In a victory for consumers who unknowingly find their right to the judicial recourse thwarted by unfair arbitration provisions, the California Court of Appeal found an arbitration provision in a contract for a car purchase unconscionable and unenforceable. In Sanchez v. Valencia Holding Company, an arbitration provision was included on the back side of the final page of a three page, preprinted car sales agreement. The purchaser was not instructed to sign or initial any part of that page and the line spacing of the arbitration provision was smaller than the rest of the sales contract making it difficult to read.
The Court found the arbitration provision met the procedural requirements of unconscionability: oppression and surprise. First, the agreement was presented to the buyer on a “take it or leave it” basis and the buyer had no ability or opportunity to negotiate the terms of the agreement. Second, the Court found the arbitration provision was essentially hidden from the buyer, on the final page of the agreement where no signature or initials were required.
The Court also found the heavily one-sided arbitration provisions substantively unconscionable as it included the following clauses:
• An arbitration award exceeding $100,000 was appealable. Due to the nature of the car sale transaction, this inordinately benefits the dealer who is the more likely party to have such a high arbitration award levied against it and who would be most likely to seek appeal of such an award.
• An appeal would be allowed in the event one party is granted injunctive relief. The consumer is the more likely party to seek an injunction and would be burdened by the dealer’s one-sided right to appeal.
• If nothing was awarded to either party in arbitration, either party could request a new arbitration and the appealing party must pay all arbitration costs upfront. This would be unduly burdensome to the buyer, the most likely party to be bringing an appeal if it was not awarded damages at arbitration.
• Repossession was expressly exempted from arbitration. In contrast, the buyer’s most important remedy, injunctive relief was subject to arbitration.
The purpose of arbitration is to provide a fair alternative to the court system. However, many arbitration provisions heavily favor corporations and prove costly to the consumer. We see more and more clients who have unknowingly limited their rights to access relief in the court system by agreeing to one-sided arbitration agreements.
Know your rights and consider potential outcomes when you agree to arbitration. Sometimes arbitration provisions, while purporting to offer a quick and effective remedy to potential disputes, are really just a sham limiting your rights to seek damages.