Gutierrez v. Autowest, Inc.

• Decision Date: 09 December 2003
• Docket Number: No. A098704.,A098704.
• Citation: 7 Cal.Rptr.3d 267,114 Cal.App.4th 77
• Parties: Ryan GUTIERREZ et al., Plaintiffs and Respondents, v. AUTOWEST, INC., et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

7 Cal.Rptr.3d 267

114 Cal.App.4th 77

Ryan GUTIERREZ et al., Plaintiffs and Respondents, v. AUTOWEST, INC., et al., Defendants and Appellants.

No. A098704.

Court of Appeal, First District, Division 5.

December 9, 2003.

Certified for Partial Publication.^*

As Modified on Denial of Rehearing January 8, 2004.

Christa & Jackson, Laura K. Christa, William E. Weinberger, Los Angeles, and Deborah Bucksbaum for Defendants and Appellants Autowest, Inc., doing business as Autowest Dodge, Chrysler, Plymouth, Isuzu, and AutoNation USA Corporation.

Kemnitzer, Anderson, Barron & Ogilvie, LLP, Nancy Barron, Christopher F. Jennings, and Bryan Kemnitzer, San Francisco, for Plaintiffs and Respondents Ryan Gutierrez and Jamie Gutierrez.

SIMONS, J.

The United States Supreme Court has "rigorously enforce[d] agreements to arbitrate" civil disputes (Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158), including those in which employees and consumers rely on statutory claims (Green Tree Fin. Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (Green Tree); Shearson/American Express, Inc. v. McMahon (1987) 482 U.S. 220, 223, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185). The high court has, however, acknowledged the need to regulate arbitration to ensure that such claims may be properly vindicated in the arbitral forum (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 628, 637, 105 S.Ct. 3346, 87 L.Ed.2d 444 (Mitsubishi)), a concern echoed by our own Supreme Court (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 110, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz )). Both courts have recognized the centrality of costs to that concern: excessive arbitral fees and costs¹ could bar access to that forum resulting in a loss of the statutory claims. (Green Tree, at p. 90, 121 S.Ct. 513; Armendariz, at pp. 110-111, 99 Cal.Rptr.2d 745, 6 P.3d 669 [employees relying on California Fair Employment and Housing Act (FEHA) (Gov.Code, § 12900 et seq.) claims may not be required to pay any type of unique arbitral fee].) In this case, we conclude consumers may challenge a predispute arbitration clause as unconscionable if the fees required to initiate the process are unaffordable, and the agreement fails to provide the consumer an effective opportunity to seek a fee waiver. In addition, if, as here, the consumer sues under a state consumer protection statute providing unwaivable rights, we imply in the arbitration clause an agreement that unaffordable fees will not be allocated to the consumer at any point in the arbitration process.

BACKGROUND

The Lease Transaction²

In March 2000, Ryan Gutierrez (Gutierrez) viewed an infomercial from defendants Autowest, Inc. (doing business as Autowest Dodge, Chrysler, Plymouth, Isuzu), and AutoNation USA Corporation (hereafter collectively AutoNation) offering to lease "all" new Dodge Durangos for $249 per month with "zero down." The next morning, Gutierrez telephoned the Autowest Dodge dealership and spoke with a salesperson, who confirmed that he qualified for the lease of a Durango at the advertised price. The following day Gutierrez went to the dealership to enter into the lease transaction. After selecting a vehicle, Gutierrez was contacted by a sales manager, who informed him the lease would cost $489 per month. When Gutierrez inquired about the advertised price, he was told that in order to receive that price he would have to make a down payment of $5,900. Gutierrez subsequently signed an agreement to lease a Durango for $489.53 per month, with a down payment of $957.53 (hereafter the lease). Under the terms of the lease, AutoNation assigned the lease and all rights, title and interest in the vehicle to Wells Fargo Auto Finance, Inc. A copy of the lease was attached as an exhibit to the complaint.

The back of the lease contained numerous contract provisions including the arbitration clause that AutoNation has sought to enforce. It read:

Any controversy or claim between or among you and me, including, but not limited to, those arising out of or relating to this lease or any related agreements or any claim based on or arising from an alleged tort, shall at the request of either party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S.Code), notwithstanding any choice of law provision in this lease, and under the authority and rules of the American Arbitration Association then in effect. No provision of this paragraph shall limit either your or my right to pursue self-help or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during pendency of any arbitration. The exercise of any provisional remedy or the filing of a legal action, does not waive the right of either party to resort to arbitration.

