Consumer Arbitrations: Consumer Contract Authorizing Fees Runs Afoul Of CCP § 1284.3 Statutory Protections

Fourth District, Division 1 Reverses Arbitration Fee Award on Public Policy Grounds on Appeal.

     Code of Civil Procedure section 1284.3(a) is a pro-consumer arbitration provision that states an arbitrator/neutral cannot administer an arbitration for a consumer in a way that makes the consumer responsible to pay attorney’s fees or costs if he/she is not a prevailing party. That statutory protection came into direct conflict with an arbitration clause in a homeowner-contractor pool replastering contract that allowed an arbitrator to award fees to the prevailing party.

     Well, an arbitrator ruled in favor of contractor and hit homeowner with $23,834.24 in fees as the losing party. Homeowner tried to vacate or correct the fee award, but the trial court found that was not a prototypical “consumer” situation because the consumer had “agreed” to arbitration upfront.

     That brought the fee challenge to the Fourth District, Division 1 in Gardner Pool Plastering, Inc. v. Law, Case No. D055220 (4^th Dist., Div. 1 June 10, 2010) (unpublished).

     Result—reversed.

     The situation did fall within the “consumer” situation that barred a recovery of fees. Although section 1284.3 does not define “consumer,” there was no restrictive legislative language and, in tandem with the dictionary meaning of the term, the clause could not be upheld as valid. The lower court’s apparent credit of the “accept” rationale, although based in Judicial Council rule terminology relating to neutral arbitrator ethics, did not prevail because the Judicial Council had no ability to trump the section 1284.3 restrictions.

     Contractor also argued that consumer waived the benefit of this pro-consumer statute, citing Civil Code section 3513 to support this argument. However, the appellate panel found that section 1284.3 does exist for a public benefit, because consumers frequently cannot bear the fees to vindicate statutory rights. Consumer beat back the almost $24,000 in fee exposure in this case, which is must reading for practitioners representing consumer claimants in arbitration proceedings.