New Cars and Used Arbitrations

17. As part of the CONTRACT, SELLER represented that a Smog Abatement Fee of $20.00 was due, and SELLER charged $20.00 for said fee at Line 2.D.

18. Plaintiff is informed and believes, and thereon alleges, that SELLER misrepresented the Smog Abatement Fee and overcharged Plaintiff for said fee.

19. SELLER never refunded Plaintiff for the overcharge of the Smog Abatement Fee

SIDE BAR: As a veteran lawyer, the thing that stands out to me about the above new-arbitration provision is the lack of finality: It's not an appeal; it's a new trial. The question is why is the first decision not simply amenable to appeal, as is typically the case in court and in many arbitration forums? The answer likely contains a number of anti-consumer considerations -- or at least that's how I see it and I'm sticking to my guns on that point.

Unless there is an issue of arbitrator fraud or misconduct, a whole new trial is a very generous second bite of the litigation apple, which reduces the first trial to little more than a wonderful opportunity to force your opponent to put on his or her case and then allow you to use the "new" arbitration to learn from your prior mistakes. That dynamic would seem to favor a larger, better-financed party such as a dealership, insurer, or financial services organization to the disadvantage of a lowly consumer.

SIDE BAR: Seriously? First Defendants complain about not getting a new trial before ADR, which never denied them a new trial but merely referred them to court for clarification in the face of Condon's objection. Then, Defendants requested that the court order a new hearing at AAA, a forum that Condon had never agreed to arbitrate before and before which no hearings took place. Finally, the Defendants say that they don't care if the new arbitration occurs at AAA but will be perfectly happy with going back to ADR. Why go through all of that if you're going to wind up sort of where you started?

In the context of mandatory employment arbitration of unwaivable statutory rights, we have held that arbitration agreements "cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court." (Armendariz, supra, 24 Cal.4th at pp. 110-111.) In the area of consumer arbitration, the Legislature has addressed costs in a different way. In 2002, shortly after Armendariz was decided, the Legislature enacted Code of Civil Procedure section 1284.3 to address fees and costs in consumer arbitration. Subdivision (a) of section 1284.3 provides that "[n]o neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses." Most pertinently, section 1284.3, subdivision (b)(1) provides that "[a]ll fees and costs charged to or assessed upon a consumer party by a private arbitration company in a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent consumer. For the purposes of this section, `indigent consumer' means a person having a gross monthly income that is less than 300 percent of the federal poverty guidelines. Nothing in this section shall affect the ability of a private arbitration company to shift fees that would otherwise be charged or assessed upon a consumer party to a nonconsumer party." Subdivision (b)(2) requires the arbitration provider to give notice of the fee waiver provision, and subdivision (b)(3) provides that "[a]ny consumer requesting a waiver of fees or costs may establish his or her eligibility by making a declaration under oath on a form provided to the consumer by the private arbitration company for signature stating his or her monthly income and the number of persons living in his or her household. No private arbitration company may require a consumer to provide any further statement or evidence of indigence." (Code Civ. Proc., § 1284.3, subd. (b)(2) & (3).) 

The legislative history shows that the statute's specific provisions were part of a general concern about the affordability of arbitration: "One of the primary arguments advanced in support of mandatory consumer arbitration is that it is less costly than civil litigation. However, this argument is cast into significant doubt by the available evidence. In fact, arbitration costs are so high that many people drop their complaints because they can't afford to pursue them, a recent study by Public Citizen found." (Assem. Conc. Sen. Amends. to Assem. Bill No. 2915 (Reg. Sess. 2001-2002) as amended Aug. 26, 2002, p. 2.) The analysis observed that "unlike civil court, private arbitration is subject to no fee limitations. As a result, access to the system may be greatly affected by the wealth of the consumer. The author states that this bill addresses these inequities by prohibiting large private judging companies from conducting mandatory consumer arbitrations where a consumer who loses the case must pay the winning company's fees and costs. This bill also implements a fee waiver policy for indigent consumers akin to the long-standing practice in public courts. This bill does not affect commercial arbitrations between businesses." (Ibid.)

(9) As noted in Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77 [7 Cal.Rptr.3d 267] (Gutierrez), on which the Court of Appeal below relied, the Legislature in enacting Code of Civil Procedure section 1284.3 "did not adopt the Armendariz categorical approach and direct that all administrative fees be paid by nonconsumer parties without regard to the size of the costs or the wealth of the consumer.... [T]he Legislature did adopt an ability-to-pay approach, which, though limited in this statute to indigents, provides direction for a rule applicable to all consumers faced with arbitral forum fees that are prohibitively high. In Armendariz the court signaled its deference to the Legislature in selecting a categorical rule. (Armendariz, supra, 24 Cal.4th at pp. 112-113.) In this consumer case, that same deference leads us to adopt a case-by-case determination of affordability: plaintiffs suing under the [consumer protection] statutes may resist enforcement of an arbitration agreement that imposes unaffordable fees." (Gutierrez, at pp. 97-98.) 

We agree with Gutierrez's approach. As Gutierrez said in distinguishing Armendariz's categorical rule in the employment context, "jobseekers are more likely to face `particularly acute' economic pressure to sign an employment contract with a predispute arbitration provision, `for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.' (Armendariz, supra, 24 Cal.4th at p. 115.) A family in search of a job confronts a very different set of burdens than one seeking a new vehicle. Consumers, who face significantly less economic pressure[,] would seem to require measurably less protection." (Gutierrez, supra, 114 Cal.App.4th at p. 97.) In enacting Code of Civil Procedure section 1284.3, the Legislature concluded that an ability-to-pay approach is appropriate in the context of consumer arbitration agreements. Although the statute specifically addresses the affordability of consumer arbitration for people who are indigent, high arbitration fees can be unaffordable for nonindigent as well as indigent consumers, and nothing in the statute's text or legislative history precludes courts from using unconscionability doctrine on a case-by-case basis to protect nonindigent consumers against fees that unreasonably limit access to arbitration. (See Sonic II, supra, 57 Cal.4th at p. 1145 [endorsing Gutierrez's view that unaffordable arbitration costs that "`effectively blocks every forum for the redress of disputes'" may render an arbitration agreement unconscionable].)

• Condon
• Daland
• Arbitration
• Superior Court
• Court of Appeal
• Mandatory Arbitration
• Appeal
• BrokeAndBroker
• Bill Singer