Lucas v. Hertz Corp.

• Decision Date: 21 October 2012
• Docket Number: No. C 11-01581 LB,C 11-01581 LB
• Parties: KATHLEEN M. LUCAS, et al., Plaintiffs, v. HERTZ CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of California

KATHLEEN M. LUCAS, et al., Plaintiffs,

v.HERTZ CORPORATION, et al., Defendants.

No. C 11-01581 LB

UNITED STATES DISTRICT COURT Northern District of California San Francisco Division

Dated: October 21, 2012

ORDER DENYING PLAINTIFF'S

MOTION FOR CERTIFICATION OF

ORDER FOR INTERLOCUTORY

APPEAL

[Re: ECF No. 59]

I. INTRODUCTION

Kathleen Lucas and Dan Martin (collectively, "Plaintiffs") filed the instant action against car rental company Hertz Corporation ("Hertz") in San Francisco County Superior Court on November 29, 2010. Notice of Removal, ECF No. 1 at 5-12 ("Complaint").¹ Hertz removed the action to this court on March 31, 2011. Notice of Removal, ECF No. 1. On June 21, 2012, the court granted Hertz's motion to compel Mr. Martin to arbitrate his claims pursuant to an arbitration agreement incorporated by reference into the car rental agreement that Mr. Martin signed. 6/21/2012 Order,ECF No. 53. Mr. Martin now asks the court to certify its order for interlocutory appeal. Motion for Reconsideration or Certification, ECF No. 59.² Upon review of papers submitted and consideration of the applicable rules and authority, the court DENIES Plaintiff's motion.³

II. BACKGROUND⁴

In its order granting Hertz's motion to compel arbitration, the court ruled that a valid arbitration agreement exists, that Hertz can enforce it, and that it is enforceable. See 6/21/2012 Order, ECF No. 53 at 5-19. Mr. Martin argued that the arbitration agreement was unenforceable because it is unconscionable, but the court rejected this argument. The court found the arbitration agreement to be "moderately procedurally unconscionable because of its obscured location and small print and because Mr. Martin did not have to sign or otherwise acknowledge that he saw it, see id. at 14-16, but it did not find the arbitration agreement to substantively unconscionable, even though the arbitration will be governed by CICA's procedural rules, and those rules may not allow for any pre-arbitration discovery, see id. at 16-19.⁵

In so finding, the court set forth its reasoning in detail:

Mr. Martin argues that the arbitration agreement is substantively unconscionable because it requires that any arbitration will be governed by CICA's procedural rules, and those rules may not allow for any pre-arbitration discovery. Opposition, ECF No. 44 at 17-18.[] Hertz argues that this does not render the arbitration agreement substantively unconscionable because any limitations on pre-arbitration discovery would affect both parties equally. Reply, ECF No. 49 at 13.

Prior to the Supreme Court's ruling in Concepcion, numerous courts, at both the state and federal level, found arbitration agreements substantively unconscionable where the rules of the arbitral forum allowed for only minimal discovery or where the affect of the discovery rules operated solely to one side's benefit. See, e.g., Ontiveros v. DHL Express (USA), Inc., 164 Cal. App. 4th 494, 513 (2008) (finding arbitration agreement substantively unconscionable because it allowed for only one deposition absent a showing of substantial need); Fitz v. NCR Corp., 118 Cal. App. 4th 702, 716-17 (2004) (finding arbitration agreement was substantially unconscionable because, "[t]hough NCR contends that the ACT policy's limits on discovery are mutual because they apply to both parties, the curtailment of discovery to only two depositions does not have mutual effect and does not provide Fitz with sufficient discovery to vindicate her rights"); see also Doubt v. NCR Corp., No. C 09-05917 SBA, 2010 WL 3619854, at *7 (N.D. Cal. Sep. 13, 2010) (citing Fitz and finding arbitration agreement substantively unconscionable where it limited discovery to only two depositions (aside from depositions of any expert witnesses expected to testify at the hearing) unless the arbitrator found a "compelling need to allow it"). Indeed, Mr. Martin relies on pre-Concepcion decisions in support of her argument. See Opposition, ECF No. 44 at 18 (citing Fitz, 118 Cal. App. 4th at 717-18; Martinez v. Master Protection Corp., 118 Cal. App. 4th 107, 118-19 (2004); Kinney v. United Healthcare Servs., Inc., 70 Cal. App. 4th 1322, 1322 (1999)).

Concepcion, however, suggests that limitations on arbitral discovery no longer support a finding of substantive unconscionability. The Supreme Court provided the following guidance:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008). But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. In Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), for example, we noted that the FAA's preemptive effect might extend even to grounds traditionally thought to exist "'at law or in equity for the revocation of any contract.'" Id., at 492, n.9, 107 S.Ct. 2520 (emphasis deleted). We said that a court may not "rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot." Id., at 493, n.9, 107 S.Ct. 2520.

