Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-06567/USCOURTS-cand-4_06-cv-06567-4/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RUSSELL BRADBERRY, individually and

on behalf of a class of similarly

situated individuals,

Plaintiff,

 v.

T-MOBILE USA, INC., a Delaware

corporation,

Defendant. /

No. C 06-6567 CW

ORDER DENYING

DEFENDANT'S MOTION TO

COMPEL ARBITRATION

Defendant T-Mobile USA, Inc. (T-Mobile) moves to compel

arbitration in this action and requests judicial notice of the

Federal Communications Commission's Eleventh Annual Report to

Congress on the State of Competition in the Commercial Radio

Services Industry, http://wireless.fcc.gov/cmrsreports.html (last

visited Mar. 23, 2007). Plaintiff Russell Bradberry, individually

and on behalf of a class of similarly situated individuals, opposes

the motion to compel arbitration. The matter was heard on March

30, 2007. Having considered all of the papers filed by the parties

and oral argument on the motion, the Court DENIES the motion to

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1

 Plaintiff's motion to schedule oral argument (Docket no.

35) is GRANTED as oral argument was heard on March 30, 2007. 

Plaintiff's motion for other appropriate relief with regard to

Defendant's reply memorandum and reply declarations (Docket no. 35) 

is DENIED; the Court has considered Defendant's reply memorandum

and declarations.

2

compel arbitration and DENIES the request for judicial notice.1 

BACKGROUND

Plaintiff purchased new cellular phone service from one of

Defendant's authorized dealers on November 2, 2005, and signed a TMobile Off Site Service Agreement. Bradberry Dec. ¶ 2, Ex. A. 

Plaintiff received an Alert Cellular, LLC invoice and a copy of the

signed T-Mobile Off Site Service Agreement. Id. at ¶¶ 2 & 3, Exs.

A & B. Plaintiff was not given and never saw a copy of the TMobile Terms and Conditions to which the Service Agreement

referred. Id. at ¶ 3.

Plaintiff alleges that Defendant recycles previously used,

"dirty" phone numbers and gives these recycled numbers to customers

when they sign up for new cellular phone service. Amended

Complaint, ¶¶ 8-13. These previously used numbers are alleged to

be dirty because they are encumbered with pre-existing monthly

subscriptions to services. Id. Defendant allegedly continues to

charge the new customer for the subscriptions purchased by the

previous user of the number. Id. at ¶ 14. Plaintiff alleges that

he received such a recycled number when he purchased his new

cellular phone service and was charged for a service that he did

not request or authorize. Id. at ¶ 19-24. 

Plaintiff contacted Defendant and learned that his bills were

high because of the charges for the service associated with his

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2

 47 U.S.C § 201 provides, "All charges, practices,

classifications, and regulations for and in connection with

[interstate or foreign communication by wire or radio], shall be

just and reasonable, and any such charge, practice, classification,

or regulation that is unjust or unreasonable is hereby declared to

be unlawful."

3

number. Bradberry Dec. ¶ 5. Plaintiff attempted to unsubscribe

from the service by contacting both Defendant and the service

provider, but had no success. Id. Plaintiff finally contacted the

service provider through his counsel. Id. at ¶ 6, Ex. D. The

service provider had been authorized to begin charging his cellular

phone number for the service on July 13, 2005, three months prior

to the time that he signed the Service Agreement. Id.

Plaintiff filed this action in federal court alleging four

causes of action against Defendant: (1) violations of 47 U.S.C.

§ 201;2 (2) breach of contract and of the duty of good faith and

fair dealing; (3) violations of California Public Utilities Code

§ 2890 and California Public Utilities Commission Revised General

Order 168; and (4) violations of the consumer fraud provisions of

California Business and Professions Code §§ 17200 and 17500.

