Trompeter v. Ally Financial Inc., No. 4:2012cv00392 - Document 23 (N.D. Cal. 2012)

Court Description: ORDER DENYING DEFENDANTS 10 MOTION TO COMPEL ARBITRATION AND 17 MOTION FOR STAY. Signed by Judge Claudia Wilken on 6/1/2012. (ndr, COURT STAFF) (Filed on 6/1/2012)

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Trompeter v. Ally Financial Inc. Doc. 23 1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 JOHN TROMPETER, on behalf of himself and all others similarly situated, 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 Plaintiff, v. ALLY FINANCIAL, INC., a Delaware corporation and DOES 1 to 20, inclusive, No. C 12-00392 CW ORDER DENYING DEFENDANT’S MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Docket Nos. 10 and 17) Defendants. ________________________________/ Plaintiff John Trompeter has filed a putative class action against Defendant Ally Financial, Inc., alleging that Ally had a 14 policy and practice of secretly recording telephone calls with 15 16 persons located in California without their consent. Trompeter 17 alleges in his First Amended Complaint two causes of action under 18 this state’s Invasion of Privacy Act, California Penal Code § 632, 19 and the state Unfair Competition Law (UCL), California Business 20 and Professions Code section 17200 et seq. 21 represent all consumers who received a telephone call in which at 22 Trompeter seeks to least one party was in California and that telephone call was 23 recorded or monitored without prior warning or consent. 24 25 Ally has moved to compel arbitration based on an arbitration 26 agreement contained in the consumer contract to which Trompeter is 27 a signatory and which was assigned to Ally. 28 Trompeter opposes the motion. Docket No. 10. In addition, Ally has moved to stay Dockets.Justia.com 1 the Court’s resolution of the motion, pending the California 2 Supreme Court’s decision on the appeal of Sanchez v. Valencia 3 Holding Company, LLC, 201 Cal. App. 4th 74 (2011), petition for 4 review granted, 272 P.3d 976 (2012). 5 opposes the motion to stay. 6 Docket No. 17. Trompeter The Court held a hearing on Ally’s motion to compel arbitration, but took the motion for a stay under 7 consideration on the papers. Having considered all of the 8 9 parties’ submissions and oral argument, the Court denies Ally’s United States District Court For the Northern District of California 10 motion to compel arbitration and its motion to stay the 11 proceedings pending the state Supreme Court’s resolution of 12 Sanchez. 13 14 BACKGROUND On May 11, 2007, Trompeter purchased a new Chevrolet 15 Silverado truck from a dealership in Colma, California. Trompeter 16 secured financing through the dealership. Soon after Trompeter 17 18 executed the retail installment sales contract, the dealership 19 assigned the contract to Ally. 20 the contract by failing to make the required payments, Ally 21 repossessed the truck in or about October 2010. 22 failed to reinstate the contract or redeem the vehicle, Ally sold 23 When Trompeter later defaulted on After Trompeter the truck at an auction and applied the sale proceeds to 24 Trompeter’s account balance, leaving a deficiency in the amount of 25 26 27 $12,246.85. Lynda Zitka, a Vice President for Ally, attested that any telephone calls on behalf of the company to Trompeter would 28 2 1 2 3 have related to Trompeter’s default or the debt that he owed Ally pursuant to the contract. Trompeter’s contract contained an arbitration clause on the 4 reverse-side of a two page agreement. 5 following, 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 The clause stated the ARBITRATION CLAUSE PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS 1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL. 2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS. 3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION. 16 17 18 19 20 21 22 23 24 25 26 27 28 Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause, and the arbitrability of the claim or dispute), 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 (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action. 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. You may choose one of the following arbitration organizations and its applicable rules: the National Arbitration Forum . . . (www.arbforum.com), the American Arbitration Association . . . (www.adr.org), or any other organization that you may choose subject to our approval . . . . 