(As shown in the lease using Arial Narrow eight-point typeface.)³

Gutierrez was not informed by anyone at Autowest Dodge that there was an arbitration clause on the back of the lease, nor was he aware that the lease contained such a clause when he signed it. Gutierrez was never given or shown a copy of the arbitration rules of the American Arbitration Association (AAA), the designated arbitration provider.

The Lawsuit

Believing they had been victimized by a "bait and switch" fraud engineered by the automobile dealership, plaintiffs, Gutierrez and his wife Jamie, filed this lawsuit against AutoNation and Wells Fargo Bank, N.A. (Wells Fargo) on behalf of themselves and other similarly situated consumers. The complaint includes causes of action against all defendants alleging violation of the California Vehicle Leasing Act (VLA) (Civ.Code, § 2985.7 et seq.), and violation of California's Unfair Competition Law (UCL) (Bus. & Prof.Code, § 17200 et seq.). The complaint includes separate causes of action against AutoNation alleging fraud and negligent misrepresentation, violation of the California Consumers Legal Remedies Act (CLRA) (Civ.Code, § 1750 et seq.), and false advertising (Bus. & Prof.Code, § 17500 et seq.).⁴ The complaint asserts a separate cause of action against Wells Fargo seeking rescission and restitution.

AutoNation filed a petition to compel arbitration under the arbitration clause in the lease.⁵ Plaintiffs opposed the petition, in part, on the ground that the arbitral forum fees exceeded their ability to pay. In support of this contention, plaintiffs submitted, among other exhibits, a set of the AAA "Commercial Dispute Resolution Procedures (including Mediation and Arbitration Rules)" and a declaration disclosing their monthly net income and expenses and their savings.

The trial court denied the petition. It found that the amount in controversy exceeded $10,000, and hence the AAA Commercial Arbitration Rules (AAA rules) would apply. Under these rules, certain arbitral fees depend on the size of the claim, which the parties acknowledged had a potential value of at least $500,000. The court found that plaintiffs would be required to expend more than $10,000, exclusive of attorney fees, to have their case arbitrated. The court concluded that "[t]he imposition of substantial forum fees which prevent an aggrieved party from vindicating his or her statutory rights is contrary to public policy, and is therefore grounds for invalidating an arbitration agreement and denying a petition to compel arbitration under Code of Civil Procedure sections 1281 and 1281.2. [(Armendariz, supra, 24 Cal.4th at p. 110, 99 Cal.Rptr.2d 745, 6 P.3d 669; see also Green Tree, supra, 531 U.S. at p. 90, 121 S.Ct. 513.)] Because the contract lacks an independent cost provision and a severability clause, the court lacks the ability to sever or restrict any of the contractual provisions or terms, so as to render the arbitration clause in this case enforceable." AutoNation filed a timely appeal from this order. (Code Civ. Proc., § 1294, subd. (a).)

DISCUSSION

Any analysis of the enforceability of an arbitration clause properly begins with a discussion of the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.), and its preemptive effect on state laws that impair the enforceability of agreements to arbitrate.⁶ The FAA was enacted to overcome the unwillingness of the courts to enforce agreements to arbitrate and "to `place such agreements "upon the same footing as other contracts,"' [citations]." (Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 270-271, 115 S.Ct. 834, 130 L.Ed.2d 753.) Section 2 of the FAA provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2.) California law is to the same effect. (Code Civ. Proc., §§ 1281, 1281.2, subd. (b).) Thus, we may not single out arbitration agreements as suspect and impose special burdens on them. "[U]nder California law, as under federal law, an arbitration agreement may only be invalidated for the same reasons as other contracts." (Armendariz, supra, 24 Cal.4th at p. 98, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

Armendariz recognized two distinct defenses to a petition to compel arbitration, which we will evaluate separately. First, we consider whether the fee provision is unconscionable, a defense available to any consumer, regardless of the type of claim being arbitrated. Second, we decide whether the arbitration clause constitutes a private agreement impairing the exercise of unwaivable statutory rights enacted for a public purpose. (Armendariz, supra, 24 Cal.4th at pp. 100-102, 113-114, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Since each of these defenses is a generally available contract formation defense that does not single out arbitration agreements, neither violates the FAA. (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902; Armendariz, supra, 24 Cal.4th at p. 114, 99...