In Brinkley v. Monterey Financial Services, Inc., Plaintiff signed up to receive six real estate coaching sessions through Real Estate Investor Education (“REIE”) for $4,195. Plaintiff paid $850 and financed the balance of the purchase price through REIE’s “Retail Installment Contract” (“RIC”). The RIC contained a choice of law provision, which provided that the contract was to be governed by the law of the state in which Plaintiff resided. Plaintiff identified her residence as being in the State of Washington.
The RIC also required Plaintiff to resolve any disputes with REIE through binding arbitration, in accordance with the rules of the American Arbitration Association (“AAA”), and provided that the arbitrator’s decision “shall be final and binding on all parties…[and] shall include the payment of all fees and costs of the prevailing party” (“Shifting Fees Provision”). Finally, the RIC permitted REIE to assign the contract to a third party, without prior notice to Plaintiff. REIE assigned the RIC to Monterey Financial Services, Inc. (“Monterey”) shortly after Plaintiff executed it. Monterey is a financial institution specializing in consumer financing, loan servicing, and debt collection.
Plaintiff ultimately failed to pay Monterey the balance of the purchase price for the real estate coaching sessions. She claimed that she never received all of the sessions she was promised from REIE, which went out of business. Accordingly, Monterey initiated collection efforts against Plaintiff. This resulted in several telephone conversations between Plaintiff and representatives of Monterey, which Monterey surreptitiously recorded.
When Plaintiff found out that Monterey recorded its conversations with her, in which Plaintiff revealed her identity and shared personal information, she filed an action against Monterey, asserting causes of action for invasion of privacy, unlawful recording of telephone calls, and unlawful business practices. Monterey moved to compel arbitration of Plaintiff’s claims pursuant to the RIC. The court granted Monterey’s motion and ordered the parties to arbitration. Plaintiff appealed the court’s order on several grounds, including that the RIC’s Shifting Fees Provision was unconscionable and unenforceable.
The Court of Appeal first determined that the AAA’s Consumer-Related Disputes Supplementary Procedures applied to the RIC. Under the Procedures rates, Plaintiff would only be required to pay a $200 filing fee, and Monterey would be required to bear all other costs, including the arbitrator’s fee and expenses. This is contrary to the Shifting Fees Provision in the agreement. The Appellate Court ruled that the RIC’s Shifting Fees Provision was substantively unconscionable.
Nick D. Fine, Associate, firstname.lastname@example.org