California Supreme Court: Unconscionability Rule Is Valid If It Does Not Interfere with "Fundamental Attributes of Arbitration"
Though the case arose in the context of an employment contract, Sonic-Calabasas A, Inc. v. Moreno (Sonic II), issued on October 17, 2013, potentially has implications for all arbitration agreements. In its lengthy decision, discussed in more detail below, the California Supreme Court took the opportunity to explicate the state of California's unconscionability doctrine in light of the Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion (more on Concepcion here) and its more recent 2013 decision in American Express Co. v. Italian Colors Restaurant (more on Italian Colors here). The California high court reiterated that the unconscionability doctrine is viable under the Federal Arbitration Act's savings clause, and determined that Concepcion only requires that it not "interfere with fundamental attributes of arbitration" or be applied in any way that discriminates against arbitration. The fact that even-handed application of an unconscionability rule would have a disproportionate impact on arbitration agreements is not enough to implicate the limits of the FAA, according to the Court's opinion.
Specifically, the Court held that an arbitration agreement's requirement to waive statutorily-afforded Berman protections, while not per se unconscionable, is one factor that a court may consider in determining whether the arbitration agreement as a whole is unconscionable. It is reasonable to presume that courts will soon be entertaining arguments that Sonic II's logic should be extended.Continue Reading...
In Bushell v. JPMorgan Chase Bank, the Third District Court of Appeal reversed a Placer County Superior Court’s order sustaining defendant’s demurrer, and expanded on the courts’ rulings regarding the application of the Home Affordable Modification Program (HAMP) obligating lenders to permanently modify mortgage loans following the successful completion of trial modification periods.
In Bushell, plaintiffs alleged the following causes of action against defendant Chase arising from their home foreclosure: breach of contract; promissory estoppel; and fraud based on false promise. Plaintiffs alleged that defendant was required to offer plaintiffs a permanent loan modification following plaintiffs’ successful completion of a trial loan modification plan. Defendant demurred to plaintiffs’ original complaint, and plaintiffs filed a First Amended Complaint. Defendants demurred again and the trial court sustained the demurrer without leave to amend, holding that the trial modification plan was not, on its face, a binding contract for loan modification, and that plaintiffs did not allege that they qualified under HAMP. Plaintiff appealed.
In Visendi v. Bank of America, the 9th Circuit Court of Appeals clarified removal jurisdiction under the Class Action Fairness Act ("CAFA") for "mass actions."
In Visendi, 137 named plaintiffs sued 25 financial institutions in California state court alleging state law causes of action related to mortgages on financed properties. Defendant Bank of America removed the case to federal court under CAFA, as a "mass action" pursuant to 28 U.S.C. 1332(d)(11)(B)(1). Plaintiffs filed a First Amended Complaint after removal, adding additional plaintiffs and amending their state law causes of action. Defendants moved to dismiss the FAC, asserting misjoinder under FRCP 20(a) and failure to state a claim. The district court remanded the case to state court, holding that defendants had conceded that the action was not removable under CAFA when they asserted in their motion to dismiss that it did not present common questions of law or fact under FRCP 20(a). Defendants petitioned for permission to appeal pursuant to 28 U.S.C. 1453(c).
In Chapman v. Skype, Inc., the 2nd District California Court of Appeal revived a false advertising claim previously dismissed on demurrer, and defined the limited scope of demurrer for false advertising claims brought under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200 and 17500, et seq., “UCL”) as well as California's Consumer Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.).
In Chapman, plaintiff alleged that defendant Skype falsely advertised "Unlimited Calling" plans that were actually limited, by terms linked through a footnote. Plaintiff filed a putative class action complaint, alleging six causes of action: (1) unjust enrichment; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) violation of the UCL; (5) violation of the false advertising law; and (6) violation of the CLRA. Defendant demurred to the complaint, and the trial court sustained the demurrer with leave to amend, holding that the term “Unlimited” was qualified by the footnote on the same Internet page and that Chapman had failed to allege justifiable reliance. Plaintiff filed an amended complaint, defendant again demurred, and the trial court sustained the demurrer, dismissing plaintiff's claims. Plaintiff appealed.
In Rose v. Bank of America, the California Supreme Court revived plaintiff's claims of unlawful business practices under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200, et seq., “UCL”) premised on alleged violations of the Truth in Savings Act (12 U.S.C. §§ 4301, et seq., “TISA”), even though Congress repealed the private right of action for TISA claims in 2001.
The Rose plaintiffs alleged that Bank of America failed to properly notify them of increased fees on their deposit accounts, in violation of TISA. They brought a single cause of action under the UCL, alleging unlawful and unfair business practices arising out of the alleged TISA violations. The trial court sustained Bank of America’s demurrer to the complaint, holding that Congress intended to bar a TISA private action and that the UCL cannot be used to plead around an absolute bar to relief. Plaintiff appealed. The Court of Appeal affirmed the trial court, stating that Congress’ express repeal of a private right of action to enforce TISA precludes an indirect suit through the UCL.Continue Reading...
