Cisneros v. American General Financial Services, Inc. et al

Filing 39

ORDER by Judge Charles R. Breyer denying 32 Motion to Compel Arbitration. (crblc1, COURT STAFF) (Filed on 7/24/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

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No. C 11-02869 CRB

LUCRESIA CISNEROS,

ORDER DENYING MOTION TO
COMPEL ARBITRATION

Plaintiff,
v.
AMERICAN GENERAL FINANCIAL
SERVICES, INC. ET AL.,
Defendants.

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Now pending is a motion by Defendant Springleaf Financial Services, Inc., formerly

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known as American General Financial Services, Inc. (“Defendant AGFS”), to compel

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arbitration. Mot. (dkt. 33). Plaintiff Lucresia Cisneros (“Plaintiff”) contends that Defendants

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American General Financial Services, Inc., Hispanic Educational, Inc., and Logic’s

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Consulting, Inc., engaged in a door-to-door scheme selling personal computers and software

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financed through credit accounts opened with Defendant AGFS. On behalf of herself and

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similarly situated California consumers, Plaintiff alleges violations of California consumer

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protection statues and federal truth in lending laws. Defendant AGFS, however, argues that

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the consumer contract between Plaintiff and Defendant AGFS requires Plaintiff to arbitrate

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her claims on a non-class, non-consolidated basis. As discussed below, both procedural and

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substantive unconscionability are present in the arbitration provision. Accordingly, the Court

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DENIES Defendant AGFS’s Motion to Compel Arbitration.
I.

BACKGROUND
In February of 2008, a sales agent representing Hispanic Educational, Inc. and Logic’s

Consulting, Inc. entered Plaintiff’s home to sell a computer system financed by Defendant
AGFS. Cisneros Decl. (dkt 35-1) ¶¶ 3, 5. The sales agent represented that the “educational”
computer system he was selling was necessary for the education of Plaintiff’s children, and
Plaintiff believed that the sales agent was a professional educator. Id. ¶¶ 5, 7. Plaintiff tried
to refuse the sales agent’s solicitation, but he persisted. Id. ¶ 7. At one point, Plaintiff left
the home to pick up her daughter, but the sales agent insisted on waiting inside her home.
Id.; Second Amended Compl. (“SAC”) (dkt. 31) ¶ 19. Eventually, the sales agent told
Plaintiff that the computer and software would be free after tax deductions. Cisneros Decl. ¶
8. Plaintiff alleges that this representation, along with a desire for the sales agent to leave her
home, prompted Plaintiff to agree to purchase the computer system. Id. The sales agent
returned with other representatives within an hour to install the computer in Plaintiff’s home.
SAC ¶ 20. The sales agent informed Plaintiff that she would need to pay $118 per month
over two years to pay off the computer system, and had Plaintiff sign a document written in
Spanish, entitled “Convenio.” Id. The Convenio outlined the payment plan for the $2,900
Plaintiff owed on the computer system. See SAC, Ex. A. At the time of the transaction,
Plaintiff made a $100 down payment. See id.
All of the interactions between Plaintiff and the sales representative, and the first form
that Plaintiff signed, were in Spanish. See Cisneros Decl. ¶¶ 9-10. At the time of the
transaction, Plaintiff asserts that she had limited ability to understand, speak, or read English.
Id. ¶ 9. The sales representative then had Plaintiff sign a second document, entitled “Sales
Slip,” which incorporated an “Account Agreement” that Plaintiff also signed.1 See SAC ¶
21; see also Andretich Decl. (dkt 32-3), Exs. B, C. Both the Sales Slip and Account

