FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LAURA HOFFMAN, an individual, on 

behalf of herself and all others No. 07-55616 similarly situated,

Plaintiff-Appellant, D.C. No.  CV-06-00571-AJG

v.

OPINION CITIBANK (SOUTH DAKOTA), N.A.,

Defendant-Appellee. 

Appeal from the United States District Court

for the Central District of California

Andrew J. Guilford, District Judge, Presiding

Argued and Submitted

June 9, 2008—Pasadena, California

Filed October 14, 2008

Before: Stephen Trott, Sydney R. Thomas and

Raymond C. Fisher, Circuit Judges.

Per Curiam Opinion;

Concurrence by Judge Trott

14485
COUNSEL

Barry L. Kramer, Law Offices of Barry L. Kramer, Los Angeles, California, and Gretchen A. Carpenter, Strange & Carpenter, Los Angeles, California, for the plaintiff-appellant. 

Julia B. Strickland, Stroock & Stroock & Lavan LLP, Los

Angeles, California, for the defendant-appellee.

OPINION

PER CURIAM: 

Plaintiff-Appellant Laura Hoffman (“Hoffman”) appeals

the district court’s order compelling arbitration in her class

action suit against her credit card company, DefendantAppellee Citibank (South Dakota) N.A. (“Citibank”). The district court found that Hoffman was party to an arbitration

agreement that waived her right to proceed on a class basis.

Applying South Dakota law — the law chosen in the credit

card agreement — the district court enforced the class arbitration waiver and ordered Hoffman to proceed on a non-class

basis. Nonetheless, the district court found substantial

grounds for a difference of opinion regarding a controlling

14488 HOFFMAN v. CITIBANK
issue of law, “whether California law or South Dakota law

should be used to determine the enforceability of the arbitration agreement,” and issued an order for immediate appeal.

The case was stayed without completion of discovery. We

granted permission for the appeal, and we have jurisdiction

under 28 U.S.C. § 1292(b). Because we are persuaded that the

district court’s order compelling arbitration erroneously relied

on cases that do not properly apply California choice of law

rules, we remand for a determination of whether California or

South Dakota law applies to the class arbitration waiver. 

FACTUAL AND PROCEDURAL BACKGROUND

In 1994, Hoffman opened a credit card account with Citibank subject to a written credit card agreement. The card

agreement contained a choice of law provision stating that

“[t]he terms and enforcement of this Agreement shall be governed by South Dakota and federal law.” The agreement permitted Citibank to change its terms by mailing Hoffman

written notification of the change at least 15 days before the

effective billing cycle. Upon receiving notice, Hoffman was

provided 25 days to reject the changes in writing. Silence or

using the card was deemed acceptance of the changes in

accordance with South Dakota Codified Laws § 54-11-10. 

Approximately seven years later, following the procedures

set forth in § 54-11-10, Citibank mailed Hoffman a “Notice of

Change in Terms Regarding Binding Arbitration to Your Citibank Card Agreement.” The added arbitration provision

stated, in pertinent part: 

ARBITRATION:

PLEASE READ THIS PROVISION OF THE

AGREEMENT CAREFULLY. IT PROVIDES

THAT ANY DISPUTE MAY BE RESOLVED

BY BINDING ARBITRATION. ARBITRATION

REPLACES THE RIGHT TO GO TO COURT,

HOFFMAN v. CITIBANK 14489
INCLUDING THE RIGHT TO A JURY AND

THE RIGHT TO PARTICIPATE IN A CLASS

ACTION OR SIMILAR PROCEEDING. IN

ARBITRATION, A DISPUTE IS RESOLVED

BY AN ARBITRATOR INSTEAD OF A JUDGE

OR JURY. ARBITRATION PROCEDURES

ARE SIMPLER AND MORE LIMITED THAN

COURT PROCEDURES.

Agreement to Arbitrate:

Either you or we may, without the other’s consent,

elect mandatory, binding arbitration for any claim,

dispute, or controversy between you and us (called

“Claims”). 

Claims Covered:

• What Claims are subject to arbitration? . . .

