Defendants and appellants Mercedes-Benz Financial Services USA LLC, formerly known as DCFS USA LLC (Mercedes Financial), and Mission Imports, doing business as Mercedes-Benz of Laguna Niguel (Mission Imports; Mercedes Financial and Mission Imports are collectively referred to as Defendants), appeal from an order denying their petitions to compel arbitration. Defendants sought to compel plaintiff and respondent Lee Anne Caron to arbitrate her claims based on an arbitration provision
Finding itself bound by the recent decision in Fisher v. DCH Temecula Imports LLC (2010) 187 Cal.App.4th 601 [114 Cal.Rptr.3d 24] (Fisher), the trial court ruled that (1) the arbitration provision was unenforceable because it waived Caron's right to bring a class action under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.; CLRA) and (2) the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) did not preempt the CLRA's prohibition against class-action waivers. Because it found the CLRA rendered the arbitration provision unenforceable, the trial court declined to rule on Caron's contention the arbitration provision was also unconscionable.
Defendants argue the trial court erred because the FAA preempts the CLRA's prohibition against class action waivers. Based on the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [179 L.Ed.2d 742, 131 S.Ct. 1740] (AT&T Mobility), we agree the FAA preempts the CLRA's antiwaiver provision because the provision acts as an obstacle to the FAA's goal of enforcing arbitration agreements according to their terms.
Consequently, we reverse the trial court's order denying Defendants' petitions to compel arbitration and remand for the trial court to consider Caron's unconscionability challenge. If the court finds any term unconscionable, it must also decide whether the term may be severed and the remainder of the arbitration provision enforced.
In October 2008, Caron purchased a certified preowned Mercedes Benz vehicle from Mission Imports for approximately $50,000. The sales contract Caron signed described the transaction's terms and conditions. A few days later, Caron returned to Mission Imports to purchase an extended warranty for the vehicle and Mission Imports had her sign a new sales contract that recalculated the amount financed.
Approximately one month later, Mission Imports phoned Caron to inform her Mercedes Financial would not finance her vehicle purchase unless she agreed to shorten the length of her installment contract. Caron agreed to sign a third sales contract shortening the installation contract to 59 months. Mission Imports backdated both of the later sales contracts Caron signed to the original purchase date, and assigned Caron's third and final sales contract to Mercedes Financial.
After her purchase, Caron experienced various difficulties with the vehicle and repeatedly returned it to Mission Imports for repairs. Mission Imports, however, could not repair the vehicle to Caron's satisfaction. In May 2010, Caron filed this action against Mission Imports, Mercedes Financial, and Mercedes-Benz USA LLC, alleging various class and individual claims under the CLRA, the Automobile Sales Finance Act (Civ. Code, § 2981 et seq.), and the unfair competition law (Bus. & Prof. Code, § 17200 et seq.). She also alleged additional individual claims for false advertising, intentional and negligent misrepresentation, Vehicle Code violations, and Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.) violations.
Defendants separately petitioned to compel Caron to arbitrate her individual claims and stay this action under the arbitration provision in the sales contracts. Caron filed a consolidated opposition, arguing the class action waiver in the arbitration provision rendered the entire provision unenforceable. Citing the recent opinion in Fisher, Caron argued the class action waiver was invalid because it required her to waive her statutory right to bring a class action under the CLRA. She asserted the arbitration provision
The trial court denied both petitions "on the grounds that the FAA does not preempt state law and under the CLRA, the arbitration provision is unenforceable as it requires plaintiff to waive her statutory rights to bring a class action in violation of the CLRA anti-waiver provision." The court further explained, "The facts of this case are virtually identical to the facts in Fisher ... which was decided only three months ago. While defendants argue that Fisher was wrongly decided or at best incomplete, as it failed to take into consideration one or more U.S. Supreme Court decisions, it is not for this court to determine whether the court of appeal is right or wrong in its analysis. Trial courts are still bound by the principle of stare decisis." Because the invalid class action waiver "extinguished" the entire arbitration provision, the court also found the unconscionability issue was "moot." Nor did the court expressly rule on Caron's objection that Defendants failed to adequately authenticate the sales contract.
Defendants both timely appealed from the trial court's order.
Caron contends we may affirm the trial court's refusal to enforce the arbitration agreement on any one of three independent grounds: (1) Defendants failed to adequately authenticate the sales contract containing the arbitration agreement and therefore failed to meet their burden to show the parties agreed to arbitrate Caron's claims; (2) the CLRA's antiwaiver rule invalidated the arbitration provision's class action waiver and the provision's poison pill clause rendered the entire arbitration provision unenforceable; and (3) the arbitration provision is unconscionable.
