PAVEL GOSTEV v. SKILLZ PLATFORM, INC.
A164407
Court of Appeal of the State of California, First Appellate District, Division Two
February 28, 2023
CERTIFIED FOR PUBLICATION; San Francisco County Super. Ct. No. CGC-21-589818
We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties and the Terms of Service
Skillz provides a mobile platform that hosts games in which players can pay to compete against each other for cash prizes. To play games on its platform, a user must establish a player account, and to participate in paid-entry competitions, a user must save the player account. To save a player account, a user must provide an email address and verify age by entering the user‘s date of birth; after entering a date of birth, the user must tap a box with the word “Next” on it. Below the “Next” box is the advisory statement, “By tapping ‘Next,’ I agree to the Terms of Service and the Privacy Policy.”
Gostev is a resident of the state of Washington who played the Skillz game “Solitaire Cube” on his mobile device. He saved a Skillz player account in July 2019. The version of the “User Terms and Conditions of Service” (Terms of Service)1 then in effect begins: “Welcome to Skillz! We hope you‘ll enjoying being a part of our community by participating in our online gaming challenges, competitions and tournaments (collectively, ‘Competitions‘) and using other applications, tools and services that we may provide from time to time (together with Competitions, the ‘Services‘).” It goes on to explain that by registering an account or using Skillz’ services, the user agrees to be bound by the terms (with “Terms” defined as “these Terms and Conditions of Service, the terms of any policy incorporated herein, and the Rules“).
The Agreement to Arbitrate in the Terms of Service
The 15-page Terms of Service has 15 sections. The first section begins:
“1. GENERAL TERMS
“1.1. Arbitration. TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, ANY CLAIM, DISPUTE OR CONTROVERSY OF WHATEVER NATURE (‘CLAIM‘) ARISING OUT OF OR RELATING TO THESE TERMS AND/OR OUR SOFTWARE OR SERVICES MUST BE RESOLVED BY FINAL AND BINDING ARBITRATION IN ACCORDANCE WITH THE PROCESS DESCRIBED IN SECTION 14 BELOW. PLEASE READ SECTION 14 CAREFULLY. To the maximum extent permitted under
applicable law, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury.”
Section 14, “DISPUTE RESOLUTION AND ARBITRATION,” starts at page 13: “14.1. General. This Section applies to any Dispute except for Disputes relating to the enforcement or validity of our intellectual property rights. The term ‘Dispute’ means any dispute, action, or other controversy between you and us concerning these Terms, the Services or any product, service or information we make available to you, whether in contract, warranty, tort, statute, regulation, ordinance, or any other legal or equitable basis. ‘Dispute’ will be given the broadest possible meaning allowable under law.”2
Subsection 14.1 requires written notice of a dispute and “informal negotiation” after which either party may commence arbitration. Alternatively, the parties may bring claims that qualify for its jurisdiction in small claims court. Subsection 14.2 provides, “If you and we do not resolve
Subsection 14.4. requires arbitration to be “conducted by the American Arbitration Association (the ‘AAA‘) under its Commercial Arbitration Rules” and commenced “only in San Francisco, California, USA.” It limits the arbitrator‘s authority to award damages or injunctive relief, requires splitting the costs of arbitration, and authorizes the arbitrator to award attorney fees to the prevailing party.3
Subsection 14.5 provides that all claims “must be filed within one year,” and any claim or dispute that is not filed within one year is “permanently barred.”4 Subsection 14.6, “Equitable Relief,” provides: “You agree that we
The Terms of Service also limits Skillz’ liability in various ways.5
Gostev‘s Lawsuit
In February 2021, Gostev sued Skillz in San Francisco County Superior Court. In the operative complaint, he alleged Skillz’ games constitute gambling games in violation of California and federal law and, “in carrying out its gambling enterprise, Skillz engages in predatory and unlawful
Gostev was aware of the arbitration provision in the Terms of Service when he filed his lawsuit, and he addressed it in his complaint, alleging the agreement to arbitrate was unenforceable because it prohibited public injunctive relief in violation of McGill v. Citibank, N.A. (2017) 2 Cal.5th 945 (McGill), and because it was unconscionable.6
Skillz’ Petition to Compel Arbitration
Skillz petitioned to compel arbitration. Skillz argued that, as a threshold matter, Gostev‘s challenges to the enforceability of the arbitration provision had to be submitted to an arbitrator and, substantively, the arbitration provision was valid and covered Gostev‘s claims. Opposing the petition, Gostev argued there was no clear and unmistakable evidence the parties intended an arbitrator would decide the threshold question of arbitrability; there was no enforceable agreement to the Terms of Service; and the arbitration provision was procedurally and substantively unconscionable.
