As many of you may have heard, a California Court of Appeal on Monday held that the arbitration provision in the LAW553-CA-ARB form is invalid because it is too one-sided. In Sanchez v. Valencia Holding Company, the court found that because the customer did not know the contract contained an arbitration provision and the appeal and self-help clauses contained in it were allegedly one-sided, the entire arbitration provision is unenforceable. You might have seen alerts from Auto Advisory Services and the CNCDA urging you to contact legal counsel with any questions regarding immediate steps to take in light of this unfortunate court opinion.

We believe the Sanchez opinion is subject to challenge and expect it to be appealed. In the meantime, since one court has invalidated the arbitration provision, dealers should take steps to avoid the same result. Aggressive plaintiffs’ counsel are likely to argue that continued use of this form contract violates state law. While we believe that argument to be erroneous, to avoid unnecessary litigation, dealers should develop practices designed to overcome the purported problems identified by the Sanchez court. Best practices are not “one size fits all” and dealers might face differing practical obstacles to implementing a particular practice that other dealers don’t face. .

In the meantime, we will do everything we can to champion the legal effort to mitigate the effect of the clearly erroneous Sanchez opinion.