Filed 4/8/13 Mercedes-Benz Financial Services v. Okudan CA4/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.


                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA



MERCEDES-BENZ FINANCIAL                                             D061669
SERVICES USA, LLC,

         Plaintiff, Cross-defendant and
         Appellant,                                                 (Super. Ct. No. 37-2010-00093994-
                                                                     CU-CL-CTL)
         v.

OZZY O. OKUDAN,

         Defendant, Cross-complainant and
         Respondent.


         APPEAL from an order of the Superior Court of San Diego County, Luis R.

Vargas, Judge. Reversed with directions.


         Mercedes-Benz Financial Services USA, LLC (Financial) appeals an order

denying its petition to compel arbitration of its lawsuit with Ozzy Okudan. Financial
contends the court erred by determining the arbitration clause in an automobile purchase

contract was unconscionable and therefore unenforceable. We reverse with directions.1

                  FACTUAL AND PROCEDURAL BACKGROUND

       In August 2007, Okudan purchased a 2006 BMW M-5 from a Mercedes Benz

dealer under an installment sale contract requiring Okudan to make monthly payments.

The dealer later assigned the contract to Financial. The total price of the vehicle was

approximately $72,000.

       In December 2008, Financial repossessed the vehicle based on its claim that

Okudan failed to make the required monthly payments. Financial provided Okudan with

a statutory notice of intent to sell the vehicle (NOI) that included Okudan's reinstatement

rights. Financial then sold the vehicle at an auction for $19,000.

       In June 2010, Financial filed a superior court action against Okudan seeking to

collect the deficiency balance owed on the vehicle, alleged to be $64,239.85. About one

year later, in June 2011, Okudan filed a cross-complaint seeking declaratory relief in the

form of an order that Financial's NOI did not comply with Civil Code section 2983.2 and

therefore Financial was precluded from obtaining a deficiency balance.

       About five months later, in November 2011, Okudan filed an amended cross-

complaint seeking to represent a class of California residents "to whom [Financial] sent


1       Many of the same legal issues in this case are before the California Supreme Court
in two pending cases. (Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th
74, review granted Mar. 21, 2012, S199119 (Sanchez); Goodridge v. KDF Automobile
Group, Inc. (2012) 209 Cal.App.4th 325, review granted Dec. 19, 2012 (Goodridge)
[briefing deferred pending Sanchez case].) This case involves the same form contract
that was at issue in the Sanchez and Goodridge cases.
                                             2
NOIs . . . whose vehicles were repossessed by or voluntarily surrendered to [Financial],

and against whom [Financial] has asserted a deficiency claim." Okudan added numerous

causes of action, including for violation of the Rosenthal Fair Debt Collections Practices

Act, Consumer Credit Reporting Agencies Act, Consumer Legal Remedies Act (CLRA),

Fair Credit Reporting Act, and Unfair Competition Law (UCL) based on a violation of

the Rees-Levering Act. (See Civ. Code, §§ 1750 et seq., 1785.1 et seq., 1788 et seq.;

Bus. & Prof. Code, § 17200; 15 U.S.C. § 1681 et seq.)

       Within several days, Financial moved to compel arbitration under an arbitration

clause in Okudan's installment sale contract. Financial attached a digitally-reduced copy

of the sales contract, in which the terms were essentially illegible.

       Okudan opposed the arbitration request, arguing: (1) Financial did not meet its

burden to produce evidence of a valid and enforceable arbitration clause; (2) Financial

waived its right to seek arbitration by filing the lawsuit, filing a summary judgment

motion, and propounding written discovery; and (3) the arbitration provision was

unconscionable.

       In support of his unconscionability argument, Okudan presented evidence that the

sales contract was the "Reynolds & Reynolds, 553-CA-ARB" form document widely

used in the industry. According to this evidence, the arbitration clause contained in the

parties' agreement read as follows:

                        "ARBITRATION CLAUSE
         PLEASE REVIEW-IMPORTANT-AFFECTS YOUR LEGAL RIGHTS




                                              3
"1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US
DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.
"2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO
PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY
CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO
CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL
ARBITRATIONS.
"3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY
MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND
WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

"Any claim or dispute, whether in contract, tort, statute or otherwise (including the
interpretation and scope of this Arbitration Clause, and the arbitrability of the claim or
dispute), between you and us or our employees, agents, successors or assigns, which
arises out of or relates to your credit application, purchase or condition of this vehicle,
this contract or any resulting transaction or relationship (including any such relationship
with third parties who do not sign this contract) shall, at your or our election, be resolved
by neutral, binding arbitration and not by a court action. If federal law provides that a
claim or dispute is not subject to binding arbitration, this Arbitration Clause shall not
apply to such claim or dispute. Any claim or dispute is to be arbitrated by a single
arbitrator on an individual basis and not as a class action. You expressly waive any right
you may have to arbitrate a class action. You may choose one of the following arbitration
organizations and its applicable rules: the National Arbitration Forum . . . .
(www.arbforum.com), the American Arbitration Association . . . (www.adr.org), or any
other organization that you may choose subject to our approval. You may get a copy of
the rules of these organizations by contacting the arbitration organization or visiting its
website.
"Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the
applicable rules. The arbitrator shall apply governing substantive law in making an
award. The arbitration hearing shall be conducted in the federal district in which you
reside. . . . We will advance your filing, administration, service or case management fee
and your arbitrator or hearing fee all up to a maximum of $2500, which may be
reimbursed by decision of the arbitrator at the arbitrator's discretion. Each party shall be
responsible for its own attorney, expert and other fees, unless awarded by the arbitrator
under applicable law. If the chosen arbitration organization's rules conflict with this
Arbitration Clause, then the provisions of this Arbitration Clause shall control. The
arbitrator's award shall be final and binding on all parties, except that in the event the
arbitrator's award for a party is $0 or against a party is in excess of $100,000, or
includes an award of injunctive relief against a party, that party may request a new
arbitration under the rules of the arbitration organization by a three-arbitrator panel.
The appealing party requesting new arbitration shall be responsible for the filing fee and
other arbitration costs subject to a final determination by the arbitrators of a fair
apportionment of costs. Any arbitration under this Arbitration Clause shall be governed