3 1 2 3 4 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the applicable rules. The arbitrator shall apply governing substantive law in making an award. The arbitration hearing shall be conducted in the federal district in which you reside . . . . We will advance your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $1500, which may be reimbursed by decision of the arbitrator at the arbitrator’s discretion. Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law. If the chosen arbitration organization’s rules conflict with this Arbitration Clause, then the provisions of this Arbitration Clause shall control. The arbitrator’s award shall be final and binding on all parties, except that in the event the arbitrator’s award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party, that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel. The appealing party requesting new arbitration shall be responsible for the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs. Any arbitration under this Arbitration Clause shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state law concerning arbitration. You and we retain any rights to self-help remedies, such as repossession. You and we retain the right to seek remedies in small claims court for disputes or claims within that court’s jurisdiction, unless such action is transferred, removed or appealed to a different court. Neither you nor we waive the right to arbitrate by using self-help remedies or filing suit. Any court having jurisdiction may enter judgment on the arbitrator’s award. This clause shall survive any termination, payoff or transfer of this contract. If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class 28 4 1 action allegations have been made, the remainder of this arbitration clause shall be unenforceable. 2 DISCUSSION 3 I. Motion to Compel Arbitration 4 5 A. Legal Standard 6 Under the FAA, 9 U.S.C. § 1 et seq., written agreements that 7 controversies between the parties shall be settled by arbitration 8 are valid, irrevocable, and enforceable. 9 aggrieved by the refusal of another to arbitrate under a written United States District Court For the Northern District of California 10 9 U.S.C. § 2. A party arbitration agreement may petition the district court which would, 11 save for the arbitration agreement, have jurisdiction over that 12 13 action, for an order directing that arbitration proceed as 14 provided for in the agreement. 15 must compel arbitration under the FAA if it determines that: 16 1) there exists a valid agreement to arbitrate; and 2) the dispute 17 falls within its terms. 18 Supp. 2d 1138, 1143 (C.D. Cal. 2006) (citing Chiron Corp. v. Ortho 19 9 U.S.C. § 4. A district court Stern v. Cingular Wireless Corp., 453 F. Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000)). 20 The FAA reflects a "liberal federal policy favoring 21 22 arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 23 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem. Hosp. v. 24 Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). 25 "permits agreements to arbitrate to be invalidated by 'generally 26 applicable contract defenses, such as fraud, duress, or 27 However, the FAA unconscionability,' but not by defenses that apply only to 28 5 1 arbitration or that derive their meaning from the fact that an 2 agreement to arbitrate is at issue." 3 AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1746 (2011). 4 B. Analysis 5 Trompeter does not argue that his claims against Ally fall 6 outside of the arbitration clause. Rather, he contends the 7 arbitration agreement is unconscionable and unenforceable under 8 9 United States District Court For the Northern District of California 10 California law. The party opposing arbitration bears the burden of proving 11 that the arbitration provision is unconscionable. 12 Romero v. Superior Court, 184 Cal. App. 4th 825, 836 (2010). 13 Unconscionability under California law is comprised of two 14 elements, procedural and substantive. Id. at 837. Arguelles- Both must be 15 present for a contract term to be considered unconscionable. Id. 16 "[T]he more substantively oppressive the contract term, the less 17 18 evidence of procedural unconscionability is required to come to 19 the conclusion that the term is unenforceable, and vice versa." 20 Armendariz v. Found. Health Psychcare Services, Inc., 24 Cal. 4th 21 83, 114 (2000). 