Morales v. Hansel Dealerships, Inc.

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Defendants Hansel Dealerships Inc. (“Dealer”) and Redwood Credit Union (“RCU”)(together “Defendants”) move to compel Plaintiff Laura Morales (“Plaintiff”) to arbitration and to stay this action pending resolution of arbitration. The motion is made on the grounds that the Retail Installment Sale Contract entered into between Defendants and Plaintiff on or about October 6, 2025, requires that the parties arbitrate their dispute. I. First Amended Complaint

Plaintiff brought this action based upon her purchase of a 2024 Kia Forte (“the Kia”) which she purchased from Dealer. Plaintiff states that she went to Dealer to find a reliable used vehicle. Dealer showed Plaintiff the Kia. Dealer bought the Kia at an auction, but informed Plaintiff the Kia had been traded in. The Dealer represented it had not been involved in any accidents, had not been previously damaged, and did not have any mechanical issues.

Plaintiff purchased the Kia for: $17,888.00 cash price; $3,000.00 down payment; $22,727.54 financed; 6.74% annual percentage rate; $5,924.02 finance charge; 84 monthly payments of $341.09 starting on November 20, 2025; and a total sale price of $31,661.56.

Plaintiff alleges the day after she purchased the Kia, she noticed damage to its left side. She contacted Dealer who indicated it could repair the Kia for $600 to $800, 7 of which it would contribute $400. Plaintiff did not accept this repair offer. She alleges she would not have purchased the Kia if she knew it had damage to its left side rocker panel, which is a structural component of the Kia. In addition, she states she obtained two different repair estimates that indicate it will actually cost over $5,000 to repair.

The complaint alleges causes of action for Violations of the Consumer Legal Remedies Act, Intentional Misrepresentation, Concealment, Negligent Misrepresentation, Violations of the Unfair Competition Law, and a Cause of Action under Vehicle Code section 11711. II. Arbitration Clause

The Retail Installment Sales Contract (“the Contract”) is attached to the complaint as Exhibit 1. Page 5 contains an Arbitration Provision. That provision states that either party to the Contract may choose to have any dispute decided by arbitration. (FAC, Exhibit 1, p. 5.)

Plaintiff does not oppose arbitration. She states that when Dealer’s counsel asked Plaintiff’s counsel if she would stipulate to arbitration with AAA or NAMADR, Plaintiff’s counsel responded she would agree if Dealer stipulated to certain discovery requests.

Specifically, Plaintiff sought to have Dealer agree to the following: Three-hour depositions of Liam Asadi (sales representative), Louis Passot (sales manager), the person who inspected the Kia before it was sold to Plaintiff, and the Dealer’s PMQ; 10 Request for Admissions; 10 Requests for Production; 10 Special Interrogatories; Form Interrogatories 15.1 and 17.1; and a Subpoena for appearance to PV Holding Corporation (prior owner of Vehicle).

Dealer refused this request stating it would only agree to one PMQ deposition and 10 requests for production. Plaintiff states she did not agree to this proposal because its scope was too limited and it would not ensure that the PMQ was someone involved in the sale or the inspection of the Kia. Plaintiff argues forcing her to arbitrate her claims against Defendant is unconscionable because arbitration does not guarantee Plaintiff sufficient discovery to vindicate her rights. III. Unconscionability

Unconscionability has both procedural and substantive elements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Procedural unconscionability focuses on “oppression” or “surprise” due to unequal bargaining power and substantive unconscionability focuses on “overly-harsh” or “one-sided” results. (Ibid.)

The unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. (Id. at p. 113.) “ ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules— legislative or judicial—operate to render it [unenforceable].’ [Citation.] ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof.

The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or 'adhering' party will not be enforced against him. [Citations.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or ' “unconscionable.”’ (Ibid.) Subsequent cases have referred to both the ‘reasonable expectations’ and the ‘oppressive’ limitations as being aspects of unconscionability.” (Ibid.)

The subject Contract is adhesive as it was imposed upon Plaintiff in a pre-printed form and there was no opportunity for her to negotiate its terms. Whether the arbitration provision is enforceable depends upon whether it is also substantively unconscionable.

Plaintiff argues the AAA rules are insufficient to allow Plaintiff to obtain the discovery needed to fairly prosecute her case. She points to Rule 20(a), which she states appears to provide the 8 parties with the right to discovery but that it is mere “window treatment” because the AAA’s model Scheduling Order takes the right to discovery away. She argues the model Scheduling Order does not permit the arbitrator to order any discovery or depositions.

AAA Rule 20(a) provides: “The arbitrator shall manage any necessary exchange of information among the parties, including depositions, interrogatories, document production, or by other means, with a view to achieving an efficient and economical resolution of the dispute while, at the same time, promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

Subsection (b) of Rule 20 provides: “The parties shall: [¶] i) exchange documents in their possession or custody on which they intend to rely; [¶] ii) update their exchanges of documents on which they intend to rely as such documents become known to them; [¶] iii) identify the witnesses, if any, they plan to have testify at the hearing.”