Caron argues Defendants failed to authenticate the sales contract containing the arbitration provision because the declaration by Mission Imports's
The trial court did not expressly rule on Caron's authenticity objection, but the court's silence coupled with its ruling on the arbitration provision's class action waiver establishes the court impliedly overruled Caron's objection. (See Reid v. Google, Inc. (2010) 50 Cal.4th 512, 526-527 [113 Cal.Rptr.3d 327, 235 P.3d 988].) "A trial court's finding that sufficient foundational facts have been presented to support admissibility is reviewed for abuse of discretion." (People v. Smith (2009) 179 Cal.App.4th 986, 1001 [102 Cal.Rptr.3d 177] (Smith).) The trial court did not abuse its discretion by impliedly overruling Caron's authentication objection because other evidence sufficiently authenticated the sales contract containing the arbitration provision.
The authentication methods on which Caron relies are just two of several methods the Evidence Code recognizes for authenticating documents. (Smith, supra, 179 Cal.App.4th at p. 1001.) For example, Evidence Code section 1414 also provides, "A writing may be authenticated by evidence that: [¶] (a) The party against whom it is offered has at any time admitted its authenticity; or [¶] (b) The writing has been acted upon as authentic by the party against whom it is offered."
In Ambriz v. Kelegian (2007) 146 Cal.App.4th 1519 [53 Cal.Rptr.3d 700] (Ambriz), the Court of Appeal relied on Evidence Code section 1414 to conclude a plaintiff properly authenticated a portion of a deposition transcript because the defendants had offered a different portion of the same transcript to support their summary judgment motion. (146 Cal.App.4th at p. 1527.) The Ambriz court explained, "[Defendants] admitted the authenticity of the transcript of Detective Pitcher's deposition by seeking to use portions of that deposition in support of their motion for summary judgment. Raising an objection as to lack of authentication of an excerpt from the same deposition
Defendants adequately authenticated the sales contract containing the arbitration provision and therefore we reject Caron's contrary argument.
"In general, `[t]here is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]' [Citation.]" (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406 [117 Cal.Rptr.3d 310].) Whether the FAA preempts the CLRA's antiwaiver rule is a purely legal question we review de novo. (Fisher, supra, 187 Cal.App.4th at p. 612.)
"`Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary....' [Citation.] ... `[I]n enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.' [Citation.]" (Perry v. Thomas (1987) 482 U.S. 483, 489 [96 L.Ed.2d 426, 107 S.Ct. 2520] (Perry).) "That national policy ... `appli[es] in state as well as federal courts' and `foreclose[s] state legislative attempts to undercut the enforceability of arbitration agreements.' [Citation.]" (Preston v. Ferrer (2008) 552 U.S. 346, 353 [169 L.Ed.2d 917, 128 S.Ct. 978] (Preston).)
"The `principal purpose' of the FAA is to `ensur[e] that private arbitration agreements are enforced according to their terms.' [Citations.]" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1748]; see Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 559 U.S. ___, ___ [176 L.Ed.2d 605, 130 S.Ct. 1758, 1773] (Stolt-Nielsen); Volt, supra, 489 U.S. at p. 478 [the FAA`s "passage `was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered'"].)
"The FAA`s displacement of conflicting state law is `now wellestablished,' [citation], and has been repeatedly reaffirmed [citations]." (Preston, supra, 552 U.S. at p. 353.) It preempts state statutes that expressly invalidate arbitration agreements. (See, e.g., Perry, supra, 482 U.S. at pp. 484, 490 [the FAA preempts Cal.'s Lab. Code provision requiring judicial resolution of certain wage claims despite agreement to arbitrate].) The FAA also preempts state statutes that do not expressly invalidate arbitration agreements but have been judicially interpreted to do so. (See, e.g., Southland Corp. v. Keating (1984) 465 U.S. 1, 10 [79 L.Ed.2d 1, 104 S.Ct. 852] [the FAA preempts state statute interpreted by the Cal. Supreme Court to require judicial resolution of claims brought under Cal.'s Franchise Investment Law (Corp. Code, § 31000 et seq.)].) Finally, the FAA preempts "state-law rules that stand as an obstacle to the accomplishment of the FAA's objective[]" of enforcing arbitration agreements according to their specific terms. (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1748].)
In AT&T Mobility, the United States Supreme Court recently addressed whether the FAA preempted the so-called "Discover Bank rule" under which California courts found arbitration provisions in certain consumer contracts of adhesion unconscionable because they included a waiver of the consumer's right to bring a class action. (AT&T Mobility, supra, 563 U.S. at p. ___
In AT&T Mobility, the lower courts refused to enforce the parties' arbitration agreement based on the Discover Bank rule. They found the rule "was not preempted by the FAA because that rule was simply `a refinement of the unconscionability analysis applicable to contracts generally in California.' [Citation.]" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1745].) The United States Supreme Court rejected that analysis and held the FAA preempted the Discover Bank rule "[b]ecause it `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress [in enacting the FAA]' [citation] ...." (563 U.S. at pp. ___, ___ [131 S.Ct. at pp. 1745, 1753].)
