Trabert v. Consumer Portfolio Services CA4/1 (2015) · DecisionDepot
Trabert v. Consumer Portfolio Services CA4/1
California Court of Appeal Dec 18, 2015 No. D065556AUnpublished
Filed 12/18/15 Trabert v. Consumer Portfolio Services CA4/1 Opinion on remand from Supreme Court Earlier published opinion filed on 3/15/15
NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
SHAUN TRABERT, D065556
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2010-00096763- CU-BT-CTL) CONSUMER PORTFOLIO SERVICES, INC.,
Defendant and Appellant.
APPEAL from orders of the Superior Court of San Diego County, John S. Meyer
and Ronald L. Styn, Judges. Reversed with directions.
The Hanson Law Firm and John William Hanson; Law Office of Michael E.
Lindsey and Michael E. Lindsey for Plaintiff and Respondent.
Sheppard Mullin Richter & Hampton, Robert F. Stumpf, Jr., Anna S. McLean and
Shannon Charles Petersen, for Defendant and Appellant.
Defendant Consumer Portfolio Services, Inc. (Portfolio) seeks to compel
arbitration of plaintiff Shaun Trabert's claims under an arbitration clause contained in an
industry-drafted automobile purchase contract. This is the third time this court has ruled
on the matter. In the first appeal, we held portions of the parties' arbitration agreement
were unconscionable and remanded for a severability determination.1 The California
"shock the conscience" ' " ' [citation], or " 'unfairly one-sided' " [citation].' " (Id. at pp.
910-911.)
All of these standards mean essentially the same thing: they "point to the central
idea that unconscionability doctrine is concerned not with 'a simple old-fashioned bad
bargain' [citation], but with terms that are 'unreasonably favorable to the more powerful
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party' [citation]." (Sanchez, supra, 61 Cal.4th. at p. 911, italics added.)
" '[U]nconscionability requires a substantial degree of unfairness beyond "a simple old-
fashioned bad bargain." ' . . . "Commerce depends on the enforceability, in most
instances, of a duly executed written contract. A party cannot avoid a contractual
obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain.
Not all one-sided contract provisions are unconscionable; hence the various intensifiers in
[the California Supreme Court's] formulations: 'overly harsh,' 'unduly oppressive,'
'unreasonably favorable.' " (Ibid.) " ' "[A] contract can provide a 'margin of safety' that
provides the party with superior bargaining strength a type of extra protection for which it
has a legitimate commercial need without being unconscionable." ' [Citations.]" (Id. at
p. 912.)
Because unconscionability is a contract defense, the party asserting the defense
bears the burden of proof. (Sanchez, supra, 61 Cal.4th at p. 911.) "And . . . the
substantive unfairness of the terms must be considered in light of any procedural
unconscionability. The ultimate issue in every case is whether the terms of the contract
are sufficiently unfair, in view of all relevant circumstances, that a court should withhold
enforcement." (Id. at p. 912.)
III. Sanchez's Application of Legal Principles to Automobile Purchase Contract
In applying these unconscionability principles, the Sanchez court first noted the
industry-drafted purchase agreement is an adhesive contract, and this factor is "sufficient
to establish some degree of procedural unconscionability." (Sanchez, supra, 61 Cal.4th at
p. 915.) The court then scrutinized the plaintiff's challenges to the contract's substantive
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terms to determine whether the terms were " 'manifestly unfair or one-sided.' " (Ibid.) In
so doing, the court found several of the plaintiff's unconscionability challenges were
unsupported as a matter of law.
First, the court analyzed the arbitration clause's provision allowing a trial de novo
(before three arbitrators) for arbitration awards of $0 or in excess of $100,000, and found
this provision was not unconscionable because it was not unreasonably favorable to the
more economically powerful party (the car dealer). (Sanchez, supra, 61 Cal.4th at pp.
