Following on the heels of the case summarized below, the California Court of Appeal has invalidated another contractual arbitration provision, declaring it to be "unconscionable."
Ryan Gutierrez responded to a televised infomercial by defendant Autowest offering affordable leasing of a Dodge Durango. After telephoning ahead to confirm that he qualified for the advertised price, Gutierrez went to Autowest's dealership to close the deal. There, he was informed that he could lease the vehicle at the advertised rate if he made a more substantial downpayment than the infomercial suggested. Ultimately, he made a lower downpayment, but was obliged to make monthly payments several hundred dollars more than had been advertised.
Having entered into the written lease, Gutierrez thought through his situation and concluded he had been victimized by an illegal "bait and switch." He filed suit, in response to which Autowest asserted a provision -- which was printed in eight point Arial Narrow type on the rear of the lease document (the appellate court reproduces it in that format) and which Gutierrez contends was never called to his attention -- requiring any disputes to be submitted to binding arbitration through the American Arbitration Association [AAA] under the federal Arbitration Act [9 U.S. Code, §1, et seq.]. Autowest petitioned the trial court to order the matter into arbitration under the terms of the lease. The trial court, finding that the cost of AAA arbitration would be prohibitive -- Gutierrez would have to pay fees of some $8,000 simply to commence the arbitration, which he demonstrated was beyond his ability to pay -- and that the contract provided no means for Gutierrez to seek relief from those costs, declared the provision unconscionable and unenforceable. On appeal by Autowest, the Court of Appeal agrees:
We conclude that where a consumer enters into an adhesive contract that mandates arbitration, it is unconscionable to condition that process on the consumer posting fees he or she cannot pay. It is self-evident that such a provision is unduly harsh and one-sided, defeats the expectations of the nondrafting party, and shocks the conscience. While arbitration may be within the reasonable expectations of consumers, a process that builds prohibitively expensive fees into the arbitration process is not. [Citation omitted.] To state it simply: it is substantively unconscionable to require a consumer to give up the right to utilize the judicial system, while imposing arbitral forum fees that are prohibitively high. Whatever preference for arbitration might exist, it is not served by an adhesive agreement that effectively blocks every forum for the redress of disputes, including arbitration itself.
(Emphasis added.) The court's decision in Gutierrez v. Autowest, Inc. (Dec. 9, 2003), Case No. A098704, may be found at the following links in PDF and Word formats.
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