Court of Appeal Voids Arbitration Clause, Holds That Concepcion Does Not Apply

In Sabia v. Orange County Metro Realty, Inc., et al., the Court of Appeal continues to unpack the United States Supreme Court’s seminal decision in 2011 of AT&T Mobility LLC v. Concepcion, which held that class action waivers in consumer adhesion contracts were not unconscionable.  In this case, the Court of Appeal addresses Concepcion‘s impact on unconscionability as a state law defense to arbitration provisions, particularly where the contract only requires arbitration by one party.  In Sabia, the plaintiffs filed a class action, alleging that the defendants duped them into signing loan modification agreements and stole money the plaintiffs paid for services that were never rendered.  The loan modification agreements contained an arbitration clause that only required the plaintiffs to arbitrate their claims against the defendants (not vice versa), and was silent on any class claims.  The plaintiffs claimed that the arbitration clause was unconscionable because of the one-way arbitration clause, and because it was written in English while the terms of the agreement were explained to the plaintiffs in Spanish.

Before addressing the issue of unconscionability, the court first faced the defendants’ claim that the trial court’s order compelling arbitration was not appealable.  The court stated that while such orders are generally not appealable, there is an exception when the trial court’s ruling is the “death knell” to a party’s class claims.  Here, the court held that where a trial court’s ruling effectively terminates a party’s class claims but permits individual claims to continue, the death knell exception applies, and the trial court’s order compelling arbitration is an appealable order.

The court then turned its attention to the impact of a one-way arbitration provision in light of Concepcion‘s ruling.  Citing the California Supreme Court’s 2000 decision in Armendariz v. Foundation Health Psychare Servs., the court held that the contract’s one-way arbitration clause was unconscionable because it required only the consumer to arbitrate his or her claims against the defendants, while the defendants were free to pursue their claims in court.  The court further held that Concepcion did not preclude a finding of unconscionability because Concepcion did not address the issue of a one-way arbitration clause, and did not expressly overrule Armendariz.

Given the Court of Appeal’s Sabia ruling, businesses should take a look at their contractual arbitration provisions to ensure that they do not fall victim to the same one-way arbitration clause that was held unconscionable in Sabia.

If you have any questions about arbitration provisions or other contractual questions, please contact Greg Woodard at (949) 769-6602.

, ,