Store loses arbitration bid in suit over fees

A California dealership cannot force a customer to arbitrate his individual and class-action allegations of illegal fee collection and other claims, a state appellate panel has ruled.

Mandatory arbitration provisions in Stephen Norton's sales contract with Subaru of Santa Monica are unconscionable and unenforceable, the Court of Appeal said as it allowed the litigation against the store and a third-party lender to proceed in court.

According to the decision, Norton traded in his 2003 Nissan Maxima toward a used 2008 Dodge Avenger in 2009. The sales contract listed an $8.75 charge for California's $1.75-per-tire new-tire fee and an "optional DMV electronic filing fee" of $28.

In addition, Norton was unaware that the car was still covered by a manufacturer's warranty and paid about $1,500 for a service contract.

The car, which Norton contended was a lemon, developed mechanical problems that repeated efforts over a year and a half failed to fix.

He sued the dealership and lender on his own behalf and on behalf of customers who had paid tire and electronic filing fees.

The suit claimed violations of state consumer protection, warranty and business laws. Among the allegations were illegally collecting the tire fee in sales of used vehicles with used tires, failing to disclose that the DMV fee was optional, misrepresenting aftermarket products and services such as service contracts, and selling a defective vehicle.

Relying on the language in the sales contract that Norton signed, the dealership asked a Los Angeles County judge to order arbitration. It argued that the industry-drafted contract met all legal requirements for consumer protection, that the arbitration clause was conspicuous, that the store hadn't pressured him to buy the Avenger and that the arbitration provision is "fully bilateral and fair, and if anything, favors Norton."

But the judge disagreed and allowed the litigation to continue.

The appellate court did, too.

The appeals panel, in its unanimous opinion, said the sales contract had fatal flaws, including the store's failure to require Norton's signature or initials on the page with the arbitration clause and one-sided language that "in practical terms makes a new arbitration available only to the dealer" because of the high filing fees and other costs imposed on the dissatisfied customer should there be a second round of arbitration.

"The absence of any procedure for a consumer to obtain a fee waiver or reduction or of some effective avenue of relief from unaffordable fees makes the arbitration agreement in the purchase contract substantively unconscionable," the court said in the opinion by Justice Patti Kitching.

The dealership's lawyers did not return phone requests for comment.

Plaintiff's lawyer Angela Smith of San Diego said the decision means dealers "can't just slap stuff on the back of a contract and hope it flies." In addition, she said, the arbitration provision as written would have prevented her client from pursuing class-action claims and would have exposed him to high upfront costs and, potentially, would make him liable for the dealership's legal costs.

You can reach Eric Freedman at

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