                                              4
by the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) and not by any state law concerning
arbitration.
"You and we retain any rights to self-help remedies, such as repossession. You and we
retain the right to seek remedies in small claims court for disputes or claims within that
court's jurisdiction, unless such action is transferred, removed or appealed to a different
court. Neither you nor we waive the right to arbitrate by using self-help remedies or filing
suit. Any court having jurisdiction may enter judgment on the arbitrator's award. This
Arbitration Clause shall survive any termination, payoff or transfer of this contract. If any
part of this Arbitration Clause, other than waivers of class action rights, is deemed or
found to be unenforceable for any reason, the remainder shall remain enforceable. If a
waiver of class action rights is deemed or found to be unenforceable for any reason in a
case in which class action allegations have been made, the remainder of this Arbitration
Clause shall be unenforceable." (Italics added.)

       The evidence showed the entire sales agreement was contained on a single sheet of

paper that is about 26 inches long with numerous provisions close together on the front

and back side. The arbitration provision is located on the bottom of the back side and is

outlined in black lines, as are several other provisions. The provision is printed in at least

8-point type. Okudan signed the bottom of the front side and initialed the contract on

several places on the front side, but there are no signatures or initials by Okudan on the

back of the contract.

       Okudan also presented his declaration in which he described his execution of the

sales agreement. The declaration states in part:

          "When I was asked to sign the purchase documents, the dealer
          representative never actually gave me the sales contract to read. He
          spent no more than five to ten minutes having me sign the purchase
          contract and several other sales documents. The sales person did not
          explain the contract to me prior to signing it, and did not discuss
          anything on the back of the contract. I could not read the back of the
          contract because he never turned it over. I was not asked to sign
          anywhere on the back of the contract. I was not told there was
          additional language on the back. The sales person did not turn the
          contract over at all during the signing.


                                              5
          . . . The sales person held the contract flat on the desk with one hand
          and with the other pointed to the various places on the front of the
          contract for me to sign. The way he held his hands on the contract
          kept me from reading much of the language on the front of the
          contract. In addition, there were probably 7 or 8 other documents to
          be signed. No one at the dealership ever discussed an arbitration
          clause with me prior to the sale. I did not know there was any
          arbitration clause until my attorney told me [Financial] is trying to
          force arbitration. . . . [¶] The contract was presented to me on a take
          it or leave it basis.

          . . . I have never heard of the National Arbitration Forum or the
          American Arbitration Association. I am unfamiliar with their rules
          and was never given a copy of the rules. I cannot afford to pay
          arbitration fees. If I had been told that I would have to forfeit my
          right to go to court I would not have bought the vehicle. I no longer
          have my copy of the contract because it was misplaced when I
          moved in 2009."

       Based on this evidence, Okudan argued the court should deny Financial's motion

to compel because the arbitration agreement was identical to the arbitration clause found

procedurally and substantively unconscionable by the Sanchez court (which had not yet

been granted review by the California Supreme Court). (See fn. 1, ante.) The Sanchez

court had found four portions of the arbitration clause to be unconscionable: (1)

providing the parties with the right to a second arbitration before a three-arbitrator panel

if the award exceeds $100,000; (2) providing the parties with the right to a second

arbitration before a three-arbitrator panel if the award includes injunctive relief; (3) the




                                              6
requirement that the appealing party advance all arbitration costs; and (4) the exemption

for self-help remedies (e.g., repossession).2

       In reply, Financial argued Sanchez was wrongly decided and the agreement was

neither procedurally nor substantively unconscionable, and in any event severance is the

proper remedy. Financial also argued it did not waive its arbitration right, noting that it

filed its motion immediately after Okudan filed the amended cross-complaint adding the

class allegations. Financial asserted that "the filing of a class action cross-complaint is in

itself a dramatic change in the nature and scope of the case justifying [Financial] to

change strategy and move to compel arbitration," and Okudan did not suffer any

prejudice from the delayed motion.

       After considering the parties' submissions and conducting a hearing, the court

denied Financial's motion to compel arbitration based on its conclusion that the provision

was substantively and procedurally unconscionable under Sanchez. With respect to

substantive unconscionability, the court followed the Sanchez court's holding that the

four challenged portions of the arbitration provision were unfairly one-sided and

oppressive. The trial court also denied Financial's severance request, stating that

"consistent with the holding in Sanchez, . . . the arbitration provision is permeated with

unconscionability, which cannot be cured by severing the offensive provisions from the




2      Although the arbitration clause included a class action waiver, Okudan did not
argue the waiver was unconscionable. (See AT&T Mobility LLC v. Concepcion (2011)
__ U.S. __ [131 S.Ct. 1740] (Concepcion).)
                                                7
Contract." The court also overruled Okudan's evidentiary objections and did not reach

Okudan's waiver arguments.

       Financial filed a notice of appeal on March 19, 2012. Two days later, the

California Supreme Court granted a petition for review of the Sanchez decision. (See fn.

1, ante.) While Financial's appeal was pending, this court filed the Goodridge decision

(see fn. 1, ante), in which we held that an identical arbitration provision in a vehicle

purchase contract was procedurally and substantively unconscionable, adopting much of

Sanchez's analysis. After Okudan filed his respondent's brief on appeal, the California

Supreme Court granted a petition for review in the Goodridge case and held the case

pending the outcome of Sanchez. (See fn. 1, ante.)