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At the motion hearing, Defendant repeatedly emphasized that Plaintiff signed the Account
Agreement twice, as if that proved that Plaintiff understood the Agreement’s terms. Plaintiff could have
signed the Account Agreement many times over and the Court still would not find Defendant’s urged
inference to be reasonable.
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Agreement were written in English. Cisneros Decl. ¶ 10. Plaintiff contends that she could
not read or understand, nor did the sales agent explain, the contents of either form. Id. The
Sales Slip and Account Agreement created a credit account to finance payment of the
computer system through Defendant AGFS, and Plaintiff did not understand that this made
the total payment price much higher than the initial purchase price. SAC ¶ 21.
Some time after the initial sale, Plaintiff received a statement from Defendant AGFS
alerting her that Plaintiff had financed the remaining $2,800 left on the computer system at
21% interest, such that it would take three years to pay off a total of $4,506. Id. ¶ 23.
Plaintiff alleges that her total cost is more than 900% of the original fair market value of the
computer system itself, which was approximately $500. Id. Her total cost ($4,506) is also
more than 150% of the price Plaintiff believed she agreed to ($2,900).2 See id. ¶ 23.
Plaintiff called Defendant AGFS and spoke with a Spanish-speaking representative
who confirmed that the statement stemmed from the credit account she opened with
Defendant AGFS. Id. ¶ 25. Plaintiff tried to cancel the transaction. See id., Ex. C. To date,
Defendant AGFS has not responded to Plaintiff’s request. Id. ¶ 28.
In September of 2010, Plaintiff filed her initial Complaint against Defendants AGFS,
Hispanic Educational, Inc., and Logic’s Consulting, Inc. in Alameda County Superior Court.3
See Notice of Removal (dkt. 1) at 1. After that court denied Defendant AGFS’s Motion for
Judgment on the Pleadings, Defendant AGFS removed the action to this Court. See Opp’n
(dkt. 35) at 3. In April of 2012, Plaintiff filed her Second Amended Complaint on behalf of
herself and a putative California class of consumers. See generally SAC. Plaintiff claims
that Defendants AGFS, Hispanic Educational, Inc., and Logic’s Consulting, Inc., sold
computer systems and software to consumers and arranged financing at predatory terms

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This is presumably a significant amount of money to Plaintiff, who works seasonally in the
field or at a packing house and makes $1,200 a month. Cisneros Decl. ¶ 13. In the seasons where there
is no work, she receives $1,720 a month in unemployment benefits. Id. Plaintiff supports four children.
Id.
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The Superior Court entered default against Hispanic Educational, Inc. in November of 2010
after its failure to appear. Opp’n at 3. Plaintiff has been unable to serve Logic’s Consulting, Inc. at any
of its known addresses. Id.
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through credit accounts opened with Defendant AGFS. Id. Plaintiff alleges violations of the
California consumer protection statutes and federal truth-in-lending laws. Id.
In May of 2012, Defendant AGFS filed the present Motion to Compel Arbitration and
Stay Judicial Proceedings. See Mot. The arbitration provision Defendant AGFS relies on is
in the English-written Sales Slip and Account Agreement. See Andretich Decl., Exs. B, C.
The Account Agreement, above where Plaintiff’s signature was required, stated:

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By signing below, you have read, understand, and agree to the terms and
conditions in this document, including the arbitration provisions that provide,
among other things, that either you or creditor may require that certain disputes
between you and creditor be submitted to binding arbitration.

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Id. The arbitration provisions were provided on a separate page of the Account Agreement

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that did not require Plaintiff’s signature.4 See id. Defendant AGFS argues that the statutory

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language of the Federal Arbitration Act, the holding in AT&T Mobility LLC v. Concepcion,

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131 S. Ct. 1740 (2011), and a subsequent series of decisions support Defendant’s contention

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that Plaintiff must arbitrate her claims. See generally Mot.

United States District Court
For the Northern District of California

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Plaintiff, however, argues that the agreement to arbitrate should be invalidated

