On 11/27/17, Plaintiffs Cristina and Ronaldo Marquez filed their Original Complaint alleging claims for breach of express and implied warranties arising from their purchase of an allegedly defective Ford Escape from Defendant Drivetime Car Sales Co. LLC.
In lieu of filing an answer, Defendant Drivetime petitions the court to compel arbitration of this dispute and to stay the litigation pending resolution of the arbitration proceeding. (CCP §§1281.7, 1281.2.)
The court GRANTS the Petition for the reasons set forth below. This litigation is stayed pending resolution of the arbitration.
- Basic Procedure
In Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 412-414, the California Supreme Court explained the procedure a trial court must follow when a party files a petition to compel arbitration.
The only question is whether the trial court should specifically enforce the arbitration agreement. When a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. (Rosentha, supra,l (1996) 14 Cal.4th 394, 412-413 [error for trial court to merely find triable issues of fact and submit them to the jury].)
The court must determine the two gateway issues (1) whether the parties formed an agreement to arbitrate, and (2) whether the arbitration agreement covers the dispute, that is, whether the dispute is arbitrable. (Howsam v. Dean Witter Reynolds Inc. (2002) 537 U.S. 79; Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 960.)
Initially, the petitioner must prove the agreement exists and that the dispute is arbitrable, by a preponderance of the evidence. Then the burden shifts to the party opposing arbitration to establish some defense, by a preponderance of the evidence; for example, that there was fraud in the execution, waiver, or revocation. (Rosenthal(1996) 14 Cal.4th 394, 413.)
- Written Arb Agreements Valid and Enforceable
As a general rule, written arbitration agreements are valid and enforceable. (CCP § 1281.) If the court determines that an arbitration agreement exists, the court must order arbitration unless it finds that:
(1) the petitioner has waived its right to compel arbitration;
(2) grounds exist for revocation; or
(3) one of the parties is involved in a related case.
- Defendant’s Prima Facie Showing
Defendant makes a prima facie showing that when Plaintiffs electronically signed the purchase contract for the vehicle on 2/19/16, the parties mutually agreed to be bound by the terms of a broad arbitration agreement and that the terms of that agreement govern this dispute. (See generally Amirebrahimi Decl. & Exs. 1-3.)
The notice of arbitration agreement expressly provides that “Unless you reject this Agreement, this Agreement provides that upon your or our election, all disputes between you and us will be resolved by BINDING ARBITRATION.”
“If you or we elect arbitration, you will be GIVING UP YOUR RIGHT TO GO TO COURT to assert or defend your wrights under the Contract (except for individual claims that may be taken to small claims court).
“Your rights will be determined by a NEUTRAL ARBITRATOR AND NOT by a JUDGE OR JURY. YOU WILL BE WAIVING YOUR RIGHTS TO A JURY TRIAL.”
“This Agreement describes how a Claim may be arbitrated instead of litigated in court.”
“’Claim’ means any claim, dispute or controversy between you and us arising from or related to one or more of the following:
(a) The Contract.
(b) The vehicle or the sale of the vehicle.
(c) The provision or sale of any goods and services like warranties, insurance and extended service contracts covered by the Contract or related to the vehicle.
. . .
(l) The rescission or termination of the Contract.
“’Claim’ has the broadest reasonable meaning. It includes claims of every kind and nature. This includes initial claims, counterclaims, cross-claims, third-party claims, statutory claims, contract claims, negligence and tort claims (including claims of fraud and other intentional torts).”
Notably, the arbitration agreement expressly prohibits class action and PAGA (private attorney general) claims and expressly permits Plaintiffs to reject the arbitration agreement in writing within 30 days after signing it, without in any way affecting any other aspect of the contract.
The agreement provides that it will be governed by the Federal Arbitration Act.
So the burden shifts to Plaintiffs to establish some defense, by a preponderance of the evidence; for example, that there was fraud in the execution, waiver, or revocation. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.)
