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Filed 11/26/13 Math Magicians v. Capital for Merchants CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

MATH MAGICIANS, INC. et al.,

Plaintiffs and Appellants,

v.

CAPITAL FOR MERCHANTS LLC,

Defendant and Respondent.

 B241937

 (Los Angeles County

 Super. Ct. No. BC457074)

APPEAL from an order of the Superior Court of Los Angeles County, Anthony J. 

Mohr, Judge. Affirmed.

Dostart Clapp & Coveney, James F. Clapp, James T. Hannink and Zach P. Dostart 

for Plaintiffs and Appellants.

Gaims Weil West, formerly Gaims, Weil, West & Epstein, Peter L. Steinman, 

Alan Jay Weil, Steven S. Davis, Corey E. Klein and David M. Berke for Defendant and 

Respondent.
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I. INTRODUCTION

Plaintiffs, Math Magicians, Incorporated, and Deborah Sinness, appeal from an 

order granting the motion to strike their class action claim filed by defendant, Capital For 

Merchants LLC. Plaintiffs filed a second amended class action complaint alleging causes 

of action for: usury; money had and received; a violation of Business and Professions 

Code section 17200; and declaratory relief. Defendant loaned Math Magicians, 

Incorporated money at an allegedly usurious interest rate. Defendant moved to strike 

plaintiffs’ class action claims. The motion was based on a class action waiver in the 

parties’ agreement. The trial court granted the motion finding the waiver was not 

unconscionable and struck plaintiffs’ class action claims without leave to amend. 

Plaintiffs contend the class action waiver is unconscionable and would result in a waiver 

of their statutory rights. Defendant argues plaintiffs’ class action claims are barred

because the waiver is enforceable and not unconscionable. We affirm the order striking 

the class action claims without leave to amend.

II. BACKGROUND

A. Procedural History

On March 10, 2011, plaintiffs filed their class action complaint. On November 28, 

2011, plaintiffs filed their first amended class action complaint. After plaintiffs filed 

their first amended complaint, defendant moved to strike the class allegations on January 

11, 2012. On February 8, 2012, the trial court granted defendant’s motion to strike the 

class claims with leave to amend. On March 7, 2012, plaintiffs filed their second 

amended class action complaint, which is the operative pleading. On April 11, 2012, 

defendant filed its motion to strike the class allegations of the second amended complaint. 
21

B. Second Amended Complaint Allegations

Plaintiffs’ second amended complaint contains causes of action for usury; money 

had and received; unfair competition; and declaratory relief. Math Magicians, 

Incorporated is a California corporation with its principal place of business in Quartz 

Hill, California. Ms. Sinness is the owner and, at the time the second amended complaint 

was filed, the sole employee of Math Magicians, Incorporated. Math Magicians, 

Incorporated tutors middle and high school students in math. Defendant is a New York 

company doing business in California. Defendant, a lending company, provides 

borrowers with what is termed a “merchant cash advance” which is a form of short term 

financing. The second amended complaint describes a merchant cash advance thusly: 

“In merchant cash advance, a finance company lends the borrower . . . a lump sum of 

money secured by the borrower’s future credit card sales. The borrower is required to 

direct its credit card processing company to pay the finance company a percentage of the 

borrower’s credit card receipts until the loan is repaid in full.” Plaintiffs believe 

defendant is not licensed or otherwise authorized to make loans in California. 

According to the second amended complaint, plaintiffs obtained a merchant cash 

advance from defendant in June 2010. At that time, plaintiffs faced severe financial 

difficulties. In 2010, Math Magicians, Incorporated suffered a loss of $24,046. Math 

Magicians, Incorporated paid Ms. Sinness a salary of $25,000, her only source of income. 

Prior to the merchant cash advance, Math Magicians, Incorporated had the 

following financial problems: three months behind in its rent payment; two to three 

months behind in paying utility bills and service vendors; and credit card debts it could 

not afford to pay. Ms. Sinness had “maxed out her personal credit cards” and was behind 

on her payments. In April 2010, Ms. Sinness sought a business loan. She discovered she 

did not qualify. Ms. Sinness had no equity in her home and no friends and family from 

whom she could borrow money. 

Ms. Sinness “came across” an unidentified company offering a merchant cash 

advance in June 2010. At the time, she did not know what a merchant cash advance was. 
22

Ms. Sinness obtained her credit card statements from her processing company and 

submitted them with her application to the unspecified company. The unidentified 

company turned her down. 

Ms. Sinness shortly thereafter received a phone call from defendant. Her credit 

card processing company had forwarded her information to defendant. Defendant’s 

salesperson told Ms. Sinness that defendant and her processor had a business relationship. 