Because the Discover Bank rule prevented the parties from realizing the benefits of their bilateral arbitration agreement, the AT&T Mobility court found the rule erected an obstacle to the FAA's objective of enforcing arbitration agreements according to their terms. The FAA therefore preempted the Discover Bank rule. (AT&T Mobility, supra, 563 U.S. at pp. ___ - ___ [131 S.Ct. at pp. 1750-1753].)
Caron argues the FAA preempts only state laws that single out arbitration for special treatment. She cites several Supreme Court decisions stating, "By enacting § 2 [of the FAA], we have several times said, Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed `upon the same footing as other
The cases Caron cites, however, do not define the limits of the FAA's preemptive effect; they merely describe why the FAA preempted the laws at issue in those cases. (See, e.g., Doctor's Associates, supra, 517 U.S. at p. 687 [holding FAA preempted state statute conditioning arbitration agreements' enforceability on compliance with a special notice requirement not applicable to contracts in general].) AT&T Mobility makes clear the FAA's preemptive effect extends to any state law that "`stands as an obstacle to the accomplishment and execution of the full purposes and objectives of [the FAA].'" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1753]; see Parks, supra, 54 Cal.4th at p. 392 [National Bank Act (NBA) preempts Cal. statute requiring certain disclosures on preprinted checks provided to credit card users because the statute "`"`stands as an obstacle to the accomplishment and execution of the full purposes and objectives'"' of the NBA"].)
No meaningful difference exists between the CLRA's class action prohibition and the Discover Bank rule. Both are state law rules that prevent enforcement of an arbitration agreement according to its terms. As in AT&T Mobility, Caron and Defendants' arbitration agreement not only required them to arbitrate all of their disputes, but also prohibited Caron from asserting any class claims or joining any other parties in the arbitration. By limiting the arbitration to Caron's individual claims, the agreement ensured the parties would receive the benefits of contractual arbitration to which they agreed: "`lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.' [Citation.]" (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1751].) Applying the CLRA's prohibition against class action waivers would deprive the parties of those benefits because it would allow Caron to assert class claims and impose the complex, costly, and time-consuming procedures that the Supreme Court in AT&T Mobility found so objectionable. (563 U.S. at pp. ___ - ___ [131 S.Ct. at pp. 1750-1751].) Under AT&T Mobility's reasoning, the CLRA's antiwaiver provision stands as an obstacle to the FAA's purpose and objective because it prevented the parties from enforcing their arbitration agreement according to its terms.
The trial court concluded the recent decision in Fisher required it to find the FAA did not preempt the CLRA's antiwaiver rule. Fisher involved a petition to compel arbitration based on a retail installment sales contract containing the identical arbitration agreement at issue in this case. (Fisher, supra, 187 Cal.App.4th at p. 607.) The Fisher court found the CLRA's antiwaiver provision invalidated the arbitration agreement's class action waiver and that the FAA did not preempt the CLRA's antiwaiver provision. (187 Cal.App.4th at pp. 613, 617.)
Fisher's preemption analysis did not address whether the CLRA's antiwaiver provision stood as an obstacle to the FAA's purposes and objectives of enforcing arbitration agreements according to their terms. Instead, the Fisher court's analysis relied on the FAA's savings clause, which allows courts to deny enforcement of an arbitration agreement on "such grounds as
The Court of Appeal issued the Fisher decision before the United States Supreme Court decided AT&T Mobility. Consequently, the Fisher court lacked the opportunity to apply AT&T Mobility's reasoning to its case, particularly whether the FAA's preemptive effect may extend to generally available contract defenses if they are applied in a manner that generally discriminates against arbitration. (AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747].)
Although California's Legislature enacted the CLRA's antiwaiver provision for the important purpose of protecting consumers, that does not change the analysis or outcome. According to the Supreme Court, "States cannot
Caron argues FAA preemption is irrelevant because this action is about class action waivers, not arbitration. According to Caron, the CLRA would render the class action waiver unenforceable if Defendants placed it anywhere else in the contract and therefore Defendants may not impart special enforceability to the waiver by placing it in the arbitration provision. Caron misses the point of the foregoing analysis.
Defendants placed the waiver in the arbitration provision to prevent Caron from using class allegations to avoid arbitration altogether. Consequently, the provision is first and foremost an arbitration clause. It merely includes a class action waiver to ensure the parties arbitrate their claims as agreed. The class action waiver would otherwise violate the CLRA, but it survives as part of the arbitration provision because the FAA trumps the CLRA to the extent they conflict.