       Several federal courts (in unpublished decisions) have found identical arbitration

provisions in vehicle sale contracts to be unconscionable. (See Trompeter v. Ally

Financial, Inc. (N.D.Cal., June 1, 2012, No. C 12-00392 CW) 2012 WL 1980894; Lau v.

Mercedes-Benz USA, LLC (N.D.Cal., Jan. 31, 2012, No. CV 11-1940 MEJ) 2012 WL

370557 (Lau); see also Mance v. Mercedes-Benz USA (N.D.Cal., Sept. 28, 2012, No. CV

11-03717 LB), 2012 WL 4497369 [substantively but not procedurally unconscionable]),

and at least one California Court of Appeal (in a published decision) has rejected an

unconscionability challenge (Flores v. West Covina Auto Group, LLC (2013) 212

Cal.App.4th 895).




                                              8
                                        DISCUSSION

                               I. Applicable Legal Principles

        The parties' agreement is expressly governed by the Federal Arbitration Act

(FAA), which reflects a strong federal policy favoring the enforcement of arbitration

agreements. Under the FAA, arbitration agreements "shall be valid, irrevocable, and

enforceable save upon such grounds as exist at law or in equity for the revocation of any

contract." (9 U.S.C. § 2.) State laws inconsistent with the federal act's provisions and

objectives are preempted. (Perry v. Thomas (1987) 482 U.S. 483, 489.)

        In 2011, the United States Supreme Court reiterated the strong public policy

favoring the enforceability of arbitration agreements under the FAA and reaffirmed that a

state law contract defense is unenforceable if it applies only to arbitration or if it derives

its meaning from the fact that an agreement to arbitrate is at issue. (See Concepcion,

supra, 131 S.Ct. at pp. 1745-1746.) The court further made clear that the principal

purpose of the FAA is to " 'ensur[e] that private arbitration agreements are enforced

according to their terms.' " (Id. at p. 1748.) However, the Supreme Court also

recognized that state laws regarding arbitration are enforceable to the extent they are not

in conflict with the FAA. (Ibid.; see Doctor's Associates, Inc. v. Casorotto (1996) 517

U.S. 681, 687; Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487,

498.)

        One basis for revoking a contract under California law is a showing that the

contract is unconscionable. This unconscionability defense is codified in Civil Code

section 1670.5, subdivision (a), which states: "If the court as a matter of law finds the

                                               9
contract or any clause of the contract to have been unconscionable at the time it was

made the court may refuse to enforce the contract, or it may enforce the remainder of the

contract without the unconscionable clause . . . ."

       Following Concepcion, the California Supreme Court reaffirmed that this statutory

unconscionability defense " 'may be applied to invalidate arbitration agreements without

contravening' the FAA." (Pinnacle Museum Tower Assn. v. Pinnacle Market

Development (US), LLC (2012) 55 Cal.4th 223, 246 (Pinnacle).) The Pinnacle court also

reiterated well-settled principles governing the analysis of unconscionability claims under

California law: "Unconscionability consists of both procedural and substantive elements.

The procedural element addresses the circumstances of contract negotiation and

formation, focusing on oppression or surprise due to unequal bargaining power.

[Citations.] Substantive unconscionability pertains to the fairness of an agreement's

actual terms and to assessments of whether they are overly harsh or one-sided.

[Citations.] A contract term is not substantively unconscionable when it merely gives

one side a greater benefit; rather, the term must be 'so one-sided as to "shock the

conscience." ' [Citation.] [¶] The party resisting arbitration bears the burden of proving

unconscionability. [Citations.] Both procedural unconscionability and substantive

unconscionability must be shown, but 'they need not be present in the same degree' and

are evaluated on ' "a sliding scale." ' [Citation.] '[T]he more substantively oppressive the

contract term, the less evidence of procedural unconscionability is required to come to the




                                             10
conclusion that the term is unenforceable, and vice versa.' [Citation.]" (Id. at pp. 246-

247.)3

         Unconscionability is ultimately a question of law, which we review de novo when

no meaningful factual disputes exist as to the evidence. (Parada v. Superior Court

(2009) 176 Cal.App.4th 1554, 1567.) We review the court's resolution of disputed facts

for substantial evidence. (Ibid.) When the trial court makes no express findings, we infer

that it made every implied factual finding necessary to support its order and review those

implied findings for substantial evidence. (Ibid.)

                              II. Procedural Unconscionability

         Procedural unconscionability requires oppression or surprise. " 'Oppression arises

from an inequality of bargaining power that results in no real negotiation and an absence

of meaningful choice.' [Citation.] Surprise is defined as ' "the extent to which the

supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted

by the party seeking to enforce the disputed terms." ' [Citation.]" (Gatton v. T-Mobile

USA, Inc. (2007) 152 Cal.App.4th 571, 581, fn. omitted.)




3       To the extent Financial argues these standards are no longer applicable after
Concepcion, supra, 131 S.Ct. 1740, we reject this contention. Although the Pinnacle
court did not specifically discuss the Concepcion decision on this issue, the Pinnacle
court's application of California's existing unconscionability standards to an arbitration
agreement establishes the continuing validity of these rules. In any event, Concepcion's
impact on this state's unconscionability rules is before the California Supreme Court in
the Sanchez case. (See fn. 1, ante.) Until our high court provides different standards, we
adhere to settled rules for enforcing arbitration agreements. (See Lau, supra, 2012 WL
370557, p. *7 ["Concepcion does not affect the traditional analysis used to determine
whether an arbitration clause is unconscionable"].)
                                             11
       Viewing the factual record in the light most favorable to Okudan, both aspects of

procedural unconscionability are present in this case. The purchase agreement is

contained on a lengthy two-sided preprinted form that is about two feet long, and the

arbitration provisions are on the back side on the bottom of the form. Okudan signed

only the front of the document. He also placed his initials next to several clauses, but

each of those clauses was on the front of the document. Okudan submitted a declaration

stating he had no opportunity to read the contract or negotiate the terms, and the contract

was presented to him on a "take it or leave it basis." He also said he was unaware of the

arbitration clause, and the salesperson did not call his attention to, or explain, the

provision. Okudan said the salesperson "held the contract flat on the desk with one hand

and with the other pointed to the various places on the front of the contract for me to sign.