Immediately above one of the signature lines, the Service

Agreement provides, "All disputes are subject to mandatory

arbitration under the T-Mobile Terms and Conditions." Chang Decl.,

Ex. A. The Service Agreement also provides that "THIS AGREEMENT

INCORPORATES THE T-MOBILE TERMS AND CONDITIONS AND THE FOLLOWING

BROCHURES AND MATERIALS." Chang Decl., Ex. A (T-Mobile Off Site

Service Agreement). The Terms and Conditions provide that "BY

ACTIVATING OR USING OUR SERVICE, YOU AGREE TO BE BOUND BY THESE

TERMS AND CONDITIONS." Chang Decl., Ex. B (T-Mobile Terms and

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Conditions). 

The arbitration, class action and jury trial waiver section of

the Terms and Conditions provides, in full: 

MANDATORY ARBITRATION TO RESOLVE DISPUTES/CLASS ACTION

WAIVER/JURY TRIAL WAIVER: ARBITRATION. PLEASE READ THIS

PROVISION CAREFULLY. IT MEANS THAT, EXCEPT AS NOTED

BELOW, YOU AND WE WILL ARBITRATE OUR DISPUTES. ANY CLAIM

OR DISPUTE BETWEEN YOU AND US IN ANY WAY RELATED TO OR

CONCERNING THE AGREEMENT, OR THE PROVISION OF SERVICES OR

PRODUCTS TO YOU, INCLUDING ANY BILLING DISPUTES

("CLAIM"), SHALL BE SUBMITTED TO FINAL, BINDING

ARBITRATION BEFORE THE AMERICAN ARBITRATION ASSOCIATION

("AAA"). This agreement to arbitrate also requires you to

arbitrate claims against other parties relating to

Services or Products provided or billed to you, including

suppliers of Services and Products and our retail

dealers, if you also assert Claims against us in the same

proceeding. You and we acknowledge that the Agreement

affects interstate commerce and that the Federal

Arbitration Act and federal arbitration law apply to

arbitrations under the Agreement (despite the choice of

law provision in Sec. 23). 

BEFORE INSTITUTING ARBITRATION, YOU AGREE TO PROVIDE US

WITH AN OPPORTUNITY TO RESOLVE YOUR CLAIM BY SENDING A

WRITTEN DESCRIPTION OF YOUR CLAIM TO US AT T-MOBILE

CUSTOMER RELATIONS, P.O. BOX 37380, ALBUQUERQUE, NM

87176-7380 AND NEGOTIATING WITH US IN GOOD FAITH

REGARDING YOUR CLAIM. IF WE ARE NOT ABLE TO RESOLVE YOUR

CLAIM WITHIN 30 DAYS OF RECEIPT OF YOUR NOTICE, THEN YOU

OR WE, INSTEAD OF SUING IN COURT, MAY INITIATE

ARBITRATION PROCEEDINGS WITH THE AAA. YOU MUST SERVE OUR

REGISTERED AGENT (SEE SEC. 20) IN ORDER TO BEGIN AN

ARBITRATION. ARBITRATION WILL BE CONDUCTED UNDER THE

AAA'S PUBLISHED WIRELESS INDUSTRY ARBITRATION RULES AND

SUPPLEMENTAL PROCEDURES FOR CONSUMER-RELATED DISPUTES,

WHICH ARE AVAILABLE BY CALLING THE AAA AT 1-800-778-7879

OR VISITING ITS WEB SITE AT www.adr.org. The AAA has a

fee schedule for arbitrations. You will pay your share of

the arbitrator's fees and administrative expenses ("Fees

and Expenses") except that: (a) for Claims less than

$25.00, we will pay all Fees and Expenses; and (b) for

Claims between $25.00 and $1,000.00, you will pay only

$25.00 in Fees and Expenses, or any lesser amount as

provided under AAA's Supplemental Procedures for

Consumer-Related Disputes. You and we agree to pay our

own other fees, costs, and expenses, including those for

any attorneys, experts, and witnesses. An arbitrator may

only award as much and the type of relief as a court with

jurisdiction in the place of arbitration that is

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consistent with law and this Agreement. An arbitrator may

issue injunctive or declaratory relief but only applying

to you and us and not to any other customer or third

party. As a limited exception to the agreement to

arbitrate, you and we agree that: (a) you may take Claims

to small claims court, if your Claims qualify for hearing

by such court; and (b) if you fail to timely pay amounts

due, we may assign your account for collection, and the

collection agency may pursue in court claims limited

strictly to the collection of the past due debt and any

interest or cost of collection permitted by law or the

Agreement. 

