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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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 

SERVICES USA, LLC,

Plaintiff, Cross-defendant and 

Appellant,

v.

OZZY O. OKUDAN,

Defendant, Cross-complainant and 

Respondent.

 D061669

 (Super. Ct. No. 37-2010-00093994-

 CU-CL-CTL)

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 
2

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 crosscomplaint 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. 
3

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
4

"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 
5

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. 
6

. . . 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 
7

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).)
8

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). 
9

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 
10

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 
11

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"].) 
12

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): 
13

"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 twothirds 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 
14

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.
15

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.) 
16

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 
17

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 onesided 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
18

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 
19

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 onesided 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 threearbitrator 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 onesided: (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 
20

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, 
21

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 
22

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 
23

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 threeperson 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 
24

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 
25

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 
26

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 
27

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 
28

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 
29

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. 
30

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 
31

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. 
32

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.