- Opposition by Plaintiff/Respondent
In Opposition, Plaintiffs argue that the agreement is unenforceable because it was unconscionable. (Armendariz v. Foundation Health Psychcare Services Inc. (2000) 24 Cal.4th 83, 91.) Therefore, the burden is on Plaintiffs to show both procedural and substantive unconscionability. (Kilgore v. KeyBank Nat’l Ass’n (9th Cir. 2012) 673 F.3d 947, 963, citing Armendariz at 24 Cal.4th 99.)
“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.” (Baltasar v. Forever 21 Inc. (2016) 62 Cal.4th 1237, 1243-1245.)
“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 . . . .” (Ibid.)
“A finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.” (Ibid.)
However, Plaintiffs fail to carry their burden. While Plaintiffs merely assert several examples of substantive unconscionability, they present no evidence to prove that the agreement was procedurally unconscionable. Plaintiffs fail to submit any declarations based on personal knowledge and the memo of points and authorities signed by counsel is not evidence. Arguments and assertions of counsel are merely arguments, not evidence.
- Arguments of Counsel
“The only evidence the trial court should have considered and which we may consider here is that contained in the declarations filed in support of and in opposition to the motion. The matters set forth in the unverified ‘Statement of Facts’ and in memoranda of points and authorities are not evidence and cannot provide the basis for the granting of the motion.” (Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 578.)
“It hardly bears mentioning that argument of counsel is neither a declaration nor admissible as evidence in court.”
(Saldana v. Globe-Weis Systems Co. (1991) 233 Cal.App.3d 1505, 1518.)
Initially, Saldana contends that prior to being cited by OSHA, Globe-Weis rendered the manufacturer-provided safety device substandard by “removing some of the wiring or otherwise modifying the devices.” As evidence of that contention, we are cited to Saldana’s own argument at the hearing on motion for summary judgment. The “evidence” to which reference is made falls far short of the requirements of CCP §437c (d), which states that “[s]upporting or opposing affidavits or declarations . . . shall set forth admissible evidence.” (Ibid.)
- Procedural Unconscionability
Plaintiffs’ argument fails because Plaintiffs merely assert that the arbitration agreement was procedurally unconscionable, without citing any evidence to prove it. (See Crippen v. Central Valley RV Outlet Inc. (2004) 124 Cal.App. 4th 1159, 1165-1166.)
Here, Plaintiffs’ counsel merely asserts in conclusory fashion that the contract in this case was a contract of adhesion because it was a standardized contract imposed by a party with superior bargaining strength. But counsel’s assertions are not evidence and counsel presents no supporting declarations to prove up these assertions and to demonstrate a lack of choice and a lack of bargaining power. And as the Court of Appeal held in Crippen, the use of a standard contract in and of itself does not prove unconscionability.
“In this case, plaintiff failed to show any procedural unconscionability at all. ‘The procedural element focuses on two factors: oppression and surprise. Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice…. Surprise involves the extent to which the terms of the bargain are hidden in a prolix printed form drafted by a party in a superior bargaining position.’ (Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608, 621, 55 Cal.Rptr.2d 818.).” (Ibid.)
“Plaintiff did not introduce or rely on any evidence of the circumstances surrounding the execution of the agreement, so he could not show inequality of bargaining power, lack of negotiation, or lack of meaningful choice based on those circumstances. He has not presented us with any reason to suppose substantially unequal bargaining power was inherent in his relationship with the seller. Nor does the form of the document itself show procedural unconscionability. The Arbitration Addendum was not set in small type or hidden in a prolix form. It was printed on a separate page, in ordinary type, with ‘Arbitration Addendum’ at the top, and was signed separately by plaintiff. (Ibid.)
“Plaintiff argues that, because the Arbitration Addendum was a form contract defendant used with many customers, it must have been a contract of adhesion and therefore procedurally unconscionable. But there is no general rule that a form contract used by a party for many transactions is procedurally unconscionable.” (Ibid.)