The Court‘s Ruling
In its written order and statement of decision, the trial court found Skillz demonstrated the existence of an arbitration agreement but rejected
Skillz timely appealed.
DISCUSSION
A. Standard of review
“The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) When the evidence is not in conflict, we review the trial court‘s denial of a petition to compel arbitration de novo. (Ibid.) We review the trial court‘s findings of disputed fact for substantial evidence; we review its finding of unconscionability based on those facts de novo. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795 (Ajamian).)
B. Who Decides the Threshold Question of Enforceability?
The usual presumption is that a court, not an arbitrator, will decide in the first instance whether a dispute is arbitrable. (Ajamian, supra, 203
Skillz contends it has met this heightened evidentiary standard because (1) the parties “expressly agree[d]” to delegate arbitrability and (2) the parties incorporated the AAA Commercial Arbitration Rules into their arbitration agreement. We are not persuaded.
1. No Express Agreement
Skillz relies on the following language in Section 14 of the Terms of Service: “The term ‘Dispute’ means any dispute, action, or other controversy between you and us concerning these Terms, the Services or any product, service or information we make available to you, whether in contract, warranty, tort, statute, regulation, ordinance, or any other legal or equitable basis. ‘Dispute’ will be given the broadest possible meaning allowable under law.” (Italics added.) Skillz argues, “By expressly agreeing to arbitrate any ‘dispute[s]’ and ‘controvers[ies]’ about the Terms of Service, the parties clearly and unmistakably agreed to arbitrate questions such as whether certain of those Terms are unconscionable and thus unenforceable.” We disagree.
In Ajamian, the plaintiff brought employment claims against her former employers, the defendants petitioned to compel arbitration, and the trial court denied arbitration on the ground the agreement was
The Court of Appeal rejected the defendants’ delegation argument. The court reasoned: “It is true that one reasonable inference from this language is that the parties, in designating arbitration as the exclusive means for determining ‘[a]ny disputes, differences or controversies’ (and precluding court actions and providing a defense to them on this ground) intended that even threshold issues of unconscionability would be decided by the arbitration panel. But another reasonable inference is that all of this language is only intended to bring within the exclusive scope of arbitration all substantive disputes, claims or controversies on which a court action might otherwise be brought, while the enforceability of the arbitration provision itself remains a matter for determination by a court. Indeed, because that is the usual expectancy of the parties, the absence of any express language pertaining to threshold enforceability questions either reinforces that proposition or at least fails to cure the ambiguity. In light of the possibility of these two conflicting inferences, the language fails to meet
The Ajamian court further explained: “Language such as ‘any disputes, differences or controversies’ may well be adequate and necessary for the parties to express their intention to arbitrate all substantive claims, since the number and diversity of potential future substantive claims is so great as to defy a specific enumeration of each type. But the issue of who would decide the enforceability of the arbitration clause itself is a horse of a different color. It is a distinct issue that could and would be easily addressed—if the parties actually contemplated it at the time of contracting—by stating expressly that the arbitrator shall decide questions of the enforceability of the arbitration provision. Because such issues are normally decided by the court, parties who consider the matter and want the issues to be decided instead by the arbitrator would most likely spell out their unusual intention in the arbitration provision. The absence of such express language (or extrinsic evidence to the same effect) therefore gives rise to the inference that the parties did not consider the matter. Indeed, because the issue is arcane and not likely contemplated by the parties, silence or ambiguity as to who would decide the enforceability of the arbitration provision suggests it was not a matter on which the parties mutually agreed and, therefore, the enforceability issue cannot be arbitrated—no matter how much public policy favors the notion of arbitration generally.” (Ajamian, supra, 203 Cal.App.4th at pp. 786-787.)