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The arbitration provision states: “Except as provided below, either you or Creditor may choose
that any claim or dispute between the parties or any claim, dispute or controversy involving you and any
other party arising from or relating to this agreement or the relationships which result from this
agreement, including the validity of this arbitration clause or the entire agreement, shall be resolved by
binding arbitration. Notwithstanding any other terms of the Arbitration Provisions, you cannot elect to
arbitrate and Creditor shall not be required to arbitrate Creditor’s self-help or judicial remedies of
replevin, garnishment, repossession, or foreclosure with respect to any property that secures this
Agreement. Provided, however, that Creditor can elect to arbitrate such claims and, if such election is
made, you shall be bound by such election and the terms of the Arbitration Provisions shall govern the
proceedings. Creditor’s exercise of its rights under this paragraph shall not be deemed a waiver of its
rights to elect arbitration. A single arbitrator shall conduct arbitration, under the Federal Rules of
Evidence and National Arbitration Forum’s Code of Procedure in effect at the time the claim is filed.
Rules and forms of the National Arbitration Forum may be obtained by calling . . . . The arbitrator shall
not be allowed to conduct arbitration on a class-wide basis, and the arbitrator shall not be allowed to
consolidate arbitration demands filed by others. The party electing arbitration shall pay any initial filing
fee except that Creditor shall pay the filing fee in excess of $125 and any deposit required by the NAF.
Creditor agrees to pay the initial costs of arbitration up to a maximum or eight hours of hearings. Any
participating hearing will take place in the county where you live unless you and Creditor agree to
another location. Arbitration Provisions shall be governed by the Federal Arbitration Act. Judgment
upon the award may be entered in any court having jurisdiction. By signing this Agreement you agree
to the Arbitration Provision above, which provides that you or Creditor can require that all disputes,
claims, or controversies between the parties to be submitted to BINDING ARBITRATION. YOU
UNDERSTAND THAT YOU ARE VOLUNTARILY WAIVING YOUR RIGHT TO A JURY TRIAL
OR JUDGE TRIAL FOR SUCH DISPUTES.” See Andretich Decl. Ex. C (capitalization in original).
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because the arbitration clause that Defendant seeks to enforce is procedurally and
substantively unconscionable.4 Opp’n at 1. Plaintiff primarily relies on three facts: (1) The
arbitration clause is written in English although the underlying transaction was orally
negotiated in Spanish, and Plaintiff can neither read nor write in English; (2) Plaintiff signed
the documents because Defendant’s representative refused to leave until she did so; and (3)
the arbitration is one-sided – allowing Defendant to litigate while forcing Plaintiff to
arbitrate. Id. at 1-2. Plaintiff argues that these bases for unconscionability are generally
applicable and not unique to arbitration. Id. at 2. Thus, Plaintiff asks that the Court not
enforce the arbitration agreement.5 Id.
II.

LEGAL STANDARD
The Federal Arbitration Act (FAA) provides that an agreement to submit commercial

disputes to arbitration shall be “valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Congress’s
purpose in passing the Act was to put arbitration agreements “upon the same footing as other
contracts,” thereby “reversing centuries of judicial hostility to arbitration agreements” and
allowing the parties to avoid “the costliness and delays of litigation.” Scherk v. AlbertoCulver Co., 417 U.S. 506, 510-11 (1974) (quoting H.R. Rep. No. 96, 68th Cong., 1st Sess., 1,
2 (1924)).
In applying the FAA, courts have developed a “liberal federal policy favoring
arbitration agreements.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Co., 460 U.S. 1,

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Defendant AGFS asserts in its Reply and asserted again at the motion hearing that Plaintiff
challenges the contract as a whole. See Reply (dkt. 36) at 1l. At this time, however, Plaintiff only
challenges the arbitration provision and not the entire contract. See Opp’n at 2. That Plaintiff accepts
that a contract exists is evidenced by her having received a computer, made a down payment of $100,
and made six installment payments totaling $720.02. See Andretich Decl. ¶¶ 4, 7.
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Defendant AGFS argues that the arbitrator, rather than the Court, should decide the
unconscionability claim Plaintiff raises. Reply at 6. However, a claim of unconscionability involving
an arbitration clause can be decided by a court as a matter of law while invalidating the agreement as
a whole on grounds of unconscionability can be a question for an arbitrator to decide. See Nagrampa
v. Mailcoups, Inc., 469 F.3d 1257, 1263 (9th Cir. 2006). Plaintiff does not challenge the Account
Agreement as a whole as Defendant AGFS contends. See Reply at 4. Instead, Plaintiff challenges the
arbitration clause. See Opp’n at 5-6 (“[T]he arbitration clause that Defendant seeks to enforce has high
levels of both procedural and substantive unconscionability and, therefore, cannot be enforced.”).
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24-25 (1983). The Supreme Court has emphasized that courts should refer a matter for
arbitration “unless it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute.” United Steelworkers
of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). “In the absence of
any express provision excluding a particular grievance from arbitration . . . only the most
forceful evidence of a purpose to exclude the claim from arbitration can prevail.” Id. at 58485. Thus, any doubt about the applicability of an arbitration clause must be “resolved in
favor of arbitration.” Id. at 589.
At the same time, however, the Supreme Court has repeatedly emphasized that
“arbitration is a matter of contract and a party cannot be required to submit to arbitration any
dispute which he has not agreed so to submit.” AT&T Tech. Inc. v. Commc’ns Workers of
Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers, 363 U.S. at 582). Thus, a
federal court’s task in reviewing the arbitrability of a particular dispute is to determine
whether the parties have agreed to submit that dispute to arbitration. “The standard for
demonstrating arbitrability is not high.” Simula, Inc. v. Autoliv, Inc., 175 F.3d 717, 719 (9th
Cir. 1999). “By its terms, the Act leaves no place for the exercise of discretion by a district
court, but instead mandates that district courts shall direct the parties to proceed to arbitration
on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds v.
Byrd, 470 U.S. 213 (1985) (citing §§ 3 and 4 of the FAA) (emphasis in original).
The final phrase of § 2 of the FAA provides that arbitration agreements are to be
declared unenforceable “upon such grounds as exist at law or in equity for the revocation of
any contract.” 9 U.S.C. § 2. Thus, in addition to determining the arbitrability of a dispute,
courts should determine the enforceability of the arbitration agreement. Grounds for
declaring an arbitration agreement unenforceable are determined by “ordinary state-law
principles that govern the formation of contracts.” Circuit City, Inc. v. Adams, 279 F.3d 889,
892 (9th Cir. 2002) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995)). The FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable
contract defenses, such as fraud, duress or unconscionability,’ but not by defenses that apply
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only to arbitration or that drive their meaning from the fact that an agreement to arbitrate is at
issue.” AT&T Mobility LLC, 131 S. Ct. at 1746. “[T]he party resisting arbitration bears the
burden of proving that the claims at issue are unsuitable for arbitration.” Green Tree Fin.
Corp.-Alabama v. Randolph, 531 U.S. 79, 81 (2000).
III.

