Gutierrez v. Autowest, Inc

In Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, the Court of Appeal extended Armendariz's prohibition (Armendariz v. Foundation Health Psychcare Services, Inc) of inappropriate arbitral expenses to a dispute arising under a vehicle lease. There, the lessees sued a dealership under the Consumers Legal Remedies Act (CLRA) (Civ. Code, 1750 et seq.) and the Vehicle Leasing Act (VLA) (Civ. Code, 2985.7 et seq.) for failing to lease a vehicle at the advertised price. The dealership moved to compel arbitration based on an arbitration clause in the lease. The trial court denied the motion. The Court of Appeal reversed and remanded. It recognized that the CLRA and the VLA confer unwaivable statutory rights (see Gutierrez, supra, 114 Cal.App.4th at p. 95 & fns. 14, 15) and that, under Armendariz, supra, 24 Cal.4th 83, the lessees were entitled to protection from inappropriate arbitral expenses (see Gutierrez, at pp. 94-101). Nevertheless, the court concluded that Armendariz's categorical rule was not applicable and that a plaintiff's ability to pay arbitral expenses in a consumer dispute should be determined on a case-by-case basis. As the court noted, the governing rules of the American Arbitration Association (AAA) permit the arbitrator to allocate costs " 'as appropriate.' " (Gutierrez, at p. 99.) In addition, the California Arbitration Act contains provisions for consumer arbitrations that limit the arbitrator's authority to impose inappropriate expenses on a plaintiff (Code Civ. Proc., 1284.3, subds. (a), (b)). (See Gutierrez, at pp. 97-100 & fn. 18.) The court concluded that the AAA rules, together with the consumer provisions of the arbitration act, "ensure that consumers will not be deterred from pursuing their statutory claims by the fear that the arbitrator will allocate unaffordable fees to them." (Gutierrez, at pp. 99-100.) In Gutierrez v. Autowest, Inc. (2003) the Court of Appeal analyzed Armendariz, Green Tree, and Little to conclude "consumers may challenge a predispute arbitration clause as unconscionable if the fees required to initiate the process are unaffordable, and the agreement fails to provide the consumer an effective opportunity to seek a fee waiver." In Gutierrez, supra, 114 Cal.App.4th at pages 83-84, the plaintiffs entered into an automobile lease with the defendants, which included a provision requiring disputes to be arbitrated in accordance with American Arbitration Association (AAA) rules. The plaintiffs were not informed of the arbitration provision or given a copy of the AAA rules. (Id. at p. 84.) They sued the defendants for fraud and negligent misrepresentation, for violations of the California Vehicle Leasing Act (Civ. Code, 2985.7 et seq.), the UCL, and California's Consumers Legal Remedies Act (Civ. Code, 1750 et seq.), and for false advertising (Bus. & Prof. Code, 17500 et seq.). (Gutierrez, supra, 114 Cal.App.4th at pp. 84-85.) One of the defendants filed a petition to compel arbitration pursuant to the lease's arbitration provision. (Gutierrez, supra, 114 Cal.App.4th at p. 85.) The trial court denied the petition on the ground the arbitration fee provision was unenforceable and could not be severed from the arbitration clause. (Ibid.) The Gutierrez court concluded: "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. 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." (Gutierrez, supra, 114 Cal.App.4th at pp. 89-90.) In the trial court, the plaintiffs in Gutierrez presented evidence of their inability to pay, including a declaration setting forth income, expenses, and savings. (Gutierrez, supra, 114 Cal.App.4th at p. 90.) The plaintiffs also submitted a declaration from an AAA administrator explaining the calculation of costs under AAA rules. (Id. at p. 91.) The appellate court also found significant the fact there was no effective procedure for a consumer to obtain a fee waiver or reduction. (Ibid.) The Gutierrez court then considered the effect of the arbitration provision on the plaintiffs' ability to vindicate their statutory rights, and explained the different approaches taken by federal and California courts in shifting or allocating arbitration costs. Comparing Green Tree, Little, and Armendariz, the court concluded a mandatory arbitration agreement encompassing unwaivable statutory rights may not impose forum fees exceeding the consumer's ability to pay. (Gutierrez, supra, 114 Cal.App.4th at pp. 94-97.) When a plaintiff seeks to vindicate his or her statutory rights, an additional agreement will be implied "that unaffordable fees are not to be imposed at the time of the award," unless there is express language to the contrary in the agreement. (Id. at p. 99.) "Implying this additional agreement ensures that consumers will not be deterred from pursuing their statutory claims by the fear that the arbitrator will allocate unaffordable fees to them." (Id. at pp. 99-100.) The Gutierrez court concluded the provision requiring the plaintiffs to pay substantial arbitration fees was unconscionable, and remanded the case for the trial court to determine whether the cost provision could be severed from the arbitration agreement. (Id. at p. 93.)