Similarly, in Nelson v. Dual Diagnosis Treatment Center, Inc. (2022) 77 Cal.App.5th 643, 655 (Nelson), the proponent of an arbitration agreement argued delegation to the arbitrator to decide arbitrability was reflected “in the broad language of their arbitration clause which states a general desire
We find the reasoning of Ajamian and Nelson persuasive. Here, Skillz does not point to any language that clearly and unmistakably authorizes the arbitrator to decide threshold questions of arbitrability. The language that the word “dispute” in the Terms of Service includes “any dispute ... concerning these Terms” and “will be given the broadest possible meaning allowable under law” could reasonably be understood to express no more than the parties’ “intention to arbitrate all substantive claims, since the number and diversity of potential future substantive claims is so great as to defy a specific enumeration of each type.” (Ajamian, supra, 203 Cal.App.4th at p. 786.) Because the usual expectation of the parties would be that a court, not an arbitrator, decides threshold issues of arbitrability, “the absence of any express language pertaining to threshold enforceability questions ... fails to cure the ambiguity.” (Id. at p. 783.)
2. Reference to AAA Commercial Arbitration Rules is Not Enough
Subsection 14.4 of the Terms of Service specifies that for users in the United States, “any arbitration will be conducted by the American Arbitration Association (the ‘AAA‘) under its Commercial Arbitration Rules.” These rules, in turn, provide, “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” (AAA Commercial Arbitration Rules, R-7, subd. (a).)
For its position that the reference to the AAA Commercial Arbitration Rules alone proves the parties’ intent to delegate threshold questions of enforceability to the arbitrator, Skillz relies on Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 557 (Dream Theater). There, the Court of Appeal held that when a “[c]ontract provides for arbitration in conformance with rules that specify the arbitrator will decide the scope of his or her own jurisdiction, the parties’ intent is clear and unmistakable, even without a recital in the contract that the arbitrator will decide any dispute over arbitrability.” (Id. at p. 557.)
Notably, Dream Theater involved a purchase agreement and subsequent business dispute between corporate buyers and sellers of an Internet-based multimedia and entertainment business. (Dream Theater, supra, 124 Cal.App.4th at p. 550.) Thus, the disputants were sophisticated parties of reasonably equal bargaining power. But here we are evaluating an arbitration provision found in the terms of service between a mobile application business and a user of its service. As one district court observed,
In Eiess, a deposit agreement between a bank and a customer incorporated by reference “JAMS and/or AAA‘s rules,” both of which included rules that disputes over contract formation and validity were to be decided by the arbitrator. (404 F.Supp.3d at pp. 1245, 1248, 1252.) The bank argued the gateway issue of whether the deposit agreement was valid was for the arbitrator to decide, but the district court concluded the incorporation language was insufficient to show the customer “clearly and unmistakably agreed to delegation, particularly in the absence of any evidence that she possesses a heightened level of sophistication.” (Id. at p. 1254.)
The Ajamian court also declined to follow Dream Theater in the context of an employment agreement. Considering the same argument Skillz makes now, the court reasoned: “In our view, while the incorporation of AAA rules into an agreement might be sufficient indication of the parties’ intent in other contexts, we seriously question how it provides clear and unmistakable evidence that an employer and an employee intended to submit the issue of the unconscionability of the arbitration provision to the arbitrator, as opposed to the court. There are many reasons for stating that the arbitration
The Ajamian court continued: “[W]e must be mindful of what the United States Supreme Court has emphasized unflinchingly for decades: notwithstanding the public policy favoring arbitration, arbitration can be imposed only as to issues the parties agreed to arbitrate; given the slim likelihood that the parties actually contemplated who would determine threshold enforceability issues, as well as the default presumption that such issues would be determined by the court, those threshold issues must be decided by the court absent clear and unmistakable proof to the contrary. This is a ‘heightened standard,’ higher than the evidentiary standard applicable to other matters of interpreting an arbitration agreement. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 69, fn. 1; First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944 [contrasting ‘ordinary state-law principles that govern the formation of contracts’ with the clear and unmistakable rule].) As the court cogently explained in Gilbert Street Developers, LLC v. La Quinta Homes, LLC (2009) 174 Cal.App.4th 1185, 1191-1192: ‘[I]t is not enough that ordinary rules of contract interpretation simply yield the result that arbitrators have power to decide their own jurisdiction. Rather, the result must be clear and unmistakable, because the law is solicitous of the parties actually focusing on the issue. Hence silence or ambiguity is not enough.‘” (Ajamian, supra, 203 Cal.App.4th at pp. 790-791.)
