In a decision issued Monday in a case called Sanchez v. Valencia Holding Co., the California Supreme Court rejected arguments that a class-action ban in an arbitration clause, together with a few other provisions that were unfavorable to a consumer, rendered the arbitration clause unconscionable. The opinion emphasized that an arbitration clause, like any other contract, may be challenged on unconscionability grounds, and that the unconscionability standard must be "the same for arbitration and nonarbitration agreements." The Court acknowledged as well that under the Supreme Court's decision in Concepcion, a class action waiver cannot itself be held unconscionable. The other provisions at issue in the clause, the court concluded, did not render it so unfair as to be unconscionable.
The decision is the latest indication that the California Supreme Court is not reflexively hostile to arbitration and is attempting to follow Concepcion while preserving reasonable state contract-law principles that may render some arbitration agreements unenforceable even under Concepcion. The decision also may have some relevance to the U.S. Supreme Court's consideration of the pending case DIRECTV v. Imburgia, where a California court held that when a contract explicitly adopted California law as to whether a class-action waiver was enforceable, California law would govern that issue consistent with the language of the contract. Sanchez illustrates that the California courts would have reached a different result had the contract not selected California law to govern the enforceability of the class-action waiver. The decision thus gives the lie to the arguments of DIRECTV and its supporting amici that the California courts are on a mission to hold class action waivers unenforceable irrespective of the intention of the parties to an arbitration agreement.
