Yesterday, March 21, the California Supreme Court granted review in Sanchez v. Valencia Holding Company, previously cited at (2011) 201 Cal.App.4th 74. This is great news for automobile dealers nationwide in that the Sanchez court’s invalidation of the arbitration provision in the LAW 553-CA-ARB form, which is nearly identical to the arbitration provision in all LAW 553-ARB retail installment sale contracts nationwide, is no longer good law. As you may know, the LAW 553-CA-ARB retail installment sale contract contains a class action waiver provision that protects automotive dealers from overreaching consumer attorneys seeking to require the dealer to buy back all sales contracts over a period of years for a mere formal or technical violation of the law, even when the dealer received no benefit from the violation. 

In the wake of Sanchez, consumer attorneys rushed into courts across California seeking to overturn previous orders compelling arbitration of disputes between car dealers and their customers and trying to force unreasonable settlements on dealers faced with daunting class action litigation.

Sanchez held that the arbitration provision in the LAW 553-CA-ARB form contract was unenforceable due to California’s unconscionability doctrine. While the court merely stated its decision did not apply the doctrine of unconscionability in a manner that disfavors arbitration, it failed to provide any analysis establishing that fact and the decision’s unconscionability analysis clearly belies that conclusion, as discussed in previous publications.

The California Supreme Court’s grant of review effectively de-publishes the Court of Appeal’s decision in Sanchez, such that it can no longer be relied upon as a basis for invalidating the arbitration provision in the LAW 553-CA-ARB form contract.

The battle now turns to convincing the California Supreme Court that Sanchez should be reversed because, like previous California arbitration decisions, the Sanchez court’s reasoning applies California’s state laws and public policy in a manner that disfavors arbitration and is preempted by the Federal Arbitration Act.

Arent Fox attorneys are contributing to this case and will continue to monitor and report on significant developments as they occur.