Caron also argues FAA preemption does not apply because the CLRA's antiwaiver provision acts to invalidate the class action waiver and then the poison pill clause invalidates the entire arbitration provision before any preemption issue arises. In Caron's view, the poison pill clause shows the parties intended not to arbitrate any claims on a class basis and this interpretation merely carries out that intent. Again, Caron is mistaken. Her interpretation would allow state law to defeat the arbitration provision despite the provision's clear statement that the FAA governs. Caron cannot avoid preemption in this manner.
Finally, Caron contends Defendants attempt to use the FAA to preempt the entire CLRA, but Defendants do no such thing. They merely argue the FAA preempts the CLRA's antiwaiver provision and prevented the trial court from applying it to invalidate the arbitration provision's class action waiver. The FAA does not prevent Caron from bringing a claim against Defendants under the CLRA or from obtaining the various forms of relief the CLRA authorizes, including actual damages, injunctive relief, restitution, punitive damages, and attorney fees. (Civ. Code, § 1780, subds. (a) & (e).)
Caron concedes "arbitration is perfectly allowable to resolve consumer claims under the CLRA,"
Regardless of whether the FAA preempts the CLRA's antiwaiver provision, Caron contends we should affirm the trial court's ruling because several provisions in the arbitration clause are unconscionable. She relies on the general rule that appellate courts must affirm a trial court's order if it is correct on any legal theory. (See, e.g., Cohen v. DIRECTV, Inc. (2006) 142 Cal.App.4th 1442, 1447 [48 Cal.Rptr.3d 813] ["if a trial court's order is correct on any applicable theory of law, the order will be affirmed regardless of the basis for the trial court's conclusion, as we review the correctness of the order, not the reasons given for the order"], overruled on other grounds in AT&T Mobility, supra, 563 U.S. at pp. ___, ___ [131 S.Ct. at pp. 1746,
Unconscionability is ultimately a question of law for the court to decide, but factual issues may bear on that determination. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892 [71 Cal.Rptr.3d 854].) Accordingly, we review a trial court's unconscionability determination de novo, but, to the extent the determination "turned on the resolution of conflicts in the evidence or on factual inferences to be drawn from the evidence, we consider the evidence in the light most favorable to the trial court's ruling and review the trial court's factual determinations under the substantial evidence standard." (Ibid.)
In the trial court, Caron asserted an unconscionability argument in opposing Defendants' petitions to compel arbitration. The trial court, however, based its ruling solely on its finding the CLRA invalidated the arbitration provision's class action waiver and the poison pill clause therefore made the entire provision unenforceable. The trial court did not decide whether any of the arbitration provision's terms were unconscionable. In fact, the trial court expressly refused to reach that issue, finding its CLRA ruling "render[ed] moot [the] issues of substantive [and] procedural unconscionability."
"When the record shows a trial court does not `undertake the factual inquiry necessary to determine' a question, we may not infer on appeal that factual finding. [Citation.]" (Bouton v. USAA Casualty Ins. Co. (2008) 167 Cal.App.4th 412, 422 [84 Cal.Rptr.3d 152].) Indeed, "where ... a respondent argues for affirmance based on substantial evidence, the record must show the court actually performed the fact finding function. Where the record demonstrates the trial judge did not weigh the evidence, the presumption of correctness is overcome." (Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474, 1477 [53 Cal.Rptr.3d 673], original italics.)
Here, Caron argues we should affirm the trial court's ruling because substantial evidence supports her contention that the arbitration provision is unconscionable. But we cannot affirm the trial court's ruling on that ground because the court declined to decide whether any of the arbitration terms rendered it unconscionable.
Accordingly, we remand this matter to the trial court for it to (1) resolve all factual issues raised by Caron's unconscionability challenge; (2) decide whether any of the arbitration provision's terms are unconscionable; and (3) decide whether any term it finds to be unconscionable can be severed from the remainder of the arbitration provision.
The order is reversed and the matter remanded for further proceedings consistent with the views expressed in this opinion. Defendants shall recover their costs on appeal.
O'Leary, P. J., and Bedsworth, J., concurred.
Caron nonetheless argues the FAA does not apply and there is no preemption issue because the parties agreed California law governed the interpretation of their contract, including the arbitration clause. Caron relies on the contract's general choice-of-law provision stating, "Federal law and California law apply to this contract." This reliance is misplaced. The specific choice-of-law provision designating the FAA in the arbitration clause governs over the more general choice-of-law provision regarding the entire contract. (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1235 [18 Cal.Rptr.3d 178] ["under well established principles of contract interpretation, when a general and a particular provision are inconsistent, the particular and specific provision is paramount to the general provision"]; Civ. Code, § 1859.) Moreover, the general choice-of-law provision states both federal and California law apply, and therefore the supremacy clause mandates that federal law governs if there is a conflict between the two. (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612 [115 Cal.Rptr.2d 765] ["`"state law is pre-empted to the extent that it actually conflicts with federal law"'"].)