Wednesday, February 03, 2021

unconscionability prevents enforcement of arbitration agreement for consumer claims

Cabatit v. Sunnova Energy Corp., No. C089576, --- Cal.Rptr.3d ----, 2020 WL 8365909 (Ct. App. Dec. 31, 2020)

California isn’t fond of mandatory consumer arbitration. Here, the court finds the arbitration agreement unconscionable and refuses to enforce it against a claim relating to the solar power lease agreement between the Cabatits and Sunnova. The rule of McGill v. Citibank, N.A., 2 Cal.5th 945 (2017)—that an arbitration agreement waiving statutory remedies under California consumer protection law is unenforceable—was unnecessary to the decision. Because Sunnova didn’t argue in the trial court that the arbitrator had to determine the unconscionability issue, that issue was waived; the arbitration clause was procedurally and substantively unconscionable under general principles independent of McGill. Some details:

The salesperson said the Cabatits did not need to read the agreement language because he would go over the details, but the Cabatits would need to sign the agreement and initial certain parts before any work could be done. The salesperson scrolled through the agreement language quickly, indicating where signatures or initials were needed.

Indiana Cabatit speaks and understands English fairly well, but she does not understand complicated or technical terms. As the salesperson scrolled through the agreement language, Indiana Cabatit signed or initialed where the salesperson indicated, even though she did not understand most of what he was saying. The salesperson did not explain anything about arbitration.

The Cabatits had no computer and no internet access. They did not receive a copy of the agreement until this dispute arose and their daughter obtained a copy.

This was a procedurally unconscionable contract of adhesion, with no opportunity to bargain over terms, which were not explained anyway. It wasn’t enough that Indiana Cabatit signed a statement that she had read the terms of the agreement, and even if the arbitration provision was “conspicuous” in the abstract, the evidence was that the salesperson scrolled through the agreement, and the arbitration clause was not called to the Cabatits’ attention. And any right to cancel within 7 days “was meaningless because Sunnova did not give them a copy of the agreement during the relevant time period and there is no evidence such a right was explained to the Cabatits.” The context indicated oppression and surprise, resulting in “a high degree of procedural unconscionability.”

Substantively, this was a one-sided agreement which required the Cabatits to arbitrate their claims, but allowed Sunova to file in court if the Cabatits defaulted (defined as failure to make a payment, failure to perform an obligation under the lease, providing false information, or assigning the lease without prior authorization). “In other words, Sunnova reserved the right to take most of its claims to court but purported to deny the Cabatits the same opportunity.” Although the Cabatits were allowed to go to court to seek (1) injunctive relief for any threatened conduct that could cause irreparable harm, (2) a judgment confirming the award, or (3) a small claims judgment, that was still too one-sided given the breadth of “default” favoring Sunnova. Sunnova didn’t show it had special need for this one-sidedness.

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