Samaniego v. Empire Today: Court of Appeal Unanimously Holds Arbitration Agreement Unconscionable

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The California Court of Appeal has issued a unanimous decision reinforcing that California’s unconscionability doctrine is still substantially intact, notwithstanding the U.S. Supreme Court’s ruling in AT&T Mobility v. ConcepcionSee Samaniego v. Empire Today LLC, ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  The Court of Appeal affirmed the trial court’s ruling that the at-issue arbitration clause was “highly unconscionable from a procedural standpoint” and exhibited “strong indicia of substantive unconscionability,” while denying the defendant’s motion for reconsideration in light of Concepcion.  See slip op. at 3-4.

The action arose when plaintiffs, installers for prominent carpet company Empire, brought claims alleging that they had been misclassified as independent contractors, and challenged the mandatory arbitration provision which was part of an agreement that Empire required the plaintiffs to execute both at the inception of their employment and, again, during their employment.  Id. at 2-3.  The court gave particular emphasis to the procedural unconscionability of the agreement, noting that it was presented to plaintiffs only in English, though some had only a rudimentary grasp of the language and others could not read English at all.  Id. at 2.  Additionally, “[t]he contracts were offered on a non-negotiable, take it or leave it basis, with little or no time for review.  The Agreement is 11 single-spaced pages of small-font print riddled with complex legal terminology.  The arbitration provision is set forth in the 36th of 37 sections.”  Id.

The arbitration clause was also deemed substantively unconscionable, as it shortened the statute of limitations to sue under the contract from one year to six months and contained a unilateral fee-shifting provision which required employees to pay Empire’s attorneys’ fees.  Id. at 3.  Similarly, claims to enforce non-compete agreements — which, as a practical matter, are only brought by employers — were excluded from the arbitration clause’s ambit.  Id.

The court found its analysis unaltered by Concepcion, noting that the Supreme Court’s decision “explicitly reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability,’” and “arbitration agreements remain subject, post-Concepcion, to the unconscionability analysis employed by the trial court in this case.”  Id. at 11-12 (internal citations omitted).  California federal courts have also stricken unconscionable arbitration clauses.  See, e.g., Chavarria v. Ralphs Grocer Co., No. 11-CV-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011).

The Samaniego ruling comes on the heels of the Consumer Financial Protection Bureau’s announcement that it has undertaken a critical examination of the impact of mandatory arbitration agreements on consumers. See http://www.impactlitigation.com/2012/04/27/federal-consumer-protection-agency-to-assess-impact-of-mandatory-arbitration-on-consumers/. In holding that Concepcion does not alter the unconscionability analysis, the Samaniego court’s ruling will likely be influential as other courts, trial and appellate, state and federal, continue to confront the same issue.