As a result, defendant could approve her for a merchant cash advance. Ms. Sinness

completed an application and submitted bank statements and organizational documents to 

defendant. Ms. Sinness was approved for the advance a day or two later. Defendant’s 

salesperson never explained that Math Magicians, Incorporated would be waiving its 

right to participate in a class action, a jury trial, and certain remedies. 

On June 14, 2010, Ms. Sinness received the “Receivables Purchase Agreement” 

from defendant. An e-mail directed Ms. Sinness to initial and sign all pages. Defendant 

did not offer to negotiate any terms in the agreement. Defendant did not explain any of 

the terms of the agreement. There is no allegation Ms. Sinness requested to negotiate any 

terms of the agreement. Ms. Sinness was desperate for money. She did not qualify for a 

business loan or a merchant cash advance from another company. She was behind on the 

payments of her business and personal debts. Ms. Sinness was on the verge of shutting 

down her company. Ms. Sinness had no legal training and no money to hire an attorney 

to explain the agreement to her. 

According to the second amended complaint, defendant had superior bargaining 

power compared to plaintiffs. Defendant has made hundreds of merchant cash advances 

in California and thousands nationwide. According to defendant’s Web site, it is on pace 

to advance over $40 million to new clients. Defendant is also a partner of North 

American Bancard, which processes $6 billion in credit card transactions annually and 

has relationships with over 70,000 businesses nationwide. Defendant is a sophisticated 

and experienced finance company with ample financial resources. 

In November 2010, plaintiff obtained another merchant cash advance from 

defendant. The terms were identical to the June 2010 advance. Plaintiffs’ cash flow was 
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severely limited because they paid 25 percent of their credit card receipts to defendant. 

Plaintiffs were paying off the first advance plus over $3,600 in interest. Math Magicians, 

Incorporated’s business slowed down because of the approaching holiday. Defendant 

again did not explain or negotiate the agreement. Ms. Sinness had no money to hire an 

attorney and did not understand the waivers she signed. 

The second amended complaint also contains allegations concerning suitability of 

the present case for class treatment. Plaintiffs paid less than $6,000 in interest in total. 

Plaintiffs do not have the money to hire an attorney on an hourly basis to pursue these 

claims. Few attorneys would take a claim worth $6,000 on a contingency basis. 

According to the second amended complaint: “[I]f the class action waiver were 

enforced, [defendant] would avoid liability for its wrongdoing. Plaintiffs allege that 

disputes between [defendant] and its customers predictably involve small amounts of 

damages, that [defendant] has superior bargaining power as compared to its customers, 

and that [defendant] is engaging in a scheme to evade California’s usury law and 

deliberately cheat large numbers of customers out of individually small amounts of 

money. A class action is the only viable means with which this case could be brought. 

Without the class action remedy, it would be impossible for those injured by [defendant] 

to vindicate their rights. This is the case because the individuals who have been harmed 

by [defendant’s] conduct are not likely to have the financial resources to seek legal 

redress, and even if they did, it is unlikely any attorney would represent them for such a 

small claim. Furthermore, because the Agreement does not label the product as a loan or 

use the phrase ‘interest rate,’ it is unlikely that an individual would recognize that 

[defendant’s] advances are really usurious loans and that they may have claims under 

California law. Therefore, in practical terms, the class action waiver works to exculpate 

[defendant] from liability.” 

Plaintiffs’ two merchant cash advances amounted to $13,358 and $9,380, 

respectively. The effective annual interest rate for both advances exceeded 75 percent. 

The merchant cash advances are loans. Defendant requires the merchant cash advance be 

repaid in full. Defendant’s only obligation is to advance cash to the borrower. Defendant 
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does not bear any financial risk other than the borrower being unable to pay. Defendant 

requires borrowers to reimburse it for any losses incurred related to the advance. In the 

event of a default, defendant is entitled to accelerate the borrower’s payments. 

Borrowers must submit a credit application. Borrowers must agree to a credit check prior 

to entering into the merchant cash advance agreement. Defendant underwrites the 

merchant cash advance by assessing the borrower’s creditworthiness. Defendant 

collateralizes the merchant cash advance by filing Uniform Commercial Code-1 

financing statements. Defendant requires owners of the borrowers, such as Ms. Sinness,

to execute personal guarantees. 