CLASS ACTION WAIVER. WHETHER IN COURT, SMALL CLAIMS

COURT, OR ARBITRATION YOU AND WE MAY ONLY BRING CLAIMS

AGAINST EACH OTHER IN AN INDIVIDUAL CAPACITY AND NOT AS A

CLASS REPRESENTATIVE OR A CLASS MEMBER IN A CLASS OR

REPRESENTATIVE ACTION. NOTWITHSTANDING SEC. 22, IF A

COURT OR ARBITRATOR DETERMINES IN A CLAIM BETWEEN YOU AND

US THAT YOUR WAIVER OF ANY ABILITY TO PARTICIPATE IN

CLASS OR REPRESENTATIVE ACTIONS IS UNENFORCEABLE UNDER

APPLICABLE LAW, THE ARBITRATION AGREEMENT WILL NOT APPLY,

AND YOU AND WE AGREE THAT SUCH CLAIMS WILL BE RESOLVED BY

A COURT OF APPROPRIATE JURISDICTION, OTHER THAN A SMALL

CLAIMS COURT. 

JURY TRIAL WAIVER. WHETHER ANY CLAIM IS IN ARBITRATION OR

IN COURT (AS PROVIDED IN THIS SEC. 2) YOU AND WE WAIVE

ANY RIGHT TO JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES

BETWEEN YOU AND US.

Chang Decl., Ex. B (T-Mobile Terms and Conditions).

REQUEST FOR JUDICIAL NOTICE

Defendant requests that the Court take judicial notice of one

document, the Federal Communications Commission's Eleventh Annual

Report to Congress on the State of Competition in the Commercial

Radio Services Industry, http://wireless.fcc.gov/cmrsreports.html

(last visited Mar. 23, 2007). Plaintiff does not object to the

request.

Under Rule 201 of the Federal Rules of Evidence, a court may

take judicial notice of facts that are not subject to reasonable

dispute because they are either generally known or capable of

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accurate and ready determination. The Ninth Circuit has held that

a court may take judicial notice of records and reports of

administrative bodies. Interstate Natural Gas Co. v. Southern

California Gas Co., 209 F.2d 380, 385 (9th Cir. 1953). 

The Court GRANTS the request and takes judicial notice of the

Eleventh Annual Report.

DISCUSSION

I. Federal Arbitration Act

Under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.,

written agreements stating that controversies between the parties

shall be settled by arbitration are “valid, irrevocable, and

enforceable, save on such grounds as exist in law or at equity for

revocation of any contract.” 9 U.S.C. § 2. A party aggrieved by

the refusal of another to arbitrate under a written arbitration

agreement may petition the district court in which an action has

been commenced for an order directing that arbitration proceed as

provided for in the agreement. 9 U.S.C. § 4. If the court is

satisfied “that the making of the arbitration agreement or the

failure to comply with the agreement is not in issue, the court

shall make an order directing the parties to proceed to arbitration

in accordance with the terms of the agreement.” Id. The FAA

reflects a "liberal federal policy favoring arbitration

agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

25 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24 (1983)).

Even though the FAA favors arbitration, "arbitration is a

matter of contract and a party cannot be required to submit to

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arbitration any dispute which he has not agreed so to submit." 

AT&T Technologies, Inc. v. Communications Workers of America, 475

U.S. 643, 648 (1986) (citations omitted). "In determining whether

to compel a party to arbitration, a district court may not review

the merits of the dispute; rather, the court must limit its inquiry

to: (1) whether a valid agreement to arbitrate exists, and, if it

does (2) whether the agreement encompasses the dispute at issue." 

Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130

(9th Cir. 2000)(citations omitted).