The way he held his hands on the contract kept me from reading much of the language on

the front of the contract."

       These facts, together with our review of the entire contract, supports that there was

a lack of negotiation or meaningful choice before Okudan signed the contract. (See

Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89 (Gutierrez); Szetela v.

Discover Bank (2002) 97 Cal.App.4th 1094, 1100; Lau, supra, 2012 WL 370557, p. *8.)

       Financial argues that Okudan could not have been "surprised" by the arbitration

requirement because a clause on the front side of the contract "alerted" him to the

arbitration provision on its reverse side. Specifically, towards the bottom of the front side

of the form and on the far right of the printed page, the following provision appears in

capital letters (although in substantially smaller type than what appears here):

                                              12
           "YOU AGREE TO THE TERMS OF THIS CONTRACT. YOU
           CONFIRM THAT BEFORE YOU SIGNED THIS CONTRACT,
           WE GAVE IT TO YOU, AND YOU WERE FREE TO TAKE IT
           AND REVIEW IT. YOU ACKNOWLEDGE YOU HAVE READ
           BOTH SIDES OF THIS CONTRACT, INCLUDING THE
           ARBITRATION CLAUSE ON THE REVERSE SIDE. BEFORE
           SIGNING BELOW, YOU CONFIRM THAT YOU RECEIVED A
           COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT."

        The trial court did not err in finding this clause would not have notified a

reasonable consumer of the existence of the arbitration clause. There is no provision for

Okudan's signature or initials under or adjacent to that language. Rather, his signature

appears on the opposite side of the page under a larger, boxed-in provision regarding the

lack of a cooling-off period that appears to the left of the quoted language in the two-

thirds width of the page adjacent to the left margin. Further, based on the manner in

which the salesperson held his hand on the contract while Okudan was placing the

required signature/initials, the trial court had a reasonable basis to conclude that Okudan

did not have a fair opportunity to read this clause in a careful manner that would have

provided sufficient information to refer Okudan to the arbitration provision on the back

side.

        We recognize that automobile dealers are statutorily mandated to include copious

amounts of information in a sales contract and the contract here met the legal

requirements regarding content and print size. (See Civ. Code, §§ 2982, 2981.9.)

However, there is no statutory requirement that the arbitration provision be placed on the

bottom of the back of the form without any provision for a consumer signature or initials

to ensure the buyer has read and/or understood the provision. Because the arbitration


                                              13
provision was contained on the back of the contract containing dense contractual

language and there was no evidence that Okudan knew of the provision or would have

been reasonably alerted to this clause before signing and consenting to the agreement, the

court's finding of surprise was supported.4

       Based on the totality of the circumstances, there was a moderate degree of

procedural unconscionability in this case. However, this is not the end of the analysis

because a contract is unconscionable only if it is both procedurally and substantively

unconscionable.

                            III. Substantive Unconscionability

       Financial contends the court erred in finding four portions of the arbitration

provision were substantively unconscionable: three concern the finality of the arbitrator's

decision and one concerns the parties' rights to seek relief outside the arbitration process

thorough self-help remedies or small claims court.

       We conclude Financial's contention has merit with respect to the self-help and

small claims court remedies. As explained, there is nothing unfair or unreasonable in

allowing the parties to retain their rights to these remedies outside the arbitration process.

       But we conclude the remaining challenged provisions pertaining to the finality of

the arbitration decision are moderately unconscionable because they primarily benefit the

economically-stronger party and substantially burden the weaker party. Viewing together



4      In analyzing procedural unconscionability, we do not find material the fact that the
contract did not attach the specific arbitral rules that would govern arbitration. The
omission of these rules does not contribute to our unconscionability finding.
                                              14
the moderate levels of procedural and substantive unconscionability, we determine these

provisions cannot be enforced. However, because the objectionable provisions are

contained solely in two sentences of the lengthy arbitration agreement and pertain to a

single part of the arbitration clause (concerning the finality of the arbitration award), they

can potentially be severed from the remaining portions of the agreement. We thus

remand for the trial court to exercise its discretion on the severance issue without

including the erroneous determination regarding the self help/small claims provisions.

                  A. Summary of Substantive Unconscionability Standard

       "Substantive unconscionability pertains to the fairness of an agreement's actual

terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A

contract term is not substantively unconscionable when it merely gives one side a greater

benefit; rather, the term must be 'so one-sided as to "shock the conscience." ' [Citation.]"

(Pinnacle, supra, 55 Cal.4th at p. 246.) Moreover, even though a provision is unduly

one-sided, it may not be unconscionable when the party who is imposing the provision

offers a legitimate business justification based on " 'business realities.' " (Armendariz v.

Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117-118.) However,

" 'unless the "business realities" that create the special need for such an advantage are

explained in the contract itself,' " they " 'must be factually established.' " (Id. at p. 117.)

In determining substantive unconscionability, we are required to consider the

circumstances at the time the agreement was executed, and not the particular dispute

between the parties. (Civ. Code, § 1670.5; American Software, Inc. v. Ali (1996) 46

Cal.App.4th 1386, 1391.)

                                               15
       In our prior Goodridge decision, we expressly declined to apply the "shock the

conscience" standard in examining whether the arbitration provision was unconscionable.

(See fn. 1, ante.) However, the California Supreme Court has since made clear that this

standard governs the substantive unconscionability analysis. (Pinnacle, supra, 55 Cal.4th

at p. 246.) Following Pinnacle, we apply the "shock the conscience" standard and

recognize that it imposes a significant burden on a party seeking to prevail on a

substantive unconscionability claim. Thus, our analysis in this case differs somewhat

from our analysis in the Goodridge case.