22 23 1. Procedural Unconscionability Procedural unconscionability focuses on the existence of 24 oppression or surprise. Newton v. American Debit Services, 2012 25 26 WL 581318, *6 (N.D. Cal.). “Oppression arises from an inequality 27 of bargaining power that results in no real negotiation and an 28 absence of meaningful choice.” Flores v. Transamerica Homefirst, 6 1 Inc., 93 Cal. App. 4th 846, 853 (2001). “Surprise involves the 2 extent to which the supposedly agreed-upon terms are hidden in a 3 prolix printed form drafted by the party seeking to enforce them.” 4 Id. 5 6 Trompeter first argues that the adhesive nature of the contract renders it procedurally unconscionable. “The term 7 [contract of adhesion] signifies a standardized contract, which, 8 9 imposed and drafted by the party of superior bargaining strength, United States District Court For the Northern District of California 10 relegates to the subscribing party only the opportunity to adhere 11 to the contract or reject it.” 12 Under California law applicable to all contracts generally, the 13 adhesive nature of a contract is a consideration in determining 14 Armendariz, 24 Cal. 4th at 113. whether the agreement is unconscionable, and such an agreement 15 will not be enforced if it defies “the reasonable expectations of 16 the weaker or ‘adhering’ party” or is “unduly oppressive.” Id. 17 18 While the Supreme Court has overturned California law requiring 19 the availability of class-wide relief in arbitration agreements, 20 the Court has indicated that state law bearing on contracts of 21 adhesion remains good law. 22 Although Ally argues that it accepts assignments of contracts 23 Concepcion, 131 S. Ct. at 1750 n.6. without arbitration clauses, this assertion is irrelevant because 24 Trompeter entered into the contract with the dealership. The 25 26 standardized nature of the contract and its presentation on a 27 “take it or leave it” basis establish a limited degree of 28 procedural unconscionability in the present case. 7 1 Trompeter also argues that the arbitration agreement is 2 procedurally unconscionable because the relevant clause was placed 3 at the bottom of the back page of the contract. 4 Trompeter signed the agreement in eight different locations on the 5 front page of the agreement, the only signature on the back of the 6 Although agreement is one belonging to a representative of the dealership. 7 An arbitration agreement placed in an inconspicuous location on 8 9 the opposite side of a signature page adds to the procedurally United States District Court For the Northern District of California 10 unconscionable nature of the agreement. 11 Autowest, Inc., 114 Cal. App. 4th 77, 89 (2003). 12 hand, in signing the contract, Trompeter agreed to language 13 acknowledging that he read both sides of the agreement, including 14 See e.g., Gutierrez v. the arbitration clause on the reverse side. On the other Trompeter has not 15 attested that he was actually surprised by the arbitration 16 agreement. 17 18 Finally, Trompeter argues that Ally failed to provide a copy 19 of the applicable arbitration rules. 20 Technology Corp., 189 Cal. App. 4th 387, 393 (2010) (noting that 21 numerous cases have held that the failure to provide a copy of the 22 arbitration rules to which an employee would be bound supports a 23 See Trivedi v. Curexo finding of procedural unconscionability). Ally does not dispute 24 that it never provided arbitration rules to Trompeter. However, 25 26 27 it is clear from the agreement itself that the applicable arbitration rules were not determined at the time the contract was 28 8 1 2 3 4 5 signed because Trompeter was given the option of choosing the arbitration provider that he preferred.1 Trompeter has established a minimal degree of procedural unconscionability based on the adhesive nature of the form arbitration agreement and the lack of opportunity for him to 6 negotiate its terms. 7 2. Substantive Unconscionability 8 9 “Substantively unconscionable terms may take various forms, United States District Court For the Northern District of California 10 but may generally be described as unfairly one-sided.” 11 Auto Stiegler Inc., 29 Cal. 4th 1064, 1071 (2003). 12 form . . . is the arbitration agreement’s lack of a modicum of 13 bilaterality.” 14 Little v. “One such Id. at 1072 (internal quotation marks omitted). “Another kind of substantively unconscionable provision occurs 15 when the party imposing arbitration mandates a post-arbitration 16 17 proceeding, either judicial or arbitral, wholly or largely to its 18 benefit at the expense of the party on which the arbitration is 19 imposed.” Id. 20 21 22 23 24 25 26 27 1 Trompeter also argues that the arbitration agreement is procedurally unconscionable because it provided him with an illusory choice of arbitration services. Because this argument relates to the one-sided nature of the agreement and whether Ally sought to use the arbitration agreement to gain leverage in the dispute, the Court considers this issue below, in context of its substantive unconscionability analysis. See e.g., Newton, 2012 WL 581318 at *9-10 (addressing the selection of the arbitrator in connection with substantive, rather than procedural unconscionability). 