DISCUSSION
Defendant moves to compel arbitration, arguing that the arbitration provision in the

signed Account Agreement is valid and enforceable and that Plaintiff’s claims fall within the
scope of the provision. In particular, Defendant stresses that since Concepcion, challenges to
class action waiver clauses in arbitration agreements have routinely been rejected by federal
courts in the Ninth Circuit and nationwide.6 See Mot. at 12. Arbitration agreements,
however, are still subject to unconscionability analysis post-Concepcion. See Marmet Health
Care Ctr., Inc. v. Brown, 132 S. Ct. 1201, 1203-04 (2012) (per curiam) (remanding case to
state court to determine whether an arbitration clause is unconscionable and “unenforceable
under state common law principles that are not specific to arbitration”); Kanbar v.
O’Melveny & Meyers, No. 11-0892, 2011 WL 2940690, at *6 (N.D. Cal. July 21, 2011)
(stating that after Concepcion, “arbitration agreements are still subject to unconscionability
analysis”).
Numerous courts have found that Concepcion does not preclude the application of the
California unconscionability principles as stated in Armendariz v. Found. Psychcare Servs.,
Inc., 24 Cal. 4th 83, 114 (2000).7 See, e.g., Laughlin v. VMware, Inc., No. 11-530, 2012 WL
298230, at *3 (N.D. Cal. Feb. 1, 2012) (holding that California courts continue to use the
procedural and substantive unconscionability analysis for arbitration agreements postConcepcion, and applying that analysis); Lau v. Mercedes-Benz USA, LLC, No. 11-1940,
2012 WL 370557, at *7 (N.D. Cal. Jan. 31, 2012) (finding misplaced defendant’s argument

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This argument, however, misses the mark because Plaintiff does not challenge the arbitration
provision based on its class action waiver.
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Plaintiff and Defendant AGFS agree that the Account Agreement is governed by a California
choice of law provision and, therefore, “California law governs the determination of whether a valid
agreement to arbitrate exists.” See Mot. at 8; Opp’n at 5.
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that Concepcion rejected an unconscionability defense to arbitration agreements); Kanbar,
2011 WL 2940690, at *8 (applying the Armendariz analysis to an employment arbitration
agreement).
Under California law, courts may refuse to enforce a contract where, at the time of its
formation, it was unconscionable, or may limit the application of any unconscionable clause.
Cal. Civ. Code § 1670.5(a) (West 2012). A finding of unconscionability has both a
procedural and substantive component and “is a valid reason for refusing to enforce an
arbitration.” Armendariz, 24 Cal. 4th at 114. While procedural unconscionability focuses on
the element of “‘oppression’ or ‘surprise’ due to unequal bargaining power,” substantive
unconscionability centers on “‘overly harsh,’ or ‘one-sided’ results.” Id. Both components
must be present before a court may refuse to enforce a contract but need not be present to the
same degree. Id. A sliding scale is applied so that “the more substantively oppressive the
contract term, the less evidence of procedural unconscionability is required to come to the
conclusion that the term is unenforceable, and vice versa.” Id. Finally, unconscionability
cannot be determined only by looking at the face of the contract. Blake v. Ecker, 93 Cal.
App. 4th 728, 743 (2001). The inquiry must also look into the circumstances under which
the contract was executed, its purpose, and effect. Id.
A.

