- Arbitration Denied When Arbitration Provision Deemed Unconscionable, Both Procedurally and Substantively.
In the case of Penilla vs. Westmont Corporation, 2016 DJDAR 9442, the Appellate Court agreed with the Trial Court deeming the arbitration provision in a mobile home lease both procedurally unconscionable as well as substantively unconscionable and therefore denied arbitration.
Procedural unconscionability focuses on oppression or unfair surprise (Sanchez vs. Western Pizza Enterprises, Inc.,  172 Cal App 4th 154). Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one sided (Pinnacle vs. Superior Court  66 Cal App 4th 1213).
In this case, the Defendant, Westmont, owned Wild Wood Mobile Home County Club located in Hacienda Heights. It is a mobile home park with primarily low income mobile home owners who rent the land. The mobile home owners filed a complaint alleging contract, tort and statutory causes of action against Westmont. Westmont moved to have the case arbitrated pursuant to the lease which contained an arbitration provision.
The trial court deemed the arbitration provision unfair as it imposed fees to arbitrate at JAMS (Judicial Arbitration and Mediation Service) which the court deemed unaffordable or would have substantially deterred respondents from asserting their claims. In addition, the arbitration provision shortened the statute of limitation periods for certain causes of action and it limited various remedies available in arbitration for statutory claims.
The court also deemed the arbitration provision an adhesion contract in that it was contained within the mobile home land lease and could not be negotiated. In other words, it was a take it or leave it proposition. The Trial Court also gave great weight to the fact that 15 of 46 plaintiffs spoke little or no English and they were never given a Spanish language copy of the arbitration provision nor was the arbitration provision ever explained to them in Spanish including that their tort claims were limited.
Testimony was given that the average hourly rate for a JAMS arbitrator is between $500.00 to $800.00 an hour or from $5,000.00 to $10,000.00 per day depending on the arbitrator selected. There is also a mandatory $400.00 filing fee at JAMS. The Trial Court as well as the Appellate Court deemed this to be unaffordable for the low income Plaintiffs.
Based on all of the above referenced factors the Motion to Compel Arbitration was denied.
This is one of the few cases that the court found in favor of the party opposing arbitration. Generally speaking trial courts are inclined to compel arbitration if there is a valid arbitration provision in a written agreement.
Hiring an arbitrator/mediator from one of the more established companies such as JAMS, Judicate West or ADR generally means a retired judge or a very experienced retired attorney. Their hourly fees are very high and the cost of the arbitration can be expensive depending on the length of the arbitration. That cost has to be weighed against the time it takes to get a case to trial in superior court (well over 1 year) and the cost of discovery including depositions and written discovery. These factors can sometimes far outweigh the cost of paying for the arbitrator.
It all comes down to the economics of the case. If an arbitration is preferable and there is an arbitration clause the choice of the arbitrator for the particular case is crucial. There are far too many retired judges arbitrating cases that they had very little experience in while they were on the bench.
About the Author
Scott Souders is a real estate attorney who has practiced real estate law in excess of 42 years in Southern California. The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.