                         B. Self-Help and Small Claims Remedies

       The final paragraph of the arbitration provision begins: "You and we retain any

rights to self-help remedies, such as repossession. You and we retain the right to seek

remedies in small claims court for disputes or claims within that court's jurisdiction,

unless such action is transferred, removed or appealed to a different court. Neither you

nor we waive the right to arbitrate by using self-help remedies or filing suit."

       Okudan contends this provision, in practical effect, benefits only Financial

because car dealers/creditors are the only parties that use self-help remedies (i.e.,

repossession). We agree repossession is a common recourse for sellers against a

defaulting buyer, and buyers do not have an equivalent self-help remedy. However, the

exclusion of this remedy from the scope of arbitration is not oppressive or unfair because

self-help remedies are, by definition, outside the judicial system. In other words, the fact

that the buyer has no corresponding self-help remedy is not a consequence of the

arbitration agreement. Under the applicable statutes and the parties' contract, a seller has

                                             16
the right to repossess a vehicle when the buyer defaults and required payments are not

being made. (See Civ. Code, § 2983.3, subd. (b).) The creditor may exercise its rights to

this self-help remedy without bringing this claim to court. There is nothing harsh or one-

sided about exempting repossession from arbitration when it is exempt from the judicial

process. To the extent the seller/creditor seeks to obtain a deficiency after the

repossession and sale, this is not a self-help remedy, and the seller/creditor would be

required to resolve that claim in the arbitration process.

       In this respect, Okudan's reliance on Flores v. Transamerica HomeFirst, Inc.

(2001) 93 Cal.App.4th 846 is misplaced. In Flores, the plaintiffs obtained a reverse

mortgage on their home from the defendant lender. (Id. at p. 849.) The loan documents

contained a broad arbitration clause requiring arbitration of all disputes between the

parties, except the agreement preserved the lender's right to "foreclose against the

Property (whether judicially or non-judicially . . . ), to exercise self-help remedies such as

set-off, or to obtain injunctive relief for the appointment of a receiver." (Id. at p. 850,

italics added.) The court found this broad exclusion unconscionable because the lender

was not required to bring any of its claims to arbitration and the "clear implication is that

[the lender] has attempted to maximize its advantage by avoiding arbitration of its own

claims." (Id. at p. 855.)

       Flores does not support Okudan's argument that the self-help exclusion renders the

arbitration clause unconscionable. The Flores agreement exempted from arbitration not

only claims outside the judicial process (nonjudicial foreclosure) but also claims that

must be brought in court (judicial foreclosure). Thus, the broad exclusion affirmatively

                                              17
provided the lender with the unilateral opportunity to bring certain of its claims in court,

even during the pendency of the arbitration process. The exemption for true self-help

remedies (i.e., repossession) does not have a similar effect because the remedy is by

definition already outside the judicial process.

       Moreover, the recent Pinnacle decision creates some doubt as to the continuing

validity of the Flores court's reasoning. (Pinnacle, supra, 55 Cal.4th at pp. 246-250.) In

Pinnacle, the court rejected the argument that an arbitration provision is necessarily

unconscionable merely because it requires the homeowners association and property

owners to arbitrate all construction disputes with the developer without requiring the

developer to arbitrate any of its nonconstruction-related claims against these parties. (Id.

at pp. 248-249.) In so concluding, the court reiterated that "arbitration clauses may be

limited to a specific subject or subjects and that such clauses are not required to 'mandate

the arbitration of all claims between [the parties] in order to avoid invalidation on

grounds of unconscionability.' " (Id. at p. 248.)

       Okudan also failed to meet his burden to show the exemption of small claims

disputes is so harsh or one-sided that it "shocks the conscience." (See Pinnacle, supra,

55 Cal.4th at p. 246.) The provision is neutral and applies to any party's claim that falls

within the small claims court's jurisdiction. On its face and in practical application, the

provision is mutual. (See Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th

825, 845, fn. 21.) Vehicle purchasers frequently have small claims disputes with

sellers—for example, for the cost to repair a defective condition of the vehicle—and it

would not be unfair that this dispute would be exempt from arbitration. Consumers

                                             18
benefit from this exception by having a faster and much less expensive dispute resolution

forum to resolve claims under a certain monetary amount without needing to retain an

attorney. The fact that injunctive or other forms of equitable relief are not available in

small claims court does not make the small claims exclusion particularly unfair or one-

sided with respect to the claims that do fall within the court's jurisdiction. As Pinnacle

held, substantive unconscionability does not arise merely because an arbitration clause

limits the type of claims subject to arbitration, even if those limitations mean that one

party's claims are more likely to fall within the scope of the arbitration clause. (Pinnacle,

supra, 55 Cal.4th at pp. 248-249.)

       We conclude the trial court erred in finding the self-help and small claims court

exclusions to be unconscionable.

                                   C. Finality Provisions

       The court also found unconscionable the arbitration clauses' finality provision,

which reads as follows:

          "The arbitrator's award shall be final and binding on all parties,
          except that in the event the arbitrator's award for a party is $0 or
          against a party is in excess of $100,000, or includes an award of
          injunctive relief against a party, that party may request a new
          arbitration under the rules of the arbitration organization by a three-
          arbitrator panel. The appealing party requesting new arbitration shall
          be responsible for the filing fee and other arbitration costs subject to
          a final determination by the arbitrators of a fair apportionment of
          costs."

       The court determined three portions of this provision were oppressive and one-

sided: (1) the exception to finality if the arbitration award is "$0" or exceeds $100,000;

(2) the exception to finality if the arbitration award "includes an award of injunctive

                                             19
relief"; and (3) the requirement that the appealing party advance all costs for the second

arbitration proceeding.