Plaintiffs included as an exhibit with their second amended complaint a copy of 

the June 14, 2010 receivables purchase agreement. The pertinent provision concerning 

class action waivers was located at the bottom of page 5 to the top of page 6 in bold, 

capitalized font: “JURY TRIAL; LIMITATIONS ON ACTION. THE PARTIES HEREBY 

WAIVE TRIAL BY JURY IN ANY COURT PRESIDING OVER ANY SUIT, ACTION 

OR PROCEEDING ARISING UNDER THIS AGREEMENT, UNLESS THE WAIVER

IS PROHIBITED BY LAW. THE PARTIES ACKNOWLEDGE THAT THIS WAIVER 

IS MADE KNOWINGLY AND VOLUNTARILY. THE PARTIES HAVE BEEN 

GIVEN AMPLE TIME AND OPPORTUNITY TO SEEK ADVICE OF COUNSEL 

PRIOR TO EXECUTION OF THIS AGREEMENT. THE MERCHANT HEREBY 

WAIVES, INSOFAR AS PERMITTED BY LAW, ANY RIGHT TO PURSUE A 

CLAIM AGAINST CFM AND/OR ITS SUCCESSORS AND ASSIGNS AS PART OF 

A CLASS ACTION, PRIVATED ATTORNEY GENERAL ACTION OR OTHER 

REPRESENTATIVE ACTION.” 

C. Defendant’s Motion To Strike Class Allegations

On April 11, 2012, defendant filed its motion to strike the class allegations from 

the second amended complaint without leave to amend. Defendant argued all putative 
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class action members signed a class action waiver. Defendant contended plaintiffs failed 

to establish procedural or substantive unconscionability regarding the class action waiver. 

On May 3, 2012, plaintiffs filed their opposition. Plaintiffs argued the agreement 

was procedurally unconscionable because there was no opportunity to negotiate and 

defendant had vastly superior bargaining power. Plaintiffs also contended it was 

substantively unconscionable because the small claim amount would effectively 

exculpate defendant from liability. Plaintiffs asserted few attorneys would take a claim 

worth $6,000 on a contingency basis. Plaintiffs also argued individuals would be highly 

unlikely to recognize defendant’s advances were actually usurious loans. Plaintiffs 

contended in the alternative the class action waiver is unenforceable under Gentry v. 

Superior Court (2007) 42 Cal.4th 443, 457 (Gentry). Plaintiffs reasoned the class action 

waiver was unenforceable because it would result in the forfeiture of usury statutory 

rights. 

On May 9, 2012, defendant filed its reply. Defendant asserted plaintiffs pled no 

lack of market alternatives or surprise to establish procedural unconscionability. 

Defendant argued plaintiffs’ damage claim was $35,000 and too high to render the waiver 

exculpatory. Defendant argued leave to amend should not be granted because plaintiffs 

identified no additional facts that would change the result. Defendant argued Gentry 

applies only in the wage and labor context and usury is subject to numerous exceptions. 

D. Hearing And Order

On May 16, 2012, the trial court granted the motion to strike and denied leave to 

amend for the reasons cited in defendant’s moving papers. On May 17, 2012, the trial 

court issued its order granting the motion. The trial court found plaintiffs did not 

demonstrate procedural unconscionability because they sought loans from only two 

companies. The trial court found no substantive unconscionability because plaintiffs’ 

potential claims were large enough to incentivize pursuing individual actions. The trial 
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court found Gentry did not extend beyond wage and hour cases. On June 15, 2012, 

plaintiffs appealed the order. 

III. DISCUSSION

A. Overview

Pursuant to Code of Civil Procedure section 436: “The court may, upon a motion 

made pursuant to Section 435, or at any time in its discretion, and upon terms it deems 

proper: [¶] (a) Strike out any irrelevant, false, or improper matter inserted in any 

pleading. [¶] (b) Strike out all or any part of any pleading not drawn or filed in 

conformity with the laws of this state, a court rule, or an order of the court.” As noted, 

the trial court granted defendant’s motion to strike the class allegations from plaintiffs’ 

second amended complaint. The viability of class claims may be challenged at the 

pleading stage. (Linden v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440; Tucker v. Pacific 

Bell Mobile Services (2012) 208 Cal.App.4th 201, 214-215.) An order striking class 

allegations from a complaint is appealable. (Walnut Producers of Cal. v. Diamond 

Foods, Inc. (2010) 187 Cal.App.4th 634, 641 (Walnut Producers); Prince v. CLS 

Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1322, fn. 2.)

Plaintiffs allege the class action waiver present in the receivables purchase 

agreement is unconscionable. Civil Code section 1670.5, subdivision (b), provides, 

“When it is claimed or appears to the court that the contract or any clause thereof may be 

unconscionable the parties shall be afforded a reasonable opportunity to present evidence 

as to its commercial setting, purpose, and effect to aid the court in making the 

determination.” We review the trial court’s order de novo. (Walnut Producers, supra, 

187 Cal.App.4th at p. 642; Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 

1305, 1316 [“The issue whether a contract provision is unconscionable is a question of 

law.”] (Morris).)
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Regarding an appellate court’s reviewing role, the Third District Court of Appeal 

held: “At the pleading stage of this case, where [the defendant] has sought to strike the 

class allegations, and plaintiffs assert the contractual prohibitions of those class 

allegations are unconscionable, our review under Civil Code section 1670.5, subdivision 

