Goodridge v. KDF Automotive: Court of Appeal Finds Arbitration Clause in Auto Purchase Contract Unconscionable, Unenforceable

We have seen a number of cases recently deciding whether to enforce arbitration agreements contained in auto dealerships' purchase contracts: 

Fisher v. DCH Temecula Imports LLC (2010) 187 Cal.App.4th 601 (discussed here) (finding arbitration clause unenforceable as requiring waiver of statutory right to bring class action under CLRA); 

Sanchez v. Valencia Holding Company, LLC (11/23/11) 200 Cal.App.4th 11 (discussed here) review granted 3/21/12 (discussed here) (finding arbitration provision procedurally and substantively unconscionable, without regard to class action waiver); 

Caron v. Mercedes-Benz Financial Services USA LLC (7/30/12) --- Cal.App.4th --- (discussed here) (finding that FAA preempts CLRA's prohibition on class action waivers and reversing trial court order denying motion to compel arbitration, but remanding for determination of unconscionability).  

As in Sanchez v. Valencia Holding Co., the Court of Appeal in Goodridge v. KDF Automotive Group, Inc. (8/24/12) --- Cal.App.4th ---, held that such an agreement is unconscionable and unenforceable without regard to any class action waiver provision.  

The plaintiff filed a putative class action against a car dealer, alleging, inter alia, violations of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), the Automobile Sales Finance Act (Civ. Code, § 2981 et seq.), and the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.). After several months of litigation, the defendant moved to compel arbitration. The trial court denied the motion, and the Court of Appeal affirmed.

First, the Court held that the arbitration agreement was procedurally unconscionable. Slip op. at 15-19. The Court found both oppression, "i.e., an inequality of bargaining power that resulted in no real negotiation and an absence of meaningful choice for Goodridge regarding the arbitration clause" and surprise, in that the "arbitration clause was hidden within the lengthy prolix of the printed form presented by KDF to Goodridge."

Second, the Court held that the agreement was substantively unconscionable. Slip op. at 19-24. The Court found four specific provisions to be outside a reasonable person's expectations and unduly harsh and oppressive:

1. The provision allowing either party to appeal a decision against it in excess of $100,000, which would benefit only KDF. Slip op. at 19-21.

2. The provision allowing either party to appeal a decision for injunctive relief against it, which, again, would benefit only KDF. Slip op. at 21-22.  

3. The provision requiring an appealing party to pay the full cost of the appeal in advance, because an individual plaintiff would find such costs unduly burdensome. Slip op. at 22-23.  

4. Finally, the provision excluding self-help remedies -- including repossession --from arbitration, which would benefit only KDF, as only KDF would seek such remedies. Slip op. at 23-24. 

The Court thus found the arbitration agreement "unconscionable under California's doctrine of unconscionability that generally applies to all contracts." Slip op. at 24, citing Armendariz. The Court also affirmed the trial court's decision not to sever the multiple unconscionable provisions from the agreement. Slip op. at 24-26.

I assume that the contract included a class action waiver, and it is interesting that the Court did not rely on any such clause in finding the agreement unenforceable. I assume that the California Supreme Court grants review and holds pending its decision in  Sanchez v. Valencia Holding Co.  

The opinion is available here.