        Reviewing these challenged provisions together, we find they are moderately

unconscionable because they create a situation in which the arbitration appellate rules

benefit the economically stronger party (Financial) to the detriment of the weaker party

(Okudan) and, in doing so, defeat an essential purpose of the FAA, which is to encourage

efficient and speedy dispute resolution. (Concepcion, supra, 131 S.Ct. at p. 1749; see

Pinnacle, supra, 55 Cal.4th at p. 235, fn. 4.) Where, as here, an arbitration agreement

provides for broad exceptions to finality and these exceptions generally favor only one

party, the private and public policy advantages of the arbitration process no longer exist.

Viewing the totality of the circumstances, we cannot say that Okudan fairly agreed to an

arbitration process that provides for a second arbitration under the circumstances set forth

in the arbitration provision.

        The first exception to the finality rule is the provision that either party is entitled to

compel a second arbitration before a three-person arbitration panel if the award is in

excess of $100,000 or is zero. Okudan argues that although the provision on its face

applies to both parties, its practical effect is to favor Financial because Financial is the

party most likely to suffer an award against it in excess of $100,000, and the provision

unfairly precludes him from appealing a monetary award that is too low but is more than

zero.

        Financial counters that in this case where the cost of the vehicle was

approximately $72,000 and a substantial portion of the vehicle was financed by the seller,

                                               20
it is just as likely that Financial could recover $100,000 and thus that Okudan could

benefit from the $100,000-plus award finality exception. Financial also points out that

the $0 award exception would have the same effect on both parties because the parties are

equally likely to be awarded no monetary damages on a claim.

       We agree that because of the cost of the vehicle, it is possible that Okudan could

suffer an adverse award of more than $100,000. Although a nonprevailing consumer is

not required to bear the prevailing party's attorney fees in an arbitration (Code Civ. Proc.,

§ 1284.3, subd. (a)), a seller/creditor who prevails on a collection claim against a

consumer may be awarded the amount of the claim plus interest. A defaulting consumer

who purchased a $72,000 vehicle with a minimal downpayment may ultimately owe

more than $100,000 if the award includes interest. Moreover, there is nothing one-sided

about a rule permitting either party to appeal when the arbitration award does not include

any money damages.

       However, even if under some circumstances Okudan could exercise his appellate

rights to a second arbitration, we agree with Okudan that—when viewing the contract at

the time it was signed—it was much more likely that these rights would be exercised by

the dealer/creditor. A consumer who proves a claim that a $72,000 vehicle does not work

as promised or that the defendant engaged in some form of fraud or unfair business

practice would likely receive an award of more than $100,000, particularly when

considering the consumer may be entitled to compensatory damages, statutory penalties

and attorney fees. (See, e.g., Civ. Code, § 1780.) Although an arbitrator is precluded

from awarding prevailing party attorney fees against a consumer, this same rule does not

                                             21
apply where a prevailing consumer seeks to recover attorney fees against the

seller/creditor. (See Code Civ. Proc., § 1284.3.)

       Moreover, a conclusion that both parties may possibly exercise appellate rights is

not the end of our analysis. In Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, the

California Supreme Court held a similar provision in an employment arbitration

agreement was unenforceable because it was unconscionably one-sided. (Id. at pp. 1071-

1074.) In Little, the arbitration clause in the employment contract provided that if the

arbitration award was more than $50,000, either party could appeal the award to a second

arbitrator who would "proceed according to the law and procedures applicable to

appellate review by the California Court of Appeal . . . ." (Id. at p. 1071.) Little held that

even if there was a possibility that the employee would benefit from the appeal provision

because the employer could be a plaintiff in a trade secrets case, the provision was

unconscionable because the employer (the drafting party) failed to adequately explain the

business justification for the $50,000 threshold. (Id. at p. 1073.) In particular, the court

found fault with the $50,000 trigger because it would not be a relevant factor in the

employee's decision to appeal, which the court said would be typically based on the

"potential value of the arbitration claim" compared with "the costs of the appeal," rather

than on an arbitrary monetary threshold. (Ibid.; see also Saika v. Gold (1996) 49

Cal.App.4th 1074, 1080 [finding unconscionable a $25,000 award minimum to trigger a

de novo arbitration].)

       In this case, Financial argues that the $100,000 minimum reflects a legitimate

business decision because it will eliminate "outlier" awards. However, where, as here, a

                                             22
consumer purchases a vehicle for $72,000, a $100,000 award against either party would

not necessarily be considered an outlier award. It appears more likely that the drafters of

the arbitration provision included the $100,000-plus finality exception to ensure that the

seller/creditor would have a second chance at arbitration if an award is sufficiently large

to support the expense of a second arbitration. Although this may be a reasonable

business justification, this purpose would generally benefit only the appealing

seller/creditor and not the appealing consumer. As reflected in Little's holding, the

$100,000 trigger is not necessarily a rational basis for a consumer's decision to appeal an

arbitration award. A consumer's decision is instead based primarily on the value of the

claim and the likely costs of the appeal.

       In any event, we need not decide if the $100,000-plus exception is unconscionable

by itself because the second finality exception (the injunction exception) raises even

stronger concerns regarding the one-sided nature of the arbitration clause's finality rules.

This exception provides a party with a right to compel a second arbitration before a three-

person arbitration panel if the first award "includes . . . injunctive relief." (Italics added.)

This exception does not provide equivalent appellate rights to the party who does not

prevail on a request for injunctive relief.

       The exception advantages only the seller/creditor. Consumers frequently seek

injunctive relief because it is a remedy to protect the public from further unlawful actions

by a defendant. (See People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 16-20;

Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103-108.) When buyers bring

statutory consumer claims against sellers/creditors, many of the applicable statutes

                                               23
specifically provide for injunctive relief, regardless of the amount of damages/restitution

awarded. Under such circumstances, a seller/creditor who obtains a judgment between

$0 and $100,000 will have the right to appeal the entire award if the award "includes"

injunctive relief.