II. Arbitration Agreements

A. Applicable Law

In determining whether an agreement to arbitrate is valid,

federal courts must "apply ordinary state-law principles that

govern the formation of contracts." Circuit City Stores v. Adams,

279 F.3d 889, 892 (9th Cir. 2002) (quoting First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), cert. den., 535

U.S. 1112). "General contract defenses such as fraud, duress or

unconscionability, grounded in state contract law, may operate to

invalidate arbitration agreements." Id. (citing Doctor's Assocs.,

Inc. v. Casarotto, 517 U.S. 681, 687 (1996)); see also Ticknor v.

Choice Hotels Int'l, Inc., 265 F.3d 931 (9th Cir. 2001) (applying

Montana contract law to determine validity of arbitration

agreement). “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 . . .” 

Cal. Civ. Code § 1670.5(a).

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Under California law, before 

a party may be compelled to arbitrate a claim, the

petitioning party has the burden of proving the existence

of a valid arbitration clause and the dispute is covered

by the agreement. If the moving party meets its burden,

the opponent of arbitration has to prove by a

preponderance of the evidence any defense to the petition

or motion to compel the dispute to be arbitrated. 

Larian v. Larian, 123 Cal. App. 4th 751, 760 (2004) (citations

omitted). 

Unconscionability has both a procedural and a substantive

component under California law. "Substantive unconscionability

focuses on the actual terms of the agreement, while procedural

unconscionability focuses on the manner in which the contract was

negotiated and the circumstances of the parties." American

Software, Inc. v. Ali, 46 Cal. App. 4th 1386, 1390 (1996). 

Although both procedural and substantive unconscionability must be

present before a court will refuse to enforce a contract, they need

not be present to the same degree; "the more substantively

oppressive the contract terms, the less evidence of procedural

unconscionability is required to come to the conclusion that the

term is unenforceable, and vice versa." Armendariz v. Found.

Health Psychcare Servs., 24 Cal. 4th 83, 114 (2000).

The procedural unconscionability element 

focuses on two factors: oppression and surprise. 

"Oppression" arises from an inequality of bargaining

power which results in no real negotiation and an absence

of meaningful choice. "Surprise" involves the extent to

which the supposedly agreed-upon terms of the bargain are

hidden in a prolix printed form drafted by the party

seeking to enforce the disputed terms. 

Ellis v. McKinnon Broad. Co., 18 Cal. App. 4th 1796, 1803 (1993)

(internal citations omitted); see also American Software, Inc, 46

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Cal. App. 4th at 1390 ("Indicia of procedural unconscionability

include oppression . . . and surprise . . ."). 

Under California law, the procedural unconscionability element

of oppression "refers not only to an absence of power to negotiate

the terms of a contract, but also the absence of a reasonable

market alternative." Morris v. Redwood Empire Bancorp, 128 Cal.

App. 4th 1305, 1320 (2005). The "'oppression' factor of the

procedural element of unconscionability may be defeated, if the

complaining party has a meaningful choice of reasonably available

alternative sources of supply from which to obtain the desired

goods and services free of the terms claimed to be unconscionable." 

Id. (citation omitted). Oppression is more likely to be present

when the contract at issue is one of adhesion. Morris, 128 Cal.

App. 4th at 1319-1320. A contract of adhesion is a "standardized

contract, which, imposed and drafted by the party of superior

bargaining strength, relegates to the subscribing party only the

opportunity to adhere to the contract or reject it." Armendariz,

24 Cal. 4th at 113 (quoting Neal v. State Farm Ins. Co., 188 Cal.

App. 2d 690, 694 (1961)).

However, the Ninth Circuit, interpreting California law, held

that a contract of adhesion is procedurally unconscionable and

that, even if market alternatives are available, the court must

consider the party's opportunity to negotiate, modify or waive the

contract terms. Ting v. AT&T, 319 F.3d 1126, 1149 (9th Cir. 2003). 

The availability of market alternatives might not overcome a

finding of procedural unconscionability. Id. 

Substantive unconscionability focuses on the harshness and

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one-sided nature of the substantive terms of the contract. A & M

Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486-87 (1982). 