Likewise, in Beco v. Fast Auto Loans, Inc. (2022) 86 Cal.App.5th 292 (Beco), an employment agreement incorporated AAA rules but did not attach the rules or provide a means of locating and reading them before the
We do not find the federal authority cited by Skillz persuasive. (E.g., G.G. v. Valve Corporation (9th Cir. 2020) 799 Fed.Appx. 557, 558 [under Washington state law, “teenagers clearly and unmistakably agreed to arbitrate questions of arbitrability because the arbitration agreement incorporates AAA rules“], but see Cooper v. Agrify Corporation (W.D. Wash., June 2, 2022, No. C21-0061RSL-JRC) 2022 WL 2374587, at *3 & fn.2 [declining “to presume knowledge on the part of an unsophisticated party where there is no evidence that he was familiar with the referenced [AAA] rules or had any reason to suspect that the reference was in fact a separate contractual obligation requiring review and assent“].) And, as we have noted, we are not bound by the decisions of the lower federal courts. (Etcheverry v. Tri-Ag Service, Inc., supra, 22 Cal.4th at p. 320.) Skillz argues that parties are presumed to have existing law in mind when they execute their contracts, suggesting the parties here would have assumed federal authority such as Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125 (Brennan), applied to
In short, Skillz has failed to establish the parties clearly and unmistakably delegated threshold issues of arbitrability to the arbitrator.9
C. Unconscionability
“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable,” such as the contract defenses of fraud, duress, or unconscionability. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.)
“The unconscionability doctrine ensures that contracts, particularly contracts of adhesion,10 do not impose terms that have been variously described as ’ “overly harsh” ’ [citation], ’ “unduly oppressive” ’ [citation], ’ “so one-sided as to ‘shock the conscience’ ” ’ [citation], or ‘unfairly one-sided’ [citation]. All of these formulations point to the central idea that the unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party’ [citation]. These include ‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central
“A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party. [Citation.] Under this standard, the unconscionability doctrine ’ “has both a procedural and a substantive element.” ’ [Citation.] ‘The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement‘s actual terms and to assessments of whether they are overly harsh or one-sided.’ ” (OTO, supra, 8 Cal.5th at p. 125.)
“Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’ [Citation.] Instead, they are evaluated on ’ “a sliding scale.” ’ [Citation.] ‘[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to’ conclude that the term is unenforceable[, and] the more deceptive or coercive the bargaining tactics employed, the less substantive unfairness is required. [Citations.] ... ‘The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.’ ” (OTO, supra, 8 Cal.5th at pp. 125-126.)
1. Procedural Unconscionability
“[T]here are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability. ... Contracts of adhesion that involve surprise or other sharp practices lie on the other end of
Here, the Terms of Service is a consumer contract that was offered on a take-it-or-leave-it basis, which, in itself, “is sufficient to establish some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915 (Sanchez).)
