Castellanos v. Quality Nissan CA4/3 ( 2013 )

Filed 12/2/13 Castellanos v. Quality Nissan CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
ALAN I. CASTELLANOS,
Plaintiff and Respondent, G047885
v. (Super. Ct. No. 30-2012-00590049)
QUALITY NISSAN, INC., etc., OPINION
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, James E.
Loveder, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed.
Bishton Gubernick, Norris J. Bishton, Jr., and Jeffrey S. Gubernick, for
Defendant and Appellant.
Rosner, Barry & Babbit, Hallen D. Rosner and Gregory T. Babbit, for
Plaintiff and Respondent.
INTRODUCTION
Appellant Quality Nissan, doing business as OC Nissan Garden Grove (OC
Nissan), appeals from an order denying its motion to compel arbitration. OC Nissan was
sued under two consumer statutes by respondent Alan Castellanos, who wanted his
money back for a car he had purchased from the dealership, plus other damages. OC
Nissan moved to compel arbitration pursuant to the provision in a form sales contract
Castellanos had signed after he bought the car. The trial court denied the motion.
We affirm the order denying the motion. The arbitration provision in the
sales contract is both procedurally and substantively unconscionable. The trial court
correctly declined to enforce it.
FACTS
In August 2012, Castellanos sued OC Nissan for violations of the
Automobile Sales Finance Act and the Consumers Legal Remedies Act in connection
with his purchase of a car from the dealership. OC Nissan moved to compel arbitration
pursuant to an arbitration provision in the form Retail Installment Sales Contract
Castellanos signed to buy the car.1 Castellanos opposed the motion on unconscionability
grounds, stating, among other things, that he is a Spanish speaker with limited English
skills and that no one at OC Nissan had alerted him to the presence of an arbitration
provision in the contract. 2
1 Castellanos actually signed two contracts. The first one was signed on the occasion of the car
purchase. OC Nissan then had him sign a second contract approximately a week later because it was unable to find
a finance company to buy the contract as written. The second contract increased the price of the vehicle by $1,550.
2 The declaration Castellanos filed to support his opposition is seriously defective. Each paragraph
appears first in Spanish, then in English. There is no indication whatsoever as to who prepared the English
translation; given Castellanos’s representations about his limited English, he could not be the translator. Moreover,
in at least one paragraph, the translator has added a sentence that has no equivalent in the preceding Spanish text.
California Rules of Court, rule 3.1110(g) requires all exhibits to a motion translated from a foreign
language to be certified under oath by a qualified interpreter. No such certification or oath is present here, and, as
stated above, the interpreter is not identified, so there is no information about his or her qualifications. OC Nissan,
however, did not object to the declaration on these or any other grounds. (See, e.g., People v. Panah (2005) 35
Cal. 4th 395, 476 [incompetent evidence received without objection sufficient to support trial court’s
determination].)
2
The court denied OC Nissan’s motion on the grounds the arbitration
provision was both procedurally and substantively unconscionable.
DISCUSSION
“‘Unconscionability is ultimately a question of law for the court.’
[Citations.] However, numerous factual issues may bear on that question. [Citation.]
Where the trial court’s determination of unconscionability is based upon the trial court’s
resolution of conflicts in the evidence, or on the factual inferences which may be drawn
therefrom, we consider the evidence in the light most favorable to the court’s
determination and review those aspects of the determination for substantial evidence.
[Citations.]” (Gutierrez v. Autowest, Inc. (2003) 114 Cal. App. 4th 77, 89 (Gutierrez).)
“‘[U]nconscionability has both a “procedural” and a “substantive”
element,’ the former focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining
power, the latter on ‘“overly harsh”’ or ‘“one-sided”’ results. [Citation.] ‘The prevailing
view is that [procedural and substantive unconscionability] must both be present in order
for a court to exercise its discretion to refuse to enforce a contract or clause under the
doctrine of unconscionability.’ [Citation.] But they need not be present in the same
degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the
procedural process of the contract formation, that creates the terms, in proportion to the
greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.]
In other words, the 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. Foundation Health Psychcare Services,
Inc. (2000) 24 Cal. 4th 83, 114 (Armendariz).)
The Retail Installment Sales Contract at issue here has been the subject of
several appellate court opinions in this state, and the issue of the contract’s
unconscionability is presently before the California Supreme Court in Sanchez v.
Valencia Holding Co.(2011) 201 Cal. App. 4th 74, review granted March 21, 2012,
3
S199119) and several related cases. In the meantime, we join with most of the other
courts that have inspected this contract in finding the arbitration provision
unconscionable and therefore unenforceable.
Although the contract occupies several pages in the record before us, it
apparently occupies only two pages – two very long, densely printed pages – in its
original form.3 Castellanos’ signature appears on what seems to the be the end of the
first page, and his initials or signature also appears at various places on the first page.
The second page, which contains the arbitration provision, is devoid of any initials or
signature.4
I. Procedural Unconscionability
As even OC Nissan concedes, the contract is procedurally unconscionable.
