Friday, August 20, 2010


On August 13, 2010, the California Court of Appeals issued a clear message to companies seeking to use mandatory arbitration provisions to force consumers to waive fundamental statutory rights. Specifically, in Fisher v. DCH Temecula Imports LLC, the Court of Appeals held that arbitration provisions that purport to waive unwaivable statutory rights violate public policy and are therefore void.

In Fisher, Plaintiff Fisher brought a class action lawsuit seeking injunctive relief, restitution, rescission and damages arising from—among other things—Defendant DCH’s violation of the California Legal Remedies Act (“CLRA”) in connection with a retail sales contract (“Contract”). DCH filed a petition to stay the lawsuit and compel arbitration (as a single individual rather than a class) under a mandatory arbitration clause contained within the Contract. The arbitration clause contained three important provisions:

“Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.”

“If a dispute is arbitrated, you will give up your right to participate as a class representative or class member on any class claim you may have against us including any right to class arbitration or any consolidation of individual arbitration.”

“You expressly waive any right you may have to arbitrate a class action.”

In her opposition to the petition to compel arbitration, Fisher contended that she had a right under the CLRA to file a class action lawsuit, and that she could not be required to waive that right through a mandatory arbitration clause. Fisher relied upon two provisions of the CLRA in support of her argument:

“…any consumer entitled to bring [an individual consumer claim] may…bring an action on behalf of himself and such other consumers to recover damages or obtain other relief.”

“Any waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.”

The California trial court agreed that the CLRA prohibited Fisher from waiving her right to bring a class action. Accordingly, the court denied DCH’s petition to compel arbitration.

On appeal, DCH argued that Fisher’s anti-waiver argument had no application because the Federal Arbitration Act (“FAA”) preempted California law in the determination of the enforceability of the arbitration clause at issue. The California Court of Appeals dismissed DCH’s assertion, noting that Fisher was entitled to contest the arbitration clause on the basis that it was a private agreement in contravention of public rights under the CLRA. Accordingly, Fisher’s defense to the enforcement of the arbitration clause was a “separate, generally available contract defense not preempted by the FAA.”

The Court of Appeals ultimately affirmed the trial court’s order denying DCH’s petition to compel arbitration. In doing so, the Court relied upon its prior holding in Gutierrez v. Autowest, Inc. In that case, the Court of Appeals made clear that “a mandatory arbitration agreement cannot undercut unwaivable state statutory rights by, for example, eliminating certain statutory remedies or erecting excessive cost barriers.” Relying on Gutierrez, the Court noted that “[t]he arbitration clause at issue here required Fisher to waive an unwaivable statutory right under the CLRA to bring a classwide arbitration or classwide lawsuit, which violates the public policy underlying these rights. This qualifies as a private agreement in contravention of public rights.”

Although companies will certainly argue that Fisher is limited to class action provisions, the better argument is that the analysis provided by the California Court of Appeals applies to any waiver of fundamental statutory rights within a mandatory arbitration provision. Accordingly, the ramifications of this decision will likely spread beyond merely class action waivers. Notably, Missouri courts have handed down similar decisions in recent years, demonstrating a clear emphasis on the protection of individual state statutory rights when consumers are forced to sign boilerplate, pre-dispute arbitration agreements.

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