(b), is to determine de novo whether plaintiffs have pleaded sufficient facts 

demonstrating the class action waiver may be unconscionable. [Citation.] If plaintiffs 

have met this burden, they are entitled to a full evidentiary hearing at which the trial court 

can definitively determine whether the class action waiver is unconscionable.” (Walnut 

Producers, supra, 187 Cal.App.4th at p. 642, citing Morris v. Redwood Empire Bancorp, 

supra, 128 Cal. App.4th at pp. 1316-1324.) In reviewing this order, we assume plaintiffs’

factual allegations in the operative pleading are true. (Walnut Producers, supra, 187 

Cal.App.4th at p. 642; Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 53.)

Plaintiffs argue they pled sufficient facts to show the class action waiver was 

unconscionable. Plaintiffs assert the waiver was procedurally unconscionable because: it 

was a contract of adhesion; they alleged lack of market alternatives; and Ms. Sinness was 

surprised by the class action waiver. Plaintiffs further contend the waiver was 

substantively unconscionable because: the class action waiver is one-sided; the class 

action waiver clause is exculpatory under Discover Bank v. Superior Court (2005) 36 

Cal.4th 148, 161, overruled by AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __, 

__ [131 S.Ct. 1740, 1753] (Discover Bank); and their claims were not large. In the 

alternative, plaintiffs argue the class action waiver was unenforceable because it would 

result in waiver of statutory rights. 

B. Unconscionability

1. Overview

Our Supreme Court held: “‘[T]he [unconscionability] doctrine has “‘both a 

“procedural” and a “substantive” element,’ the former focusing on ‘“oppression”’ or 
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‘“surprise”’ due to unequal bargaining power, the latter on ‘“overly harsh”’ “or ‘“onesided”’ results.” [Citation.] The procedural element of an unconscionable contract 

generally takes the form of a contract of adhesion, “‘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.’” . . . [¶] Substantively unconscionable 

terms may take various forms, but may generally be described as unfairly one-sided.’ 

[Citations.]” (Discover Bank v. Superior Court, supra, 36 Cal.4th at p. 160; Pinnacle 

Museum Tower Assn. v. Pinnacle Market Development (US) LLC (2012) 55 Cal.4th 223,

246 (Pinnacle); Walnut Producers, supra, 187 Cal.App.4th at p. 645.)

Our Supreme Court noted: “‘The prevailing view is that [procedural and 

substantive unconscionability] must both be present in order for a court to exercise its 

discretion to refuse to enforce a contract or clause under the doctrine of 

unconscionability.’ [Citation.] But they need not be present in the same degree. 

‘Essentially a sliding scale is invoked which disregards the regularity of the procedural 

process of the contract formation, that creates the terms, in proportion to the greater 

harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other 

words, the more substantively oppressive the contract term, the less evidence of 

procedural unconscionability is required to come to the conclusion that the term is 

unenforceable, and vice versa.” (Armendariz v. Foundation Health Psychcare Services, 

Inc. (2000) 24 Cal.4th 83, 114; accord, Walnut Producers, supra, 187 Cal.App.4th at p. 

645; Morris, supra, 128 Cal.App.4th at p. 1317, fn. 5.)

2. Procedural Unconscionability

Plaintiffs argue because the receivable purchases agreement was an adhesion 

contract, it was generally procedurally unconscionable. Defendant contends an adhesion 

contract is not sufficient by itself to establish procedural unconscionability. The parties 

do not dispute plaintiffs’ allegations that the receivable purchases agreement is an 

adhesion contract.
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Plaintiffs rely on Discover Bank, supra, 36 Cal.4th at page 160 and Little v. Auto 

Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071. Our Supreme Court has held an adhesion 

contract is sufficient to establish at least a minimal degree of procedural 

unconscionability. (Discover Bank, supra, 36 Cal.4th at p. 160; Little v. Auto Stiegler, 

Inc., supra, 29 Cal.4th at p. 1071 [“‘The procedural element of an unconscionable 

contract generally takes the form of a contract of adhesion . . . .’”]; see Gentry, supra, 42 

Cal.4th at p. 469 [“Ordinary contracts of adhesion, although they are indispensable facts 

of modern life that are generally enforced [citation], contain a degree of procedural 

unconscionability even without any notable surprises, and ‘bear within them the clear 

danger of oppression and overreaching.’ . . .”].)

Defendant asserts commercial contracts require more than allegations of adhesion. 

