Title: Picardi v. Dist. Ct.

State: nevada

Issuer: Nevada Supreme Court

Document:

427 Nev., Advance Opinion 4
IN THE SUPREME COURT OF THE STATE OF NEVADA

WILLIAM A. PICARDI AND BETH ANN No. 53126
PICARDI, INDIVIDUALLY, AND ON
BEHALF OF ALL OTHERS SIMILARLY
SITUATED, FILED
Petitioners,

ve, aR 9% 2041
THE EIGHTH JUDICIAL DISTRICT €s
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF |
CLARK, AND THE HONORABLE
MARK R. DENTON, DISTRICT JUDGE,
Respondents,

and
PT AUTOMOTIVE III, LLC, A NEVADA
LIMITED LIABILITY COMPANY D/B/A.
UNITED HYUNDAI,
Real Party in Interest.

  
 

 

Original petition for a writ of mandamus challenging a district
court order compelling arbitration in a contract action.

Petition granted.
Law Offices of George O. West, III, and George O. West, III, Las Vegas: F
Paul Bland, Washington, D.C.,
for Petitioners.

Moran Law Firm, LLC, and Jeffery A. Bendavid, Las Vegas,
for Real Party in Interest.

BEFORE THE COURT EN BANC.

 

800 / D964)
xemreEve|
By the Court, HARDESTY, J.:

In this petition for extraordinary writ relief, we consider
whether an arbitration agreement is unenforceable because it is
unconscionable or contrary to public policy when it requires consumers to
waive their rights to participate in any form of class action litigation to
pursue common claims that they may have concerning a retail installment
sales contract. In the district court, petitioners’ arguments were rejected,
and the court entered an order compelling petitioners to participate in
binding arbitration and prohibiting them from taking part in any class
action proceeding against real party in interest.

Nevada public policy favors allowing consumer class action
proceedings when the class members present common legal or factual
questions but their individual claims may be too small to be economically
litigated on an individual basis. We conclude that a clause in a contract
that prohibits a consumer from pursuing claims through a class action,
whether in court or through arbitration, violates Nevada public policy.
Because the class action waiver provision in this matter precludes any
form of class action relief, it is contrary to public policy and is therefore
unenforceable, Here, because the terms of the arbitration agreement
provide that it is void if the class action waiver is found unenforceable,
there is no basis on which to compel arbitration.’ Accordingly, the district

"The petitioners claim that the class action waiver is unconscionable
and challenge whether NRS 97.165's single-document rule, which requires
that every retail installment transaction “be contained in a single
document which must contain the entire agreement of the parties,” voids
continued on next page. .

 

 
 

ome
Eesnericne)

court abused its discretion in compelling arbitration, and writ relief is
warranted,
PI ISTO!

In 2008, petitioners William A. Picardi and Beth Ann Picardi
purchased a new vehicle from real party in interest FT Automotive III,
LLC, db.a. United Hyundai. As part of the transaction, the Picardis
traded in their previous vehicle and entered into a retail installment sales
contract to finance the new vehicle's purchase. The Picardis also signed
an addendum to the installment sales contract, which integrated an
agreement regarding binding arbitration, The addendum read, in
pertinent part, as follows:

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 or INDIVIDUAL.
ARBITRATIONS.

3, DISCOVERY AND RIGHTS TO APPEAL IN
ARBITRATION ARE GENERALLY MORE

‘continued

the arbitration agreement in this case because it was not physically
attached to the rest of the contract. Because we conclude that the class
action waiver is unenforceable, thus voiding the arbitration agreement, we
do not reach the merits of these claims.

 

 
LIMITED THAN IN A LAWSUIT, AND OTHER
RIGHTS THAT YOU AND WE WOULD HAVE IN
COURT MAY NOT BE AVAILABLE IN
ARBITRATION,

If any part of this Arbitration Clause, other than
the waivers of class action rights, is deemed or

found to be unenforceable for any reason, the
remainder shall remain enforceable.

(Emphasis added.) Additionally, according to the agreement, any
arbitration conducted under the agreement is governed by the Federal
Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (2006)

After purchasing the vehicle, the Picardis filed in the district
court a proposed class action complaint against United Hyundai alleging,
among other things, fraud and violations of the Nevada Deceptive Trade
Practices Act and the Nevada Retail Installment Sales Act. The class
action claims were grounded on United Hyundai's alleged practices of
erroneously charging new vehicle purchasers $38 for an emissions test,
failing to properly disclose a $1,459 charge for an after-market paint
protection product, and adding the “negative equity” of a purchaser's
trade-in into the new “vehicle selling price” on the retail installment sales
contract without disclosing and/or itemizing the amount of “negative
equity.” The complaint sought special and exemplary damages,
restitution, attorney fees and costs, and declaratory and injunetive relief.

