Pub. 2 2014 Issue 4

14 San Diego Dealer While the United States Supreme Court has defended the use of such agreements under the Federal Arbitration Act in recent years, Califor- nia courts, politicians, and the federal Consumer Financial Protection Bureau have been less-than-friendly to arbitration and continue to fight back. Here’s an update from several battlegrounds in this critical war. California Legislature NOTE: The following two bills are only being deliberated. They are not law! Assembly Bill 2617 (Weber, D-San Diego): This bill would prohib- it requiring a waiver of state anti-discrimination law protections (including the right to have a lawsuit heard in court) as a condition of entering into a contract for goods or services. Any such waiver would be required to be knowing and voluntary, in writing, and expressly not made as a condition of entering into the contract or providing or receiving goods or services. The bill would provide that any person seeking the enforcement of such a waiver has the burden of proving that this is the case. A violation of the proposed law (e.g., by requiring an arbitration agreement as part of an employment application or in the LAW® 553-CA-ARB Retail Installment Sale Contract) would be con- sidered a violation of state civil rights laws. The bill is opposed by the California New Car Dealers Association, and is on the Assembly Floor. Assembly Bill 802 (Wieckowski, D-Fremont): This bill would require arbitration companies (such as the American Arbitration Association) to file a massive report every quarter including a detailed summary of each and every arbitration administered by the company in the previous five-year period. The bill is opposed by the California New Car Dealers Association, has made it out of the Assembly, and will soon be heard in the Senate Judiciary Committee. California Supreme Court Sanchez v. Valencia Holding Company: This crucial dispute before the California Supreme Court involves the enforceability of the of the arbitration language in a previous version of the LAW® 553-CA-ARB Retail Installment Sale Contract. The Court is tasked with determining whether the arbitration is “unconscionable”—legalese for being so unfair that a court should not enforce its terms. This conclusion of unconscionability has been reached by several superior and appellate courts unfriendly to arbitration. Recently, the Court has asked interest- ed parties to submit their interpretation of what standard should be used in California to determine whether an arbitration agreement is unconscionable. The California New Car Dealers Association (CNCDA) has filed two separate briefs on behalf of the industry before the Cali- fornia Supreme Court in this case. Federal Courts Sonic Calabasas v. Moreno: This case involves whether the Labor Commissioner can force an employer to go through the employer-un- friendly “Berman hearing” process when the employee had previously agreed to arbitrate any dispute with the employer. The California Supreme Court recently held that the Federal Arbitration Act does not allow for the requirement of a pre-arbitration Berman hearing, but opened up the door to allow for a lower court to find that any such ar- bitration agreement is unconscionable. This opinion is known as Sonic II . The dealer has appealed this dispute to the United States Supreme Court (see description below). CNCDA filed a brief and participated in oral arguments before the California Supreme Court on behalf of the industry. Iskanian v. CLS Transportation of Los Angeles: This dispute involves whether a class action waiver in an employee arbitration agreement can be struck down on the theory that individual arbitration would not allow an employee to effectively enforce his or her non-waivable statutory rights. Auto Advisory Services attended the oral arguments before the California Supreme Court earlier this month. CNCDA filed a brief before the California Supreme Court on behalf of the industry. Federal Courts Sonic Calabasas v. Moreno: As discussed above, the dealer in this dispute appealed Sonic II to the United States Supreme Court. The plaintiff in the case did not respond to the appeal, leading the United States Supreme Court to insist upon such a response. On May 1st, the plaintiff finally (after two delays) filed his response to the appeal. CNCDA filed a brief before the United States Supreme Court, asking the court to either hear the case on its merits, or order the California Supreme Court to tear up its decision and issue a new one consistent with federal law. Consumer Financial Protection Bureau The federal Dodd-Frank Wall Street Reform and Consumer Protection Act (which established the Consumer Financial Protection Bureau (CFPB), but relieved the CFPB of any direct jurisdiction over dealers) requires the CFPB to study the use of pre-dispute arbitration agree- ments in consumer finance transactions—such as credit card agree- ments and motor vehicle retail installment sale contracts held by a finance company. After the CFPB completes its study, it must report its findings to Congress, and is empowered to limit or prohibit the use of consumer arbitration agreements consistent with those findings. The CFPB has already released its preliminary findings of the study, and most observers believe that pre-dispute arbitration agreements relating to consumer finance products will be strictly regulated or banned. While dealers are exempt from CFPB general jurisdiction, the various finance companies who purchase dealer sale and lease agree- ments are not exempt—leading many to believe that the CFPB could conceivably prohibit finance companies from purchasing sale or lease agreements containing pre-dispute arbitration clauses. This would indirectly eliminate the use of arbitration clauses in dealer contracts. AAS is continuing to monitor the war against the use of pre-dispute arbi- tration agreements and will update our subscribers as events unfold. O ne of the most critical tools to prevent unscrupulous trial lawyers from engaging in fishing expeditions through your deal jackets or personnel files is the proper completion of a valid arbitration agreement containing a class action waiver. Updates from the War on Arbitration By Jonathan Morrison, President of Auto Advisory Services