Claims and remedies sought as part of a class action,

private attorney general or other representative

action are subject to arbitration on an individual

(non-class, non-representative) basis, and the arbitrator may award relief only on an individual (nonclass, non-representative) basis. 

* * *

• Broadest Interpretation. Any questions about

whether Claims are subject to arbitration shall be

resolved by interpreting this arbitration provision in

the broadest way the law will allow it to be enforced.

This arbitration provision is governed by the Federal

Arbitration Act (the “FAA”). 

* * *

• Who can be a party? Claims must be brought in

the name of an individual person or entity and must

14490 HOFFMAN v. CITIBANK
proceed on an individual (non-class, nonrepresentative) basis. The arbitrator will not award

relief for or against anyone who is not a party. If you

or we require arbitration of a Claim, neither you, we,

nor any other person may pursue the Claim in arbitration as a class action, private attorney general

action or other representative action, nor may such

Claim be pursued on your or our behalf in any litigation in any court. Claims, including assigned Claims,

of two or more persons may not be joined or consolidated in the same arbitration. 

The arbitration provision also included terms giving the cardmember the option to sue in small claims court and requiring

Citibank to reimburse or advance arbitration fees under certain circumstances. 

Citibank printed the following message on Hoffman’s

October 2001 statement alerting her to the enclosed notice: 

PLEASE SEE THE ENCLOSED CHANGE IN

TERMS NOTICE FOR IMPORTANT INFORMATION ABOUT THE BINDING ARBITRATION

PROVISION WE ARE ADDING TO YOUR CITIBANK CARD AGREEMENT. 

The change in terms provided that the arbitration provision

would become effective on the day after the closing date

appearing on Hoffman’s November 2001 billing statement.

Hoffman’s November 2001 statement included a reminder

advising her to call Citibank if she wanted another copy of the

arbitration provision. 

The change in terms expressly gave Hoffman “NonAcceptance Instructions”: 

If you do not wish to accept the binding arbitration

provision contained in this change in terms notice,

HOFFMAN v. CITIBANK 14491
you must notify us in writing within 26 days after the

Statement/Closing date indicated on your November

2001 billing statement stating your non acceptance.

. . . If you notify us by that time that you do not

accept the binding arbitration provisions contained in

this change in terms notice, you can continue to use

your card(s) under your existing terms until the end

of your current membership year or the expiration

date on your card(s), whichever is later. At that time

your account will be closed and you will be able to

pay off your remaining balance under your existing

terms.

(Emphasis added.) Hoffman did not notify Citibank of her

non-acceptance and continued to use her account by making

additional charges and payments. Had she notified Citibank of

her non-acceptance, it appears that her relationship with Citibank would have continued without change for the duration

of the agreement. 

Hoffman brought this consumer action in California state

court against Citibank on behalf of herself and other similarly

situated California cardholders. Hoffman alleged that Citibank increased the class members’ interest rates retroactively,

without advance notice, resulting in additional lump sum

finance charges being improperly imposed. The suit was initially brought in California state court but was removed to

federal court by Citibank. The operative pleading, the First

Amended Complaint, alleges a violation of the Unfair Competition Law, California Business & Professions Code

§§ 17200, et seq.1

1The initial pleading alleged a violation of California’s Consumer Legal

Remedies Act, California Civil Code §§ 17500, et seq. (“CLRA”). Hoffman indicates she will not pursue her CLRA claim on remand, and does

not base this appeal on her CLRA pleadings in the light of Berry v. Am.

Express Publ’g, Inc., 54 Cal. Rptr. 3d 91, 92 (Cal. Ct. App. 2007) (holding

that the CLRA does not apply to credit card transactions). 

14492 HOFFMAN v. CITIBANK
Before filing an answer, Citibank filed a motion to compel

arbitration and stay proceedings. The district court issued an

order granting Citibank’s motion to compel arbitration of

Hoffman’s claims on an individual, non-class basis. 

In that order, the district court found that Hoffman was

party to an arbitration agreement that was subject to a choice

of law provision favoring South Dakota law. The district court

then concluded without further analysis that the choice of law

provision was enforceable, and thus South Dakota law governed the agreement. Applying South Dakota law, the district

court concluded that the class arbitration waiver was not

unconscionable and was enforceable. 