An obvious illustration of this point would be a case finding unconscionable or unenforceable as against public policy consumer arbitration agreements that fail to provide for judicially monitored discovery. The rationalizations for such a holding are neither difficult to imagine nor different in kind from those articulated in Discover Bank. A court might reason that no consumer would knowingly waive his right to full discovery, as this would enable companies to hide their wrongdoing. Or the court might simply say that such agreements are exculpatory-restricting discovery would be of greater benefit to the company than the consumer, since the former is more likely to be sued than to sue. See Discover Bank, supra, at 161, 30 Cal. Rptr. 3d 76, 113 P.3d, at 1109 (arguing that class waivers are similarly one-sided). And, the reasoning would continue, because such a rule applies thegeneral principle of unconscionability or public-policy disapproval of exculpatory agreements, it is applicable to "any" contract and thus preserved by § 2 of the FAA. In practice, of course, the rule would have a disproportionate impact on arbitration agreements; but it would presumably apply to contracts purporting to restrict discovery in litigation as well.

Other examples are easy to imagine. The same argument might apply to a rule classifying as unconscionable arbitration agreements that fail to abide by the Federal Rules of Evidence, or that disallow an ultimate disposition by a jury (perhaps termed "a panel of twelve lay arbitrators" to help avoid preemption). Such examples are not fanciful, since the judicial hostility towards arbitration that prompted the FAA had manifested itself in "a great variety" of "devices and formulas" declaring arbitration against public policy. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (C.A.2 1959).

Concepcion, 131 S.Ct. at 1747. Although there is a difference between a failure to provide for "judicially monitored discovery" and a failure to affirmatively allow for any discovery devices to be used, the court believes the above reasoning applies with equal force here. And although they do not cite Concepcion, many post-Concepcion federal district court decisions taking up this issue suggest the same. See, e.g., Simmons v. Morgan Stanley Smith Barney, LLC, No. 11cv2889 WQH-MDD, 2012 WL 1900110, at *11-12 (S.D. Cal. May 24, 2012); Valle v. Lowe's HIW, Inc., No. 11-1489 SC, 2011 WL 3667441, at *8 (N.D. Cal. Aug. 22, 2011); Pilitz v. Bluegreen Corp., No. 6:11-cv-388-Orl-19KRS, 2011 WL 3359641, at *5 (M.D. Fla. Aug. 4, 2011); Hopkins v. World Acceptance Corp., No. 1:10-cv-03429-SCJ, 798 F. Supp. 2d 1339, 1349-50 (N.D. Ga. 2011); Tierra Right of Way Servs., Ltd. v. Abengoa Solar, Inc., No. CV-11-00323-PHX-GMS, 2011 WL 2292007, at *5 (D. Ariz. June 9, 2011); but see Unimax Express, Inc. v. Cosco North America, Inc., No. CV 11-02947 DDP (PLAx), 2011 WL 5909881, at *4 (C.D. Cal. Nov. 28, 2011) (finding arbitration agreement to be substantively unconscionable where one party would have had to "articulate its arguments with a clarity bordering on prescience, for it has no right to discovery and will have no opportunity to rebut the other party's response).

In addition, Hertz's counsel stated at the June 21, 2012 hearing that Hertz had already voluntarily produced some discovery to Plaintiffs and that Hertz would continue to act in good faith in this regard. The parties are deposing witnesses, too.

Accordingly, the court finds that in this post-Concepcion landscape, the arbitration agreement is not substantively unconscionable. See Concepcion, 131 S.Ct. at 1747.

6/21/2012 Order, ECF No. 53 at 16-19 (footnotes omitted). Because both procedural and substantive unconscionability must be present before a court will refuse to enforce a contract, Armendariz v. Found. Health Psychcare Servs., 24 Cal.4th 83, 114 (2000), the court rejected Mr. Martin's unconscionability argument and granted Hertz's motion to compel arbitration, 6/21/2012 Order, ECF No. 53 at 19.

On August 10, 2012, Mr. Martin filed a motion asking the court to reconsider its decision or,alternatively, to certify its order for interlocutory appeal. Motion for Reconsideration or Certification, ECF No. 59. The court denied his motion for reconsideration, but ordered the parties to submit further briefing with respect to his motion for certification of its 6/21/2012 Order for interlocutory appeal. 8/22/2012 Order, ECF No. 65. In accordance with that order, Hertz filed an opposition, and Mr. Martin filed a reply. Opposition, ECF No. 66; Reply, ECF No. 67.

II...