OC Nissan does not dispute that it was presented to Castellanos on a take-it-or-leave-it
basis as a contract of adhesion. (See Gentry v. Superior Court (2007) 42 Cal. 4th 443,
469.) The element of “surprise” is also present because the arbitration provision is on the
back of the form, and there is no indication, such as nearby initials, that it was ever called
to Castellanos’ attention, even though Castellanos had to initial or sign in several places
on the face page in addition to signing the signature line at the bottom.
The English version of the contract included an acknowledgment that the
customer had read both sides of the contract, specifically mentioning the arbitration
provision, in a box just above the signature line on the front page. The Spanish version,
3 According to the Office of the Attorney General, the contract length is dictated by the numerous
consumer disclosures required by state and federal law and by the requirement that all of these disclosures be
contained in a “single document” (Civ. Code § 2981.9), which the industry has interpreted to mean “one piece of
paper.” (92 Ops.Cal.Atty.Gen. 97 (2009).) As a result, the form contract is two feet long and is printed on the front
and back of one sheet.
The Attorney General has opined that “single document” does not necessarily mean one piece of
paper, and a contract printed on multiple attached pages with an integrated numbering sequence meets the statutory
requirement.
4 Castellanos attached a Spanish version of the contract to his opposition, but once again he failed to
include a certified translation of this exhibit. (See Cal. Rules of Court, rule 31110(g).) As with Castellanos’
declaration, OC Nissan offered no objection to the introduction of this version of the contract into evidence, and the
trial court considered it in its determination of procedural unconscionability.
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however, omitted this acknowledgement.5 The trial court found the omission of the
acknowledgement in the Spanish version to be evidence of an additional component of
“surprise.”
II. Substantive Unconscionability
As noted above, one of the hallmarks of substantive unconscionability is a
“one-sided” agreement that distributes the benefits and burdens unfairly. (Little v. Auto
Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1071 (Little).) Our courts look at the practical
application of the contract terms. Thus, an agreement that appears facially neutral will be
found unconscionable if its practical application results in an illusory benefit to the party
without bargaining power. (See, e.g., Saika v. Gold (1996) 49 Cal. App. 4th 1074, 1080;
Harper v. Ultimo (2003) 113 Cal. App. 4th 1402, 1408-1408.) The contract at issue here
contains several such clauses.
“We [i.e., OC Nissan] will advance your [i.e., Castellanos’] filing,
administration, service, or case management fee and your arbitrator or hearing fee all up
to a maximum of $2500, which may be reimbursed by decision of the arbitrator at the
arbitrator’s discretion.”
Not much in the way of arbitration before the retired judges or attorneys in
large urban centers can be had for $2,500. Castellanos presented evidence that he would
be unable to fund an arbitration in which an arbitrator charged several hundred dollars an
hour. Moreover, the sentence contains the implicit threat that the arbitrator could order
Castellanos to pay back the $2,500 at some point. It is, after all, being “advanced.”
OC Nissan now argues that Castellanos did not make his case for inability
to pay because he did not submit evidence of his own resources, the anticipated cost of
the arbitration, and the amount of the potential award. OC Nissan did not make these
5 The Spanish version thus violated Civil Code section 1632, subdivision (b)(1), which requires
“every term and condition” of conditional sales contracts for automobiles to be translated into Spanish if the
negotiation was conducted primarily in Spanish.
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objections to the adequacy of Castellanos’ evidence in the trial court. Instead it argued
below, and argues here, that the American Arbitration Association rules limit a
consumer’s fees to $375.
The difficulty with this argument is that this information is absent from the
arbitration provision itself, and OC Nissan did not supply Castellanos with a copy of the
AAA rules to enlighten him on that point. According to the arbitration provision in the
contract, once the expenses reached $2,500, Castellanos would have to start paying.
Moreover, the arbitration agreement permits Castallanos to choose another arbitration
organization, subject to OC Nissan’s approval. The arbitration provision also states that
in the event of a conflict between the AAA rules and the provision, the provision
controls. So it is not at all certain that AAA rules would even apply.6
It is true, as OC Nissan argues, that neither federal nor state courts have
adopted a per se approach to the expenses of consumer arbitrations such as that taken by
our Supreme Court in Armendariz for employment cases. Under Armendariz, the
employer cannot require an employee to bear any type of expense that he or she would
not be required to pay if the case were heard by a court. (Armendariz, supra, 24 Cal. 4th
83, 110-111.) This rule presumably applies regardless of the employee’s ability to pay.
In Gutierrez, supra, the court declined to adopt the Armendariz rule in consumer cases,
opting instead for the approach outlined in Green Tree Financial Corp.-Alabama v.
Randolph (2000) 531 U.S. 79, 92 (Green Tree), which mandated a case-by-case
determination of whether arbitration would be prohibitively expensive. (Gutierrez,
supra, 114 Cal.App.4th at p. 97.)
But, unlike the party seeking to avoid arbitration in Green Tree, supra, who
presented no evidence whatsoever regarding arbitration expenses or ability to pay (531
6 This provision presents another potential for unfairness. If Castellanos does not want to use the
AAA, OC Nissan can simply veto his alternative choice. Because the other arbitration organization mentioned in
the provision no longer accepts consumer cases, Castellanos essentially has no control over the arbitration
organization that would hear the matter, even though the provision itself makes it appear that he has alternatives.