Whether an arbitration agreement is sufficiently bilateral is

determined by an examination of the actual effects of the

challenged provisions. Ellis, 18 Cal. App. 4th at 1803-04

(“substantive unconscionability . . . refers to an overly harsh

allocation of risks or costs which is not justified by the

circumstances under which the contract was made”).

B. Analysis

Defendant argues that Plaintiff should be compelled to

arbitrate because the Arbitration Clause and the Class Action

Waiver are valid and enforceable. Plaintiff argues that these

clauses are procedurally and substantively unconscionable.

1. Class Action Waiver

a. Procedural Unconscionability

Plaintiff argues that the Class Action Waiver is procedurally

unconscionable due to oppression and surprise. He argues that the

oppression factor arises from the unequal bargaining power between

himself and Defendant and his lack of meaningful choice. Plaintiff

argues that the surprise factor is fulfilled because the Service

Agreement that he signed contained no mention of the Class Action

Waiver and he did not receive a copy of the Terms and Conditions

which contained the Class Action Waiver.

Defendant argues that the Class Action Waiver contract of

adhesion is not per se procedurally unconscionable. Furthermore,

Defendant argues that Plaintiff had market alternatives and did not

have to purchase cellular phone service from Defendant. 

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Defendant's Service Agreement and Terms and Conditions are a

contract of adhesion under Armendariz. Both are portions of a

standard-form contract. They were drafted by Defendant, the party

with superior bargaining power. Plaintiff was given the option of

either adhering to the Service Agreement and the Terms and

Conditions without modification or rejecting the contract entirely.

Under Morris, because Plaintiff had little opportunity to

bargain, the Service Agreement and the Terms and Conditions are

oppressive if Plaintiff had no market alternatives. Defendant

argues that Plaintiff had alternative market choices. Neither

party provides evidence regarding the availability of alternative

sources of cellular phone service without the allegedly

unconscionable terms. However, Plaintiff had no opportunity to

negotiate, modify or waive the Class Action Waiver because he did

not know he was agreeing to such a waiver. 

There was no mention of the Class Action Waiver in the Service

Agreement or the Alert Cellular, LLC invoice, the only documents

given to Plaintiff when he purchased cellular phone service from

Defendant. Although the Class Action Waiver appears on the first

page of the Terms and Conditions, the Terms and Conditions is a

prolix printed form consisting of four pages of small font type. 

Thus, the Class Action Waiver was a surprise.

Based on oppression and surprise, the Court finds that the

Class Action Waiver is procedurally unconscionable.

b. Substantive Unconscionability

As Defendant notes, a contract that is procedurally

unconscionable may still be enforceable if it is not substantively

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3

 Laster v. T-Mobile United States, Inc., 407 F. Supp. 2d

1181 (S.D. Cal. 2005), appeal docketed, No. 06-55010 (9th Cir.

Jan. 5, 2006) and Winig v. Cingular Wireless LLC, 2006 U.S. Dist.

LEXIS 73137 (C.D. Cal. 2006), appeal docketed, No. 06-16889 (9th

Cir. Oct. 12, 2006), two cases relied on by Plaintiff to argue that

Discover Bank is not preempted by the FAA, are pending before the

Ninth Circuit Court of Appeals.

12

unconscionable. To determine substantive unconscionability, the

Court must assess "the substantive reasonableness of the challenged

provision." Ellis, 18 Cal. App. 4th at 1805. 

Plaintiff argues that the Class Action Waiver is substantively

unconscionable using the two part test set forth in Discover Bank

v. Superior Court, 36 Cal. 4th 148, 162-63 (2005).

A class action waiver in a consumer contract of adhesion is

substantively unconscionable under Discover Bank, 36 Cal. 4th at

162-63 if (1) it is "in a setting in which disputes between the

contracting parties predictably involve small amounts of damages"

and (2) the lawsuit involves allegations of "a scheme to

deliberately cheat large numbers of consumers out of individually

small sums of money."

