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An Unwaivable Right Under the Consumer Legal Remedies Act

A recent California case holds that a consumer's right to bring a class action under the California Legal Remedies Act constitutes an unwaivable statutory right.

Last month, in Fisher v. DCH Temecula Imports LLC, No. 3E047802, 2010 WL 3192912 (Cal. Ct. App. August 13, 2010), a case certified for publication, the California Fourth Appellate District held that a consumer’s right to bring a class action under the California Legal Remedies Act (“CLRA”) constitutes an unwaivable statutory right.  

When Plaintiff purchased a used 2004 Dodge Neon from Defendant, the sales contract included an arbitration clause which stated that Plaintiff expressly waived any right she may have to arbitrate a class action.  In addition, the arbitration provision contained a “poison pill” provision which stated that if the waiver of class action lawsuits or classwide arbitration was found unenforceable, then the entire arbitration clause would become unenforceable.  A “poison pill” provision is unusual; and most contracts include severability clauses which prevent the invalidation of one contractual provision from having an effect on the enforceability of the remainder of the contract.

In her complaint, Plaintiff alleged that Defendant failed to disclose that the vehicle was a prior daily rental vehicle, that Defendant neglected to separately itemize the license and registration fees and that Defendant backdated the second sales contract.  Citing to the arbitration clause, Defendant filed a motion to compel arbitration.  Plaintiff countered by arguing that the arbitration clause, as a whole, was invalid.  She argued that the waiver provision was invalid, because Plaintiff’s right to bring a class action under the California Legal Remedies Act constituted an unwaivable right; and that the arbitration clause, as a whole, was invalid, because of the “poison pill” provision.  As such, Defendant had no grounds from which to compel arbitration.  The trial court sided with Plaintiff and denied Defendant’s motion.

In upholding the lower court’s decision, the appellate court relied primarily on the language of the CLRA and Gutierrez v. Autowest, Inc., 114 Cal. App. 4th 77 (2006).  The court found that the CLRA unambiguously states that the right is unwaivable, providing that “[a]ny consumer entitled to bring an action under [the Act] may . . . bring an action on behalf of himself and such other consumers” and “[a]ny waiver by a consumer of the provisions [under the Act] is contrary to public policy and shall be unenforceable and void.”  Moreover, the Gutierrez court made clear that the Federal Arbitration Act does not preempt the CLRA where “the arbitration clause constitutes a private agreement impairing the exercise of unwaivable statutory rights enacted for a public purpose.”

In light of the court’s decision, dealers should remove any such waiver provisions from their sales contracts.  In addition, dealers should be weary of including “poison pill” provisions both as a general matter and especially in conjunction with any rights afforded to consumers under the CLRA.

Erica A. Stuckey