In addition, ” ’ [p]rocedural unconscionability focuses on oppression or unfair surprise,’ ” (Penilla v. Westmont Corp. (2016) 3 Cal.App.5th 205, 214), and an arbitration clause that is “confusing” and “contradictory” may constitute unfair surprise (id. at p. 216). Gostev points to confusing and contradictory provisions in the Terms of Service regarding arbitration. For example, subsection 1.1‘s statement that “any claim, dispute or controversy” relating to “these terms and/or our software or services must be resolved by final and binding arbitration,” appears to be contradicted by subsection 7.4, which specifies that any interference “with procedures or performance of ... Software ... is subject to civil ... prosecution,” and subsection 8.10, which contemplates that Skillz will pursue “civil litigation” if a user fails to honor a request for payment. Gostev also argues users would be surprised to find that, according to a AAA fee schedule effective May 2018, the filing fee for nonmonetary claims is $6,250 (and this fee does not include arbitrator
“Yet ‘a finding of procedural unconscionability does not mean that a contract will not be enforced’ “; rather, it means ” ‘that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.’ ” (Sanchez, supra, 61 Cal.4th at p. 915.) Accordingly, we consider Gostev‘s claims of substantive unconscionability.
2. Substantive Unconscionability
Gostev contends the arbitration provision in this case is substantively unconscionable because: (1) the terms are not mutual, (2) the provision precludes public injunctive relief, (3) it shortens limitations periods, (4) it requires arbitration in San Francisco, California, and (5) the attorneys’ fees and costs provisions contravene the CLRA and impose excessive costs. We have no difficulty concluding the arbitration provision is substantively unconscionable.
a. One-Sided and Non-Mutual Terms
Mutuality is the ” ‘paramount consideration’ ” in assessing substantive conscionability. (Davis v. Kozak (2020) 53 Cal.App.5th 897, 910.) ” ‘Agreements to arbitrate must contain at least ” ‘a modicum of bilaterality’ ” to avoid unconscionability.’ ” (Ibid.)
Skillz’ defense of these non-mutual terms is not persuasive. It relies on Tompkins v. 23andMe, Inc. (9th Cir. 2016) 840 F.3d 1016, 1031, in which the Ninth Circuit Court of Appeals, applying California‘s unconscionability doctrine, concluded a provision “excluding intellectual property claims from mandatory arbitration is not unconscionable.” Tompkins is distinguishable because the exclusion in that case was mutual; it excepted from arbitration any “dispute relating to intellectual property rights, obligations, or any infringement claims” (id. at p. 1021), not disputes related solely to the drafter‘s intellectual property rights. (See Perez v. DirecTV Group Holdings, LLC (C.D. Cal. 2017) 251 F.Supp.3d 1328, 1347 (Perez) [“in Tompkins, the provision at issue allowed 23andMe‘s customers to retain intellectual property rights, including rights in user-generated content and genetic information, and to bring suit in court against 23andMe to vindicate those rights“; thus “the intellectual property provision contained ‘more than [the] “modicum of bilaterality” ’ required for a valid contract“].)
Finally, Skillz relies on our high court‘s observation that ” ’ “[a] contract can provide a ‘margin of safety’ that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable.” ’ ” (Baltazar, supra, 62 Cal.4th at p. 1250, quoting Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117.) But the drafter of a one-sided arbitration provision must provide “at least some reasonable justification for such one-sidedness based on ‘business realities.’ ” (Armendariz, supra, 24 Cal.4th at p. 117.) Skillz, however, does not attempt to justify, for example, the provision requiring users to arbitrate their billing disputes (that do not
We conclude the lack of mutuality in the promises to arbitrate in the Terms of Service is substantively unconscionable.14
Gostev also cites the $50 cap on liability (see fn. 5), waiver of liability for injury due to hacking, and indemnification clause as non-mutual and one-sided.15 These terms are one-sided and inform our assessment of the arbitration provision‘s substantive unconscionability. (See, e.g., Nelson, supra, 77 Cal.App.5th at pp. 663-664 [limiting damages to $2,500 was ” ‘yet another version of a “heads I win, tails you lose” . . . clause that has met with
b. Availability of Public Injunctive Relief
Public injunctive relief is relief that “benefits the general public” and benefits an individual plaintiff only incidentally “or as ‘a member of the general public.’ ” (McGill, supra, 2 Cal.5th at p. 955.) (In contrast, private injunctive relief “primarily ‘resolve[s] a private dispute’ between the parties [citation] and ‘rectif[ies] individual wrongs.’ ” (Ibid.)) Public injunctive relief is a remedy available to private plaintiffs under the CLRA and the UCL. (Id. at p. 961.) In McGill, the California Supreme Court held that an arbitration provision was “invalid and unenforceable under state law insofar as it purport[ed] to waive [the plaintiff‘s] statutory right to seek” public injunctive relief under these statutes. (Ibid.)
