Plaintiff car buyer filed a putative class action case alleging a defect. The purchase agreement required arbitration, waived class actions, allowed appeals from arbitration awards, consumer pays costs of arbitral appeal, excluded self help remedies to benefit car dealer like repossession from arbitration. The trial court said the arbitration clause was unconscionable as did the Court of Appeal. However, the California Supreme Court reversed!
The Supreme Court reversed and while it found some degree of procedural unconscionability, it did NOT find the provisions substantively unconscionable. The Court concluded that facially neutral arbitration provisions are not unconscionable unless they are “substantially more likely” to favor one side over the other in an unreasonable fashion. It also found arbitration clauses may include a “‘“margin of safety” that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need.’” Sanchez means in California unconscionability is a rigorous standard and that courts should not simply rubber-stamp plaintiffs’ complaints that a contract (whether an arbitration clause or not) tends to favor one side over the other. Unconscionability defenses to enforcement of arbitration clauses “must be as rigorous and demanding for arbitration clauses as for any contract clause” and unconscionability “requires a substantial degree of unfairness beyond ‘a simple old-fashioned bad bargain.’