28 9 1 Trompeter does not challenge the class action waiver in the 2 arbitration agreement, but asserts that the agreement is 3 substantively unconscionable based on the following provisions: 4 (1) a party does not waive the right to arbitrate by using self- 5 help remedies or filing suit; (2) if the arbitrator’s award 6 against a party is in excess of $100,000, that party may request a 7 new arbitration by a three-arbitrator panel under the rules of the 8 9 arbitration organization; (3) if the arbitration award includes United States District Court For the Northern District of California 10 injunctive relief, the enjoined party may demand a re-arbitration 11 by the three-arbitrator panel; and (4) the appealing party 12 requesting a new arbitration shall be responsible for the filing 13 fee and other arbitration costs subject to a final determination 14 by the arbitrators of a fair apportionment of costs. The Court 15 considers each of these provisions, as well Trompeter’s contention 16 that the agreement provided an illusory choice as to the type of 17 18 arbitration available. 19 The arbitration agreement provides that a party does not 20 waive the right to arbitrate by using self-help remedies or filing 21 suit in small claims court. 22 vehicle or file suit to collect a debt owed by a defaulting car 23 Thus, a creditor could repossess a buyer, but still reserve the right to seek arbitration of a 24 dispute in which it was named as a defendant. As a practical matter, a debtor has no corresponding remedy. If the consumer 25 26 27 stops paying on the debt, his or her vehicle will likely be 28 repossessed and the consumer could be held liable for any 10 1 deficiency after disposition of the repossessed vehicle, pursuant 2 to California Civil Code section 2983.2(a). 3 Trompeter purchased a new truck. 4 Beverly Consumer Warranty Act that pertains to defective new motor 5 vehicles, commonly known as the state’s “Lemon Law,” does not 6 As noted earlier, The provision of the Song- provide for a consumer to discontinue payment on a contract for 7 purchase of the defective new vehicle. See Cal. Civ. Code 8 9 § 1793.2(d)(2). Rather, if the manufacturer or its representative United States District Court For the Northern District of California 10 is unable to repair the vehicle to conform with applicable express 11 warranties after a reasonable number of attempts, the manufacturer 12 must either promptly replace the vehicle with a substantially 13 identical one that functions properly or make restitution in an 14 amount equal to the actual price paid or payable by the buyer, 15 including and excluding certain specified charges. Id. The 16 remedy of total restitution or a replacement of a new vehicle, 17 18 generally, would not be available in small claims court in light 19 of the limited value of claims permitted there. 20 that this threshold provision favors Ally at the expense of 21 Trompeter and contributes to a finding of substantive 22 unconscionability. 23 Thus, it appears Trompeter is also correct that the provision that allows a 24 party to seek a re-arbitration by panel if the arbitrator issues 25 26 an award against that party in an amount exceeding $100,000 favors 27 creditors, such as Ally, over car buyers. 28 a defect in the vehicle could give rise to a claim exceeding 11 Trompeter contends that 1 $100,000. A claim by Ally against the purchaser of a single 2 vehicle is unlikely to exceed $100,000. 3 that by contract and statute a creditor that prevails in an action 4 against a defaulting car buyer is entitled to attorneys’ fees and 5 costs and, thus, could obtain an award exceeding $100,000. 6 Ally, however, asserts Trompeter financed $27,931.43 of his truck’s purchase price and 7 the litigation necessary to collect on a consumer debt, in 8 9 general, is not highly complex and, thus, is unlikely to give rise United States District Court For the Northern District of California 10 to disproportionately high attorneys’ fees and costs, such as an 11 amount that exceeds the value of the debt. 12 13 14 The California Supreme Court’s decision in Little supports a finding of substantive unconscionability. There, the party that imposed an arbitration agreement on a plaintiff employee argued 15 that the $50,000 threshold amount for a right to an arbitral 16 appeal applied even-handedly to both parties. 29 Cal. 4th at 17 18 1072-74. However, the court rejected the argument, finding that 19 the party imposing the arbitration agreement did not adequately 20 explain to the court why the right of appeal should turn on an 21 award threshold. 