Here, the arbitration provision specifies the “arbitrator may award declaratory or injunctive relief only to you individually, and only to the extent required to satisfy your individual claim.” Gostev argues this provision violates McGill.
Gostev relies on MacClelland v. Cellco Partnership (N.D. Cal., July 1, 2022, No. 21-CV-08592-EMC) __F.Supp.3d.__, [2022 WL 2390997, at *8] (MacClelland), which considered an agreement that similarly limited the injunctive relief the arbitrator could award to “injunctive relief only in favor
Skillz responds that its arbitration provision does not preclude public injunctive relief because the arbitrator is authorized to award injunctive relief for an “individual claim” and public injunctive relief is available for individual claims under the UCL and CLRA. In McGill, our high court recognized that a “private individual” who has ” ‘suffered injury in fact and has lost money or property as a result of a violation of the UCL’ ” may bring a private action and, as part of that action, may request public injunctive relief. (McGill, supra, 2 Cal.5th at p. 959.) Such an action is filed on the person‘s own behalf, “not ‘on behalf of the general public.’ ” (Ibid.) Thus, according to Skillz, the limitation that an arbitrator may award “injunctive relief only to you individually, and only to the extent required to satisfy your individual
“A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (
c. Shortened Limitations Periods
By statute, the limitations period for a CLRA claim is three years (
Parties may contract to a shortened limitations period so long as the limitation is reasonable. (Ellis v. U.S. Security Associates (2014) 224 Cal.App.4th 1213, 1222-1223.) However, contractually shortened limitations periods have not been ” ‘recognized outside the context of straightforward transactions in which the triggering event for either a breach of a contract or for the accrual of a right is immediate and obvious.’ ” (Id. at p. 1223, quoting Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1430.)
In Fisher v. MoneyGram International, Inc. (2021) 66 Cal.App.5th 1084, 1105 (Fisher), the Court of Appeal found substantively unconscionable an arbitration provision‘s one-year limitations period, which was “considerably
Here, the shortened limitations period (reducing the applicable limitations period by up to 75 percent of the statutory limitations period) is another factor supporting our conclusion that the arbitration provision is substantively unconscionable.
d. Mandating Arbitration in San Francisco
Gostev, who lives in Washington, contends it is substantively unconscionable to require him to arbitrate in San Francisco, California. He argues the requirement that arbitration occur out of his home state and hundreds of miles away “is, like many of the provision[s] in this contract, designed solely to discourage Skillz‘s customers from pursing legitimate claims.”
In response, Skillz cites Intershop Communications v. Superior Court (2002) 104 Cal.App.4th 191, 201-202, for the proposition, “A forum selection clause within an adhesion contract will be enforced ‘as long as the clause provided adequate notice to the [party] that he was agreeing to the jurisdiction cited in the contract.’ ” But Intershop also provides, “contractual forum selection clauses are valid and should be given effect unless enforcement of the clause would be unreasonable” (id. at p. 196, italics added), and requiring all users of a mobile app to arbitrate their claims in San
e. Attorney‘s Fee and Costs Provisions
The arbitration provision states, “Each party . . . shall pay an equal share of the fees and costs of the arbitrator and AAA” and “the arbitrator may award to the prevailing party reimbursement of its reasonable attorneys’ fees and costs (including, for example, expert witness fees and travel expenses), and/or the fees and costs of the arbitrator.”