Defendant argues plaintiffs are required to show oppression by lack of market 

alternatives. Defendant relies on: Morris, supra, 128 Cal.App.4th at page 1320; Dean 

Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 768 (Dean Witter), 

and Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, 481-482 (Wayne). In Morris, the 

plaintiff obtained from the defendant a merchant account to process customers’ credit 

cards. (Morris, supra, 128 Cal.App.4th at p. 1311.) The merchant agreement charged 

various fees, including a $150 termination fee. (Ibid.) The plaintiff later canceled the 

merchant agreement and paid the termination fee. (Ibid.) He filed an action against the 

defendant, alleging the termination fee was and void as unreasonable. (Ibid.) The 

defendants successfully demurred and the Court of Appeal affirmed. (Id. at p. 1325.)

Our Fourth District colleagues found the plaintiff failed to allege procedural 

unconscionability. (Morris, supra, 128 Cal.App.4th at pp. 1320-1321.) The appellate 

court concluded the plaintiff had alleged an adhesion contract. (Id. at p. 1319.) The 

appellate court further held: “Our recognition of the merchant agreement as an adhesion 

contract, however, heralds the beginning, not the end, of inquiry into its 

enforceability. . . . [¶] . . . Although adhesions contracts often are procedurally 

oppressive, this is not always the case. [Citation.] Oppression refers not only to an 

absence of power to negotiate the terms of a contract, but also to the absence of 
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reasonable market alternatives.” (Id. at pp. 1319-1320.) Our Fourth District colleagues 

found: “[The plaintiff] failed to allege he could not have obtained merchant credit card 

services from another source on different terms. Moreover, unlike situations where the 

weaker party is under immediate pressure not to seek out alternative sources, [the 

plaintiff] was under no such compulsion in attempting to start his business.” (Id. at p. 

1320.)

In Dean Witter, the plaintiff opened an individual retirement account with the 

defendant. (Dean Witter, supra, 211 Cal.App.3d at p. 762.) The plaintiff liquidated his 

account and the defendant deducted a $50 termination fee. (Ibid.) The plaintiff filed a 

class action complaint arguing the termination fee was unconscionable. (Id. at p. 763.) 

The trial court ordered all claims to proceed as a class action. The defendant filed 

mandate petition seeking to set aside the trial court’s order. (Ibid.)

The First District Court of Appeal found the termination fee was not 

unconscionable. (Dean Witter, supra, 211 Cal.App.3d at p. 772.) The appellate court 

held: “We believe that any claim of ‘oppression’ may be defeated if the complaining 

party had reasonably available alternative sources of supply from which to obtain the 

desired goods or services free of the terms claimed to be unconscionable. If ‘oppression’ 

refers to the ‘absence of meaningful choice,’ then the existence of a ‘meaningful choice’ 

to do business elsewhere must tend to defeat any claim of oppression.” (Id. at p. 768.) 

Our First District colleagues concluded: “[The plaintiff] tacitly equates the notion of an 

adhesion contract with that of ‘oppression’ in his unconscionability analysis. While we 

recognize significant overlap between the two concepts, we are not prepared to hold that 

they are identical. Were we to accept such an equation, every form contract not subject to 

negotiation between the parties would be deemed oppressive, totally disregarding the 

undisputed ability of a contracting party to choose to obtain that for which he bargained 

from other sources.” (Id. at p. 769.)

In Wayne, the plaintiff purchased declared value coverage for a shipment from the 

defendant. (Wayne, supra, 135 Cal.App.4th at p. 473.) The plaintiff alleged the 

defendant charged an excessive insurance premium which was unconscionable under the 
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Consumer Legal Remedies Act. That is, plaintiff asserted the pricing of the declared 

value coverage was unconscionable. (Ibid.) The defendant moved for summary 

judgment. (Id. at pp. 473-474.) The trial court granted defendant’s summary judgment 

motion. (Id. at p. 474.)

Our colleagues in Division Seven of this appellate district ruled summary 

adjudication was correctly issued as to a claim for unconscionable pricing of the declared 

value coverage. (Wayne, supra, 135 Cal.App.4th at pp. 471, 480-484.) The appellate 

court held: “[T]he defendant gives its customers the option to ship packages without 

purchasing the coverage, as well as to obtain excess value coverage from other 

carriers. . . . [P]otential customers have a wide range of choices other than shipping their 

packages [with the defendant] . . . . There can be no oppression establishing procedural 

unconscionability, even assuming unequal bargaining power and an adhesion contract, 

when the customer has meaningful choices . . . .” (Id. at p. 482.)