22 perspective the decision to resort to an arbitral appeal is made 23 The court observed that from a plaintiff’s based on the potential value of the arbitration claim compared to 24 the cost of the appeal, not based on the amount of the arbitration 25 26 award. Id. at 1073. The court determined that, given the absence 27 of a commercially legitimate reason for the threshold requirement 28 and the fact that the party that imposed the arbitration agreement 12 1 was the party that set the threshold, it was reasonable to 2 conclude that the party that imposed the threshold did so with the 3 knowledge or belief that it would generally be a defendant who 4 could benefit from a right to appeal limited to high value awards. 5 Id. 6 In the present case it is likewise reasonable to conclude 7 that the $100,000 threshold was imposed because the drafter 8 9 believed that such a requirement would serve the creditor, such as United States District Court For the Northern District of California 10 Ally, in that it would typically be the defendant in a dispute 11 exceeding the threshold amount. 12 provision in question also allows a party to appeal an 13 arbitrator’s determination if the award is zero, even assuming 14 Although the re-arbitration that a consumer and creditor are equally likely to benefit from 15 this threshold amount, the neutrality of that aspect of the appeal 16 provision does not diminish the one-sided nature of the $100,000 17 18 19 20 threshold. This facet of the arbitration agreement supports a finding of its one-sidedness favoring creditors. Another aspect of the arbitration agreement identified by 21 Trompeter, the provision that when an arbitrator has awarded 22 injunctive relief an enjoined party may seek re-arbitration by the 23 three-arbitrator panel, also benefits creditors over consumers. 24 If a creditor seeks to block a car buyer’s use of the vehicle, the 25 26 creditor is authorized under the arbitration agreement to 27 repossess the vehicle without proceeding through arbitration or 28 waiving its right to the arbitral forum. 13 Injunctive relief, on 1 the other hand, is a remedy often sought in consumer actions to 2 protect the public from further unlawful actions by a defendant. 3 Thus, compared to creditors, consumers are more likely to seek 4 injunctive relief in a dispute subject to the arbitration 5 agreement. 6 Furthermore, the arbitration agreement’s provision for an 7 appeal when injunctive relief is awarded offers an additional 8 9 opportunity for delay for the benefit of creditors at the expense United States District Court For the Northern District of California 10 of consumers. 11 Southern California v. Garfield, 18 Cal. 2d 174, 176-77 (1941), 12 for the proposition that an appeal does not normally stay the 13 effectiveness of an injunction, the case states that a mandatory 14 Although Ally cites Food & Grocery Bureau of injunction is automatically stayed by an appeal under California 15 law, whereas a self-executing, prohibitory injunction, in general, 16 is not stayed by an appeal. A creditor could nevertheless seek a 17 18 19 stay of an injunction pending appeal to a three-arbitrator panel. On balance, the provision allowing an appeal of an award 20 granting injunctive relief is designed to benefit the creditor 21 and, thus, contributes to a finding of substantive 22 unconscionability. 23 Further, a finding of substantive unconscionablity is 24 supported by the provision that a party requesting re-arbitration 25 26 shall be responsible for the filing fee and other re-arbitration 27 costs, subject to a final determination by the arbitrators of a 28 fair apportionment of costs. See Little, 29 Cal. 4th at 1080 14 1 ("Nothing in the FAA prevents states from controlling arbitration 2 costs imposed by adhesive contracts so that the remedy of 3 prosecuting the state statutory or common law public rights 4 through arbitration is not rendered illusory."). 5 6 Ally argues that under Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), it is of no significance that the 7 party seeking an appeal must advance arbitration filing fees and 8 9 costs for an appeal. However, in Green Tree the arbitration United States District Court For the Northern District of California 10 agreement was silent with respect to costs and fees. 11 Thus, the Court determined that the plaintiff had not carried her 12 burden to establish the likelihood that she would be required to 13 bear prohibitive arbitration costs if she pursued her claims. 