On July 30, 2012, the California Court of Appeals for the Fourth District (“COA”) found that the United States Supreme Court’s (the “Court”) decision in AT&T Mobility, LLC v. Concepcion (“Concepcion”) trumps the California Consumer Legal Remedies Act’s (“CLRA”) prohibition on class action waivers. The COA overturned an Orange County Superior Court decision that prevented Mercedes Benz from exercising an arbitration clause in its contract with one of its car buyers, Lee Anne Caron. The COA found that the precedent on which the trial court’s decision was based, Fisher v. DCH Temecula Imports, LLC (“Fisher”), is superseded by Concepcion.
In April 2011, in Concepcion, the Court found that the Federal Arbitration Act of 1925 (“FAA”) preempted the Discover Bank test that prohibited arbitration clauses containing class action waivers because it stood as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the FAA. The Court’s ruling was in direct conflict with Fisher, which held that under the CLRA class action waivers were unenforceable. However, Fisher was heard in 2010, prior to the Court’s ruling in Concepcion.
In the case at hand, the underlying lawsuit began in 2008, when Lee Anne Caron purchased a pre-owned Mercedes Benz. Her sales contract included an arbitration provision forfeiting her right to participate in a class action on any claim against the dealer. Caron started experiencing problems with her vehicle. After Mercedes Benz was unable to adequately repair her vehicle to her satisfaction, she filed a class action complaint against the dealer, asserting claims under the CLRA, False Advertising Law and Unfair Competition Law in May 2010. Mercedes petitioned to compel Caron to arbitration for her individual claims in accordance with her sales contract. However, Caron claimed the arbitration provision was unconscionable and that under Fisher the class action waiver was invalid because it required her to waive her statutory right to bring a class action under the CLRA and therefore, the entire arbitration provision was invalid. Mercedes Benz argued that the FAA preempted Fisher. The trial court ruled in Carron’s favor and Mercedes Benz appealed.
The COA declined to follow Fisher, finding that the trial court erred in denying defendant’s petitions to compel arbitration. The COA found that similar to the Discover Bank test which was overturned in Concepcion because it was a state-law rule that was preempted by the FAA, the CLRA’s class action waiver prohibition was a state-law rule that was also preempted by the FAA for the same reasons – it stood as an obstacle to the FAA’s purpose in enforcing arbitration agreements according to their terms.
This decision may have implications in the review of another high-profile class action ruling based on Fisher, Sanchez v. Valencia, which is currently under consideration by the California Supreme Court. In that case, the appellate court struck down an arbitration clause with a class action waiver in a car dealer’s contract, claiming it was unconscionable. Both cases involve essentially the same Mercedes Benz sales contract.