Picardi v. the Eighth Judicial Dist. Court of State

251 P.3d 723

127 Nev. Adv. Op. 9

William A. PICARDI and Beth Ann Picardi, individually, and on behalf of all others similarly situated, Petitioners,

v.The EIGHTH JUDICIAL DISTRICT COURT OF the STATE of Nevada, in and for the COUNTY OF CLARK, and the Honorable Mark R. Denton, District Judge, Respondents,andFt Automotive III, LLC, a Nevada Limited Liability Company d/b/a United Hyundai, Real Party in Interest.

No. 53126.

Supreme Court of Nevada.

March 31, 2011.

Law Offices of George O. West, III, and George O. West, III, Las Vegas: F. Paul Bland, Washington, D.C., for Petitioners.Moran Law Firm, LLC, and Jeffery A. Bendavid, Las Vegas, for Real Party in Interest.Before the Court En Banc.

OPINION

By the Court, HARDESTY, J.:

In this petition for extraordinary writ relief, we consider whether an arbitration agreement is unenforceable because it is unconscionable or contrary to public policy when it requires consumers to waive their rights to participate in any form of class action litigation to pursue common claims that they may have concerning a retail installment sales contract. In the district court, petitioners' arguments were rejected, and the court entered an order compelling petitioners to participate in binding arbitration and prohibiting them from taking part in any class action proceeding against real party in interest.

Nevada public policy favors allowing consumer class action proceedings when the class members present common legal or factual questions but their individual claims may be too small to be economically litigated on an individual basis. We conclude that a clause in a contract that prohibits a consumer from pursuing claims through a class action, whether in court or through arbitration, violates Nevada public policy. Because the class action waiver provision in this matter precludes any form of class action relief, it is contrary to public policy and is therefore unenforceable. Here, because the terms of the arbitration agreement provide that it is void if the class action waiver is found unenforceable, there is no basis on which to compel arbitration.¹ Accordingly, the district court abused its discretion in compelling arbitration, and writ relief is warranted.

FACTS AND PROCEDURAL HISTORY

In 2008, petitioners William A. Picardi and Beth Ann Picardi purchased a new vehicle from real party in interest FT Automotive III, LLC, d.b.a. United Hyundai. As part of the transaction, the Picardis traded in their previous vehicle and entered into a retail installment sales contract to finance the new vehicle's purchase. The Picardis also signed an addendum to the installment sales contract, which integrated an agreement regarding binding arbitration. The addendum read, in pertinent part, as follows:

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN U.S. 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 U.S. INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

...

If any part of this Arbitration Clause, other than the waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable.

(Emphasis added.) Additionally, according to the agreement, any arbitration conducted under the agreement is governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16 (2006).

After purchasing the vehicle, the Picardis filed in the district court a proposed class action complaint against United Hyundai alleging, among other things, fraud and violations of the Nevada Deceptive Trade Practices Act and the Nevada Retail Installment Sales Act. The class action claims were grounded on United Hyundai's alleged practices of erroneously charging new vehicle purchasers $38 for an emissions test, failing to properly disclose a $1,459 charge for an after-market paint protection product, and adding the “negative equity” of a purchaser's trade-in into the new “vehicle selling price” on the retail installment sales contract without disclosing and/or itemizing the amount of “negative equity.” The complaint sought special and exemplary damages, restitution, attorney fees and costs, and declaratory and injunctive relief.

When the Picardis refused United Hyundai's request to submit the matter to neutral, binding arbitration, United Hyundai filed a motion to compel arbitration in accordance with the arbitration clause and to stay the district court proceedings. The Picardis opposed the motion and filed a countermotion for a declaratory judgment, arguing, among other things, that the arbitration agreement was procedurally and substantively unconscionable and contrary to public policy and that it should therefore be held unenforceable. According to the Picardis' opposition and supporting declarations from local attorneys, the class action waiver was exculpatory because, in cases such as the Picardis' where the individualized claims are relatively small, it is almost impossible to secure legal representation unless those claims are aggregated with the claims of other similarly situated individuals. The district court disagreed, granted the motion to compel arbitration, stayed any further district court proceedings, denied the Picardis' countermotion for a declaratory judgment, and prohibited the Picardis from participating in any form of class action against United Hyundai. The Picardis filed the instant petition, seeking a writ of mandamus directing the district court to vacate its order compelling arbitration and staying the district court action. As directed, United Hyundai timely filed an answer to the petition.