Plaintiffs have failed to allege meaningful choices of reasonably available 

alternative funding sources were unavailable. As a result, there are insufficient 

allegations of oppression. In Morris, supra, 128 Cal.App.4th at page 1320, the Court of 

Appeal explained: “Oppression refers not only to an absence of power to negotiate the 

terms of a contract, but also to the absence of reasonable market alternatives. In Madden 

v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, our state’s highest court 

recognized the point at which an adhesion contract becomes oppressive: ‘In many cases 

of adhesion contracts, the weaker party lacks not only the opportunity to bargain but also 

any realistic opportunity to look elsewhere for a more favorable contract; he must either 

adhere to the standardized agreement or forego the needed service.’ (Id. at p. 711, italics 

added.) Conversely, ‘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.’ (Dean Witter, supra, 211 

Cal.App.3d at p. 772.)”
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Later, in Morris, supra, 128 Cal.App.4th at page 1320, the Court of Appeal 

provided examples of where an adhesion contract was oppressive: “Of course, not every 

opportunity to seek an alternative source of supply is ‘realistic.’ Courts have recognized 

a variety of situations where adhesion contracts are oppressive, despite the availability of 

alternatives. For example, a sick patient seeking admittance to a hospital is not expected 

to shop around to find better terms on the admittance form. (See Tunkl v. Regents of 

University of California (1963) 60 Cal.2d 92.) Similarly, “‘few employees are in a 

position to refuse a job because of an arbitration agreement’” in an employment contract. 

(Little, supra, 29 Cal.4th at p. 1071.)”

Thereafter, the Court of Appeal in Morris discussed why the operative complaint’s 

allegations in that case failed to allege sufficient facts demonstrating oppression: “In the 

present case, Morris failed to allege he could not have obtained merchant credit card 

services from another source on different terms. Moreover, unlike situations where the 

weaker party is under immediate pressure not to seek out alternative sources, Morris was 

under no such compulsion in attempting to start his business. In a similar context, the 

court in West v. Henderson (1991) 227 Cal.App.3d 1578 (West), rejected an 

unsophisticated tenant’s claim of oppression in entering into a commercial lease for a 

sandwich shop: ‘The only oppression on [tenant] we perceive in the circumstances 

surrounding the signing of the lease was self-imposed. [Tenant] was not in pursuit of 

life’s necessities; this was a business venture. Knowing her own inexperience, she signed 

the lease without consulting an attorney . . . .’ (Id. at p. 1587.) Based on the allegations 

of Morris’s second amended complaint, we are able to discern little oppression in the 

formation of the merchant agreement.” (Morris, supra, 128 Cal.App.4th at pp. 1320-

1321.) 

Here, plaintiffs allege only two efforts were made to secure a merchant cash 

advance. There is no allegation Ms. Sinness sought to secure more favorable terms than 

those provided by defendant. There were allegations she could not secure loans from 

family or friends. Ms. Sinness could not secure commercial credit that had a real 

property security requirement because she had no equity in her home. She tried to obtain 
33

a merchant cash advance from only one other company before agreeing to work with 

defendant. Moreover, the second amended complaint contains no allegations that more 

favorable terms were unavailable from companies offering merchant cash advance funds 

or other lending arrangements. And, there is no allegation Ms. Sinness made any effort 

to negotiate the removal of the class action waiver from the Receivables Purchase 

Agreement. Thus, plaintiffs have not shown oppression.

Plaintiffs also argue they were surprised by the class action waiver. This argument

is unpersuasive. Our Supreme Court held: “‘“[S]urprise [occurs] where the allegedly 

unconscionable provision is hidden within a prolix printed form.”’” (Pinnacle, supra, 55 

Cal.4th at p. 247 quoting Morris v. Redwood Empire Bancorp, supra, 128 Cal.App.4th at 

p. 1317.) The receivables purchase agreement provision discussing class action waiver 

was in capitalized and in bold font. The term was not hidden within a prolix form. Any 

allegation of procedural unconscionability is quite low. 

3. Substantive Unconscionability

Plaintiffs argue the receivables purchase agreement was substantively 

unconscionable because it was overly harsh, one-sided and exculpatory. Defendant does 

not dispute the class action waiver was one-sided. However, defendant argues the waiver 

is not exculpatory because plaintiffs’ claimed damages are high. 

Our Supreme Court has explained: “Substantive unconscionability pertains to the 

fairness of an agreement’s actual terms and to assessments of whether they are overly 

harsh or one-sided. [Citations.] A contract term is not substantively unconscionable 

when it merely gives one side a greater benefit; rather, the term must be ‘so one sidesided as to “shock the conscience.”’ [Citation.]” (Pinnacle, supra, 55 Cal.4th at p. 246; 

24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1213; Stirlen v. 

Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1532.) In addition, substantive 

unconscionability comes into play when there is a contractual term which reallocates a 

bargain’s risk in an objectively unreasonable or unexpected fashion. (Walnut Producers, 
34

supra, 187 Cal.App.4th at p. 647; A & M Produce Co. v. FMC Corp. (1982) 135 

Cal.App.3d 473, 487.)

