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Law School Case Brief

Sanchez v. Valencia Holding Co., LLC - 61 Cal. 4th 899, 190 Cal. Rptr. 3d 812, 353 P.3d 741 (2015)

Rule:

One common formulation of unconscionability is that it refers to an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. As that formulation implicitly recognizes, the doctrine of unconscionability 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. 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. 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. 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. Courts may find a contract as a whole or any clause of the contract to be unconscionable.

Facts:

An automobile sales contract had an arbitration agreement that provided, among other things, that arbitral awards of $0 or over $100,000, as well as grants but not denials of injunctive relief, may be appealed to a panel of arbitrators. The arbitration agreement also had provisions that required the party appealing the award to front the costs of the appeal, preserve the right of the parties to go to small claims court and to pursue self-help remedies, and waive the right to class action litigation or arbitration. The agreement further provides that if the class waiver is deemed unenforceable, then the entire arbitration agreement shall be unenforceable. In this dispute over the sale of a car, plaintiff Gil Sanchez filed a class action lawsuit against defendant Valencia Holding Company, LLC (Valencia), and Valencia moved to compel arbitration. The trial court denied the motion, finding the class waiver and, in turn, the entire arbitration agreement unenforceable.

Issue:

Was the arbitration agreement unenforceable?

Answer:

No

Conclusion:

A standard form automobile sales contract containing an arbitration agreement had some procedural unconscionability but was not substantively unconscionable under Civ. Code, § 1670.5, subd. (a), because an appeal threshold provision did not obviously favor the seller, the consumer presented no evidence of inability to afford appellate arbitration filing fees and costs under the case-by-case analysis of Code Civ. Proc., § 1284.3, the arbitration agreement did not preclude interim injunctive relief under Code Civ. Proc., § 1281.8, subds. (a)(b), and exempting repossession from arbitration was consistent with Cal. UCC § 9609, subds. (a)(1)(b)(2), and Civ. Code, §§ 2983.22983.3, and fulfilled a legitimate commercial need.

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