When the Picardis refused United Hyundai's request to
submit the matter to neutral, binding arbitration, United Hyundai filed
motion to compel arbitration in accordance with the arbitration clause and
to stay the district court proceedings. The Picardis opposed the motion
and filed a countermotion for a declaratory judgment, arguing, among

other things, that the arbitration agreement was procedurally and

 

 
substantively unconscionable and contrary to public policy and that it
thould therefore be held unenforceable. According to the Picardis’
pposition and supporting declarations from local attorneys, the clas
\ction waiver was exculpatory because, in cases such as the Picardis’
yhere the individualized claims are relatively small, it is almost
impossible to secure legal representation unless those claims are
iggregated with the claims of other similarly situated individuals, ‘The
istrict court disagreed, granted the motion to compel arbitration, stayed
jany further district court proceedings, denied the Picardis’ countermotion
for a declaratory judgment, and prohibited the Picardis from participating
jin any form of class action against United Hyundai. The Picardis filed the
jinstant petition, seeking a writ of mandamus directing the district court to
jvacate its order compelling arbitration and staying the district court
jaction. As directed, United Hyundai timely filed an answer to the

DISCUSSION
“Writ petitions are the appropriate means to challenge district
jcourt orders compelling arbitration.” Gonski v. Dist. Ct., 126 Nev. _,
|. 245 P.3d 1164, 1168 (2010). In general, the enforceability of contracts
jinvolves mixed questions of law and fact. D.R. Horton, Ine. v. Green, 120
Nev. 549, 553, 96 P.3d 1159, 1162 (2004). Questions of law are reviewed

 

ide novo, but deference is given to a district court's factual findings so long
as they are supported by substantial evidence. Id.

In petitioning for mandamus relief, the Picardis contend that
the arbitration agreement's class action waiver is procedurally
unconscionable because it was adhesive and United Hyundai failed to
‘disclose that in situations such as this one, where the potential recovery to

individual plaintiffs is modest, the class action ban would act to prevent

 

 
them from recovering on such claims, thus leaving them with no remedy.
‘They also argue that the class action waiver provision is substantively

‘unconscionable because it serves as an exculpatory clause, relieving

 

‘United Hyundai of any liability for its alleged wrongdoing in cases where
the potential damage award is small. The Picardis assert that the class
action waiver should therefore be deemed unenforceable,

In its answer to the petition, United Hyundai argues, among
other things, that because the Picardis failed to raise any arguments
regarding the waiver being procedurally unconscionable in the district
court, this court should decline to consider any such arguments. United
Hyundai also argues that the class action waiver is not substantively
unconscionable because, other than declarations from local attorneys who
were not deemed expert witnesses in the district court, the Picardis never
provided any evidence that they or similarly situated individuals would be
‘unable to recover against United Hyundai in the absence of a class action.

‘There appears to be a split of authority concerning the
enforcement of class actions waivers in arbitration agreements. United
Hyundai directs our attention to a large contingency of cases concluding
that such waivers are enforceable. Seo, e.g. Jenkins v. First American
Cash Advance of Georgia, 400 F.3d 868, 878 (11th Cir. 2005); Iberia Credit

Ine. v. Wireless, 379 F.3d 159, 174-75 (5th Cir. 2004);
Livingston v. Associates Finance, Inc., 339 F.3d 553, 559 (7th Cir, 2003);
‘Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002);
Johnson _v. West Suburban Bank, 225 F.3d 366, 371 (8d Cir. 2000);
Sprague v. Household Intern, 473 F. Supp. 2d 966, 977 (W.D. Mo. 2005);
Gipson v, Cross Country Bank, 294 F. Supp. 2d 1251, 1262-63 (M.D. Ala.
2003); Fonte v. AT&T Wireless Services, Inc., 903 So. 24 1019, 1024, 1027

 

 
es

 

la. Dist, Ct. App. 2005); Tsadilas v, Providian Nat'l Bank, 786 N.Y.$.2d
478, 480 (App. Div. 2004),