Plaintiffs rely on Discover Bank and Gentry to argue a class action waiver would 

exculpate defendant from liability. In Discover Bank, our Supreme Court held, “[T]he 

principle that class action waivers are, under certain circumstances, unconscionable as 

unlawfully exculpatory is a principle of California law that . . . appl[ies] to contracts 

generally.” (Discover Bank, supra, 36 Cal.4th at p. 165; accord, Gentry, supra, 42 

Cal.4th at p. 453-454.) Our Supreme Court held in Discover Bank: “We do not hold that 

all class action waivers are necessarily unconscionable. But when the waiver is found in 

a consumer contract of adhesion in a setting in which disputes between the contracting 

parties predictably involve small amounts of damages, and when 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, then, at least to the 

extent the obligation at issue is governed by California law, the waiver becomes in 

practice the exemption of the party ‘from responsibility for [its] own fraud, or willful 

injury to the person or property of another.’ (Civ. Code, § 1668.) Under these 

circumstances, such waivers are unconscionable under California law and should not be 

enforced.” (Discover Bank, supra, 36 Cal.4th at pp. 162-163.)

None of the foregoing principles apply here. Plaintiffs secured funding without 

providing any security apart from future customer credit card receipts. Defendant’s risk 

was substantial in that it relied not on existing security but future customer credit card 

receipts from a troubled business venture. Requiring plaintiffs to waive the right to 

participate in a class action does not shock the conscience. Nor is it objectively 

unreasonable or unexpected for a business lender offering funds to a troubled business, as 

a fair part of the bargain, to secure a class action waiver. 

Finally, plaintiffs have offered only conclusory allegations as to why a class action 

waiver would exculpate defendant from any misconduct. Common sense tells us that this 

is not a case involving consumers seeking small amounts of damages. The lending 

arrangement is one which involves substantial sums of money being moved through 
35

credit card accounts. Further, plaintiffs’ second amended complaint seeks a cancellation 

of indebtedness. Plaintiffs also requested up to treble damages for the approximately 

$6,000 interest. It is unclear whether plaintiffs seek the principal based on their 

pleadings. Even if they are not, however, plaintiffs’ damages could amount to 

approximately $18,000 in damages. This is not a small amount as contemplated in 

Discover Bank and its progeny. (See Discover Bank, supra, 36 Cal.4th at p. 159 [plaintiff 

recovered $29]; Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, 844 

[finding amount exceeding $16,000 is not so small that individuals would not be willing 

to spend time and effort to pursue individual claim].) In addition, there is an attorney fee 

clause which is fully enforced against defendant if either plaintiff prevails. (Civ. Code, § 

1717, subd. (a); PNEC Corp. v. Meyer (2010) 190 Cal.App.4th 66, 72-73 [guarantor may 

recover attorney fees].) 

Plaintiff argues there is no bright-line rule for determining a claim is so small it is 

impractical to pursue an individual action. Plaintiffs rely on Bell v. Farmers Ins.

Exchange (2004) 115 Cal.App.4th 715, 745 (Bell). In Bell, our colleagues in the First 

District opined: “[T]he size of individual claims does not necessarily have a bearing on 

the consideration of judicial efficiency favoring class actions. Whatever the size of the 

claims, a class action may be required ‘when the parties are numerous, and it is 

impractical to bring them all before the court,’ as provided by Code of Civil Procedure 

section 382.” (Ibid.) Bell is not informative here because it did not involve a class action 

waiver. There is a difference between a class action’s permissibility and a class action 

waiver’s unconscionability. The class action waiver in the receivables purchase 

agreement is not substantively unconscionable in any material way.

C. Waiver Of Statutory Rights Under Gentry 

Plaintiffs argue the class action waiver functions to forfeit their rights to recover 

for usury. Plaintiffs rely on Gentry, supra, 42 Cal.4th at pages 457-461. In Gentry, the 

plaintiff sought relief regarding minimum wage and overtime compensation. (Id. at p. 
36

455.) The rights to legal minimum wage and overtime compensation are unwaivable. 

(Id. at p. 456.) Our Supreme Court concluded in wage and hour cases, a class action 

waiver would have an exculpatory effect and undermine the statutory right. (Id. at p. 

457.) Our Supreme Court identified several factors establishing such a situation: “First, 

individual awards in wage-and-hour cases tend to be modest. [¶] . . . [¶] A second 

factor in favor of class actions for these cases, . . . is that a current employee who 

individually sues his or her employer is at greater risk of retaliation. [¶] . . . [¶] Third, 

some individual employees may not sue because they are unaware that their legal rights 

have been violated.” (Id. at pp. 457-461; see Arguelles-Romero v. Superior Court, supra,

184 Cal.App.4th at pp. 840-841; Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 

Cal.App.4th 154, 169-170.)

