For people looking to sue businesses in class actions, California has long been the preferred venue of choice. It is believed, rightly or wrongly, that courts and laws in the Golden State strongly favor consumers. A recent decision from the California Supreme Court, involving class-action waivers, throws that conventional wisdom into doubt, suggesting a less plaintiff-friendly outlook for the state.
On their face, the holdings in the case, Sanchez v. Valencia Holding Company,seem unremarkable. In 2010, Gil Sanchez bought a used Mercedes-Benz from Valencia. The sales agreement contained a provision requiring arbitration of disputes, and the contract also stipulated that Sanchez waived his right to seek class-action relief. In tandem, those clauses—if enforced—would completely insulate the dealership from potential class liability.
Sanchez sued, claiming among other things that the dealership lied to him about the vehicle’s condition. His lawsuit relied, in part, on the California Consumer Legal Remedies Act (CLRA), which allows class relief and prohibits parties from waiving any of its protections. Sanchez argued that the arbitration clause in his contract was so unfair that it was unconscionable and that, in any event, the CLRA made the class waiver unenforceable.
The California Supreme Court rejected both arguments. The high court found, after a lengthy discussion, that the arbitration clauses were not so unfair as to bar their enforcement. And the CLRA’s anti-waiver provision, the court ruled, was nullified by recent arbitration opinions from the U.S. Supreme Court.
So what makes Sanchez noteworthy? Before that decision, class-action lawyers (myself included) firmly believed that the California Supreme Court would find a loophole around the U.S. Supreme Court’s arbitration rulings. Indeed, other courts have done just that. But, to everyone’s collective astonishment, the California high court dutifully fell in line.
What does that mean for the real estate industry in California? Plenty. The standard forms from the California Association of Realtors currently contain optional arbitration clauses but no class-action waivers. In light of Sanchez, CAR should revisit that omission.