Heather Newton v. American Debt Services, Inc.
549 F. App'x 692
9th Cir.2013Background
- Defendants Global Client Solutions and Rocky Mountain Bank & Trust appeal district court denial of their motion to compel arbitration in a purported class action by Newton.
- The court reviews arbitrability de novo and affirms based on the lack of arbitrator-arbitrability assignment and the complaint’s core claims not challenging the entire contract.
- Newton alleges illegal fees, negligent services, and misrepresentations rather than challenging the contract’s validity as a whole.
- The arbitration clause is an adhesion contract, supporting procedural unconscionability.
- The district court concluded the four provisions of the arbitration agreement were substantively unconscionable, and severance would not suffice to enforce arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the arbitration agreement procedurally unconscionable? | Newton asserts oppression or surprise due to adhesion contract and contract-incorporation by reference. | Defendants contend adhesion and bargaining lack of negotiation. | Yes, procedurally unconscionable. |
| Is the arbitration agreement substantively unconscionable? | Newton argues one-sided limits on damages and fee shifting, and unilateral control of arbitrator. | Defendants maintain arbitration terms are permissible and valid. | Yes, substantively unconscionable. |
| Should the court sever unconscionable provisions rather than void the contract? | Severance should preserve arbitration. | Severance not appropriate if central purpose tainted. | District court acted within discretion; severance not applied. |
Key Cases Cited
- PowerAgent Inc. v. Electronic Data Systems Corp., 358 F.3d 1187 (9th Cir. 2004) (arbitrability and de novo review)
- Bridge Fund Capital v. Fastbucks Franchise, 622 F.3d 996 (9th Cir. 2010) (crux of the complaint rule; arbitrability context)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (central issue is arbitrability; contract validity challenge)
- Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669 (Cal. 2000) (California unconscionability framework)
- Concepcion v. AT&T Mobility LLC, 563 U.S. 333 (2011) (liberal federal policy favoring arbitration; unconscionability limits)
- Chavarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir. 2013) (procedural unconscionability in California)
- Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003) (oppression and surprise in adhesion contracts)
- Flores v. Transamerica HomeFirst, Inc., 113 Cal. Rptr. 2d 376 (Cal. Ct. App. 2001) (oppression and surprise in unconscionability)
- Sehulster Tunnels/Pre-Con v. Traylor Bros., Inc./Obayashi Corp., 4 Cal. Rptr. 3d 655 (Cal. Ct. App. 2003) (unilateral arbitrator selection concerns)
- Rent-A-Center, West Inc. v. Jackson, 561 U.S. 63 (2010) (provisions outside the clause may be considered in unconscionability)
- Mortensen v. Bresnan Communic'ns, LLC, 722 F.3d 1151 (9th Cir. 2013) (harmonizes unconscionability with Concepcion)