Trompeter v. Ally Financial: Federal District Court Denies Motion to Compel Arbitration, Underscores Continued Vitality of California’s Unconscionability Doctrine

Just as a conflict emerged within the California Court of Appeal as to the validity of California’s unconscionability doctrine following the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision, a similar clash may be developing among California’s federal courts.  Northern District Judge Claudia Wilken has denied a defendant’s attempt to compel arbitration, chiefly on the ground that the at-issue arbitration agreement is unconscionable under California law.  See Trompeter v. Ally Financial Inc., No. 12-00392 (N.D. Cal. June 1, 2012) (order denying defendant’s motion to compel arbitration and motion for stay) (available here).

In Trompeter, Judge Wilken rejected the argument that the Federal Arbitration Act (FAA) preempted plaintiffs’ unconscionability claims and that the court therefore had no discretion to deny enforcement of the at-issue arbitration agreement.  Judge Wilken instead determined that “[m]ultiple elements render the agreement procedurally and substantively unconscionable,” and found the agreement to be void under California law.  Order at 17.  Judge Wilken specifically distinguished Kilgore v. KeyBank, National Ass’n, 673 F.3d 947 (9th Cir. 2012), in which the Ninth Circuit dismissed state public policy interests prohibiting the arbitration of particular types of claims and held that the FAA trumped such rationales.

Looking ahead to the probable review of this issue by the California Supreme Court, the Trompeter ruling gives encouragement to those who have advocated a narrow application of Concepcion, embodied most prominently in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011).  By contrast, the recent Iskanian decision (expected to be taken up by the California Supreme Court) embraced an expansive reading of Concepcion. See Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012).