Defendant argues that Discover Bank is not binding on this

Court and that the Ninth Circuit will find Discover Bank preempted

by the FAA.3

 Citing Heily v. Superior Court, 202 Cal. App. 3d 255,

260 (1998), Defendant argues that the Discover Bank holding is

unique to agreements to arbitrate and that under the FAA, district

courts may not "rely upon anything that is unique to an agreement

to arbitrate when assessing unconscionability of an agreement

governed by the FAA." However, the court in Discover Bank

explained that its holding applied "equally to class action

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litigation waivers in contracts without arbitration agreements" as

well as "to class arbitration waivers in contracts with such

agreements." Id. at 165-166. Thus, like the district courts in

Winig, 2006 U.S. Dist. LEXIS 73137, *18-19 and Laster, 407 F. Supp.

2d at 1190, the Court finds the Discover Bank holding is not unique

to agreements to arbitrate. 

Furthermore, even before the California Supreme Court decision

in Discover Bank, the Ninth Circuit held that the class action

waivers at issue in Ingle v. Circuit City Stores, inc., 328 F.3d

1165, 1175-76 (9th Cir. 2003) (an arbitration clause in an

employment adhesion contract prohibiting an arbitrator from hearing

an arbitration as a class action) and Ting, 319 F.3d at 1149-50 (a

class action waiver in an adhesion contract for residential, longdistance customers) were unconscionable under California law.

Defendant argues that Discover Bank is distinguishable from

the present case because the arbitration agreement and class action

waiver were contained in a bill stuffer included with a customer's

credit card bill, and the consumer could reject them only by

closing his account in Discover Bank. However, this was only

evidence of the procedural unconscionability in Discover Bank. 

Discover Bank, 36 Cal. 4th at 161. As noted above, the Court has

found procedural unconscionability in the present agreement.

Defendant disputes that this lawsuit involves allegations that

it engaged in a scheme deliberately to cheat large number of

customers out of small amounts of money. However, in the First

Amended Complaint, Plaintiff alleges that Defendant deliberately

cheated customers by assigning recycled cellular phone numbers

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encumbered with pre-existing subscriptions to new users so that it

could collect the fees for these subscriptions. Amended Complaint,

¶¶ 52-3. Plaintiff alleges that these fees ranged from ten to at

most several hundreds of dollars per person. Id. at ¶ 53. 

Plaintiff also alleges that T-Mobile benefits monetarily from this

procedure because "it has contracted with third-party providers,

for a fee, to bill and collect from T-Mobile's customers for third

party services which are included directly on a customer's monthly

wireless bill." Id. at ¶ 36. These allegations are sufficient to

satisfy the second prong of Discover Bank's substantive

unconscionability test.

The Court finds that the Class Action Waiver is substantively

unconscionable. Because the Court concludes there is procedural

and substantive unconscionability, the Court finds that the

agreement to waive class actions is unenforceable.

2. Arbitration Clause

The Class Action Waiver provides that

IF A COURT OR ARBITRATOR DETERMINES IN A CLAIM BETWEEN

YOU AND US THAT YOUR WAIVER OF ANY ABILITY TO PARTICIPATE

IN CLASS OR REPRESENTATIVE ACTIONS IS UNENFORCEABLE UNDER

APPLICABLE LAW, THE ARBITRATION AGREEMENT WILL NOT APPLY,

AND YOU AND WE AGREE THAT SUCH CLAIMS WILL BE RESOLVED BY

A COURT OF APPROPRIATE JURISDICTION, OTHER THAN A SMALL

CLAIMS COURT. 

Chang Decl., Ex. B. Because the Court has found that the Class

Action Waiver is unenforceable, the Arbitration Clause does not

apply. The claims brought by Plaintiff may proceed in this Court.

CONCLUSION

For the foregoing reasons, Defendant's motion to compel

arbitration is DENIED and Defendant's request for judicial notice

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United States District Court

For the Northern District of California

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is GRANTED.

IT IS SO ORDERED.

Dated 4/27/07 

CLAUDIA WILKEN

United States District Judge

Case 4:06-cv-06567-CW Document 48 Filed 04/27/07 Page 15 of 15