Sabia v. Orange County Metro Realty, Inc.

After the Court of Appeal reversed an order compelling arbitration, the California Supreme Court has granted the firm's petition for review in Sabia v. Orange County Metro Realty, Inc., et al., S220237. In Sabia, the plaintiffs in a putative class action alleged they signed loan modification agreements that contained an arbitration clause that only required the plaintiffs to arbitrate their claims against the defendants (not vice versa). The issue (among others) in Sabia is whether an arbitration clause that requires one party to arbitrate but not the other is substantively unconscionable. The premise in the Court of Appeals 2-1 opinion is that arbitration is an inferior forum; hence lack of mutuality, in the Court’s view, renders the arbitration substantively unconscionable. However, the U.S Supreme Court in several cases, including AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, has held that state laws, including judge-made rules, that are applied in a fashion that disfavors arbitration and rely on the uniqueness of an agreement to arbitrate are preempted by the Federal Arbitration Act. The dissent in Sabia noted that there is no general principle of California contract law that requires that contractual promises must be mutual in order to be enforceable and that an agreement that requires only one party to arbitrate is not so one-sided as to shock the conscience. While the majority felt it was bound by the California Supreme Court's pre-Concepcion opinion in Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, the dissent expressed the view that an intermediate appellate court can construe and apply U.S. Supreme Court precedent ahead of a ruling from California's high court. The California Supreme Court has deferred briefing pending its decision in Sanchez v. Valencia Holding Co. LLC, S199119.