Hoffman subsequently moved to certify the district court’s

order compelling arbitration for immediate appeal. The district court granted Hoffman’s motion, finding that the choice

of law issue presented substantial grounds for difference of

opinion and was a controlling question of law, the appeal of

which would materially advance the litigation. We granted

Hoffman’s petition for permission to be heard. 

STANDARD OF REVIEW AND BURDEN OF PROOF

We review de novo a district court’s order compelling arbitration. See Davis v. O’Melveny & Myers, 485 F.3d 1066,

1072 (9th Cir. 2007). An arbitration agreement governed by

the Federal Arbitration Act is presumed to be valid and

enforceable. See Shearson/Am. Exp., Inc. v. McMahon, 482

U.S. 220, 226-27 (1987). The applicable state law controls

whether an arbitration agreement is unconscionable and,

therefore, unenforceable. See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996). “[T]he party resisting

arbitration bears the burden of proving that the claims at issue

are unsuitable for arbitration.” Green Tree Fin. Corp.-Ala. v.

Randolph, 531 U.S. 79, 91 (2000). 

HOFFMAN v. CITIBANK 14493
DISCUSSION

I. The Need for Remand

[1] Federal courts sitting in diversity look to the law of the

forum state when making choice of law determinations. See

Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir.

2005). In this case, Hoffman sued in California. When an

agreement contains a choice of law provision, California

courts apply the parties’ choice of law unless the analytical

approach articulated in § 187(2) of the Restatement (Second)

of Conflict of Laws (“§ 187(2)”) dictates a different result.

See Discover Bank v. Superior Court, 113 P.3d 1100, 1117

(Cal. 2005). The California Supreme Court has held that

under California’s choice of law analysis, a court must determine as a threshold matter “whether the chosen state has a

substantial relationship to the parties or their transaction, or

. . . whether there is any other reasonable basis for the parties’

choice of law.” Nedlloyd Lines B.V. v. Superior Court, 834

P.2d 1148, 1152 (Cal. 1992). If either of these tests is satisfied, the second inquiry is whether the “chosen state’s law is

contrary to a fundamental policy of California.” Id. If such a

conflict with California law is found, “the court must then

determine whether California has a materially greater interest

than the chosen state in the determination of the particular

issue.” Id. (internal quotations marks omitted). 

[2] Here, the district court found that determining which

law applied posed a close call, yet its order did not follow the

requisite California choice of law analysis. Instead, in deciding to apply South Dakota law to determine the enforceability

of the class arbitration waiver, the district court reasoned: 

Two respected judges in this district facing almost

the same facts have ruled that under Nedlloyd Lines

B.V. v. Superior Court, 3 Cal. 4th 459 [834 P.2d

1148] (1992), South Dakota law governs any

enforceability or unconscionability defenses to the

14494 HOFFMAN v. CITIBANK
arbitration clause. Egerton [v. Citibank, N.A.], 2004

WL 1057739, at *2 [(C.D. Cal. Feb. 18, 2004)];

Lowman v. Citibank (South Dakota) N.A., CV 05-

8097 RGK, slip op. at *3 (C.D. Cal. March 24,

2006). 

[3] To understand the district court’s reasoning, we look to

both Egerton and Lowman. Neither decision properly applied

California’s choice of law rules articulated in § 187(2) and

Nedlloyd, and therefore the district court should not have

exclusively relied on those decisions. The court in Egerton

merely mentioned Nedlloyd in a conclusory statement without

describing its analytical framework before concluding “that

South Dakota law controls enforceability and the unconscionability defense.” Egerton, 2004 WL 1057739, at *2. The

court in Lowman similarly concluded that “pursuant to Nedlloyd . . . South Dakota law governs” without providing any

additional choice of law analysis. Lowman, CV 05-8097

RGK, slip op. at 3. Because neither court adequately applied

California’s choice of law analysis, it was error for the district

court to rely exclusively on Egerton and Lowman to conclude

that South Dakota law governs here. Instead, the district court

was required to explicitly apply the analytical approach articulated in § 187(2) and Nedlloyd to the particular facts of this

case. We remand for that analysis. 

