88 Cal.App.5th 1035
Cal. Ct. App.2023Background
- Skillz Platform, Inc. operates a mobile gaming app; users create accounts and, by tapping “Next,” assent to a hyperlinked Terms of Service that contains an arbitration clause.
- The Terms require AAA arbitration in San Francisco, limit recoverable relief (e.g., $50 liability cap, ban on non‑economic/punitive damages), impose a one‑year filing bar, split AAA/arbitrator fees, allow Skillz to seek certain equitable/civil relief in court (including IP and billing claims), and waive class/representative actions.
- Pavel Gostev (Washington resident) saved an account in July 2019, played Skillz’s Solitaire Cube, and sued in California state court alleging gambling, UCL, CLRA, and unjust enrichment claims seeking injunctive and equitable relief.
- Skillz moved to compel arbitration; Gostev argued (inter alia) the arbitration clause was procedurally and substantively unconscionable and unlawfully waived public injunctive relief under McGill.
- The trial court found no clear-and-unmistakable delegation of arbitrability to an arbitrator, found the arbitration clause procedurally and substantively unconscionable (listing many one‑sided terms), denied the petition, and the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Who decides arbitrability (delegation)? | The clause is ambiguous; courts should decide arbitrability. | The broad definition of “Dispute” and incorporation of AAA rules delegate arbitrability to the arbitrator. | Court: No clear and unmistakable evidence of delegation; court decides arbitrability. |
| 2) Does incorporating AAA Commercial Rules alone show clear delegation? | Incorporation is insufficient for an unsophisticated consumer to have clearly agreed to delegate. | Incorporation of AAA rules (which empower arbitrators to decide jurisdiction) is clear and unmistakable. | Court: Incorporation here is not clear and unmistakable given consumer‑adhesion context; not enough to delegate. |
| 3) Procedural unconscionability of the Terms? | Terms are a consumer adhesion contract with confusing/contradictory provisions and lack of notice about AAA fees. | Contract of adhesion is typical and enforceable; no unfair surprise. | Court: Some degree of procedural unconscionability established (adhesion + surprise/confusing terms). |
| 4) Substantive unconscionability (mutuality, public relief, time, forum, fees)? | Multiple one‑sided provisions (non‑mutual carveouts, restriction on public injunctive relief, one‑year limitation, SF forum, fee‑splitting/fee awards) render clause substantively unconscionable and not severable. | Clauses are lawful or severable; arbitration can provide relief; incorporation of rules and business justifications support enforceability. | Court: Arbitration clause is substantively unconscionable on multiple grounds; unconscionability permeates the agreement and severance is inappropriate. |
Key Cases Cited
- McGill v. Citibank, N.A., 2 Cal.5th 945 (Cal. 2017) (private plaintiff cannot be forced to waive right to seek public injunctive relief under UCL/CLRA).
- Ajamian v. CantorCO2e, L.P., 203 Cal.App.4th 771 (Cal. Ct. App. 2012) (heightened clear‑and‑unmistakable standard for delegation; incorporation of rules may not suffice for unsophisticated parties).
- Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547 (Cal. Ct. App. 2004) (incorporation of arbitration rules can show clear delegation in commercial contexts of sophisticated parties).
- Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (incorporation of AAA rules constituted clear and unmistakable evidence of delegation on those facts).
- Sonic‑Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (Cal. 2013) (doctrine and definitions of unconscionability; focus on one‑sided, overly harsh terms).
- Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal.4th 83 (Cal. 2000) (bilaterality and business‑justification considerations in arbitration clauses).
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (parties may delegate arbitrability but delegation must be clear and unmistakable).
- Fisher v. MoneyGram Int’l, Inc., 66 Cal.App.5th 1084 (Cal. Ct. App. 2021) (one‑year contractual limitations period in arbitration clause can be substantively unconscionable).