A California Mercedes-Benz store has lost a second bid to force arbitration in a class-action suit alleging it violated financing and consumer protection laws.
Late last month, the California Court of Appeal held that a mandatory arbitration provision prohibiting class-action claims in the dealer's sales agreement cannot be enforced because it is one-sided and unconscionable. A Los Angeles County judge had earlier rejected arbitration.
Plaintiff's lawyer, Christopher Barry of San Diego, says the newest decision "impacts almost everyone who bought a car in California over the last four to five years" because most of the state's dealers and lenders included the invalidated provision in their sales contracts.
The dealership has asked the appellate court to rehear the case, says defense lawyer Soojin Kang of Sherman Oaks, Calif. If that is unsuccessful, she says, "there is industry support" for seeking state Supreme Court review.
The decision came in a lawsuit by Gil Sanchez, who bought a used 2006 Mercedes S500V from Valencia Holding Co., which does business in Santa Clarita, Calif., as Mercedes-Benz of Valencia.
According to the suit, in August 2008, Sanchez wanted to trade in his 2004 Cadillac Deville toward the S500V, which was advertised for about $48,000.
He was offered $6,000 for the Cadillac, which had a loan balance of about $20,800. Sanchez made a $10,000 down payment and later agreed to put down another $3,700 to qualify for 4.99 percent financing on a "certified" used vehicle.
The contract price was $53,499, with $47,033 financed. It included $347 for license fees, a $28 "optional DMV electronic filing fee" and the state's new-tire fee of $1.75 per tire, including the spare, according to the complaint. The contract listed a $15,000 down payment instead of the $10,000 Sanchez had paid.
Valencia represented that the S500V was certified, had been carefully inspected and had a 12-month limited warranty, the suit alleges.
After Sanchez took possession, Valencia asked for an additional $5,000 down payment, which Sanchez made.
Shortly afterward, the car had water leaks and electrical problems. After unsuccessful repair efforts, the suit says, the dealer falsely accused Sanchez of tampering with the car, demanded $14,000 for additional repairs, and disclaimed the warranty. At that point, Sanchez discovered that the car had suffered significant previous damage.
The suit alleges that Valencia failed to separately itemize the deferred amount of the down payment; failed to distinguish registration, transfer and titling fees from license fees; charged the optional electronic filing fee without asking buyers whether they wanted it; collected new-tire fees for used tires; and demanded $3,700 for an optional extended limited warranty that was unrelated to the interest rate.
The class-action complaint seeks compensatory and punitive damages and civil penalties.
Kang says Valencia disputes the allegations but would not comment further on the case.
A Los Angeles County judge rejected a defense effort to force arbitration, finding the class-action waiver in the sales agreement invalid because it conflicts with the state's consumer protection law.
The Court of Appeal unanimously upheld that ruling but for a different reason.
It said the contract's arbitration provision involves "oppression and surprise due to unequal bargaining power" and is unenforceable because of "harsh one-sided terms that favor the car dealer to the detriment of the buyer."
In an opinion by Justice Robert Mallano, the appellate panel said provisions concerning the right to appeal, fees, injunctions and repossession "may appear neutral on their face" but place "an unduly harsh burden on the buyer."
The court also rejected Valencia's argument that Sanchez could have bought a car from a Mercedes dealership that didn't require arbitration.