       However, there is no reasonable possibility that a consumer can take advantage of

this exception because it is unlikely that a seller/creditor will seek or obtain injunctive

relief against a buyer. If a creditor seeks immediate or equitable relief after a default, the

dealer/creditor has the option to exercise its repossession rights or seek a writ of

prohibition in superior court while the arbitration proceeding is pending. (See Code Civ.

Proc., §§ 512.010, 1281.8, subd. (b).) Consumers have no equivalent rights, and must

bring their claims for provisional or permanent equitable relief in the arbitration

proceedings.

       Financial argues that "[i]n non-class arbitration, a car buyer will rarely seek or

obtain injunctive relief . . . since the car buyer cannot show a risk that he or she will be

affected by the dealer's same practice in the future." However, in asserting this argument

Financial ignores the various statutory consumer statutes, including California's UCL and

CLRA that specifically provide for injunctive relief to prevent similar harm to others,

even in cases brought individually. (See, e.g., Bus. & Prof. Code, § 17200 et seq.; Civ.

Code, §§ 1750, 1780, subd. (a), 1784.)

       We also find unpersuasive Financial's argument that "there is an obvious and

powerful business justification" for the injunctive relief exception because "[a]wards of

that type are unusual and could potentially be devastating to a dealer's continued

                                              24
operation as a business" and the "awards are just the sort of 'outlier' results that the parties

could legitimately think required a second look."

       This argument is not supported by any citation to the record or legal authority, nor

is it logically persuasive. Because consumers alleging wrongful conduct frequently seek

equitable remedies, an arbitration award that includes injunctive relief cannot be fairly

characterized as an "outlier." Moreover, an injunction would not necessarily impose

substantial financial burdens on a seller/creditor. For example, in this case, Okudan

brought a Business and Professions Code section 17200 claim seeking to enjoin Financial

from continuing to send NOI's that violate the applicable statutes. If the evidence shows

that the NOI's used by Financial do not comply with applicable law, an injunction would

be appropriate, but would not necessarily "be devastating to a dealer's continued

operation as a business." Significantly, there is no equivalent exception permitting an

appeal for awards against a consumer if the award would be financially "devastating,"

including awards that are less than $100,000 but more than the consumer can afford to

pay.

       Additionally, as one federal district court recently recognized, allowing an appeal

of an arbitration award merely because it includes preliminary or permanent injunctive

relief would create substantial delay, undermining the urgency of that type of remedy and

defeating the goals of arbitration to provide a relatively prompt and efficient method for

obtaining necessary relief. (See Trompeter, supra, 2012 WL 1980894, p. *6.)

       Financial argues that even if the injunctive relief exception to the finality rule is

not mutual, it is merely a "slight departure" from the bilateral nature of the contract. We

                                              25
disagree. Allowing the seller/creditor to challenge any arbitration award merely because

it contains some form of injunctive relief, while denying the consumer the right to appeal

when an injunction is denied or when the amount of the award is less than $100,000, is

not a "slight" departure from mutuality. It systematically tilts the playing field in favor of

the seller/creditor. (See Trompeter, supra, 2012 WL 1980894, p. *6.)

       The unfairness inherent in the arbitration agreement's finality rules is further

evidenced by the requirement that the appealing party advance the full costs of the second

arbitration, including the costs of the three-arbitrator panel. Under this provision, if

Okudan were to appeal an arbitration award, he would be responsible for advancing the

costs and fees of that appeal for both parties, including the fees for the private arbitrators.

Given the common hourly rates of private arbitrators (in the hundreds of dollars), it is

reasonable to conclude that Okudan would face the prospect of advancing a minimum of

$10,000 to appeal an arbitration award. This payment would be required after he was

unsuccessful in obtaining any monetary award or was found liable for more than

$100,000. Further, the arbitration provision does not inform Okudan of the exact amount

required to file an appeal and therefore may have the effect of discouraging him from

appealing. Additionally, there is nothing in this arbitration agreement providing for a

waiver of these upfront fees if Okudan could not afford to pay these fees.

       Under analogous circumstances, a California Court of Appeal held a consumer

arbitration agreement unconscionable where the agreement imposed a "substantial

[upfront] administrative fee" and "there [was] no effective procedure for a consumer to

obtain a fee waiver or reduction." (Gutierrez, supra, 114 Cal.App.4th at p. 91.) The

                                              26
Gutierrez court explained: "A comparison with the judicial system is striking. While

imposing far lower mandatory fees, the judicial system provides parties with the

opportunity to obtain a judicial waiver of some or all required court fees." (Ibid.)

Although Gutierrez arose in the context of an initial fee (rather than a fee to appeal), the

logic of its holding extends to the cost provision challenged here. If the fee for an appeal

is so high that it is unlikely that the consumer could bear it, the exceptions to the finality

provision are not mutually beneficial to both parties and become solely one-sided. (See

Lau, supra, 2012 WL 370557, p. *10 ["[s]uch a provision places an unduly harsh burden

on consumers and further discourages them from enforcing their rights"].)

       Financial argues that in this case, unlike in Gutierrez, Okudan did not present any

evidence that he could not afford the upfront second-arbitration fees. Generally, in

evaluating the fairness of an arbitration agreement under a substantive unconscionability

analysis, the ability to pay must be evaluated at the time the agreement is signed. (Civ.