915-917.) The Sanchez court explained this provision "does not, on its face, obviously
favor the drafting party. . . . It may be reasonable to assume that the ability to appeal a $0
award will favor the buyer, while the ability to appeal a $100,000 or greater award will
favor the seller. But nothing in the record indicates that the latter provision is
substantially more likely to be invoked than the former. We cannot say that the risks
imposed on the parties are one-sided, much less unreasonably so." (Id. at p. 916.)
Second, the Sanchez court rejected the plaintiff's unconscionability challenge to
the provision allowing parties to appeal injunctive relief awards. (Sanchez, supra, 61
Cal.4th at p. 917.) The court recognized that this appeal provision would mainly benefit
the car dealer, but found the "potentially far-reaching nature of an injunctive relief
remedy . . . justif[ies] the extra protection of additional arbitral review." (Ibid.) The
court reiterated that a party with superior bargaining power may ensure " ' "a type of extra
protection for which it has a legitimate commercial need." ' " (Ibid.)
Third, the Sanchez court rejected the plaintiff's unconscionability challenge to the
provision's exclusion for self-help remedies, explaining these remedies "are, by
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definition, sought outside of litigation" and therefore there is nothing improper about
excluding them from arbitration. (Sanchez, supra, 61 Cal.4th at pp. 921-922.) The high
court noted the rules preserve the consumer's small claims court rights, and found it
significant that repossession remedies are expressly authorized by statute and constitute
"an integral part of the business of selling automobiles on credit," fulfilling a
" ' "legitimate commercial need." ' " (Id. at p. 922.)
But the Sanchez court found an additional category of challenged
unconscionability provisions—the rules imposing arbitration costs on a consumer—may
require a factual analysis. The arbitration clause provides that the consumer must pay
arbitration costs, but the dealer must pay " 'up to a maximum of $2500, which may be
reimbursed' " at the arbitrator's discretion. (Sanchez, supra, 61 Cal.4th at p. 908.) The
clause also provides that for a de novo appeal to a three-arbitrator panel, the appealing
party "shall be responsible for the filing fee and other arbitration costs subject to a final
determination by the arbitrators of a fair apportionment of costs." (Ibid.)
In analyzing the issue, the Sanchez court discussed that under its prior decisions,
arbitration provisions in the context of employment arbitration of unwaivable statutory
rights cannot impose any costs on an employee (see Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83, 110-111), but the Legislature has
addressed consumer arbitration costs "in a different way." (Sanchez, supra, 61 Cal.4th at
p. 918.) Under Code of Civil Procedure section 1284.3, an arbitrator cannot require that
a consumer "pay the fees and costs incurred by an opposing party if the consumer does
not prevail in the arbitration," and all fees and costs ("exclusive of arbitrator fees") for an
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"indigent consumer" must be waived. (Code Civ. Proc., § 1284.3, subds. (a), (b)(1).) An
" 'indigent consumer' means a person having a gross monthly income that is less than 300
percent of the federal poverty guidelines." (Code Civ. Proc., § 1284.3, subd. (b)(1).)
Following the Legislature's " 'ability-to-pay' " approach for consumer arbitration
costs, the Sanchez court held that in examining "affordability" challenges in consumer
arbitration, courts should conduct a " 'case-by-case determination.' " (Sanchez, supra, 61
Cal.4th at pp. 919, 920; accord, Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77,
97-98.) Under this test, " 'plaintiffs suing under the [consumer protection] statutes may
resist enforcement of an arbitration agreement that imposes unaffordable fees.' "
(Sanchez, at p. 919.) But an arbitration "provision cannot be held unconscionable absent
a showing that appellate fees and costs in fact would be unaffordable or would have a
substantial deterrent effect" on the consumer using the arbitration procedures. (Sanchez,
at p. 920, italics added; see Gutierrez, at pp. 90-91.) The party resisting arbitration has
the burden to meet this standard, and courts are required to determine the affordability of
arbitration " 'at the time [the contract] was made.' " (Sanchez, at p. 920; Gutierrez, at pp.