Procedural Unconscionability

Procedural unconscionability deals with “the manner in which the contract was
negotiated and the circumstances of the parties at that time.” Kinney v. United Health Care
Servs., Inc., 70 Cal. App. 4th 1322, 1329 (1999). In particular, the procedural component of
unconscionability focuses on two factors: oppression and surprise. Armendariz, 24 Cal. 4th
at 114. “‘Oppression’ arises from an inequality of bargaining power which results in no real
negotiation and ‘an absence of meaningful choice,’ [whereas] ‘[s]urprise’ involves the extent
to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form
drafted by the party seeking to enforce the disputed terms.” Bruni v. Didion, 160 Cal. App.
4th 1272, 1288 (2008). “California law treats contracts of adhesion, or at least terms over
which a party of lesser bargaining power had no opportunity to negotiate, as procedurally
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unconscionable to at least some degree.” Bridge Fund Capital Corp. v. Fastbucks Franchise
Corp., 622 F.3d 996, 1004 (9th Cir. 2010).
Notably, post-Concepcion, courts have split as to whether a contract of adhesion is
sufficient to demonstrate procedural unconscionability.8 Compare In re Gateway LX6810
Computer Prods. Litig., No. 10-1563, 2011 WL 3099862, at *3 (C.D. Cal. July 21, 2011)
(finding that a mere assertion that a contract was an adhesion contract was insufficient to
demonstrate procedural unconscionability), with Trompeter v. Ally Fin., Inc., No. 12-0392,
2012 WL 1980894, at *3 (N.D. Cal. June 1, 2012) (finding that the adhesive contract
established a limited degree of procedural unconscionability), and Morvant v. P.F. Chang’s
China Bistro, Inc., No. 11-5405, 2012 WL 1604851, at *4 (N.D. Cal. May 7, 2012) (finding
that a contract of adhesion is a contract of oppression).
The Account Agreement Plaintiff signed is a contract of adhesion. The arbitration
clause was “imposed and drafted by the party of superior bargaining strength” and
“relegate[d]” to the Plaintiff “only the opportunity to adhere to the contract or reject it.”
Armendariz, 24 Cal. 4th at 113. Accordingly, the Court finds that the standardized, take it or
leave it nature of the Account Agreement establishes some degree of procedural
unconscionability. See Trompeter, 2012 WL 1980894, at *4 (finding that plaintiff
“established a minimal degree of procedural unconscionability based on the adhesive nature
of the form arbitration agreement and the lack of opportunity for him to negotiate its terms”).
Moreover, Plaintiff is a relatively unsophisticated party in a weaker bargaining
position than Defendant AGFS. See Opp’n at 6. Plaintiff was born in Mexico and received
only a fourth grade education there. Cisneros Decl. ¶ 3. She is of limited financial means
and lives in a community of migrant Spanish-speaking farm workers. Id. ¶¶ 3, 13. Plaintiff