Code, § 1670.5; Parada v. Superior Court, supra, 176 Cal.App.4th at p. 1583; Gutierrez,

supra, 114 Cal.App.4th at p. 91.) In his declaration, Okudan said he "cannot afford to

pay arbitration fees." However, Okudan presented no evidence regarding his ability to

pay fees when he signed the sales contract, nor did he present any evidence of the

projected cost amount if he were to request a second arbitration. We agree the lack of

this evidence is a factor in determining whether a cost provision in an arbitration

agreement is unconscionable. However, even without this evidence, the lack of an

effective procedure for a consumer to obtain a waiver of a cost requirement before the

consumer must pay in advance the entire costs of an arbitration proceeding, which

                                              27
include the costs of a three-arbitrator panel, is an important factor in the

unconscionability analysis. (See Gutierrez, supra, 114 Cal.App.4th at pp. 91-92.)

       Financial relies on Green Tree Financial Corp.-Ala. v. Randolph (2000) 531 U.S.

79 (Green Tree), to argue that these arbitration costs are not relevant to show

unconscionability. In Green Tree, the plaintiff asserted a federal statutory consumer

claim against a lender and contended the arbitration agreement between the parties

(which was silent on the cost of arbitration) was unenforceable because the arbitration

would be too expensive. (Id. at pp. 82-84.) Rejecting this claim, the United States

Supreme Court held an arbitration agreement silent on arbitration costs is not per se

unenforceable without a showing that the plaintiff will actually be required to bear the

costs of the proceeding. (Id. at pp. 89-92.) The court reasoned that although "[i]t may

well be that the existence of large arbitration costs could preclude a litigant . . . from

effectively vindicating her federal statutory rights," the litigant bears the burden of

showing the likelihood of incurring such costs. (Id. at pp. 90-91.) Under this rule, the

court found "the record does not show that [the litigant] will bear such costs if she goes to

arbitration" and thus the " 'risk' that [the litigant] will be saddled with prohibitive costs is

too speculative to justify the invalidation of an arbitration agreement." (Ibid.; see also

Parada v. Superior Court, supra, 176 Cal.App.4th at pp. 1575-1576.)

       Green Tree does not support Financial's argument that a requirement that a

consumer bear the advance costs of a second arbitration has no relevance to California's

unconscionability analysis or that we cannot consider the issue without a full factual

record of the consumer's ability to pay. Here, unlike in Green Tree, the arbitration

                                               28
agreement provides that if Okudan wishes to appeal an award, he will be required to pay

in advance all costs, which (as explained above) are certain to be substantial. This is a

relevant factor in the unconscionability analysis.

       In sum, we have determined that when considered together, three provisions

relating to the finality of the arbitration award combine to deny Okudan the mutual

benefits of the arbitration agreement and are substantively unconscionable: (1) the

exception to finality for awards that are more than $100,000; (2) the exception to finality

for an award that "includes" injunctive relief; and (3) the requirement that the appealing

party advance both parties' costs for the second arbitration with a three-arbitrator panel.

The parties' arbitration agreement provides a streamlined and efficient procedure when it

serves the needs of the seller/creditor, but when such needs are not served—for example

when the award is more than $100,000 or includes injunctive relief—the buyer is then

subjected to delay and complexity. Moreover, without any waiver for a consumer who

cannot afford to pay for an appeal, the requirement that the appealing party advance the

full cost of the arbitration (including the fees for the three arbitrators) makes it likely that

the seller/creditor will be the only party to take advantage of the appeal procedures.

Considered together, these three challenged provisions are moderately substantively

unconscionable. Under the sliding-scale test, these provisions cannot be enforced

because we have found that the contract was also moderately procedurally

unconscionable.




                                               29
                                       IV. Severance

        Civil Code section 1670.5, subdivision (a) provides: "If the court as a matter of

law finds the contract or any clause of the contract to have been unconscionable at the

time it was made the court may refuse to enforce the contract, or it may enforce the

remainder of the contract without the unconscionable clause, or it may so limit the

application of any unconscionable clause so as to avoid any unconscionable result." A

trial court has broad discretion to determine whether severance is appropriate in a

particular case. (Murphy v. Check 'N Go of California, Inc. (2007) 156 Cal.App.4th 138,

144.)

        The trial court refused to sever the unconscionable provisions because it found the

arbitration agreement was "permeated with unconscionability" and this problem could not

"be cured by severing the offensive provisions . . . ." This conclusion was based on the

court's finding that there were multiple unconscionable provisions. In this opinion, we

have concluded that the court erred in finding the self-help/small-claims exceptions are

unconscionable, and that the unconscionable portions of the arbitration agreement relate

solely to the rules regarding the finality of an arbitration award. On remand, the court

should reconsider its severance ruling based on a correct analysis of which provisions are

unconscionable.

                            V. Okudan's Additional Arguments

        Okudan contends an alternate basis for affirming the court's order is to determine

that Financial waived its right to seek arbitration by waiting until Okudan amended his

complaint to add class allegations. Because the waiver issue is a matter for the trial

                                             30
court's discretion in the first instance, it would not be appropriate for this court to reach

Okudan's contentions before the trial court has had the opportunity to address the issue.

If, on remand, the court finds that the unconscionable portions of the agreement can be

severed and thus the agreement is enforceable, the court should address the waiver

argument.

       We also reject Okudan's argument that the court erred in finding that Financial

adequately proved the arbitration agreement by its submission of its collections manager's

declaration. Substantial evidence supports the trial court's factual finding that the parties

entered into the arbitration agreement and that the contract was the industry standard

form contract. For purposes of the motion to compel, there was no dispute over the

contents of the agreement.




                                              31
                                      DISPOSITION

       The court is ordered to vacate its order denying Financial's motion to compel

arbitration and to consider whether to sever the provisions found unconscionable in this

opinion. If the court finds the unconscionable provisions can be severed, the court should

consider and rule on Okudan's argument that Financial waived its right to compel

arbitration. If the court finds the provisions can be severed and that there was no waiver,

it should grant Financial's motion to compel the arbitration.

       The parties to bear their own costs on appeal.


                                                                    HALLER, Acting P. J.

WE CONCUR:



AARON, J.



IRION, J.




                                            32
