By | June 10, 2013

By James Hazlehurst

In Vargas v. SAI Monrovia, the California Court of Appeal for the Second Appellate District addressed the enforceability of an arbitration provision in a vehicle purchase agreement. The court held that the arbitration provision was unenforceable because it was both procedurally and substantively unconscionable. The arbitration clause therefore could not be used to preclude a class action. 

The court ruled that the arbitration clause was procedurally unconscionable because elements of oppression and surprise existed in the formation of the contract. In particular, the arbitration provision was located on the back of the two-sided contract while the buyer’s signature lines were on the front of the contract. The sales manager also allegedly told the buyers where to sign and did not give them an opportunity to fully review the contract before signing. 

Substantively, the arbitration provisions were unconscionable because they were too one-sided, containing “overly harsh terms that favor the car dealer to the detriment of the buyer.” Certain provisions, such as limiting appeals to awards that exceed $100,000 and to awards of injunctive relief, primarily benefited the dealer. Similarly, the exclusion of self-help remedies – like vehicle repossession – from arbitration only had benefit to the dealer.    

Vargas reinforces that arbitration clauses in form contracts are more likely to be enforceable when the consumer is given clear notice of the clause and where the benefits of the arbitration clause apply equally to both parties.  

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