14 at 90-92. Id. at 90. Id. Notably, the Court expressly declined to resolve how 15 detailed the showing of prohibitive expense must be by a party 16 seeking to avoid arbitration. Id. at 92. 17 18 In this case, because the National Arbitration Forum refuses 19 to hear consumer disputes, the American Arbitration Association 20 rules are the best indicator of the costs that Trompeter would 21 incur if he were to pursue an appeal. 22 under the AAA’s fee schedule, the minimum fees for any case having 23 Ally does not dispute that, three or more arbitrators includes a $2,800 initial filing fee and 24 a $1,250 final fee, as well as the hourly rate for three 25 26 arbitrators. The arbitration agreement provides that Ally will 27 advance up to a maximum of $1,500 for a party’s filing, 28 administration, service or case management fee and the 15 1 arbitrator’s fee or hearing fee. However, this provision for an 2 advance appears to relate to the initial arbitration and not the 3 appeal. 4 fees associated with pursuing an appeal. 5 agreement provide for any other procedure or criteria for 6 Thus, it is not clear that an advance is available for Nor does the arbitration determining how much a consumer can afford. Gutierrez, 114 Cal. 7 App. 4th at 91-92 (holding that the absence of a provision for the 8 9 consumer to obtain a cost waiver or reduction, when the judicial United States District Court For the Northern District of California 10 system provides an opportunity to make such requests, contributes 11 to a finding of substantive unconscionability). 12 established that the imposition of substantial fees and costs in 13 pursuit of an appeal under the arbitration agreement contributes 14 Trompeter has to a finding of substantive unconscionability. 15 Finally, as noted earlier, Trompeter argues that the 16 arbitration agreement is unconscionable because it provided him 17 18 with an illusory choice of arbitration services. “A single 19 arbitrator unilaterally selected by a contracting party adverse to 20 the other is presumed to be biased.” 21 Traylor Bros., Inc./Obayashi Corp., 111 Cal. App. 4th 1328, 1341 22 (2003). 23 Sehulster Tunnels/Pre–Con v. As previously noted, the NAF does not handle consumer disputes, leaving the AAA as the only arbitral forum specifically 24 identified in the arbitration agreement. However, the agreement 25 26 also allows Trompeter to select any other organization to handle 27 the arbitration, subject to Ally’s approval. 28 established that there are no other suitable organizations and, 16 Trompeter has not 1 2 3 therefore, it is not clear that the choice presented is actually illusory. Nonetheless, Trompeter has demonstrated that the arbitration 4 agreement is substantively unconscionable based on the other 5 factors discussed above. 6 Multiple elements render the agreement procedurally and substantively unconscionable, such that the 7 arbitration agreement is void under California law. 8 3. Severability 9 United States District Court For the Northern District of California 10 Although Ally asserts that the unconscionable aspects of the 11 agreement may be severed, as in Armendariz, 24 Cal. 4th at 124, 12 there are multiple unconscionable provision in the agreement. 13 such, the agreement is “tainted with illegality,” and to enforce 14 As it would encourage overreaching by creditors drafting consumer 15 contracts. Id. at 124 n.13. In addition, because two of the 16 unconscionable provisions in the arbitration agreement relate 17 18 directly to circumstances in which the right of appeal attaches 19 following an arbitration award, they are not collateral to the 20 agreement and extirpating them by means of severance would amount 21 to a reformation of the agreement. 22 unwarranted. 23 Id. at 124-25. Severance is 4. Concepcion and Kilgore 24 Ally argues that the Supreme Court’s decision in Concepcion 25 26 27 and the Ninth Circuit’s ruling in Kilgore v. KeyBank, National Association, 673 F.3d 947 (2012), compel this Court to enforce the 28 17 1 2 3 arbitration agreement because invalidating the agreement offends the principles underlying the FAA. Ally’s reading of Concepcion is overbroad. Concepcion 4 overturned the rule established by the California Supreme Court in 5 Discover Bank v. Superior Court, 34 Cal. 4th 148 (2005), which 6 deemed unconscionable under California law consumer arbitration 7 agreements containing a provision waiving the right to class-wide 8 9 arbitration. The Court held that the FAA preempted the Discover United States District Court For the Northern District of California 10 Bank rule, reasoning that mandatory class arbitration sacrificed 11 the key advantages associated with dispute resolution through 12 arbitration. 