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Defendant relies on a portion of Concepcion stating: “the times in which consumer contracts
were anything other than adhesive are long past.” 131 S. Ct. at 1750 (citations omitted). Though this
statement does not mean contracts of adhesion are not procedurally unconscionable, some courts have
used it to find that adhesive arbitration agreements do not strongly weigh in favor of procedural
unconscionability. See, e.g., Beard v. Santander Consumer USA, Inc., No. 11-1815, 2012 WL 1292576,
at *12 (E.D. Cal. Apr. 16, 2012) (“In light of the Supreme Court’s decision in Concepcion, however,
the Court does not find that the adhesive nature of the agreement weighs strongly in favor of procedural
unconscionability.”).
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cannot read or write in English and, at the time of the sales transaction, did not speak
English. Id. ¶ 9. Plaintiff’s interaction with the sales agent was conducted entirely in
Spanish, but the Account Agreement and Sales Slip that contained notice and description of
the arbitration provision were entirely in English.9 See id. ¶¶ 9-10. The sales agent did not
verbally translate the forms, provide Spanish versions of the forms, or even alert Plaintiff to
the arbitration clause. Id. ¶¶ 10-11. The fact that the solicitation took place in her home
further exacerbates aspects of procedural unconscionability. See Opp’n at 7. Plaintiff states
that signing the documents was the only way she knew how to make the sales representative
leave her home, and that while at home, no one could assist her in translating the documents.
See id.
Though Defendant cites to an unpublished case from this District to emphasize the
duty to read contractual terms even with a language barrier, the case cited deals with two
sophisticated merchants. See Chateau des Charmes Wines Ltd. v. Sabte USA, Inc., No. 014203, 2002 WL 413463, at *3 (N.D. Cal. Mar. 12, 2002), rev’d on other grounds sub nom.
Chateau des Charmes Wines Ltd. v. Sabate USA Inc., 328 F.3d 528 (9th Cir. 2003). In the
present case, Plaintiff’s vulnerability in her home and her inability to understand arbitration
terms because they were written in English increases the procedural unconscionability of this
contract. Further, the sales representative did not mention the arbitration provision to the
Plaintiff though he did explain other aspects of the transaction in Spanish. See Cisneros
Decl. ¶¶ 8, 11.
Defendant AGFS’s failure to attach the applicable rules of the National Arbitration
Forum (NAF) to the arbitration provision, while not dispositive, also adds to the Agreement’s
procedural unconscionability. See Samaniego v. Empire Today LLC, 205 Cal. App. 4th
1138, 1146 (2012) (finding that failure to provide plaintiffs with a copy of the relevant
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Defendant AGFS was likely aware of this language difference. Logic’s Consulting, Inc. and
Hispanic Educational, Inc. sent a Spanish-speaking sales representative, targeted Plaintiff in her
primarily Spanish-speaking community, emphasized to Plaintiff the educational benefits of the computer
and software to her children, and had Plaintiff sign a Spanish-translated document (“the Convenio”).
See Cisneros Decl. ¶¶ 3, 5, 7, and 10.
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procedurally unconscionable). Courts have found oppression where arbitration rules are
referenced but not attached in the signed agreement in both employment and nonemployment contexts. See, e.g., Zullo v. Sup. Ct., 197 Cal. App. 4th 477 (2011) (finding
procedural unconscionability when rules not attached even though no evidence in conflict
with the written agreement), Trivedi v. Curexo Tech. Corp., 189 Cal. App. 4th 387, 393-94,
116 (2010) (collecting cases holding that a failure to provide a copy of the arbitration rules to
which employee would be bound supported a finding of procedural unconscionability), and
Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406 (2003) (establishing the procedural
unconscionability factor of oppression because the arbitration rules were not attached to the
contract).
In the present case, the arbitration provision provided that arbitration would be
conducted pursuant to NAF Rules and Code of Procedure at the time the claim was filed and
also provided NAF’s telephone number and web address.10 See Andretrich Decl., Ex. C.
Notwithstanding the language barrier, the arbitration provision’s reference to NAF rules
without attaching them would have – had she known she was signing an arbitration
agreement – “forced” Plaintiff “to go to another source to find out the full import” of what
Plaintiff was about to sign “prior to signing.” Harper, 113 Cal. App. 4th at 1407. This
further increases the procedural unconscionability of the arbitration provision.
Based on these numerous problems, the Court finds the contract to be highly
procedurally unconscionable.
B.

Substantive Unconscionability

“Substantive unconscionability centers on the ‘terms of the agreement and whether
those terms are so one-sided as to shock the conscience.’” Ingle v. Circuit City Stores, Inc.,
328 F.3d 1165, 1172 (9th Cir. 2003) (quoting Kinney, 70 Cal. App. 4th at 1330). An
arbitration provision is substantively unconscionable if it is “overly harsh” or generates
“‘one-sided’ results.” Armendariz, 24 Cal. 4th at 114. Generally, “parties are free to

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NAF, however, no longer handles consumer arbitration disputes. See Mot. at 13.
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contract for asymmetrical remedies and arbitration clauses of varying scope.” Ting v.
AT&T, 319 F.3d 1126, 1149 (9th Cir. 2003) (quoting Armendariz, 24 Cal. 4th at 118).
However, “the doctrine of unconscionability limits the extent to which a stronger party may,
through a contract of adhesion, impose the arbitration forum on the weaker party without
accepting that forum for itself.” Id. As stated earlier, a court need not find much substantive
unconscionability when there is a high level of procedural unconscionability. Armdendariz,
24 Cal. 4th at 114. In evaluating the terms of the contract, courts must analyze the contract at
the time both parties agreed to be bound. Ingle, 328 F.3d at 1172.

