Antitrust Law Daily Wrap Up, PRIVACY—S.D. Cal.: Used car buyer required to arbitrate TCPA claim against dealership, (Jan 6, 2014)

By Peter Reap, J.D., LL.M.

An enforceable arbitration clause in a used car purchase contract required consumer Rafael David Sherman to arbitrate his two Telephone Consumer Protection Act (TCPA) class action claims against car dealership RMH, LLC, the federal district court in San Diego has decided (Sherman v. RMH, LLC, January 2, 2013, Hayes, J.). The provision was not unconscionable and Sherman’s claims were within its scope.

Background. On June 25, 2010, Sherman purchased a pre-owned 2006 Mazda Tribute from RMH’s auto dealership in San Diego. The purchase transaction was memorialized in a “Retail Installment Sales Contract” (“Contract”), which was signed by Sherman and a representative of RMH on June 25, 2010. The Contract is a one-page document, with terms on both sides of the document. Sherman signed the front side of the Contract, and above his signature is the following language written in capital letters and boldface type: “YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE SIGNING BELOW.”

On the reverse side of the Contract, at the bottom of the page, is a large box containing the contract’s mandatory arbitration provision with the following heading in capital letters and boldface type: “ARBITRATION CLAUSE” and “PLEASE REVIEW - IMPORTANT - AFFECTS YOUR LEGAL RIGHTS.”

Sherman’s attorney submitted a transcription of “what appears to [the attorney] to be a prerecorded voice message that was allegedly received on Plaintiff’s cellular telephone [in late June of 2013] by [Defendant] or someone acting on behalf of [Defendant].” The message notified Sherman that it was the anniversary of his vehicle’s purchase and stated it was “time for another status review of your ownership experience.”

RMH’s motion to enforce the arbitration provision was before the court.

Federal Arbitration Act

The basic role for courts under the FAA is to determine (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.

Agreement to the arbitration clause. Sherman contended that “arbitration cannot be compelled under the FAA due to lack of mutual assent to the terms of the arbitration agreement because Plaintiff did not read the arbitration clause or understand that Plaintiff was agreeing to arbitration.” Pursuant to California law, the “general rule” is that “one who signs an instrument which on its face is a contract is deemed to assent to all its terms, the court noted.

Sherman relied upon Windsor Mills, Inc. v. Collins and Aikman Corp., 25 Cal. App. 3d 987 (1972), wherein the court found an arbitration provision unenforceable because it was in small print on the reverse side of a form on which a carpet manufacturer acknowledged receipt of yarn shipments from the yarn distributor. The court stated that an offeree “is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious.” Id. at 993.

Here, the Contract is entitled, “Retail Installment Sales Contract,” and the “contractual nature” of the document is “obvious,” the court determined. Windsor Mills, 25 Cal. App. 3d at 993. Sherman made no showing that any representative of RMH engaged in fraud or misrepresentation as to the terms of the Contract or the arbitration clause. Based upon the record, the “general rule” that “one who signs an instrument which on its face is a contract is deemed to assent to all its terms” should apply in this case, the court reasoned.

Unconscionability. Under California law, a contractual provision is unenforceable if it is both procedurally and substantively unconscionable. 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.

Substantive unconscionability focuses on the one-sidedness or overly harsh effect of the contract term or clause. Sherman argued that “[t]he arbitration clause is substantively unconscionable because it would not permit Plaintiff to vindicate his statutory rights under the TCPA, is unfairly one-side, and therefore shocks the conscience.”

The arbitration clause in the Contract states: “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.” Sherman contended that this ban on class arbitration was unconscionable under California law. However, that argument was now expressly foreclosed by the Supreme Court’s recent AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011), according to the court. Furthermore, Sherman’s contention that the single violation of the TCPA alleged in the complaint would cost more for an attorney to litigate than a plaintiff could expect to recover was similar to another argument rejected by the Supreme court in Concepcion, the court ruled.

The arbitration clause in the Contract contains a provision that RMH “will advance [the purchaser’s] filing, administration, service or case management fee and [the purchaser’s] arbitrator or hearing fee all up to a maximum of $2,500, which may be reimbursed by decision of the arbitrator at the arbitrator’s discretion.” The arbitration clause also allows the arbitrator to award attorney’s fees “under applicable law.” In light of the provision requiring RMH to advance a consumer’s arbitration fees, and the lack of evidence demonstrating that the arbitration clause would preclude Sherman from vindicating his rights under the TCPA, Sherman failed to meet his burden of showing that the arbitration clause is substantively unconscionable.

Procedural unconscionability focuses on the factors of surprise and oppression. Sherman contended that the arbitration clause is procedurally unconscionable because the “arbitration agreement is a contract of adhesion where the inconspicuous arbitration clause was not called to Plaintiff’s attention by Defendant or read by Plaintiff,” and “[t]here is no evidence that Defendant provided Plaintiff with the arbitration rules for the National Arbitration Forum.”

In light of the Supreme Court’s decision in Concepcion, the adhesive nature of the agreement did not weigh strongly in favor of a finding of procedural unconscionability, the court explained.

California courts have found that a degree of procedural unconscionability may be found when an arbitration provision refers to arbitration rules, but a copy of those rules are not provided to the individual, the court noted. In this case, the arbitration clause does not require the purchaser to choose the National Arbitration Forum or the American Arbitration Association, but simply offered those two organizations as options for the purchaser. The arbitration clause also mitigates any small degree of procedural unconscionability by directing the consumer to the organizations’ websites to obtain each organization’s rules, the court reasoned.

Finally, as noted above, the arbitration provision is not hidden in the Contract; it is referenced in boldface type close to Plaintiff’s signature line, and the clause itself is set out in a prominent fashion on the reverse side of the one-page contract. Sherman failed to make an adequate showing of unconscionability necessary to render the arbitration clause in the Contract unenforceable.

Scope of arbitration agreement. Sherman argued that the motion to compel arbitration should be denied because the arbitration clause does not cover the misconduct alleged.

Specifically, the arbitration provision states: “Any claim or dispute, whether in contract, tort, statute or otherwise …, 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 … shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

The alleged phone message that forms the basis of the TCPA claims states: “I am calling to let you know it’s the anniversary of your vehicle’s purchase and it’s time for another status review of your ownership experience…. We truly hope your vehicle continues to perform as expected, your interactions with our team remain positive, and your overall ownership experience is going well. If you have any questions or concerns, we encourage you to contact us directly….” Sherman’s TCPA claims related to his Contract with RMH, and, accordingly, were subject to arbitration, the court held.

Thus, the motion to compel arbitration was granted, and the complaint dismissed without prejudice.

The case is No. 13cv1986-WQH-WMc.

Attorneys: Abbas Kazerounian (Kazerounian Law Group, APC) for Rafael David Sherman. Michael C. Rogers (Goode Hemme & Peterson PC) for RMH, LLC.

Companies: RMH LLC

Cases: Privacy CaliforniaNews