90-91.)
Applying this test, the Sanchez court concluded the plaintiff did not meet his
burden to show the arbitration cost provisions—including those requiring an appealing
party to pay for "not one but three arbitrators"—was unconscionable. (Sanchez, supra,
61 Cal.4th at p. 920.) The California Supreme Court explained: "The dispute in this
case concerns a high-end luxury item. [The plaintiff] does not claim, and no evidence in
the record suggests, that the cost of appellate arbitration filing fees were unaffordable for
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him, such that it would thwart his ability to take an appeal in the limited circumstances
where such appeal is available. We therefore conclude on the record before us that the
arbitral appeal fee provision is not unconscionable." (Id. at p. 921.)
IV. Applying Sanchez's Unconscionability Analysis in This Case
Trabert does not dispute that under Sanchez, his unconscionability challenges to
the arbitration provisions allowing an appeal under certain circumstances ($0 award;
$100,000-plus award; injunctive relief) and allowing the parties to engage in self-help
and invoke small claims remedies are without merit. We agree. The California Supreme
Court's analysis and holdings—regarding the same arbitration provision in the same
industry contract—are controlling. Even if the contract is procedurally unconscionable,
the Sanchez court's conclusions that these provisions do not rise to the level of
substantive unconscionability bar Trabert's identical challenges in this case.
But Trabert argues this case is factually distinguishable because the arbitration
costs as applied in his case render the arbitration agreement substantially unfair. The
argument is factually unsupported. As in Sanchez, Trabert did not claim in the
proceedings below, nor present evidence showing, the costs of the consumer arbitration,
including the appellate arbitration filing fees, were unaffordable to him. There is no
evidence showing that when Trabert signed the contract, the arbitration costs/fees would
make the arbitration procedure unavailable or "thwart his ability to take an appeal in the
limited circumstances where such appeal is available." (Sanchez, supra, 61 Cal.4th at p.
921.)
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Trabert argues this case is distinguishable from Sanchez because he did not
purchase the type of a luxury vehicle at issue in Sanchez (a " 'preowned' " Mercedes Benz
for approximately $54,000), and instead he bought a used 2007 Chevrolet Malibu for
approximately $14,782 at a high interest rate and his vehicle was later repossessed.
However, the make and price of the vehicle are insufficient to reasonably infer the
consumer's financial condition at the time of the purchase. The consumer has the burden
to show unaffordability and it is speculative to conclude an individual's ability to pay
based solely on the nature of the purchased consumer product. There are many possible
reasons a consumer will purchase a relatively inexpensive vehicle and/or decide not to
continue making payments on the vehicle. There are no reasonable grounds for
concluding that these individual consumer decisions alone reflect the party's assets and
income level at the time he or she purchased the vehicle. Further, although Trabert
asserted (without providing evidence) that he lost his job one year after purchasing the
vehicle, the relevant time for determining affordability is the date the arbitration
agreement was signed. (See Sanchez, supra, 61 Cal.4th at p. 920.)
Trabert also contends this case is different from Sanchez because he presented
evidence that common hourly rates of private arbitrators are between $400 and $600. He
cites our observation in Trabert I that given a typical preparation and hearing time,
Trabert could be required to advance "a minimum of $10,000" to appeal an arbitration
award. (Trabert I, supra, D060491.)
These facts do not materially distinguish this case from Sanchez on the cost issue.
The Sanchez court recognized that arbitrator fees in Los Angeles "average around $450
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per hour" and that a requirement a consumer bear such fees "has the potential to deter the
consumer from using the appeal process." (Sanchez, supra, 61 Cal.4th at p. 920, italics
added.) But the court held this "potential" is not enough to establish unconscionability
under California law. (Ibid.) The court stated a provision imposing arbitration costs
"cannot be held unconscionable absent a showing that appellate fees and costs in fact
would be unaffordable or would have a substantial deterrent effect in [the] case." (Ibid.,
italics added.) Here there was no evidence the fees and costs would in fact be
unaffordable or would have a substantial deterrent effect in this case.
