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Penilla v. Westmont Corp.

California Court of Appeals, Second District, Fourth Division

September 9, 2016

DAVID PENILLA et al., Plaintiffs and Respondents,
WESTMONT CORPORATION, et al., Defendants and Appellants.

         APPEAL from an order of the Superior Court of Los Angeles County, No. BC545697 Debre Katz Weintraub, Judge.

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         Citron & Citron, Thomas H. Citron, Joel F. Citron and Katherine A. Tatikian, for Defendants and Appellants..

         Dowdall Law Offices for Western Manufactured Housing Communities Association, Inc. as Amicus Curiae on behalf of Defendants and Appellants.

         Haney & Young, Steven H. Haney and Gregory L. Young for Plaintiffs and Respondents.


         MANELLA, J.


         Appellant Westmont Corporation doing business as Wildwood Mobile Home Country Club (“Westmont”) owns land located in Hacienda Heights, Los

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Angeles County. David Penilla and 60 other named plaintiffs are primarily low-income mobilehome owners who rent the land. After plaintiffs filed a first amended complaint (“FAC”) against Westmont and its employees or agents (collectively “appellants”) alleging contract, tort and statutory causes of action, appellants filed a motion to compel respondents Penilla and 45 other named plaintiffs to arbitrate those claims. The trial court denied the motion to compel, finding the arbitration provision contained in the rental agreements unconscionable and thus unenforceable. We conclude the arbitration provision was procedurally unconscionable, as it failed to disclose prohibitively expensive arbitration fees and was neither provided in a Spanish-language copy nor explained to respondents who did not understand written English. We further conclude the arbitration provision was substantively unconscionable as it imposed arbitral fees that were unaffordable or would have substantially deterred respondents from asserting their claims. The provision's unreasonably shortened limitations periods for many of the asserted causes of action and its limitation on the remedies available in arbitration for statutory claims further support a finding of substantive unconscionability. Accordingly, we affirm.


         On May 16, 2014, respondents and 15 other named plaintiffs filed the FAC against appellants Westmont, Mark Rutherford, Jo Davenport, Jose Hernandez, and David Donahue, asserting contract, tort and statutory claims. The FAC alleged 24 causes of action, including two causes of action under the California Fair Employment and Housing Act (“FEHA”), Government Code section 12900 et seq.[1]

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         On July 23, 2014, appellants moved, pursuant to Code of Civil Procedure section 1281.2 for an order compelling arbitration of respondents' claims. In the motion, appellants alleged that respondents were signatories to a valid binding arbitration provision contained in rental agreements from 2000 to 2013 that encompassed all the causes of action. Appellants argued the claims in the FAC were covered by the arbitration provision, and that no grounds existed to revoke the provision. They also sought an order staying the proceedings as to the other plaintiffs pending the outcome of the arbitration.

         Appellants submitted copies of the written “Mobilehome Rental Agreement” containing the arbitration provision, executed by the parties. The arbitration provision states: “Arbitration of Disputes [¶] Binding arbitration under Code of Civil Procedure §§ 1280, et seq. shall be used to resolve disputes. This term applies to all members of your household, privies and contractors even if not parties to this agreement. The only non-arbitration exceptions are unlawful and forcible detainer; injunctive relief. ‘Dispute' includes maintenance, condition, provision of the facilities, improvements, services and utilities, living conditions; injuries or damage, other residents and invitees [sic], or to property of any kind, from our operation, maintenance, or the condition of the community or its equipment, facilities, improvements or services, whether resulting in any part from our negligence or intentional misconduct; business administration or practices or operations; punitive damages and class action claims. Also included are disputes with employees, contractors, agents or any other person who you contends [sic] has injured you and you also contends [sic] that we are responsible for that other person's acts or failure to act. [¶] If you do not give us notice within one (1) year of the date of any occurrence, or disputed condition or act or omission, we will not be liable for any injury or damage to you or others in your household. Damages shall be limited to a 1 year period prior to the date you deliver your written demand or notice of intention to arbitrate. [¶] An arbitrator shall be appointed by the Judicial Arbitration And Mediation Service [sic], Inc. (‘JAMS'). If the parties cannot agree, JAMS will select 5 neutral arbitrators; the parties shall strike 2. Civil discovery shall be permitted. No dispute shall be consolidated with any other dispute. Each party to advance one be billed [sic] for one-half the fees; failure to pay results in default award. A referee shall decide all disputed issues without a jury as provided by Code of Civil Procedure §§ 638, et seq. if arbitration is not applicable or enforceable. The arbiter may impose no remedy except money damages and remedies allowed by the Mobilehome Residency Law. Receivership or punitive damages [if more than two percent of owner equity in the park or if in addition to any statutory penalty in any sum], exceed the arbiter's jurisdiction.” None of the submitted documents were in Spanish or translated, wholly or in part, into Spanish.