DISCUSSION

“Writ petitions are the appropriate means to challenge district court orders compelling arbitration.” Gonski v. Dist. Ct., 126 Nev. ––––, ––––, 245 P.3d 1164, 1168 (2010). In general, the enforceability of contracts involves mixed questions of law and fact. D.R. Horton, Inc. v. Green, 120 Nev. 549, 553, 96 P.3d 1159, 1162 (2004). Questions of law are reviewed de novo, but deference is given to a district court's factual findings so long as they are supported by substantial evidence. Id.

In petitioning for mandamus relief, the Picardis contend that the arbitration agreement's class action waiver is procedurally unconscionable because it was adhesive and United Hyundai failed to disclose that in situations such as this one, where the potential recovery to individual plaintiffs is modest, the class action ban would act to prevent them from recovering on such claims, thus leaving them with no remedy. They also argue that the class action waiver provision is substantively unconscionable because it serves as an exculpatory clause, relieving United Hyundai of any liability for its alleged wrongdoing in cases where the potential damage award is small. The Picardis assert that the class action waiver should therefore be deemed unenforceable.

In its answer to the petition, United Hyundai argues, among other things, that because the Picardis failed to raise any arguments regarding the waiver being procedurally unconscionable in the district court, this court should decline to consider any such arguments. United Hyundai also argues that the class action waiver is not substantively unconscionable because, other than declarations from local attorneys who were not deemed expert witnesses in the district court, the Picardis never provided any evidence that they or similarly situated individuals would be unable to recover against United Hyundai in the absence of a class action.

There appears to be a split of authority concerning the enforcement of class actions waivers in arbitration agreements. United Hyundai directs our attention to a large contingency of cases concluding that such waivers are enforceable. See, e.g., Jenkins v. First American Cash Advance of Georgia, 400 F.3d 868, 878 (11th Cir.2005); Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 159, 174–75 (5th Cir.2004) Livingston v. Associates Finance, Inc., 339 F.3d 553, 559 (7th Cir.2003) Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir.2002) Johnson v. West Suburban Bank, 225 F.3d 366, 371 (3d Cir.2000) Sprague v. Household Intern., 473 F.Supp.2d 966, 977 (W.D.Mo.2005) Gipson v. Cross Country Bank, 294 F.Supp.2d 1251, 1262–63 (M.D.Ala.2003); Fonte v. AT&T Wireless Services, Inc., 903 So.2d 1019, 1024, 1027 (Fla.Dist.Ct.App.2005); Tsadilas v. Providian Natl. Bank, 13 A.D.3d 190, 786 N.Y.S.2d 478, 480 (2004).

The Picardis point out that a growing number of jurisdictions are holding that class action waivers in arbitration agreements are unenforceable. See, e.g., Skirchak v. Dynamics Research Corp., 508 F.3d 49, 59 (1st Cir.2007); Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir.2003) Leonard v. Terminix Intern. Co., L.P., 854 So.2d 529, 539 (Ala.2002) Szetela v. Discover Bank, 97 Cal.App.4th 1094, 118 Cal.Rptr.2d 862, 868 (2002) Kinkel v. Cingular Wireless LLC, 223 Ill.2d 1, 306 Ill.Dec. 157, 857 N.E.2d 250, 274 (2006); Fiser v. Dell Computer Corporation, 144 N.M. 464, 188 P.3d 1215, 1222 (2008); Vasquez–Lopez v. Beneficial Oregon, Inc., 210 Or.App. 553, 152 P.3d 940, 960 (2007); Thibodeau v. Comcast Corp., 912 A.2d 874, 886 (Pa.Super.Ct.2006); Scott v. Cingular Wireless, 160 Wash.2d 843, 161 P.3d 1000, 1009 (2007). These jurisdictions have varied reasoning for not enforcing class action waivers within arbitration agreements.

For instance, in Kinkel, the Supreme Court of Illinois determined that a class action waiver within an arbitration agreement was unenforceable because under the circumstances, which included undisclosed but costly arbitration fees and potential liability for...