Trabert contends he could not afford the arbitration if the AAA commercial
arbitration fee schedule applied to his case. However, in his opposition papers below,
Trabert took the position that "the Commercial Rules do not apply to this consumer
transaction." (Italics added.) Trabert's counsel's assertion at oral argument the parties
agreed to be governed by the commercial arbitration rules is unsupported by the record.
Trabert's proffered AAA rules state: "In an effort to make arbitration costs reasonable for
consumers, the AAA has a separate fee schedule for consumer-related disputes." Trabert
has not directed us to any facts showing this rule would be inapplicable to the parties'
dispute.
Even if the commercial fee schedule applied to this case, the record lacks any facts
showing Trabert's individual economic situation when he purchased the car. In this
regard, we find unhelpful Trabert's discussion of our observation in Trabert I regarding
the likelihood of substantial fees to appeal an arbitration award. Under pre-Sanchez law,
we made this observation in connection with the likely costs of a second arbitration, and
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not whether this particular consumer in fact could afford those costs, and/or regarding
the possibilities of waivers or deferrals of these costs. As noted above, the arbitration
provision requires Portfolio to bear $2,500 of any imposed costs, and the statutes require
certain relief for an indigent consumer.
Trabert contends the court made a factual finding that the arbitration would be
unaffordable to him and we are bound by this factual finding on our appellate review.
The record does not support this assertion. Although we must make all inferences
favoring the court's order, the order cannot be fairly read to encompass a factual finding
that Trabert would be unable to afford the arbitration. Additionally, we are bound by a
court's findings only if the findings are supported by the evidence. (Pedro v. City of Los
Angeles (2014) 229 Cal.App.4th 87, 99.) There is no evidence on the record before us
that at the time Trabert signed the purchase contract, the arbitration would be
unaffordable to him.
In evaluating an unconscionability claim, a court must consider the arbitration
agreement as a whole, and not merely the offending provision, and must compare the
arbitration rules with the alternative (a lawsuit in a civil court). (See Sanchez, supra, 61
Cal.4th at p. 922; Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1146-
1148.) As discussed by the Sanchez court, because the automobile dealer is the party
more likely to trigger the second arbitration under the arbitration provision, the second-
arbitration cost burden is more likely to fall on the dealer rather than the consumer.
Further, the provisions limiting appeals only for a "$0" award or an award over $100,000
may provide a substantial benefit to the consumer and promote the advantages of
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arbitration by making it more likely the decision will be final with no appeal permitted.
If Trabert was to litigate his case at trial, any award favorable to him would be subject to
an appeal, with the attendant substantial costs and delay.
Under Sanchez, the arbitration provision in Trabert's purchase agreement was not
unconscionable and therefore must be enforced.
DISPOSITION
The orders denying defendant's motion to compel arbitration are reversed. The
court is ordered to enter a new order granting defendant's motion to compel arbitration.
The parties to bear their own costs on appeal.
HALLER, Acting P. J.
WE CONCUR:
AARON, J.
IRION, J.
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AI Brief
AI-generated · verify before citing
Holding. The court held that the arbitration agreement is enforceable because, under the standards set forth in Sanchez v. Valencia Holding Co., LLC, the plaintiff failed to meet his burden of proving that the arbitration provisions were substantively unconscionable.
Issues
Whether the arbitration agreement is unconscionable under California law in light of the Supreme Court's decision in Sanchez v. Valencia Holding Co., LLC.
Whether the plaintiff met his burden of proving that arbitration costs were unaffordable at the time the contract was signed.
Disposition. reversed
Quotations verified verbatim against the opinion
“Under Sanchez, the parties' arbitration agreement is not unconscionable and is enforceable.”
“There is no evidence on the record before us that at the time Trabert signed the purchase contract, the arbitration would be unaffordable to him.”