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U.S. at pp. 90-91), Castellanos did present some evidence on this subject. OC Nissan
now claims that this evidence is inadequate, but it made no such argument in the trial
court.
Although the trial court did not specifically rule on the issue of undue
expense, “the order denying a petition to compel arbitration, like any other judgment or
order of a lower court, is presumed to be correct, and all intendments and presumptions
are indulged to support the order on matters as to which the record is silent. [Citation.]
Implicit in the trial court’s decision is its determination that . . . the fees required to
initiate the arbitration were so substantial that plaintiffs were unable to pay them.
Imposing such fees would effectively prevent plaintiffs from vindicating their statutory
rights.” (Gutierrez, supra, 114 Cal.App.4th at p. 88.)
“You and we retain any right to self-help remedies, such as repossession.
You and we retain the right to seek remedies in small claims court for disputes and
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.”
Although this portion appears even-handed, it actually benefits mostly, if
not entirely, OC Nissan. In effect, it carves out exceptions to arbitration, but exceptions
only OC Nissan is likely to use. Castellanos would not be in a position to repossess
anything from OC Nissan, so “self-help remedies” do not help him. Similarly, failure to
make his payments is the most likely claim OC Nissan would have against Castellanos.
The provision permits OC Nissan to go to small claims court if arrearages on Castellanos’
payments begin to approach the jurisdictional limit. (See Code Civ. Proc., § 116.220,
subd. (a)(1).) The damages from any serious claims Castellanos would have against OC
Nissan, however, are likely to be too substantial for small claims court.7 (See Code Civ.
7 Castellanos’ damages claims in this case, for example, exceed the jurisdictional limit of small
claims court.
7
Proc., § 116.221.) Thus, in any but the most minor disputes Castellanos would have
against OC Nissan, he would have to choose between waiving excess damages (see Code
Civ. Proc., § 116.220, subd. (d)) or submitting to arbitration. In the ordinary course, OC
Nissan would be put to no such choice.
“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.”
Arbitration is final and binding, except when it isn’t. When it isn’t is most
likely to be when OC Nissan loses and faces a big award or has an injunction entered
against it. (It is hard to imagine a scenario in which an arbitrator enters an injunction
against a customer.) Then OC Nissan gets to start all over, with more artillery.
The California Supreme Court examined a similar provision in Little,
supra, 29 Cal. 4th 1064, an employment case. In Little, the arbitration clause provided
that either party could request a “reversal and remand, modification, or reduction” by a
second arbitrator of any award over $50,000. (Id. at p. 1071.) The court pointed out that,
in practical terms, this provision benefited the employer, since the employer, not the
employee, is the party most likely to have a large damage award entered against it. As
the court observed, an asymmetrical arbitration agreement may be justified “when there
is a ‘legitimate commercial need’ [citation],” but “that need must be ‘other than the
employer’s desire to maximize its advantage’ in the arbitration process. [Citation.]” (Id.
at p. 1073.)
Assuming an OC Nissan customer lost the arbitration completely and
wanted to appeal, he or she would face the daunting prospect of paying the filing fee and
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all the expenses for not one but three arbitrators until the end of the appeal, when the
arbitrators might reapportion costs. A potential car buyer who could afford such an
outlay would probably not be shopping for a Nissan.
Let’s not beat about the bush. Businesses put arbitration provisions in their
adhesion contracts because they think that if they are sued they will fare better in
arbitration than they will before a jury. Consumers and employees think so too; that is
why they fight arbitration clauses. Arbitration clauses are in a contract to protect the
company proffering the agreement, not the person signing it. The arbitration provision in
this contract is designed to give OC Nissan every possible advantage if it is sued for some
cause of action that could yield substantial damages, such as the statutory violations
alleged in Castellanos’ complaint. OC Nissan is not concerned about being sued because
a car’s heater does not work or a hubcap fell off.
The $100,000 threshold is OC Nissan’s tacit acknowledgement that the
costs of appealing any award under that amount outweigh the potential for recovery. In
other words, a person who wanted to appeal from a zero award, such as Castellanos,
should expect to have to come up with cash somewhere in that neighborhood to fund the
appeal. The improbability that the typical car buyer could bear that expense thus
insulates OC Nissan from any threat of appeal of a customer’s adverse award in
arbitration.
OC Nissan was entitled to any contractual protection it could build into its
deal with Castellanos, so long as that protection was openly and honestly made a part of
the deal. But this arbitration agreement is permeated with substantively unconscionable
terms. In such cases, only a small amount of procedural unconscionability is sufficient to
defeat enforcement. OC Nissan has conceded procedural unconscionability here, and we
find both elements present in sufficient quantities to make the provision unenforceable.
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DISPOSITION
The order denying the motion to compel arbitration is affirmed.
Castellanos is to recover his costs on appeal.
BEDSWORTH, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
ARONSON, J.
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