“Rather, ‘[p]rocedural unconscionability focuses on the manner in which the disputed clause is presented to the party in the weaker bargaining position. When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.’ (Szetela v. Discover Bank, supra, 97 Cal.App.4th at p. 1100, 118 Cal.Rptr.2d 862.) There is no reason in this case to conclude that plaintiff lacked power to bargain. In general, nothing prevents purchasers of used vehicles from bargaining with dealers, even though dealers use form contracts, and nothing in the record shows that plaintiff could not bargain in this case.” (Ibid.)
On the contrary, in this case the arbitration agreement was unique because it contained express terms which gave Plaintiffs the right to formally reject the arbitration agreement in writing, within 30 days after signing, without otherwise forfeiting the other contract terms. This suggests that Plaintiffs were not compelled to accept the arbitration agreement on a take it or leave it basis. They were free to reject it within 30 days, without giving up the remainder of their contract.
Defendant argues correctly in its Reply that Plaintiffs have failed to carry their burden to show that the agreement was procedurally unconscionable in any way. Therefore, the question of substantive unconscionability is moot and need not be considered.
Accordingly, the court finds that Plaintiffs have failed to carry their burden to show that the arbitration agreement was unconscionable, as asserted in their Opposition.
- Electronic Signature
In Opposition, Plaintiffs’ counsel argues that the only evidence that Plaintiffs actually signed the arbitration agreement was their electronic signature. (Opposition at p. 3, lines 13-16.) However, Plaintiff’s counsel fails to explain why an electronic signature cannot be valid and admissible as a matter of law.
Furthermore, Plaintiffs do not submit declarations to show that they did no sign the contract or the accompanying arbitration agreement.
Plaintiffs’ counsel also argues that there is no evidence that the terms of the arbitration agreement were fully disclosed and that Plaintiffs had a chance to review them.
However, this argument is improper because it reverses the burden of proof. Once Defendant presents evidence that Plaintiffs have entered into a contract and/or arbitration agreement which governs the dispute, the burden shifts to Plaintiffs to prove that the agreement was unconscionable because of surprise, lack of disclosure, lack of bargaining power, and/or oppressive terms.
- Substantive Unconscionability
While a full discussion of the substantive unconscionability issue has been rendered moot, the court will nevertheless touch upon a few key points.
Plaintiffs’ counsel merely asserts that Plaintiffs were forced to pay an unreasonably excessive price for the car, but counsel presents no evidence to prove up the “true” market value of the car, or to show the vehicle’s true value. Counsel does not submit the declarations of his clients to establish that the car was defective as alleged in the Complaint. So once again, counsel fails to present evidence to support his assertions.
Plaintiffs argue that the class action waiver is substantively unconscionable, but in Opposition Defendant argues correctly that such waivers have been expressly found to be valid under AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, as conceded in Sonic-Calabasis A Inc. v. Moreno (2013) 57 Cal.4th 1109, 1137.)
Plaintiffs argue that the PAGA waiver and the waiver of injunctive relief are also substantively unconscionable and therefore unenforceable under California law, as a matter of public policy, even under the FAA. (McGill v. Citibank N.A. (2017) 2 Cal.5th 945; Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348.) In Opposition, Defendant argues that the PAGA waiver is irrelevant because Plaintiffs have no viable private attorney general claim in this action. Defendant also argues that the agreement does not contain any waiver of the right to injunctive relief.
However, these questions must be addressed by the arbitrator because there has been no showing of procedural unconscionability. So even if there are illegal or unenforceable terms in the arbitration agreement, this court has no jurisdiction to consider them. As a procedural matter, Plaintiffs must raise these arguments before the arbitrator, who presumably has sole jurisdiction to adjudicate the enforceability of any disputed arbitration terms, under the FAA and/or California law. So this court’s ruling does not necessarily deny Plaintiffs the opportunity to contest the enforceability of specific arbitration provisions. Those arguments must simply be presented to the arbitrator for due consideration, to the extent the can be raised in a timely and procedurally proper fashion.
Defendant shall serve notice of this ruling