ADR Update: Unconscionability Is Still Alive (Sanchez v. Valencia and Carlson v. Home Team Pest Defense, Inc.)

By Joel M. Grossman

Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles. He has been selected four times as one of the Top Neutrals in California by the Daily Journal. For more information please contact www.grossmanmediation.com.

Ever since the United States Supreme Court issued its decision in AT&T Mobility LLC v. Conception,¹ in which the Court ruled that the Federal Arbitration Act (FAA) preempts a state court ruling that a class action waiver is unconscionable, California case law has been somewhat unclear as to whether a claim that a particular arbitration clause is unconscionable is still viable in light of the FAA. Two recent California court decisions, one by the Supreme Court and one by a court of appeal, make clear that the rule of unconscionability is still alive and well, and survives analysis under the FAA. While it is now clear that an arbitration agreement will no longer be deemed unconscionable because it contains a class action waiver,² not all arbitration agreements will be enforced by California courts. If a court determines that the clause at issue is both procedurally and substantively unconscionable, it may refuse to enforce the clause without running afoul of the FAA.

The two recent cases referenced above are Sanchez v. Valencia Holding Co., LLC,³ decided by the California Supreme Court, and Carlson v. Home Team Pest Defense, Inc.,⁴ decided by the court of appeal. The cases are entirely different: Sanchez is a consumer case dealing with a vehicle purchase, and Carlson is an employment case; Sanchez enforced the arbitration clause in the face of an unconscionability challenge, while Carlson held the clause to be unconscionable and unenforceable. Yet the cases share a common and important statement of the law. In each case, the party seeking to enforce the arbitration clause argued that Concepcion barred all challenges to the enforcement of the clause because of its alleged unconscionability. In each case, the court rejected this broad attack on unconscionability.