13 arbitration is longer and more expensive, requires greater 14 131 S. Ct. at 1750-52. Specifically, class formality, and increases the stakes for defendants, as compared to 15 bilateral arbitration. Id. at 1751-52. Although the Court stated 16 that nothing in § 2 of the FAA "suggests an intent to preserve 17 18 state-law rules that stand as an obstacle to the accomplishment of 19 the FAA's objective," it also acknowledged that "§ 2 preserves 20 generally applicable contract defenses." 21 does not preclude this Court’s finding that the arbitration 22 agreement in the present case is unconscionable because the 23 Id. at 1748. Concepcion finding does not undermine the fundamental attributes of 24 arbitration as an alternative form of dispute resolution that is 25 26 27 neutral, speedy, economical and informal. The Court’s review of the arbitration agreement applies the generally applicable 28 18 1 2 contract principle of unconscionability and, thus, does not offend the FAA’s policy objective favoring arbitration. 3 Nor does the Ninth Circuit’s decision in Kilgore change the 4 outcome of this Court’s determination to deny enforcement of the 5 arbitration agreement. 6 Kilgore held that the FAA, in light of the Supreme Court’s decision in Concepcion, preempted the California 7 state law principles announced in Broughton v. Cigna Healthplans 8 9 of California, 21 Cal. 4th 1066 (1999), and Cruz v. PacifiCare United States District Court For the Northern District of California 10 Health Systems, Inc., 30 Cal. 4th 303 (2003). 11 rule prohibited the arbitration of claims for public injunctive 12 relief. 13 that, although Concepcion did not address the question of the 14 Kilgore, 673 F.3d at 959. The Broughton-Cruz The Ninth Circuit reasoned arbitrability of a public injunction remedy, under the Supreme 15 Court’s decision, state public policy interests do not trump the 16 FAA when the state policy prohibits arbitration of a particular 17 18 type of claim. Id. at 963. Thus, the Ninth Circuit rejected the 19 state public policy rationales that supported the Broughton-Cruz 20 rule, namely that adjudication, rather than arbitration, better 21 served the state’s interest in enforcing laws, such as the Unfair 22 Competition Law, designed to protect the public interest at large, 23 rather than to redress or prevent injury to a particular 24 plaintiff. See id. at 960-63. 25 26 The present case is distinguishable from Kilgore because it 27 does not involve a categorical rule barring arbitration of a 28 specific type of claim or remedy and the Court’s ruling does not 19 1 rest on an independent state public policy disfavoring 2 arbitration. 3 agreement is unenforceable because Trompeter has sued for 4 injunctive relief under the UCL or California’s Privacy Act. 5 noted earlier, the Court’s unconscionability analysis does not 6 The Court has not determined that the arbitration As disfavor arbitration as a forum for dispute resolution generally. 7 Neither Concepcion nor Kilgore precludes a finding that the 8 9 United States District Court For the Northern District of California 10 arbitration agreement here is unconscionable. II. Motion for a Stay 11 Ally has moved to stay this action pending the California 12 Supreme Court’s disposition of the appeal in Sanchez, 201 Cal. 13 App. 4th at 74. 14 In Sanchez, the California Court of Appeal found unconscionable and unenforceable the same arbitration clause in 15 the same form contract for a car purchase at issue in this case. 16 On March 21, 2012, the California Supreme Court granted the 17 18 petition for review in Sanchez. Because Sanchez is no longer 19 citable, the Court has not relied on it to resolve the motion to 20 compel. 21 22 23 “A stay is not a matter of right, even if irreparable injury might otherwise result.” Nken v. Holder, 556 U.S. 418, 433 (2009) (citation and internal quotation marks omitted). Instead, it is 24 “an exercise of judicial discretion,” and “the propriety of its 25 26 issue is dependent upon the circumstances of the particular case.” 27 Id. (citation and internal quotation and alteration marks 28 omitted). The party seeking a stay bears the burden of justifying 20 1 the exercise of that discretion. Id. at 433-34. “A party seeking 2 a stay must establish that he is likely to succeed on the merits, 3 that he is likely to suffer irreparable harm in the absence of 4 relief, that the balance of equities tip in his favor, and that a 5 stay is in the public interest.” 