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California Court Rejects “Harsh” Arbitration Clause in Car Fraud Case – Sanchez v. Valencia Holding Company, LLC.

In Sanchez v. Valencia Holding Company, LLC., California’s Second District Court of Appeals explains that while a car buyer is generally bound by the terms of a sale contract, Golden State courts will not enforce terms that it deems unconscionable.

Gil Sanchez is the lead Plaintiff in a class action against Defendant car dealer Valencia Holding Company, LLC. He bought a pre-owned Mercedes-Benz from the dealer at a sales price of more than $53,000 and made a $15,000 down payment. Soon thereafter, Plaintiff allegedly experienced a wide range of problems with the vehicle, including engine failure. When the dealer allegedly was unable to repair the vehicle and indicated that the necessary repairs would not be covered under Plaintiff’s warranty, he filed the present action.

Plaintiff alleges that Defendant engaged in widespread fraud and unfair business practices in violation of California law by: (1) failing to separately itemize the amount of down payments that was to be deferred to a date after the execution of the parties’ Sale Contract; (2) failing to distinguish registration, transfer and titling fees from license fees; (3) charging buyers an “Optional DMV Electronic Filing Fee” without asking the buyer if he or she wanted to pay it; (4) charging new tire fees for used tires; and (5) telling Plaintiff to pay $3,700 to have the vehicle certified so he could qualify for a lower interest rate when that payment was actually for an optional extended warranty unrelated to the rate. In response, the dealer filed a motion to compel arbitration, asserting that the matter was subject to arbitration under the Sale Contract.

The trial court denied the motion to compel, ruling that a plaintiff suing under the state’s Consumers Legal Remedies Act has the right to maintain the suit as a class action, and therefore cannot be required to arbitrate his or her claims individually. On appeal, the Second District affirmed the lower court’s decision. However, the Court’s decision was based on the Sale Contract’s specific terms, rather than Plaintiff’s right to maintain a class action.

California law empowers a court to refuse to enforce any contractual provision that it deems both procedurally and substantively unconscionable. In this case, according to the Court, the Sale Contract’s arbitration provision “contains multiple invalid clauses, it is permeated by unconscionability and is unenforceable.” Specifically, the Court explained that “[t]he provision is unconscionable because it is adhesive and satisfies the elements of oppression and surprise; it is substantively unconscionable because it contains harsh terms that are one sided in favor of the car dealer to the detriment of the buyer.”


The Court found the provision procedurally unconscionable because it’s located at the bottom of the back page of the Sale Contract, unnoticeable to a buyer who was not given time to read the contract. Furthermore, the provision is substantively unconscionable because it allows a car buyer to appeal an arbitration award only if it exceeds $100,000 or includes injunctive relief. The Court found that a buyer would likely be happy with these forms of relief and therefore, unlikely to appeal if awarded an injunction or more than $100,000. In situations where the arbitration award falls short, however, the buyer is more likely to be unsatisfied yet, under the provision, not entitled to appeal.

Enforcement of an arbitration clause is just one of a whole host of legal issues that can arise in a car fraud case. At National Consumer Rights, we are dedicated to assisting victims of fraud and stopping predatory company practices, including auto dealer fraud. If you believe you have been victimized by car dealer fraud, please schedule a free consultation with one of our consumer rights attorneys by calling us toll free at 1-877-990-4990, or filling out our intake form on our Contact Us page.

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