Subsection (c) of Rule 20 provides: “The arbitrator may, on application of a party or on the arbitrator’s own initiative: [¶] i) require the parties, in response to reasonable document requests, to make available to the other party documents in the responding party’s possession or custody not otherwise readily available to the party seeking the documents and reasonably believed by the party seeking the documents to exist and to be relevant and material to the outcome of disputed issues; [¶] ii) require the parties, when documents to be exchanged or produced are maintained in electronic form, to make such documents available in the form most convenient and economical for the party in possession of such documents, unless the arbitrator determines that there is good cause for requiring the documents to be produced in a different form. The parties should attempt to agree in advance upon, and the arbitrator may determine, reasonable search parameters to balance the need for production of electronically stored documents relevant and material to the outcome of disputed issues against the cost of locating and producing them; [¶] iii) require such other forms of information exchange as the arbitrator deems necessary.”

Plaintiff attaches the “model Scheduling Order” as Exhibit 1 to her compendium of exhibits. That multi-page order leaves a blank to be filled in for the date by which the parties agree to complete their exchange of information. Thereafter, the order states: “No other exchange of information beyond what is contemplated under the Consumer Arbitration Rules, unless an arbitrator determines further information exchange is needed to provide a fundamentally fair process. The arbitrator has the authority to resolve any disputes between the parties about exchanging information.” (Exhibit 1, p. 2.)

It is not clear why Plaintiff concludes that this paragraph takes away AAA Rule 20 when it specifically allows for the consumer arbitration rules, including Rule 20. Plaintiff also argues that it does not permit the arbitrator to order any written discovery or depositions. However, Rule 20(a) specifically provides the arbitrator with the power to manage discovery, including depositions and written discovery. Moreover, the language in the model order appears to broaden the arbitration rules. It adds that the arbitrator can allow discovery beyond what is allowed for in the arbitration rules if the arbitrator determines such discovery is “needed to provide a fundamentally fair process.”

Plaintiff cites Armendariz, supra, arguing her claims involve unwaivable statutory claims for which the AAA does not guarantee sufficient discovery. The issue in Armendariz was with the arbitration clause itself. It required the employees to arbitrate their wrongful termination claims but did not require the employer to arbitrate claims it may have had against the employees. In addition, it did not permit employees the full recovery of ordinary contract damages but did not limit any recovery by the employer. The Armendariz court stated that the arbitration agreement could not encompass unwaivable statutory rights. (Id., at p. 100.) As such, an arbitration agreement that sought to limit statutorily available remedies is not enforceable. (Id., at pp. 100-103.) 9

As for the issue of whether arbitration allowed for adequate discovery, the Armendariz plaintiffs argued that the denial of adequate discovery in arbitration proceedings leads to the de facto frustration of the employee’s statutory rights. The arbitration clause in that case did provide for adequate discovery by incorporating by reference all the rules set forth in the California Arbitration Act. Adequate provisions for discovery are set forth in the CAA at Code of Civil Procedure section 1283.05, subdivision (a), which determines the manner of taking depositions in arbitration proceedings. (Armendariz, supra, at pp. 104-105.)

Here, Plaintiff does not suggest that it is the arbitration agreement which limits her right to discovery. Rather, she argues that, based upon her reading of a “model Scheduling Order” from another case, that the AAA rules are insufficient. Plaintiff cites no case that has found the AAA rules to be insufficient to allow for necessary discovery.

Plaintiff argues that because CCP section 1283.05(e) requires leave from the arbitrator to take depositions, discovery will somehow be inadequate. She argues that despite the arbitration agreement stating the Federal Arbitration Act (“FAA”) is applicable to the case, section 1283.05 remains applicable because the FAA does not have this same provision.

Plaintiff cites Hohenshelt v. Superior Court (2025) 18 Cal.5th 310, which addresses the issue of preemption for CCP section 1281.98. The FAA does not preempt California Code of Civil Procedure section 1281.98, a provision of the CAA that governs the payment of fees in employment and consumer arbitrations. This is because the operation of section 1281.98 does not deviate from “generally applicable state law contract principles” and furthers rather than frustrates the objectives of the FAA (Id., at p. 323., 326.) The Supreme Court of California presumed the CAA was applicable and that CCP section 1281.98 was not preempted. (Ibid.)

Plaintiff concludes that the FAA does not address or include any procedures for prearbitration discovery. As the authority cited by Plaintiff provides that California governs procedural arbitration rules, the logical implication is that CCP section 1283.05 governs depositions in arbitration proceedings. CCP section 1283.05 allows depositions in arbitration proceedings. IV. Request for Discovery

Plaintiff requests that, as a condition of granting this motion, this court order that Plaintiff has the right to certain discovery. Such order would be inconsistent with the CCP as it is the arbitrator who manages discovery in the case. V.

Conclusion

Defendant has established the existence of a valid arbitration agreement. Plaintiff has not shown that the agreement is both procedurally and substantively unconscionable. Accordingly, Defendant’s motion to compel arbitration is GRANTED. This action is stayed pending resolution of arbitration. Defendant’s counsel is directed to submit a written order to the court consistent with this ruling and in compliance with Cal. Rules of Court, Rule 3.1312.

6. SCV-271497, Villara Corporation v. Morgan Properties Inc.

(TENTATIVE ISSUED BY HON. DANA B. SIMONDS)

IF ORAL ARGUMENT IS REQUESTED, MATTER WILL BE HEARD IN DEPT.

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