Last week a California appeals court invalidated a car dealer’s mandatory arbitration and class waiver clause, holding the sales contract’s arbitration clause unconscionable and therefore unenforceable to defeat a putative class action. In Natalini v. Import Motors, Inc. , plaintiff sued under state consumer protection statutes alleging that a car and its tires that he purchased from defendant were sold as new when in fact they were used. When defendant Import Motors moved to compel arbitration, the state trial court refused and held that the sales contract’s arbitration provision was both procedurally and substantively unconscionable. Upholding that ruling, the California appeals court held that the sales contract’s arbitration provision was procedurally unconscionable because it (1) was an adhesion contract which, standing alone, gave rise to a “minimal degree of procedural unconscionability;” (2) was allegedly presented to plaintiff without opportunity to review; and (3) the arbitration provision was inconspicuously buried in language on the back of a “dense, pre-printed form” where purchaser was not required to sign. The court upheld a finding of substantive unconscionability as well, ruling that the challenged arbitration provision was systematically designed to favor seller in many ways. Among other things, the arbitration clause limited buyer’s injunctive remedies while preserving seller’s self-help remedies (repossession) and excluded appeals for awards up to $100,000.
Natalini illustrates the limits of the United States Supreme Court’s endorsement of arbitration provisions in consumer contracts in AT&T Mobility LLC v. Concepcion. Widely misunderstood as a wooden talisman against consumer class actions, Concepcion held that state courts may not adopt hard-and-fact rules invalidating agreements to arbitrate that include class waivers. Concepcion did not erect a hard-and-fact rule of its own that insulates consumer contract arbitration provisions from attack. Unconscionability remains a defense to enforcement, but the Natalini case demonstrates the high hurdles that must be cleared to upend an arbitration provision – proving both procedural and substantive unconscionability in a way that is unlikely to present itself in most on-line or store transactions governed by carefully crafted and balanced, conspicuous arbitration provisions.