In Newton v. American Debt Services, Inc. (N.D. Cal. 2012) 854 F.Supp.2d 712, 725, the district court explained the problem with a generic clause authorizing awards of costs and fees to the prevailing party: “This provision contravenes California‘s Consumers Legal Remedies Act, which requires that court costs and attorney‘s fees be awarded to a prevailing plaintiff but only permits attorney‘s fees to a prevailing defendant ‘upon a finding by the court that the plaintiff‘s prosecution of the action was not in good faith.’ [
Further, an “arbitration clause should not impose excessive costs relative to the recovery sought.” (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89, fn. 9.) As we have mentioned, the arbitration filing fee for Gostev‘s nonmonetary claim is $6,250, while the Terms of Service purport to limit damages to $50.
These provisions contribute to our conclusion the arbitration provision is ” ‘unreasonably favorable to the more powerful party.’ ” (Sonic, supra, 57 Cal.4th at p. 1145.)
D. Severance
“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” (
In this case, the trial court found the unconscionability of the arbitration provision permeated the agreement such that severance was unavailable. We review the trial court‘s determination for abuse of discretion. (Nelson, supra, 77 Cal.App.5th at p. 664.) ” ‘The trial court has discretion under this statute to refuse to enforce an entire agreement if the agreement is “permeated” by unconscionability.’ [Citation.] An agreement may be ‘permeated with too high a degree of unconscionability for severance
Having catalogued the many ways the arbitration provision at issue is one-sided, unfair, and designed to discourage users from bringing claims against Skillz, we now conclude the trial court did not abuse its discretion in refusing to enforce it. “There is no single provision [the court] could strike to eliminate its unconscionable taint.” (Fisher, supra, 66 Cal.App.5th at p. 1108; see also Navas v. Fresh Venture Foods, LLC (2022) 85 Cal.App.5th 626, 637 [“Given the number of challenged provisions, the court could reasonably find severance was not an acceptable option“]; Beco, supra, 86 Cal.App.5th at p. 313 [where ” ‘multiple defects indicate a systematic effort to impose arbitration . . . not simply as an alternative to litigation, but as an inferior forum that works to the [drafter]‘s advantage,’ ” there is no abuse of discretion in the trial court‘s decision not to sever the numerous unconscionable provisions]; Magno, supra, 1 Cal.App.5th at p. 292 [If ” ‘the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms,’ the court must void the entire agreement“]; Nelson, supra, 77 Cal.App.5th at p. 666 [severing the arbitration agreement‘s unconscionable terms “was not a reasonable option” where the agreement “was rife with unconscionable terms“].)
DISPOSITION
The order denying the petition to compel arbitration is affirmed.
Miller, J.
WE CONCUR:
Stewart, P.J.
Richman, J.
A164407, Gostev v. Skillz Platform, Inc.
Trial Judge: Hon. Richard Ulmer, Jr.; Hon. Samuel K. Feng
Quinn, Emanuel Urquhart & Sullivan, William B. Adams, Meredith M. Shaw, Xuemeng Wang, Dylan C. Bonfigly, for Defendant and Appellant
Blood Hurst & O‘Reardon, Timothy G. Blood, Leslie E. Hurst, Thomas J. O‘Reardon, Craig W. Straub; The Law Offices of Andrew J. Brown, Andrew J. Brown; Ellsworth Law Firm, Brian J. Ellsworth, for Plaintiff and Respondent
A164407, Gostev v. Skillz Platform, Inc.
Notes
Subsection 7.4 provides, “You acknowledge that we are not responsible for any damage, loss or injury resulting from hacking, tampering or other unauthorized access or use of the Services or your Account.”
Subsection 5, “YOUR INDEMNIFICATION OF US,” provides, “You will, at your own cost and expense, indemnify and hold us and our directors, officers, employees and agents harmless from and against any and all claims, disputes, liabilities, judgments, settlements, actions, debts or rights of action, losses of whatever kind, and all costs and fees, including reasonable legal and attorneys’ fees, arising out of or relating to (i) your breach of these Terms; (ii) any use of your Account, the Website, the Software and the Services by any person including yourself; (iii) your violation of Applicable Laws; and/or (iv) your negligence or misconduct; and, if we instruct you in writing, you will, at your own cost and expense, defend us from any of the foregoing using counsel reasonably acceptable to us.”