any other arbitration organizations, including their procedures or rules. Nor was I aware we could have or should have done this.”

On or about August 15, 2011, Assael BMW filed a motion to strike the class allegations in the complaint on the ground that the Sale Contract precluded a class action. The motion to strike was set for hearing on the same day as the motion to compel arbitration. Plaintiffs filed opposition to the motion to strike.

The motions to compel arbitration and to strike the class allegations were heard on September 13, 2011. By order of the same date, the trial court granted the motion to compel arbitration as to the first eight of the nine causes of action. The court denied the motion to compel as to the ninth cause of action, which alleged a violation of the Song-Beverly Act, because BMW of North America, LLC, was a defendant on that cause of action but was not a party to the Sale Contract and thus not subject to arbitration. The trial court also granted the motion to strike the class action allegations in the complaint. Plaintiffs appealed.[3]



“‘“Whether an arbitration provision is unconscionable is ultimately a question of law.”’... ‘On appeal, when the extrinsic evidence is undisputed, as it is here, we review the contract de novo to determine unconscionability.’” (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1511–1512, citations omitted; accord, Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174.) Because this appeal presents a question of law, we may resolve it in the first instance, without remand to the trial court. “‘We are not bound by the trial ...

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