Sanchez v. Valencia Holding Co.

• Citation: 2011 Daily Journal D.A.R. 16969,135 Cal.Rptr.3d 19,11 Cal. Daily Op. Serv. 14212
• Decision Date: 23 November 2011
• Docket Number: No. B228027.,B228027.
• Court: California Court of Appeals Court of Appeals
• Parties: Gil SANCHEZ, Plaintiff and Respondent, v. VALENCIA HOLDING COMPANY, LLC, Defendant and Appellant.

11 Cal. Daily Op. Serv. 14,212

135 Cal.Rptr.3d 19

2011 Daily Journal D.A.R. 16,969

Gil SANCHEZ, Plaintiff and Respondent,

v.VALENCIA HOLDING COMPANY, LLC, Defendant and Appellant.

No. B228027.

Court of Appeal, Second District, Division 1, California.

Nov. 23, 2011.

Background: Car buyer brought class action against dealer, alleging violations of the Consumers Legal Remedies Act (CLRA), the Automobile Sales Finance Act (ASFA), the unfair competition law (UCL), the Song–Beverly Consumer Warranty Act, and the California Tire Recycling Act (Tire Recycling Act). Dealer filed motion to compel arbitration pursuant to a provision in the sales contract, which also contained a class action waiver. The Superior Court, Los Angeles County, No. BC433634, Rex Heeseman, J., denied the motion to compel on grounds that buyer was statutorily entitled to maintain CLRA suit as a class action. Dealer appealed.

Holdings: The Court of Appeal, Mallano, P.J., held that:

(1) arbitration provision was procedurally unconscionable;

(2) provision was substantively unconscionable; and

(3) unconscionability so permeated the provision that the entire provision was void.

Affirmed.

Rothschild, J., concurred with opinion. Tharpe & Howell, Sherman Oaks, Christopher S. Maile, Soojin Kang; Greines, Martin, Stein & Richland, Los Angeles, and Robert A. Olson for Defendant and Appellant.

Rosner, Barry & Babbitt, San Diego, Hallen D. Rosner, Christopher P. Barry and Angela J. Smith for Plaintiff and Respondent.

MALLANO, P.J.

Plaintiff, a car buyer, filed this class action against a car dealer, alleging violations of the Consumers Legal Remedies Act (CLRA) ( Civ.Code, §§ 1750–1784), the Automobile Sales Finance Act (ASFA) ( Civ.Code, §§ 2981– 2984.6), the unfair competition law (UCL) (Bus. & Prof.Code, §§ 17200– 17210), the Song–Beverly Consumer Warranty Act (Song–Beverly Act) (Civ.Code, §§ 1790–1795.8), and the California Tire Recycling Act (Tire Recycling Act) (Pub. Resources Code, §§ 42860–42895). ¹

The car dealer filed a motion to compel arbitration pursuant to a provision in the sales contract, which also contained a class action waiver. The trial court determined that the class action waiver was unenforceable on the ground that a consumer is statutorily entitled to maintain a CLRA suit as a class action. (See Civ.Code, § 1781.) The arbitration provision in the sales contract stated that if the class action waiver was declared unenforceable, the entire arbitration provision was not to be enforced. Pursuant to this “poison pill” clause, the trial court denied the petition to compel arbitration. The car dealer appealed.

We affirm but for a different reason. We conclude that the arbitration provision is unconscionable: The provision is adhesive—involving oppression and surprise—and contains harsh one-sided terms that favor the car dealer to the detriment of the buyer. Because the provision contains multiple invalid clauses, it is permeated by unconscionability and unenforceable. We cannot sever all of the offending language. Thus, regardless of the validity of the class action waiver, the trial court properly declined to compel arbitration.

IBACKGROUND

The allegations and facts in this appeal are taken from the pleadings and the exhibits submitted in connection with the petition to compel arbitration.

A. Complaint

Plaintiff, Gil Sanchez, filed this class action in March 2010. Two months later, Sanchez filed a first amended complaint (complaint). It alleged as follows.

On August 8, 2008, Sanchez went to a car dealer, Mercedes–Benz of Valencia—a fictitious business name for defendant Valencia Holding Company, LLC (Valencia)—and expressed an interest in buying a certified pre-owned Mercedes. A salesman showed him a 2006 Mercedes–Benz S500V with an advertised price of around $48,000. Sanchez said he wanted to trade in his 2004 Cadillac Deville because he was “upside down” on it—he owed more than the car was worth. The salesman told Sanchez they could probably “make the deal work,” depending on how much Sanchez could afford as a down payment.

After a test drive, the salesman told Sanchez that Valencia would give him $6,000 for his Cadillac, on which Sanchez still owed approximately $20,800, creating a negative equity of $14,800. Sanchez made a down payment of $10,000. The salesman said Sanchez might be required to make a higher down payment, but it could be paid over time.

