A recent ruling by the California Supreme Court reaffirms the validity of arbitration agreements in consumer and employment contracts under federal law. The decision in Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, conforms to the previous decision of the United States Supreme Court (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 [131 S.Ct. 1740]) regarding the enforceability of arbitration provisions under the Federal Arbitration Act. In that case, the U.S. Supreme Court determined that arbitration agreements should generally be upheld in accordance with their terms, even in standardized consumer contracts and employment agreements.
The California ruling demonstrates a shift in the state’s long-standing hesitation toward enforcing arbitration provisions. Moreover, it clarified the requirement of unconscionability when deciding the validity of an arbitration clause. The California Supreme Court explained that demonstrating unconscionability entails a substantial burden. Merely claiming that a consumer contract for the purchase of an automobile was one-sided does not satisfy this obligation.
The Court also dismissed the contention that the consumer contract was characterized by both oppression and surprise because certain clauses were not explained or negotiated, the appeals were limited in accordance with the arbitration award and the appealing party was obligated to advance the costs of the appeal. Procedural unconscionability does not exist simply because the arbitration provision was not adequately explained by the defendant or understood by the plaintiff. In addition, a finding of substantive unconscionability requires that the inherent unfairness in the transaction be substantially overwhelming.
The determination of unconscionability still must be made on an individualized basis after considering the facts of the case. However, the California Supreme Court ruling indicates that courts will now apply the same criteria to arbitration agreements as they do to other contractual agreements.
If you are a party to an arbitration proceeding, it is important to get the advice of an attorney with extensive experience in alternative dispute resolution to understand and protect your rights and interests. Contact Shane Coons at 949-333-0900 or visit www.ShaneCoonsLaw.com to learn more about his practice.