After two lower courts had ruled that an arbitration clause in a consumer contract was unconscionable, the California Supreme Court reversed in a recent ruling, finding the clause was enforceable in Sanchez v. Valencia Holding Co., LLC., 61 Cal.4th 899 (2015).

The arbitration clause at issue was part of a contract to buy a used Mercedes-Benz.  The buyer alleged that the seller made false representations about the car’s condition and violated California laws regarding fees and charges.  The buyer argued that the arbitration agreement in the sales contract was unconscionable because it included a class action waiver, allowed appeals for outlier awards, required the appealing party to pay for appellate costs pending an appeal, and allowed the parties to invoke self-help remedies, such as repossession.

The California Supreme Court rejected those arguments. It found that the arbitration clause was not substantively unconscionable, and that “a simple old-fashioned bad bargain” is not unconscionable.  Instead, it must be overly harsh, or unduly oppressive, or unreasonably favorable, or shock the conscience.  This decision puts California squarely in the mainstream on the unconscionability of arbitration agreements.  It also offers very useful guidance for those applying California contract law when analyzing purportedly unconscionable arbitration clauses.