The Picardis point out that a growing number of jurisdictions
are holding that class action waivers in arbitration agreements are
unenforceable. See, e.g, Skirchak v. Dynamics Research Corp., 508 F.3d
49, 59 (Ist Cir. 2007); Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir. 2008);
Leonard v, Terminix Intern. Co, L.P., 854 So. 2d 529, 539 (Ala, 2002);
Szetela_v. Discover Bank, 118 Cal. Rptr. 24 862, 868 (Ct. App. 2002);
Kinkel v, Cingular Wireless LLC, 857 N.E.2d 250, 274 (Ill. 2006); Fiser v.
Dell Computer Corporation, 188 P.3d 1216, 1222 (N.M. 2008); Vasquez:
Loper_v. Beneficial Oregon, Inc., 152 P.84 940, 960 (Or. Ct. App. 2007);
Thibodeau v. Comcast Corp,, 912 A.2d 874, 886 (Pa. Super. Ct. 2006);
Scott v. Cingular Wireless, 161 P.3d 1000, 1009 (Wash. 2007). These
jurisdictions have varied reasoning for not enforcing class action waivers
within arbitration agreements.

For instance, in Kinkel, the Supreme Court of Illinois
determined that a class action waiver within an arbitration agreement
was unenforceable because under the circumstances, which included
undisclosed but costly arbitration fees and potential liability for liquidated
damages, the consumer's “only reasonable, cost-effective means of
obtaining a complete remedy [was] as either the representative or a
member of a class.” 857 N.E.2d at 275. In Scott, the Supreme Court of
Washington struck down a class action waiver based on public policy that
favors class actions “for purposes of efficiency, deterrence, and access to
justice” in consumer settings where the claims are relatively small. 161
P.8d at 1005. The court explained the policy by stating that when

 
consumers’ claims are “small but numerous, a cla:

   

only effective method to vindicate the public's rights.” Id.

The arbitration agreement here provides that any arbitration
under the agreement “shall be governed by the Federal Arbitration Act [9
U.S.C. §§ 1-16 (2006)] and not by any state law concerning arbitration.”
‘The FAA embodies “a strong public policy favoring arbitration for the
purpose of avoiding the unnecessary expense and delay of litigation where
parties have agreed to arbitrate.” Burch v, Dist, Ct,, 118 Nev. 438, 442, 49
3d 647, 650 (2002). However, the FAA doos not require states to enforce
arbitration agreements and it docs not prohibit states, in regulating
arbitration agreements under general contract principles, from

invalidating an arbitration clause ““upon such grounds as exist at law or
in equity for the revocation of any contract.”" Id, at 443, 49 P.3d at 650
(quoting Allied-Bruce Terminix Cos, v. Dobson, 513 U.S. 265, 281 (1995)

(quoting 9 U.S.C. § 2)). Therefore, in order to determine whether a class

 

action waiver rooted in an arbitration agreement is enforceable, we must
look to generally applicable state contract law. Id,

‘Under Nevada contract law principles, courts may refuse to
‘enforce a provision of a contract that contravenes the state's public policy.
‘See generally Rivero v. Rivero, 125 Nev. _, _, 216 P.3d 213, 226 (2009)
("Parties are free to contract, and the courts will enforce their contracts if
they are not unconscionable, illegal, or in violation of public policy.”); State
Farm Mut. Auto. Ins. Co. v. Fitts, 120 Nev. 707, 708, 99 P.3d 1160, 1161
(2004) (considering a certified question regarding the enforceability of a
provision in an insurance policy that required an insured to arbitrate or
file suit on a claim for uninsured or underinsured motorist coverage that

was outside the statutorily proscribed statute of limitations, this court

 

 
held that such a provision was “unenforceable and therefore void as
against Nevada public policy”); State Farm Mut, Auto. Ins, v. Hinkel, 87
Nev. 478, 481, 488 P.2d 1161, 1153 (1971) (holding that “[ajm insurance
company may limit coverage only if the limitation does not contravene
public policy”); see also Fisher v. DCH Temecula Imports LLC, 114 Cal.
Rptr. Sd 24, 34 (Ct. App. 2010) (“{P]rivate contracts that violate public
policy are unenforceable.” (quoting Gutierrez Autowest, Inc,, 7 Cal. Rptr.
3d 267, 281 (2003))); Restatement (Second) of Contracts § 178(2) (1981) A

promise or other term of an agreement is unenforceable on grounds of

 

public policy if... the interest in its enforcement is clearly outweighed in
the circumstances by a public policy against the enforcement of such
terms.”). Thus, “arbitration agreements cannot be used to avoid rights
and liabilities imposed by statute when doing so would violate the public
policy of this state.” Gonski, 126 Nev. at _, 245 P.3d at 1172, And
although Nevada public policy favors enforcement of arbitration

