Cheroti v. Harvey & Madding, Inc.

PETE CHEROTI, Plaintiff and Appellant, v. HARVEY & MADDING, INC., Defendant and Appellant.

A135553

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE

Filed: April 10, 2014

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Alameda County

Super. Ct. No. HG10500986)

Plaintiff Pete Cheroti sued defendant Harvey & Madding, Inc. (H&M), which operates a car dealership, after it repossessed two new cars he had purchased. Cheroti initially brought only individual claims against H&M, but nearly a year after filing his complaint he amended it to add two class claims. The class claims were soon after stayed, and the individual claims were sent to trial. Prior to trial, H&M petitioned to compel arbitration of the individual claims under the sales contracts, but the petition was denied on grounds of waiver. H&M then prevailed at trial.

After the stay of the class claims was lifted, H&M petitioned to compel their arbitration. Cheroti again asserted waiver, as well as contending the matter had been decided in the court's prior ruling. He also argued the arbitration clause, contained on the back of a complex, one-page, preprinted document, was procedurally and substantively unconscionable. The trial court rejected Cheroti's procedural arguments, but it agreed the clause was unconscionable and denied the petition to compel on that ground.

We agree with the trial court that Cheroti's procedural arguments are without merit. We also agree with the trial court that the transaction was procedurallyunconscionable, since the arbitration agreement was imposed on Cheroti without the opportunity for negotiation. In light of the minimal level of procedural unconscionability and the absence of significant substantive unconscionability, however, we find no basis to decline to enforce the parties' agreement and reverse the trial court's denial of the petition to compel.

I. BACKGROUND

In February 2010, Cheroti filed an action for breach of contract, conversion, and various statutory violations against H&M, which operates a car dealership under the name "Dublin Honda." The complaint alleged Cheroti purchased two new cars from H&M on representations H&M could find financing for the purchases. Nearly two months later, H&M contacted Cheroti and told him it intended to rescind the sales because it had been unable to secure financing, although the sales contracts granted H&M only 10 days to rescind for this reason. H&M later repossessed the cars. The caption of the complaint indicated the action was filed on behalf of a class, but the complaint contained no class allegations and did not seek class relief. The sales contracts contained identical arbitration clauses, but H&M answered the complaint without seeking to compel arbitration. A trial date was set for June 24, 2011.

In January 2011, Cheroti filed a second amended complaint adding three new claims. Among them were two claims designated as class claims, one under the federal Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.) and a second under Business and Professions Code section 17200. Class allegations were also added. H&M answered the second amended complaint, again without mentioning the issue of arbitration.

In March 2011, Cheroti sought complex designation for the action. In the motion, Cheroti explained that, at a case management conference held in February, "the parties discussed the recent amendments to the Complaint adding Class action allegations. The parties agreed, and [the court] ordered, that Plaintiff . . . move to have the case deemed Complex and transferred to the Complex Department." H&M filed a nonopposition to the motion. In April, the complex case department entered an order denying the motion,but it stayed litigation on the class claims and ordered "that the trial . . . go forward on the original, individual claims."

In early June 2011, H&M was granted leave to file a petition to compel arbitration on shortened time. H&M's long-delayed request to arbitrate was purportedly premised on the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 536 U.S. ___ [131 S.Ct. 1740] (Concepcion), which had been issued a month earlier. As H&M explained, Concepcion expressly overruled existing California Supreme Court authority that had held class action waivers, like the one in the arbitration clause of the sales contracts, to be unenforceable. The relief sought by H&M was not entirely clear. The petition sought "an order compelling [Cheroti] to submit the dispute" to arbitration, but H&M's memorandum of points and authorities interpreted this phrase as seeking only arbitration of the individual claims. Cheroti opposed the motion, arguing H&M had waived arbitration by failing to plead it as an affirmative defense, conducting discovery and otherwise participating in litigation, and failing to seek arbitration in a timely manner. Cheroti also contended the arbitration clause in the sales contracts was unenforceable under the doctrine of unconscionability.

