LEGAL FILE

Calif. appeals panel affirms arbitration in dealership-customer dispute

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A California Court of Appeal panel has ordered the buyer of a 2006 Toyota Sequoia to arbitrate her claims in her finance dispute with the dealership.

The panel rejected arguments brought by Andrea Naasz that the arbitration provision in her standard sales contract is unconscionable and unenforceable.

The decision conflicts with a December ruling by another California Court of Appeal panel that said a store cannot force arbitration of a customer's individual and class-action claims. That panel permitted a lawsuit to proceed in court against the dealership and a third-party lender.

The new decision comes in a suit by Naasz and her co-signer. Naasz was upside down on a 2004 Chrysler Pacifica when she traded it for the Sequoia from West Covina Toyota in February 2010 and wanted lower monthly payments, according to legal documents.

Their lawyer, Angela Patrick of San Diego, said her clients intend to seek California Supreme Court review, which could resolve conflicting interpretations of the law.

After Naasz picked up the car, the store notified her that the lender required a larger down payment but said the store would lower the price instead, the court said.

Naasz and her co-signer then signed a new, backdated sales contract. The preprinted document had a standard arbitration provision that included a waiver of class-action rights.

The car developed problems that authorized repair facilities were unable to fix, and Toyota Motor Sales U.S.A. refused to buy back the car.

The plaintiffs sued under the California sales finance, consumer protection, warranty and unfair competition laws, raising individual and class claims. In summary, the suit claimed that Naasz was tricked into buying a lemon, that she and the co-signer were misled into signing the new sales contract and that the sales and finance staff never mentioned arbitration.

A Los Angeles County judge granted West Covina Toyota's request to compel arbitration.

The three-judge Court of Appeal panel agreed, finding the arbitration clause to be enforceable.

The panel rejected the plaintiffs' argument that the provision is invalid because the California Supreme Court has found waivers of class claims and litigation to violate state law.

The appellate panel said the Federal Arbitration Act, which pre-empts obstacles to arbitration, trumps state prohibitions against class-action waivers.

The panel emphasized that West Covina Toyota's arbitration provision was clearly marked on the back of the two-page sales contract and said the plaintiffs had an opportunity to thoroughly read the contract before signing it. Nor was the sales contract unduly harsh or unfairly one-sided, it said.

The dealership's lawyers did not respond to requests for comment.

You can reach Eric Freedman at freedma5@msu.edu.

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