David Tompkins v. 23andme, Inc.
840 F.3d 1016
| 9th Cir. | 2016Background
- 23andMe’s online Terms of Service required users to click-to-accept when registering a DNA kit; Paragraph 28(b) mandated arbitration in San Francisco under AAA rules and included a bilateral prevailing-party fee-shifting provision, an IP carve-out, a one-year limitations period, and a unilateral modification clause.
- Plaintiffs (class representatives) sued for misrepresentations about health-related services after FDA action; 23andMe moved to compel arbitration and the district court granted the motion, finding procedural unconscionability but not substantive unconscionability.
- Plaintiffs appealed, arguing the arbitration provision (and related contract terms) was substantively unconscionable under California law and therefore unenforceable under the FAA’s savings clause.
- The Ninth Circuit reviewed de novo and applied California unconscionability doctrines as interpreted by the California Supreme Court, while assessing FAA preemption principles from U.S. Supreme Court precedents.
- The panel held that the challenged arbitration provisions (prevailing-party fee-shifting, San Francisco forum, IP carve-out) and the outside provisions (one-year limitations, unilateral modification) did not render the arbitration clause substantively unconscionable; arbitration was enforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Prevailing-party fee-shifting (including arbitrator fees) | Fee-shifting will deter consumers because AAA/arbitrator costs and attorneys’ fees make arbitration unaffordable | Clause is bilateral, permissible under Cal. law (and §1717); plaintiffs offered no evidence fees were unaffordable | Not unconscionable; bilateral clause enforceable; under Sanchez plaintiffs must show fees are unaffordable and they did not do so |
| Forum selection (San Francisco) | Requiring travel to SF is costly and would effectively bar small-value claims | Forum is 23andMe’s principal place of business; inconvenience alone does not render clause unreasonable | Not unconscionable; plaintiffs failed to show SF is unavailable or that travel costs deprive them of a forum |
| IP carve-out (exempts IP claims from arbitration) | One-sided because 23andMe is more likely to assert IP claims in court, leaving consumers in arbitration | IP carve-out is not facially one-sided; customers retain some IP rights; company may have legitimate business justification | Not unconscionable; does not lack a modicum of bilaterality and may be a legitimate protective margin |
| Challenges to other contract terms (1-year limitations, unilateral modification) | These outside provisions, in combination, render the arbitration clause unconscionable as applied | Rent-A-Center/Buckeye doctrine: court should enforce arbitration clause unless plaintiff specifically challenges the delegation/agreement to arbitrate; outside provisions do not make the arbitration clause unconscionable here | Court limited review of outside provisions; under circumstances the one-year limit and unilateral-modification clause do not make the arbitration provision unconscionable (plaintiffs may litigate these issues in arbitration) |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (preemption of state rules applied to arbitration agreements)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (courts enforce arbitration unless the precise agreement to arbitrate is directly challenged)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (California unconscionability standard applied equally to arbitration agreements; fee-affordability standard)
- Armendariz v. Foundation Health Psychcare Services, 24 Cal.4th 83 (constraints on mandatory employment arbitration; fee-shifting rule in employment context)
- Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (no inherent inferiority of arbitration; substantive unconscionability analyses)
- Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (federal policy favoring arbitration)
- Perry v. Thomas, 482 U.S. 483 (arbitration agreements construed like other contracts under state law)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (severability/delegation principles for arbitration challenges)
- Nagrampa v. Mailcoups, Inc., 469 F.3d 1257 (9th Cir.) (procedural considerations and when courts may consider contract as a whole)
- Moreno v. Sanchez, 106 Cal.App.4th 1415 (California treatment of contractual statutes of limitations)
- Santisas v. Goodin, 17 Cal.4th 599 (validity of bilateral prevailing-party fee provisions)