II. Analysis on Remand

[4] Hoffman concedes that South Dakota has a “substantial

relationship” to the instant transaction. Thus, on remand the

district court should focus on the second step of the Nedlloyd

test and specifically address whether the enforceability of this

class arbitration waiver under South Dakota law is contrary to

a fundamental policy of California.2 California has a funda2We agree with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law

and therefore is enforceable if South Dakota law controls. See S. D. CODIFIED LAWS § 54-11-10; see also Nygaard v. Sioux Valley Hosp. & Health

Sys., 731 N.W.2d 184, 195 (S.D. 2007) (requiring both substantive and

procedural unconscionability when reviewing a contract). 

HOFFMAN v. CITIBANK 14495
mental policy against unconscionable class arbitration waivers. See Klussman v. Cross Country Bank, 36 Cal. Rptr. 3d

728, 739-40 (Cal. Ct. App. 2005); see also CAL. CIV. CODE

§ 1668.3 The California courts have explained the need for

this policy, reasoning that a defendant could “essentially

grant[ ] itself a license to push the boundaries of good business practices to their furthest limits, fully aware that relatively few, if any, customers will seek legal remedies” and

that “[t]he potential for millions of customers to be overcharged small amounts without an effective method of redress

cannot be ignored.” Klussman, 36 Cal. Rptr. 3d at 739 (internal quotation marks omitted) (quoting Discover Bank, 113

P.3d at 1108). Thus, if Citibank’s class arbitration waiver is

unconscionable under California law, enforcement of the

waiver under South Dakota law would be contrary to a fundamental policy of California. 

Whether a specific class arbitration waiver is unconscionable under California law turns on 

(1) whether the agreement is a consumer contract of

adhesion drafted by a party that has superior bargaining powers; (2) whether the agreement occurs in a

setting in which disputes between the contracting

parties predictably involve small amounts of damages; and (3) whether it is alleged that the party with

the superior bargaining power has carried out a

scheme to deliberately cheat large numbers of consumers out of individually small sums of money. 

Shroyer v. New Cingular Wireless Serv., Inc., 498 F.3d 976,

983 (9th Cir. 2007) (internal quotation marks omitted); see

also Klussman, 36 Cal. Rptr. 3d at 739-40 (citing Discover

3

In addition, various district courts in California have followed Klussman’s analysis. See, e.g., Oestreicher v. Alienware Corp., 502 F.Supp. 2d

1061, 1066 (N.D. Cal. 2007); Brazil v. Dell, Inc., No. C-07-01700, 2007

WL 2255296 at *4 (N.D. Cal. Aug. 3, 2007). 

14496 HOFFMAN v. CITIBANK
Bank, 113 P.3d at 1110). Although this test has both substantive and procedural elements, these components exist on a

sliding scale such that they need not be present in the same

degree. See Armendariz v. Found. Health Psychcare Serv.,

Inc., 6 P.3d 669, 690 (Cal. 2000). Instead, “even if the evidence of procedural unconscionability is slight, strong evidence of substantive unconscionability will tip the scale and

render the arbitration provision unconscionable.” Nagrampa

v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir. 2006) (en

banc); see also Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr.

3d 344, 356 (Cal. Ct. App. 2007) (“[U]nder Armendariz, we

conclude that courts are not obligated to enforce highly unfair

provisions that undermine important public policies simply

because there is some degree of consumer choice in the market.”) (internal citation omitted). 

[5] Citibank’s class arbitration waiver would be substantively unconscionable under California law on the facts

alleged. Hoffman claims that Citibank’s challenged billing

practice resulted in an additional finance charge of approximately $68, which easily constitutes the requisite “small

amount of damages.” See Oestreicher v. Alienware Corp., 502

F. Supp. 2d 1061, 1067-68 (N.D. Cal. 2007) (finding an

amount of over $4,000 “not substantial”); Cohen v. DirectTV,

Inc., 48 Cal. Rptr. 3d, 813, 820 (Cal. App. 2006) (holding

$1,000 insufficient to warrant individual litigation). Hoffman’s allegation that Citibank adopted this practice to ensure

that it could charge a higher interest rate for at least a month

before the affected customers could do anything to avoid

these charges qualifies as a “scheme to deliberately cheat

large numbers of consumers out of individually small sums of

money.” Discover Bank, 113 P.3d at1108; see Cohen, 48 Cal.