6 Humane Soc. of U.S. v. Gutierrez, 558 F.3d 896, 896 (9th Cir. 2009). The first two 7 factors of this standard “are the most critical.” Nken, 556 U.S. 8 9 at 434. Once these factors are satisfied, courts then assess “the United States District Court For the Northern District of California 10 harm to the opposing party” and weigh the public interest. 11 435. 12 13 14 Id. at Ally contends that a stay is warranted to protect it from burdensome expenses and procedures in litigating this action, and to prevent the unnecessary waste of resources, including the 15 Court’s time. Ally asserts that a stay will prevent prejudice of 16 its contractual rights under the arbitration agreement. 17 18 With respect to the first factor, Ally has not established 19 that it is likely to succeed on the merits. 20 Supreme Court’s decision to grant review does not indicate whether 21 it will affirm or reverse the decision in full or in part, or 22 remand the action for further proceedings. 23 The California Having reviewed Sanchez and considered the arbitration agreement independently 24 from that decision, the Court has found that the contention that 25 26 27 the arbitration clause is unconscionable is well-supported by long-standing case law. Moreover, the finding of 28 21 1 2 3 unconscionability is not foreclosed by the recent decisions in Concepcion and Kilgore. Although allowing the case to proceed will require Ally to 4 incur some costs of litigation, Ally has not established that it 5 is likely to suffer irreparable harm in the absence of a stay of 6 the Court’s ruling on its motion to compel arbitration. Most 7 likely, the next steps in the litigation will require the exchange 8 9 of initial discovery and perhaps motion practice. Ally has not United States District Court For the Northern District of California 10 demonstrated that the procedures in arbitration provide for less 11 costly discovery and motion practice. 12 that a stay is warranted, and it has not made a clear showing of 13 irreparable harm. 14 It is Ally’s burden to show On the other hand, there is evidence that a delay in 15 resolving the action could cause harm to Trompeter and the 16 putative class. This case involves allegations that Ally or its 17 18 agents surreptitiously recorded telephone calls made to numerous 19 consumers, including out-of-state consumers to whom Ally or its 20 agent placed a call from within California. 21 and records regarding the phone calls and related policies and 22 practices could be lost if the proceedings are stayed. 23 Critical information Sanchez is likely to remain before the California Supreme Court for at least 24 a year, and in Brinker Restaurant Corp. v. Superior Court of San 25 26 Diego County, 165 Cal. App. 4th 25 (2008), aff’d in part and 27 reversed in part, 53 Cal. 4th 1004 (2012), the court required 28 approximately three and a half years to resolve the dispute. 22 A 1 stay in this action is likely to prejudice Trompeter in pursuing 2 his putative class claims. 3 serves the public interest. 4 action. 5 6 Nor has Ally demonstrated that a stay The Court declines to stay this Pursuant to 9 U.S.C. § 16(a)(1)(B), Ally has a right to an interlocutory appeal of an order denying a petition to compel 7 arbitration. See Green Tree, 531 U.S. at 86 (noting that “§ 16 8 9 generally permits immediate appeals of orders hostile to United States District Court For the Northern District of California 10 arbitration, whether the orders are final or interlocutory, but 11 bars appeals of interlocutory orders favorable to arbitration.”). 12 Thus, Ally may appeal this Court’s order and request a stay of the 13 litigation pending the Ninth Circuit’s resolution of the appeal. 14 See Britton v. Co-Op Banking Grp., 916 F.2d 1405, 1409-10 (9th 15 Cir. 1990) (“[A]n appeal of an interlocutory order does not 16 ordinarily deprive the district court of jurisdiction except with 17 18 regard to the matters that are the subject of the appeal.”). If 19 the case is not stayed, discovery and motions may proceed 20 concurrently with the California Supreme Court’s consideration of 21 Sanchez and the Ninth Circuit’s consideration of this order. 22 trial approaches, Ally may again request a stay. 23 If If Sanchez bars this litigation and requires arbitration, the arbitration could be 24 held promptly, with discovery having been completed. 25 26 27 28 23 CONCLUSION 1 2 Ally’s motion to compel arbitration or, in the alternative, 3 dismiss the complaint, and its motion for a stay of the 4 proceedings are denied. 5 management conference on June 6, 2012 at 2:00 pm. 6 The parties shall appear for a case IT IS SO ORDERED. 7 8 9 Dated: 6/1/2012 CLAUDIA WILKEN United States District Judge United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24

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