In Trapp, Sr. v. Randall D. Naiman, the Fourth Appellate District Court of Appeal reversed the trial court’s decision and granted an anti-SLAPP motion to strike in an action arising out of a foreclosure and subsequent unlawful detainer action.
In Trapp, LaSalle Bank (later Bank of America) foreclosed on plaintiffs' home in a nonjudicial foreclosure. Following the foreclosure, Bank of America sought legal representation from defendants Randall D. Naiman and Naiman Law Group to file three unlawful detainer actions against plaintiffs. In response, plaintiffs filed a complaint alleging five causes of action: quiet title, wrongful foreclosure, breach of the duty of good faith and fair dealing, unfair business practices under Business and Professions Code § 17200, and negligence and abuse of process. Defendants filed an anti-SLAPP motion to strike on the grounds that that their actions were both privileged and protected. The trial court granted the motion in part as to the negligence and abuse of process claim and denied it as to the remaining four causes of action. Defendants appealed.
The Fourth District Court of Appeal reversed a California Superior Court decision in Carol Coker v. JP Morgan Chase Bank and held that under § 580b of the Code of Civil Procedure, a borrower is not personally liable to a lender seeking a deficiency judgment after a short sale of real property.
In Coker, plaintiff obtained a mortgage loan secured by a deed of trust to purchase a home. Plaintiff was unable to make loan payments, so to avoid foreclosure, she and the lender agreed to a short sale. After the sale, the lender pursued the borrower for deficiency - the difference between the amount of the loan and the sale price. Plaintiff filed a complaint seeking declaratory relief, contending that CCP § 580b prevented the lender from obtaining a deficiency judgment after the sale. The lender filed a demurrer to the complaint, and the superior court sustained the demurrer without leave to amend. The court later dismissed the plaintiff's complaint, holding that CCP § 580b was inapplicable because the home was not foreclosed, but rather, sold in a short sale. Plaintiff appealed.Continue Reading...
The Consumer Financial Protection Bureau this month issued two bulletins offering guidance on complying with the FDCPA and Dodd-Frank. CFPB Bulletin 2013-07 clarifies what acts related to the collection of consumer debt fall under the category of unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by Dodd-Frank. CFPB Bulletin 2013-08 provides guidance on creditor compliance with the FDCPA and §§ 1031 and 1036 of Dodd-Frank Wall.
Bulletin 2013-07 explains that Dodd-Frank works in conjunction with the FDCPA. The Bulletin clarifies the definition of “unfair, deceptive, or abusive acts or practices” for the purposes of interpreting Dodd-Frank. Referring to the CFPB Exam Manual, the Bulletin clarifies that an act or practice is considered “unfair” at a minimum when substantial injury is likely to occur, is not reasonably avoidable, and not outweighed by countervailing benefits to consumers or competition. Moreover, an act or practice is "deceptive" when it is likely to mislead the consumer, the consumer’s interpretation is reasonable, and the misrepresentation is about material information. Finally, an act or practice is "abusive" if it materially interferes with the ability of a consumer to interpret a term or if it takes unreasonable advantage of a consumer’s uninformed position.
In Martinez v. Brownco, the Supreme Court of California held that when a defendant fails to obtain a more favorable judgment on two successive offers to compromise, the plaintiff may recover costs incurred from the date of the first offer.
In Martinez, plaintiffs sued Brownco Construction Company, Inc. for damages from alleged injuries arising out of an electrical explosion at Brownco. Prior to the trial, plaintiff served an offer to compromise under California Code of Civil Procedure section 998 for $250,000 to settle her loss of consortium claim. Brownco neither accepted nor rejected the offer within the mandated 30-day period. Plaintiff then served a second offer to compromise for $100,000, and again, Brownco took no action.
At trial, plaintiff obtained a $250,000 judgment and consequently filed a memorandum of costs to recover expert fees incurred between the first and second settlement offers. Brownco argued that since the second offer extinguished the first offer based on general contract law, the plaintiff should only recover fees incurred after the second offer. The trial court agreed, and plaintiff appealed.
In Flores v. Chevron USA, Inc., the Second District Court of Appeal held that requiring customers to provide personal identification information to prevent credit card fraud does not violate California's Song-Beverly Credit Card Act.
In Flores, plaintiffs filed a putative class action against Chevron and several other companies, alleging that defendants had violated § 1747.08(a)(1) of the Song-Beverly Credit Card Act by requesting personal identification information as a condition for processing credit card transactions. Chevron moved for summary judgment and argued that its conduct did not violate the Act because it fell within a statutory exception under § 1747.08(c)(4), which allows companies to request personal identification information if the information is used for a “special purpose incidental but related to the . . . transaction.” Chevron asserted that preventing fraud constituted a “special purpose” under §1747.08(c)(4). In support of its motion, Chevron explained that in high-fraud areas, the number of fraudulent transactions at pay-at-pump gas stations had reduced by over 80 percent when customers were required to enter their ZIP codes. The trial court granted Chevron’s motion for summary judgment. Plaintiffs appealed.