Goodridge v. KDF Automotive: California Court of Appeal Finds Arbitration Clause Unconscionable, Despite Concepcion

Yet another California Court of Appeal panel has found that California’s unconscionability doctrine remains applicable to the analysis of petitions to compel arbitration. See Goodridge v. KDF Automotive Grp., Inc., ____Cal. App. 4th ____ (Aug. 24, 2012). In a unanimous opinion issued in August and ordered published on September 13th, the three-judge panel of California’s Fourth Appellate District (which includes Orange, San Diego, Riverside and San Bernardino Counties) held the arbitration clause in a purchase contract for a tire to be unconscionable. See slip op at 1.

In so ruling, the Goodridge panel affirmed the trial court’s rejection of the defendant’s argument that “‘[t]he United States Supreme Court in [AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d 742] (AT&T)] makes it clear that unconscionability is no longer a valid objection to an arbitration agreement.’” Slip op. at 7. Looking to recent Ninth Circuit authority, Goodridge holds that Concepcion “‘did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, [AT&T] reaffirmed that the savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not ‘applied in a fashion that disfavors arbitration.’ ’” Slip op. at 11, citing Kilgore v. KeyBank, N.A., 673 F.3d 947, 963 (9th Cir. 2012).

With the enduring validity of California’s unconscionability jurisprudence established, the Goodridge decision goes on to find the at-issue arbitration clause both procedurally and substantively unconscionable, giving considerable weight to the plaintiff’s declaration testimony to the effect that the purchase agreement that contained the clause was presented to him on a “take it or leave it” basis and embodied onerous terms. See slip op. at 15-18. The decision notes that “[t]he arbitration clause was hidden within the lengthy prolix of the printed form presented by KDF to Goodridge” and that four particular terms “fall outside the reasonable expectations of Goodridge as the nondrafting party and are unduly oppressive.” Id. at 17, 19. For instance, while the arbitration clause’s appeals provision is ostensibly bilateral, by limiting appeals to awards in excess of $100,000, as a practical matter only the defendant would be able to avail itself of this right. See id. at 19-20. Similarly, the arbitration clause provides that either party can appeal an arbitrator’s imposition of injunctive relief. Id. at 21. Again, only the defendant would realistically benefit from this provision. Further, the clause requires the appealing party to advance the costs and fees of both parties, a term plainly disadvantageous to the plaintiff. See id. at 22-23.

The California Supreme Court is expected to conclusively determine the applicable scope of Concepcion in its upcoming review of three cases: the Second Appellate District’s rulings in Iskanian v. CLS Transp. Los Angeles, LLC and Sanchez v. Valencia, and the Fourth Appellate District’s ruling in Mayers v. Volt.