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For the Northern District of California

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The arbitration provision here lacks bilateriality and creates unduly harsh one-sided
effects. In particular, the arbitration provision provides that, “[n]otwithstanding any other
terms of the Arbitration Provisions, you cannot elect to arbitrate and Creditor shall not be
required to arbitrate Creditor’s self-help or judicial remedies of replevin, garnishment,
repossession, or foreclosure with respect to any property that secures this Agreement.”
Andretich Decl. Ex. C at 7. Additionally, “Creditor can elect to arbitrate such claims and, if
such election is made, you shall be bound by such election.” Id. Defendant has therefore
carved out and preserved remedies for judicial forum issues that relate to debt collection and
“are the only practical remedies Defendant would ever seek against consumers.” See Opp’n
at 9.

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Defendant argues that the Arbitration Agreement need not be perfectly mutual to be
enforceable. See Reply at 8-9. Defendant further argues that it is not always unconscionable
under California law for one party to have certain remedies or claims excluded from
arbitration. See Armendariz, 24 Cal. 4th at 117 (noting that a party with superior bargaining
power properly may obtain “extra protection for which it has a legitimate commercial need
without being unconscionable”). Defendant contends that it has a legitimate interest in
maintaining its ability to enforce its rights with respect to judicial self-help remedies. Reply
at 9.
The Court rejects Defendant AGFS’s argument. Here, the party with stronger
bargaining power has restricted the weaker party to the arbitral forum, but reserved for itself
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the ability to seek redress in either an arbitral or judicial forum as to issues that matter to it
the most. “California courts have found a lack of mutuality supporting substantive
unconscionability.” Nagrampa, 469 F.3d at 1285 (citations omitted). Indeed, Armendariz
explained that substantive unconscionability may manifest itself in the form of “an agreement
requiring arbitration only for the claims of the weaker party but a choice of forums for the
claims of the stronger party.” 24 Cal. 4th at 119; see also Martinez v. Master Protection
Corp., 118 Cal. App. 4th 107, 115 (2004) (holding that an arbitration agreement requiring
employees to arbitrate all claims, but reserving employer’s right to obtain injunctive relief in
a judicial forum for certain causes of action, lacks mutuality).

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The Court therefore finds that the arbitration provision is substantively
unconscionable. Several courts have concluded that requiring one party to arbitrate but not
the other is the “paradigmatic form of substantive unconscionability under California law.”
Pokorny v. Quixtar, 601 F.3d 987, 1001 (9th Cir. 2010); see, e.g., Armendariz, 24 Cal. 4th at
119 (holding that when an employer, without justification, imposes arbitration on an
employee without also accepting such limitations, the arbitration lacks mutuality). Here,
creditor’s self-help or judicial remedies of replevin, garnishment, repossession, or
foreclosure, are claims likely to be brought exclusively by Defendant AGFS if and when
Plaintiff failed to pay. Because there is a lack of mutuality in the arbitration provision, the
Court finds the agreement to be substantively unconscionable.
IV.

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CONCLUSION
For the foregoing reasons, the Court finds that both elements of procedural and

substantive unconscionability are present in the arbitration provision, and so it is
unenforceable.11 See Circuit City, 279 F.3July 23, 2012d at 892; Armendariz, 24 Cal. 4th at
//
//

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Because the Court finds the arbitration provision unconscionable, the Court will not reach
Plaintiff’s other arguments that the arbitration provision is unenforceable because the selected arbitrator,
the National Arbitration Forum, no longer arbitrates consumer disputes and that Defendant allegedly
waived its right arbitrate.
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114. Thus, Defendant’s Motion to Compel Arbitration is DENIED.
IT IS SO ORDERED.

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Dated: July 23, 2012

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CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

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