At oral argument on the petition, the trial court opened by stating its view that Concepcion was irrelevant to "the individual claim[s] and the issue of whether or not the arbitration clause was good as to the individual claim[s]." Argument then focused on the issues relating to waiver, with the trial court concluding, "I think you could have asked for the arbitration of these individual claims before the class claims were made, and I think there has been enough discovery . . . that there is a waiver." The court's extensive written order, issued on June 10, 2011, denied the petition on grounds of waiver, holding Concepcion did not change the law "in any way relevant to Plaintiff's right to pursue his individual claims in this Court."

H&M prevailed at the trial of Cheroti's individual claims in September 2011, but the court reserved entry of judgment pending resolution of the class claims. The stay of the class claims was lifted at a case management conference in November 2011.

In December 2011, H&M filed a petition to compel arbitration of the class claims, again invoking Concepcion. Cheroti opposed the petition, again arguing H&M had waived arbitration by failing to raise the issue earlier in the litigation and the arbitration clause in the sales contracts was unenforceable under the doctrine of unconscionability. In addition, Cheroti argued the petition was an improper motion for reconsideration of the earlier, denied petition and contended H&M had yet to provide a proper evidentiary foundation for the sales contracts.

The sales contracts are a preprinted form that is commonly used by vehicle sellers in California.¹ It is a single piece of paper, 26 inches long, with dense printing on both sides. On the upper half of the front page, contained in a series of boxes, are provisions relating largely to the financial terms of sale, credit, and insurance. Many contain blank spaces filled in by the seller for the particular transaction. The buyer is required to sign the form in 10 different places. Four signed provisions concern the purchase (or declining) of optional items, such as insurance and a service contract. The remaining signed provisions are acknowledgments of various legal matters: the contract can be amended in writing only, the buyer must obtain liability insurance, the seller is relying on the buyer's representations, the seller may cancel if the agreement cannot be assigned, and the buyer has certain legal remedies. Some of these signatures are required by law. (See Civ. Code, §§ 2982, subd. (h), 2984.1.) Above the final signature line, on the right-hand side, is a statement in all capital letters acknowledging the buyer was given an opportunity to "TAKE . . . AND REVIEW" the contract and has read "BOTH SIDES" of it and noting the presence of an arbitration clause "ON THE REVERSE SIDE."

The reverse side, also dense with text, contains a number of provisions in separate boxes, many dealing with typical "boilerplate" legal matters, such as warranties, applicable law, and buyer and seller remedies. None of the provisions on the back page requires a buyer's signature. Toward the bottom of the page is the arbitration clause.The entire text of the clause is outlined in a black border. In all capital letters and bold type at the top is written, "ARBITRATION CLAUSE [¶] PLEASE REVIEW— IMPORTANT—AFFECTS YOUR LEGAL RIGHTS." Immediately below, three numbered provisions, also in all capital letters, inform the buyer either party may request arbitration, this would prevent a court or class-wide proceeding, and it might limit discovery. Below these, in smaller type, are the actual terms of the clause. Pursuant to these terms, the arbitration may be conducted under the auspices of the National Arbitration Forum or the American Arbitration Association (AAA), at the election of the buyer, or by any other mutually agreeable organization; the initial arbitration will be conducted by a single arbitrator; it will occur in the federal district of the buyer's residence; the seller must advance up to $2,500 of the buyer's arbitration costs; the award is binding unless it is $0 or more than $100,000 or includes injunctive relief, in which case either party can request a second arbitration before three arbitrators; and the use of self-help remedies and small claims court is exempted.²

In support of his claim of unconscionability, Cheroti submitted a declaration describing the sales transaction. He was not provided a copy of the sales contracts to review prior to their execution, and the H&M salesperson spent "no more than a few seconds" explaining them. No mention was made of the arbitration clause. On the...