 

provisions, “[t]he policy of enforcing arbitration arises... only after an
enforceable agreement to arbitrate is found to exist.” Id, at _, 245 P.3d
at 1168-69. The parties were invited to brief the issue of who, the
arbitrator or the court, should decide whether the arbitration clause was
unconscionable on public policy grounds. See Stolt-Nielson S.A. v.
AnimalFeeds Intl Corp., 559 U.S. _, _, 180 8. Ct. 1758, 1768-69 (2010)
(overturning an arbitration panel's decision because “[rJather than
inquiring whether the FAA, maritime law, or New York law contains a
‘default rule’ under which an arbitration clause is construed as allowing
class arbitration in the absence of express consent, the [arbitration] panel

proceeded as if it had the authority of a common-law court to develop what
it viewed as the best rule to be applied in such a situation”). Because we

 

 
hhold that the arbitration agreement in this case is unenforceable, we need
not address the public policy that favors enforcement of valid arbitration
agreements. What does warrant discussion, however, is Nevada's strong
[public policy in favor of class action suits,

NRCP 23(b)(3) is one of the provisions that authorizes
maintenance of a class action and demonstrates a state policy favoring
‘class actions when the class members present common questions of law or
fact that predominate over any questions affecting only individual
members, Nevada caselaw similarly demonstrates that class actions
effectively provide a forum for “individuals [who would] be unable to
Jobtain any redress for ‘wrongs otherwise irremediable because the
individual claims are too small...” Shuette v. Beazer Homes Holdings
[Corp,, 121 Nev. 837, 846, 124 P.3d 530, 587 (2005) (quoting Johnson v.
‘Travelers Insurance Co,, 89 Nev. 467, 470, 615 P.2d 68, 71 (1973).
Additionally, class actions serve a valuable function in Nevada's judicial
system by increasing efficiency because the courts do not have to use their
limited resources deciding a litany of cases that stem from a single
jincident and present similar issues. D.R. Horton v. Dist. Ct., 125 Nev. _,
|. 215 P.3d 697, 703 (2009). This recent caselaw further evinces
‘Nevada's strong public policy in favor of class actions in order to provide
multiple plaintiffs, who individually may have a valid but small claim, an
adequate remedy at law. This public policy is consistent with the growing
number of jurisdictions that favor aggregating small consumer claims.
See, e.g., Deposit Guaranty Nat. Bank v. Roper, 445 U.S. 326, 339 (1980)
(Where it is not economically feasible to obtain relief within the

‘traditional framework of a multiplicity of small individual suits for

damages, aggrieved persons may be without any effective redress unless

 

 
os

 

they may employ the class-action device.”); Scott, 161 P.3d at 1005
thington's [class action rule] . . , demonstrates a state policy favoring

ition of small claims for purposes of efficiency, deterrence, and

to justice”). ‘The class action mechanism is important in cases
involving small claims consumer cases because “[t]he realistic alternative

to a clas

 

ction is not 17 million individual suits, but zero individual
suits, as only a Tunatic or a fanatic sues for $30." Carnegie v. Household
Intern, Inc,, 376 F.3d 656, 661 (7th Cir. 2004), Therefore, we hold that
the class action waiver within the Picardis and United Hyundai's

 

arbitration agreement is unenforceable because it violates Nevada's public
policy favoring class actions by prohibiting class status in both litigation
and arbitration,

Because we conclude that the class action waiver in the
arbitration agreement violates public policy, it is unenforceable. Because
United Hyundai did not argue for severability, and because the arbitration
agreement provides that it is void if the class action waiver is found
‘unenforceable, there is no basis on which to compel arbitration. Therefore,
‘we conclude that the district court abused its discretion in compelling
arbitration and writ relief is warranted. Accordingly, we grant the
Picardis’ petition and direct the clerk of this court to issue a writ of
mandamus instructing the district court to set aside its order granting

u

 
United Hyundai's motion to compel arbitration so that the district court

Phew,

Hardesty

action may proceed.

12
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