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         Respondents opposed the motion, arguing the arbitration provision was unconscionable. They contended the provision was procedurally unconscionable on the following grounds: (1) it was a contract of adhesion; (2) although 15 of the 46 named respondents spoke little or no English, they were never given a Spanish language copy of the arbitration provision, and no one explained it to them in Spanish; (3) it was outside respondents' reasonable expectations that the arbitration provision would include tort claims, yet exclude unlawful detainer actions; (4) the fees unique to arbitration were outside respondents' reasonable expectations; and (5) respondents were under severe economic pressure to agree to the arbitration provision. Respondents contended the arbitration provision was substantively unconscionable on the following grounds: (1) there was a lack of mutuality, given that unlawful detainer actions, which could only be brought by Westmont, were excluded from arbitration; and (2) arbitration would be prohibitively expensive for respondents, as they could not afford to advance the arbitration fees. They further contended the unconscionable terms permeated the arbitration provision and could not be severed.

         In supporting declarations, several respondents stated that Spanish was their native language, and that they did not speak English. They asserted they were not provided with a Spanish-language copy of the agreement. Additionally, although Westmont's managers informed respondents in Spanish that they were required to sign the rental agreement, the managers never advised them of the arbitration provision or its terms.

         In their reply, appellants argued the arbitration provision was not unconscionable. With respect to procedural unconscionability, appellants contended the rental agreements containing the arbitration provisions were not contracts of adhesion, as respondents had other options for housing. Additionally, they contended there was no surprise, as each plaintiff initialed the arbitration provision. With respect to substantive unconscionability, appellants contended the exclusion for unlawful detainer and eviction actions did not show a lack of mutuality. They argued the instant arbitration provision did not impose prohibitive costs, noting the requirement of a single arbitrator and numerous judicial findings that arbitration is generally less expensive than litigation.

         The trial court requested supplemental briefing on plaintiffs' incomes at the time they signed the agreements, and the projected cost estimate for each of the individual claims. Respondents submitted evidence that none of them could afford to pay for arbitration.[2] They also submitted declarations from two plaintiffs that they were not afforded adequate time to read the rental agreement containing the arbitration provision before being told to sign the

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documents. Additionally, they submitted declarations showing they were under economic pressure to sign the agreements, as they already had paid for the mobile home or made a large down payment when presented with the agreements, and failure to sign would have forced them to look for new housing. Many stated that they could not afford other housing.[3]

         The arbitration provision did not detail the amount of arbitration fees. Nor were fee schedules for JAMS arbitrators attached. Respondents' counsel, Steven H. Haney, submitted a declaration stating he had ascertained the amount of arbitration fees by contacting the Los Angeles Office of JAMS and obtaining fee schedules for 10 neutrals. He attached the fee schedules, showing fees for a single arbitrator ranged from $500 to $800 per hour, or from $5, 000 to $10, 000 per day, depending on the neutral selected. In addition, JAMS assessed a mandatory $400 filing fee. Haney also opined that based on his experience, it would take two to three days to arbitrate the common claims. For those plaintiffs with additional claims, four to six days would be required.

         In response, appellants again disputed that respondents were under economic pressure to sign the rental agreements, arguing that their failure to sign would result in the refund of all monies, except a small escrow fee. Appellants also disputed the length of arbitration, arguing that an individual plaintiff's claims would require no more than two days. They did not challenge the JAMS fee schedules.

         On February 5, 2015, the trial court denied appellants' motion for an order compelling arbitration. The court determined that appellants had demonstrated a written arbitration agreement between the parties existed and that all of the causes of action in the FAC were subject to arbitration. However, it concluded that respondents had met their burden to show the arbitration agreement was unconscionable and therefore unenforceable. The court found the arbitration provision in the mobilehome rental agreements was procedurally and substantively unconscionable. It determined there was a considerable degree of procedural unconscionability, as (1) the arbitration provision was contained in a contract of adhesion, and most respondents signed the contract after making a significant financial commitment to purchase their mobilehomes; (2) appellants did not inform respondents that they would have to pay, in advance, half of the $5, 000 to $10, 000 fee for each day ...

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