Rptr. 3d at 820-21.4

4Citibank argues that Hoffman’s allegations are insufficient to prove

that the class arbitration waiver is unconscionable and therefore the Federal Arbitration Act requires enforcement of the arbitration agreement.

This argument misunderstands the important, albeit slight, difference

HOFFMAN v. CITIBANK 14497
[6] With respect to procedural unconscionability, it is plain

that Citibank was in a superior bargaining position to Hoffman and that Citibank’s contract was offered in such a way

that Hoffman was unable to negotiate its terms. These two

elements often render a contract provision oppressive, and

therefore procedurally unconscionable. See Gatton, 61 Cal.

Rptr. 3d at 352-53; Flores v. Transamerica HomeFirst, Inc.,

113 Cal. Rptr. 2d 376, 381-82 (Cal. App. 2001). The dispositive questions that the district court has thus far not addressed,

however, are the practical impacts of Citibank’s “nonacceptance instructions” and whether, when placed on California’s sliding scale, the non-acceptance provision renders

the class arbitration waiver conscionable when compared to

the degree of substantive unconscionability. We have held

that providing a “meaningful opportunity to opt out” can preclude a finding of procedural unconscionability and render an

arbitration provision enforceable. See Circuit City Stores, Inc.

v. Ahmed, 283 F.3d 1198, 1199 (9th Cir. 2002). In contrast,

although “bill stuffer” amendments are not per se unconscionable, Discover Bank, 113 P.3d at 159-63, a California court

has held that a “bill stuffer” that includes a class arbitration

waiver provision that the customer is deemed to accept unless

she closes her account is procedurally unconscionable. See

Cohen, 48 Cal. Rptr. 3d at 819-20. Moreover, two district

courts in our circuit have determined that the ability to rescind

a contract within 21 or 30 days does not necessarily insulate

class arbitration waivers within such contracts from procedural unconscionability. See Oestreicher, 502 F.Supp.2d at

between determining that South Dakota’s enforcement of an unconscionable provision is counter to a fundamental policy of California and actually

finding the provision unconscionable under the substantive law of contract. In the choice of law context, California courts applying Nedlloyd and

Discover Bank require only that “the allegations allege the defendant has

‘carried out a scheme to deliberately cheat large numbers of consumers

out of individually small sums of money.’ ” Klussman, 36 Cal. Rptr. 3d

at 739 (emphasis added) (quoting Discover Bank, 113 P.3d at 1108); see

also Shroyer, 498 F.3d at 983. 

14498 HOFFMAN v. CITIBANK
1070; Brazil v. Dell Inc., No. C-07-01700, 2007 WL

2255296, at *8 (N.D. Cal. Aug. 3, 2007). Additionally, this

circuit has “consistently followed the courts that reject the

notion that the existence of ‘marketplace alternatives’ bars a

finding of procedural unconscionability.” Shroyer, 498 F.3d at

985. 

[7] Given this legal landscape, we remand to the district

court so that it may conduct additional fact finding regarding

the nature and scope of Citibank’s “instructions for nonacceptance” provision to determine whether the waiver provided enough of a meaningful opportunity to opt out to be

enforceable. Expanding the record with respect to issues such

as how much additional time the expiration date cutoff typically provides, how many customers exercise their ability to

opt out and whether other banks use similar provisions will

enable the court to determine whether Citibank provided an

“actual, meaningful, and reasonable choice” such that its class

arbitration waiver is not procedurally unconscionable. Circuit

City Stores, Inc. v. Mantor, 335 F.3d 1101, 1106 (9th Cir. 2003).5

III. Conclusion

We respectfully conclude that the district court erred

because it did not apply California’s choice of law analysis as

articulated in Restatement § 187(2) and Nedlloyd, and more

5Under Nedlloyd, if there is a fundamental conflict with California law,

then the choice of law analysis would turn to whether California has a

materially greater interest than South Dakota in the outcome of this case.