Valencia informed Sanchez that he had to pay $3,700 to have the Mercedes–Benz “certified” to qualify for an interest rate of 4.99 percent. That statement was false. The $3,700 payment was actually for an extended limited warranty, which was optional and unrelated to the interest rate. Sanchez agreed to the additional payment, believing it was a certification fee required to obtain the offered rate.

Sanchez met with Valencia's finance manager, who completed all of the financial information on the sales documents, including a preprinted “Retail Installment Sale Contract” (Sale Contract).² The total sales price was $53,498.60. The amount financed was $47,032.99, with a monthly payment of $888.31. The Sale Contract listed a charge of $347 for “license fees” and “N/A” for registration, transfer, and titling fees. It included a $28 “Optional DMV Electronic Filing Fee,” but Valencia never discussed the fee with Sanchez or asked if he wanted to opt out of it. The Sale Contract also charged Sanchez new tire fees of $8.75—a new tire fee of $1.75 for each new tire, including the spare. But not all of the tires were new. Last, the contract showed a down payment of $15,000 instead of the $10,000 Sanchez had just paid.

Valencia represented that the vehicle was “certified,” meaning it had been through a “rigorous inspection and certification process” in which any deficiencies were “repaired, replaced, or reconditioned.” A certified vehicle comes with a 12–month limited warranty. As alleged, the “certified” classification and the certification program were “intentionally fraudulent.” Nothing was done to improve the condition or operation of a certified vehicle. A CARFAX vehicle history report—which would have disclosed prior accidents and damage—is supposed to accompany every certified vehicle, but Sanchez did not receive one.

Sanchez executed the Sale Contract and took possession of the vehicle on August 8, 2008. A few days later, Valencia called him and said he owed more toward the down payment. On August 15, 2008, Sanchez went to the dealership and wrote a check for $3,000. Sometime thereafter, Sanchez received another call, telling him he owed still more on the down payment. He went to the dealership and wrote a check for $2,000, bringing the total down payment to $15,000.

Sanchez soon experienced problems with the vehicle, including malfunctions with various electrical systems, water leaks inside the passenger cabin and the trunk, engine failures, and errors with the warning and indicator lights. Sanchez took the vehicle to authorized repair facilities on several occasions, including Valencia, but they were unable to repair the vehicle. Eventually, Valencia accused Sanchez of having tampered with or wrecked the vehicle, told him it would cost $14,000 to make the repairs, and said the warranties would not apply. The accusation against Sanchez was false. Sanchez then had the vehicle inspected elsewhere and learned it had been in an accident or had been inadequately repaired before he bought it.

Sanchez alleges that Valencia violated several California laws by: (1) failing to separately itemize the amount of the down payment that is deferred to a date after the execution of the Sale Contract; (2) failing to distinguish registration, transfer, and titling fees, on the one hand, from license fees, on the other hand; (3) charging buyers the Optional DMV Electronic Filing Fee without discussing it or asking the buyer if he or she wanted to pay it; (4) charging new tire fees for used tires; and (5) telling Sanchez to pay $3,700 to have the vehicle certified so he could qualify for the 4.99 percent interest rate when that payment was actually for an optional extended warranty unrelated to the rate.

The complaint alleged that a class action was appropriate based on the numerosity of putative class members, the predominance of common questions of law and fact, the typicality of the claims, and the superiority and benefits of class litigation. Four distinct classes were proposed based on the particular violations committed by Valencia.

Fifteen causes of action were alleged. The first one, for violation of the CLRA, was premised on Valencia's false representations and sought injunctive relief and damages, including punitive damages. Of the remaining 14 causes of action—alleging violations of the CLRA, ASFA, UCL, Song–Beverly Act, or Tire Recycling Act—12 sought injunctive relief, rescission of the Sale Contract, restitution, or some combination thereof, but no damages. The other two, alleging violations of the Tire Recycling Act and the Song–Beverly Act, sought civil penalties or damages. Under the Tire Recycling Act, Sanchez sought a civil penalty not exceeding $25,000 for new tire fees charged for used tires. (See Pub. Resources Code, § 42885, subds. (b), (e).) As provided in the Song–Beverly Act, he sought general and consequential damages plus a civil penalty up to two times actual damages. (See Civ.Code, § 1794.) The complaint also prayed for an award of attorney fees.

B. Motion to Compel Arbitration

On June 7, 2010, Valencia filed a motion to compel arbitration pursuant to an arbitration provision in the Sale Contract. The provision stated: “1. Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.

“2. If a dispute is arbitrated, you will give up your right to participate as a class representative or class member on any class claim you may have against us including any right to class arbitration or any consolidation of...