Court Voids Arbitration Clause in “The Sheriff’s” Mercedez-Benz Dealership Sales Contract

by Josh Dale

A Los Angeles appellate court recently upheld a lower court ruling that an arbitration provision in the sales contracts of Mercedes Benz of Valencia were unconscionable and therefore unenforceable. Voiding these types of provisions is not unheard of. What makes this ruling interesting is that the car dealership was started by a business group that included former Los Angeles Dodgers’ General Manager Kevin Malone. The decision is Sanchez v. Valencia Holding Company, LLC (2d Dist., November 23, 2011) No. B228027.

Malone, sometimes referred to as “The Sheriff,” is considered by many baseball aficionados and Dodger fans to have been the worst general manager in Dodgers’ history. Conventional wisdom holds that he was repeatedly fleeced in player signings, saddling the Dodgers with long-term contracts that haunted them well after Malone resigned from the team in disgrace. Fans have long complained that Malone overpaid for past-their-prime or injured “stars” such as Gary Sheffield, Devon White, Kevin Brown, and Darren Dreifort.

Based on the facts set forth in the recent Sanchez v. Valencia Holding Company, LLC ruling, it appears that The Sheriff is now in a car dealership that is doing some fleecing of it own.

According to the court’s ruling, among the illegal practices alleged by one Mercedes Benz of Valencia customer included selling a car with prior collision damage without disclosing it; selling a car as certified pre-owned, when it was not; refusing to make warranty repairs; and charging sales fees for non-existent services.

When the auto buyer tried to bring a consumer class action lawsuit against the dealership, the dealership sought to compel arbitration based on a pre-printed arbitration provision on the back of the auto sales contract. The trial court denied the dealership’s motion, finding that the clause could not, as a matter of law, waive rights to bring consumer class actions under California statute.

The court of appeal took a different tack. Declining to decide whether the arbitration clause could waive the right of a customer to bring a consumer class action, the appellate court instead found that the sales contract was “adhesive,” and that the arbitration provision wasn’t distinctive enough from other language in the contract to allow a customer to discern its import. The court of appeal also found that the terms of the arbitration provision were too skewed in the dealership’s favor; the limited rights to appeal in the provision favored only the dealership, not the buyer, and some of the costs of arbitration had been unfairly shifted to the buyer.

The legal lesson to take from Sanchez is that there are ways to draft valid pre-printed arbitration clauses, but to do so takes skill and aplomb, requires fairness, and requires that the merchant not attempt to take undue advantage in the imposition of arbitration as a means of resolving sales disputes. If your company wants to use alternative dispute resolution in its contract disputes with customers or vendors, Michel & Associates, P.C. can assist you in drafting valid and enforceable contract provisions to accomplish your goals.

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