See Nedlloyd, 834 P.2d at 1152. Because the procedural unconscionability

of the class arbitration waiver remains an open question, it is premature

to reach a holding on the materially greater interest prong of this test. Nevertheless, because the district court expressed some confusion on this

issue, we emphasize that the instant case is distinguishable from the two

cited by the district court because it was brought by a California resident,

on behalf of a California-only class, under a California statute for an

allegedly deceptive practice whose injury was felt in California. See

Oestreicher, 502 F.Supp.2d at 1069; see also Klussman, 36 Cal. Rptr. 3d

at 741. 

HOFFMAN v. CITIBANK 14499
specifically because it did not address whether Citibank’s

class arbitration waiver, accompanied by a non-acceptance

provision, is unconscionable under California law. 

This panel retains jurisdiction over any future appeals. 

REVERSED and REMANDED.

TROTT, Circuit Judge, concurring: 

Given the narrow question presented by this appeal, I concur in our per curiam opinion. Nevertheless, I add some

observations designed, I hope, to shed light on remand on the

underlying question: is the arbitration “agreement” — including a class arbitration waiver — enforceable, or not. 

California law is far from settled. In Citibank (South

Dakota), N.A. v. Walker, No. A117770, slip op. at 8 (Cal. Ct.

App. September 11, 2008), Division Four of the First Appellate District held in an unpublished opinion that the arbitration

waiver at issue is not unconscionable or unenforceable under

California law. In so holding, that court focused on a cardholder’s choices: 

Here, although the change was made in a “bill stuffer,” Walker was given an opportunity to opt out of

arbitration. By opting out of the amendment, Walker

would have been permitted to use his card until it

expired, at which time he would have been able to

pay off his balance under the existing terms. This

does not present the same take it or leave it scenario

found to be procedurally unconscionable in Discover

Bank [v. Superior Court, 113 P.3d 1100 (Cal.

2005).] Moreover, Discover Bank [v. Superior

Court] does not stand for the proposition that “bill

stuffer” amendments are per se unconscionable.

14500 HOFFMAN v. CITIBANK
Rather, it focuses on the take it or leave it nature of

the contractual modification. 

Walker, No. A117770, slip op. at 10 (citation omitted). 

However, Division Seven of the Second Appellate District

held in Firchow v. Citibank (South Dakota), N.A., No.

B187081, 2007 Cal. App. Unpub. LEXIS 178, at * 26 (Ct.

App. Jan. 10, 2007), that the “agreement” under our legal

microscope is unconscionable. 

This brings us to Jones v. Citigroup, Inc., 38 Cal. Rptr. 3d

461 (Ct. App. 2006). In Jones, Division Three of the Fourth

Appellate District declined to conclude that a similar attempt

to avoid classwide arbitration was unconscionable under California law: 

Our case is different [from Discover Bank v. Superior Court]. Here, although the change was made in

a “bill stuffer,” plaintiffs were given an opportunity

to opt out of arbitration. By giving written notice of

their rejection of the amendment, they could continue to use their cards until the cards expired and

then would be able to pay off their balances under

the terms of their existing agreement without acceleration. This does not present the take it or leave it

scenario described in Discover [Bank v. Superior

Court] or Szetela [v. Discover Bank, 118 Cal. Rptr.

2d 862 (Ct. App. 2002),] as being procedurally

unconscionable. Rather, it appears that defendant

was cognizant of the oppressive nature of forcing a

nonconsenting cardholder to either agree to arbitration or immediately cancel the account and took

steps to avoid it. 

Jones, 38 Cal. Rptr. 3d at 465. 

The good news, if there is any good news in all of this, is

that the California Supreme Court vacated and remanded the

HOFFMAN v. CITIBANK 14501
Jones decision for further proceedings in light of its decision

in Gentry v. Superior Court, 165 P.3d 556 (Cal. 2007). Jones

v. Citigroup, Inc., 171 P.3d 547 (Cal. 2007). 

There it is. Mixed signals from the California courts. One

hopes on remand in this case that the legal dust will soon settle and that our district court will have some reliable authority

upon which to base its decision.

14502 HOFFMAN v. CITIBANK