Trompeter v. Ally Fin., Inc.

914 F.Supp.2d 1067

John TROMPETER, on behalf of himself and all others similarly situated, Plaintiff,

v.ALLY FINANCIAL, INC., a Delaware corporation and Does 1 to 20, inclusive, Defendants.

No. C 12–00392 CW.

United States District Court, N.D. California.

June 1, 2012.

Paul Alvarez, Prescott Wayne Littlefield, Thomas Andrew Kearney Kearney Alvarez, Susan Yoon, Law Office of Susan Yoon, Los Angeles, CA, for Plaintiff.

John B. Sullivan, Erik Wayne Kemp, Rebecca Snavely Saelao, Severson & Werson a Professional Corporation, San Francisco, CA, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Docket Nos. 10 and 17)

CLAUDIA WILKEN, District Judge.

Plaintiff John Trompeter has filed a putative class action against Defendant Ally Financial, Inc., alleging that Ally had a policy and practice of secretly recording telephone calls with persons located in California without their consent. Trompeter alleges in his First Amended Complaint two causes of action under this state's Invasion of Privacy Act, California Penal Code § 632, and the state Unfair Competition Law (UCL), California Business and Professions Code section 17200 et seq. Trompeter seeks to represent all consumers who received a telephone call in which at least one party was in California and that telephone call was recorded or monitored without prior warning or consent.

Ally has moved to compel arbitration based on an arbitration agreement contained in the consumer contract to which Trompeter is a signatory and which was assigned to Ally. Docket No. 10. Trompeter opposes the motion. In addition, Ally has moved to stay the Court's resolution of the motion, pending the California Supreme Court's decision on the appeal of Sanchez v. Valencia Holding Company, LLC, 201 Cal.App.4th 74, 135 Cal.Rptr.3d 19 (2011), petition for review granted,139 Cal.Rptr.3d 2, 272 P.3d 976 (2012). Docket No. 17. Trompeter opposes the motion to stay. The Court held a hearing on Ally's motion to compel arbitration, but took the motion for a stay under consideration on the papers. Having considered all of the parties' submissions and oral argument, the Court denies Ally's motion to compel arbitration and its motion to stay the proceedings pending the state Supreme Court's resolution of Sanchez.

BACKGROUND

On May 11, 2007, Trompeter purchased a new Chevrolet Silverado truck from a dealership in Colma, California. Trompeter secured financing through the dealership. Soon after Trompeter executed the retail installment sales contract, the dealership assigned the contract to Ally. When Trompeter later defaulted on the contract by failing to make the required payments, Ally repossessed the truck in or about October 2010. After Trompeter failed to reinstate the contract or redeem the vehicle, Ally sold the truck at an auction and applied the sale proceeds to Trompeter's account balance, leaving a deficiency in the amount of $12,246.85. Lynda Zitka, a Vice President for Ally, attested that any telephone calls on behalf of the company to Trompeter would have related to Trompeter's default or the debt that he owed Ally pursuant to the contract.

Trompeter's contract contained an arbitration clause on the reverse-side of a two page agreement. The clause stated the following,

ARBITRATION CLAUSE PLEASE REVIEW—IMPORTANT—AFFECTS YOUR LEGAL RIGHTS

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 LAW LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arise out of or relate to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action. Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose one of the following arbitration organizations and its applicable rules: the National Arbitration Forum ... (www. arbforum. com), the American Arbitration Association ... (www. adr. org), or any other organization that you may choose subject to our approval ....

Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the applicable rules. The arbitrator shall apply governing substantive law in making an award. The arbitration hearing shall be conducted in the federal district in which you reside .... We will advance your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $1500, which may be reimbursed by decision of the arbitrator at the arbitrator's discretion. Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law. If the chosen arbitration organization's rules conflict with this Arbitration Clause, then the provisions of this Arbitration Clause shall control. The arbitrator's award shall be final and binding on all parties, except that in the event the arbitrator's award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party, that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel. The appealing party requesting new arbitration 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. Any arbitration under this Arbitration Clause shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state law concerning arbitration.

You and we retain any rights to self-help remedies, such as repossession. You and we retain the right to seek remedies in small claims court for disputes or claims within that court's jurisdiction, unless such action is transferred, removed or appealed to a different court. Neither you nor we waive the right to arbitrate by using self-help remedies or filing suit. Any court having jurisdiction may enter judgment on the arbitrator's award. This clause shall survive any termination, payoff or transfer of this contract. If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder of this arbitration clause shall be unenforceable.

DISCUSSION

I. Motion to Compel Arbitration

A. Legal Standard

Under the FAA, 9 U.S.C. § 1 et seq., written agreements that controversies between the parties shall be settled by arbitration are valid, irrevocable, and enforceable. 9 U.S.C. § 2. A party aggrieved by the refusal of another to arbitrate under a written arbitration agreement may petition the district court which would, save for the arbitration agreement, have jurisdiction over that action, for an order directing that arbitration proceed as provided for in the agreement. 9 U.S.C. § 4. A district court must compel arbitration under the FAA if it determines that: 1) there exists a valid agreement to arbitrate; and 2) the dispute falls within its terms. Stern v. Cingular Wireless Corp., 453 F.Supp.2d 1138, 1143 (C.D.Cal.2006) (citing Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir.2000)).

The FAA reflects a “liberal federal policy favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). However, the FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” AT & T Mobility v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1746, 179 L.Ed.2d 742 (2011).

B. Analysis

Trompeter does not argue that his claims against Ally fall outside of the arbitration clause. Rather, he contends the arbitration agreement is unconscionable and unenforceable under California law.

The party opposing arbitration bears the burden of proving that the arbitration provision is unconscionable. Arguelles–Romero v. Superior Court, 184 Cal.App.4th 825, 836, 109 Cal.Rptr.3d 289 (2010). Unconscionability under California law is comprised of two elements, procedural and substantive. Id. at 837, 109 Cal.Rptr.3d 289. Both must be present for a contract term to be considered unconscionable. Id. “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Armendariz v. Found. Health Psychcare Services, Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000).

1. Procedural Unconscionability

Procedural unconscionability focuses on the existence of oppression or surprise. Newton v....