Two federal district courts in California recently hit the brakes on putative TCPA class actions, granting the defendants’ motions to compel arbitration and informing the plaintiffs that, by signing contracts containing arbitration clauses, they relinquished any right to pursue TCPA claims through a class action.
In Mendoza v. Ad Astra Recovery Services, Inc., No. 2:13-cv-06922-CAS(JCGx), 2014 WL 47777 (Jan. 6, 2014 C.D. Cal.), plaintiff Miguel Mendoza sued an agent of a payday lending firm that contacted him regarding repayment of a loan. Mendoza, who had obtained a $255 payday loan from non-party Speedy Cash, alleged that he began receiving calls from defendant Ad Astra on his cell phone after he failed to repay the debt. When Mendoza did not answer these calls, Ad Astra allegedly left “voicemail messages using a pre-recorded or artificial voice.” He contended that such messages violated the TCPA. See 47 U.S.C. § 227(b)(1)(A).
At the time he received the loan, however, Mendoza signed a contract in which he waived the right to pursue a class action and agreed to arbitrate any potential claims. The arbitration clause was extremely broad, covering “any claim, dispute or controversy between you and us (or related parties) that arises from or relates in any way to this Agreement . . . ; any of our marketing, advertising, solicitations and conduct relating to your request for Services; our collection of any amounts you owe; or our disclosure of or failure to protect any information about you.”
Mendoza did not dispute that he agreed to a contract containing an arbitration clause, but he raised three arguments for why the court should deny Ad Astra’ motion to compel arbitration. First, he argued that Ad Astra lacked standing to enforce an agreement he signed with Speedy Cash. The court rejected this argument, finding that Ad Astra had standing as an agent of Speedy Cash.
Second, Mendoza argued that his claim fell outside the scope of the arbitration clause. The court pointed out that the arbitration clause states that “‘Claim’ is to be given the broadest possible meaning and includes . . . claims based on any . . . statute[.]” It also noted that the clause expressly included claims arising out of debt-collection activities.
Finally, he argued that the arbitration clause was unconscionable. The court found that the clause was not procedurally unconscionable under California law because it “gave plaintiff the unilateral right to reject arbitration at any time within 30 days of signing the contract” through the following provision:
1. RIGHT TO REJECT ARBITRATION. If you do not want this Arbitration Provision to apply, you may reject it within 30 days after the date of this Agreement by delivering to us . . . a written rejection notice. . . . Your rejection of arbitration will not affect your right to Services or the terms of this Agreement (other than this Arbitration Provision.).
Because Mendoza elected not to exercise the right to reject arbitration, the court found that “the negotiation of the arbitration provision was not oppressive under California law of unconscionability.”
After concluding that the arbitration clause was not procedurally unconscionable, the court also found that it was not substantively unconscionable or the result of unfair surprise. The court highlighted the following warning in the contract:
VERY IMPORTANT. READ THIS ARBITRATION PROVISION CAREFULLY. IT SETS FORTH WHEN AND HOW CLAIMS . . . WILL BE ARBITRATED INSTEAD OF LITIGATED IN COURT. IF YOU DON’T REJECT THIS ARBITRATION PROVISION IN ACCORDANCE WITH SECTION 1 BELOW, UNLESS PROHIBITED BY APPLICABLE LAW, IT WILL HAVE A SUBSTANTIAL IMPACT ON THE WAY IN WHICH YOU OR WE RESOLVE ANY CLAIM.
This warning, combined with the way the arbitration clause “was set out conspicuously on a separate page of the contract,” led the court to conclude that the clause was not substantively unconscionable.
Like its counterpart in the Central District, the Southern District of California also recently sent a putative TCPA class action to arbitration. See Sherman v. RMH, LLC, et al., No. 13-cv-1986-WQH-WMc, 2014 WL 30318 (Jan. 2, 2014 S.D. Cal.).
Plaintiff Rafael David Sherman had purchased a used car from defendant Rancho Chrysler Jeep Dodge in 2010. In his complaint, he alleged that the defendants violated the TCPA in June 2013 by leaving a prerecorded voice message on the voicemail of his phone reminding him that it was the anniversary of his auto purchase and that it was time for “another status review of your ownership experience.”
At the time of his purchase, Sherman had signed a “Retail Installment Sales Contract.” The contract was a single sheet of paper with terms on both sides, including an arbitration clause on the back. Sherman signed the front of the contract, which included the following warning above the signature line: “YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE SIGNING BELOW.”
The arbitration clause, like the clause at issue in Mendoza, was sufficiently broad enough to encompass Sherman’s TCPA claim: “Any claim or dispute, whether in contract, tort, statute or otherwise . . ., between you and us or our employees, agents, successors or assigns, which arise out of or relate to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship . . . shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”
Sherman argued that the court should not enforce the arbitration clause, because (1) there is no evidence that Sherman read the arbitration clause; (2) the clause is unconscionable; and (3) the clause does not cover the dispute at issue. The court rejected each of these arguments.
These recent decisions stress the importance of ensuring that arbitration clauses contain class action waivers, are broad enough to encompass potential TCPA claims, and sufficiently explain the consumer’s legal rights.