Natalini v. Import Motors: California Appellate Court Holds Arbitration Clause Unconscionable, Underscores Importance of Iskanian

In another decision likely to be assigned “grant and hold” status pending the California Supreme Court’s decision in the soon-to-be landmark Iskanian v. CLS Transportation case, the California Court of Appeal’s First Appellate District has affirmed a trial court’s holding that an arbitration clause categorically proscribing class and representative actions is unconscionable. See Natalini v. Import Motors, Inc., ___ Cal. App. 4th ___ (Cal. Ct. App. 2013).

Natalini, like the pro-arbitration AT&T Mobility v. Concepcion decision, arose in the consumer context. The Natalini plaintiff filed claims against Import Motors, from which he had bought a car, including claims arising under California’s Consumer Legal Remedies Act (CLRA) and the Rees-Levering Motor Vehicle Sales and Finance Act. See slip op. at 1.

Despite conceding that Concepcion overruled Discover Bank v. Super. Ct., 36 Cal. 4th 148 (2005), a leading unconscionability decision, the unanimous Natalini panel found enduring vitality in the unconscionability doctrine, stating, “ ‘Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the [c]ourt reaffirmed that the [FAA’s] 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 5-6 (internal citations omitted). The court went on to conclude that “an adhesive arbitration provision [that] is unconscionable because it is crafted overly in favor of the drafter does not rely on any ‘judicial policy judgment’ disfavoring arbitration.” Slip op. at 6 (internal citation omitted).

The decision candidly notes that “the Second District concluded in Flores v. West Covina Auto Group (2013) 212 Cal.App.4th 895, that a very similar provision was not substantively unconscionable.” Slip op. at 12 n.7. Unswayed, the Natalini panel stated, “[w]e adhere to our analysis and conclusion.” Id. However, it is the California Supreme Court, in Iskanian, that will establish the definitive analysis and conclusion of the unconscionability issue for California consumers.