To begin with, many of our prior unconscionability comments apply equally to 

plaintiffs’ Gentry-based contentions. Plaintiffs offer only conclusory allegations that 

judgments in usury litigation tend to be modest as may be the case with wage and hour 

violation litigation. As noted, there is an attorney fee clause in this case which is 

enforceable in favor of both plaintiffs. Moreover, unlike Gentry, there is no risk of 

workplace retaliation. Simply stated, denying class treatment gives rise to no substantial 

potentiality of exculpating defendant from any alleged unlawful lending practices. 

Finally, as noted above, the allocation of risk in this contract is such that it is reasonable 

to require, as a condition of handing over substantial amounts of sums to a troubled 

business entity, a class action waiver.

IV. DISPOSITION

The order granting the motion to strike the class action claim is affirmed. 

Defendant, Capital For Merchants Limited Liability Company, is awarded its appeal 

costs from plaintiffs, Math Magicians, Incorporated and Deborah Sinness.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
37

TURNER, P. J.

I concur:

KRIEGLER, J.
1

MOSK, J., Dissenting

I dissent.

The trial court struck the class action allegations in the second amended 

complaint. The facts alleged are sufficient at least, at the pleading stage, to justify the 

class action allegations. The issue here is not whether plaintiffs have stated a cause of 

action, but only whether the allegations in the second amended complaint are sufficient to 

state that the class action waiver provision is unconscionable

The allegations are sufficient to state that the class action waiver provision is 

procedurally unconscionable. There is no dispute that the provision is part of a contract 

of adhesion. In order to show that they had to accept the class action waiver provision 

along with other provisions, plaintiffs alleged that they had no alternative sources of 

financing. They alleged they tried to obtain other sources of funding, but were 

unsuccessful. They also alleged that defendant represented it could approve plaintiffs for 

a loan (“merchant cash advance”) “when other companies could not do so.” Plaintiffs 

further alleged they “did not qualify for either a business loan or a merchant cash advance 

with another company.” There is no indication that the waiver provision in question was 

negotiable. Plaintiffs allege they had no lawyer, and the individual plaintiff, Ms. Sinness, 

had no legal training. 

Defendant and the trial court suggest that because plaintiff was such a risk, it was 

commercially feasible for defendant to extract such conditions as a class action waiver. 

This makes a condition for unconscionability—no other alternative—nugatory. It is 

because plaintiffs are in distress that there is procedural unconscionability. Defendant 
2

should not have carte blanche to avoid liability for statutory violations just because its 

customer is desperate.

Paragraph 15 of the agreement is in bold, capital letters. But the heading is “Jury 

Trial; Limitation on Action”—not waiver of a class action. Thus it “did not explain the 

essence [of the provisions] or otherwise convey anything meaningful to any entry-level 

purchaser.” (See Pardee Construction Co. v. Superior Court (2002) 100 Cal.App.4th 

1081, 1090.) The clause is in a 12 page, single-spaced document. It also provides a 

waiver of a trial by jury. Paragraph 8 of the agreement, which applies to Ms. Sinness, is 

the personal guarantee provision and contains a waiver of a trial by jury and a class 

action. It is not in bold. 

In Morris v. Redwood Empire Bankcorp (2005) 128 Cal.App.4th 1305, the 

plaintiff argued that a $150 termination fee in connection with a credit card processing 

agreement was unconscionable. The court held the plaintiff failed to allege he could have 

obtained different terms from another source and there was no compulsion. (Id. at p. 

1320.) Here, plaintiffs alleged there were no reasonable alternatives, and they were under 

immediate pressure to accept the agreement. Assuming that plaintiffs should have tried 

others for financing is based on pure speculation that there were others to contact.

In Dean Witter Reynolds v. Superior Court (1989) 211 Cal.App.3d 758, plaintiff 

alleged that a $50 termination fee defendant charged to close plaintiff’s individual 

retirement account was unconscionable. But plaintiff was an attorney and admittedly a 

sophisticated investor. Also plaintiff could have chosen other financial institutions that 

did not charge termination fees. (Id. at pp. 762, 771.) Here, plaintiffs were not in a 

comparable position regarding understanding the clause in question and reasonable 

alternatives.

In Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, plaintiff sought a 

determination that the price of shipping insurance was unconscionably high. Defendant 

in a motion for summary judgment found that plaintiff had a “wide range” of market 

alternatives (id. at p. 482)—a factor not established here. It should be noted that the 
3

“meaningful alternatives” or “marketplace alternatives” argument has been rejected by 

federal courts as not consistent with California cases. (See Shroyer v. New Cingular 

Wireless Services, Inc. (9th Cir. 2007) 498 F.3d 976, 985, overruled on another ground in 

AT&T Mobility LLC v. Concepcion (2011) __ U.S. __, 131 S.Ct. 1740.)

The class action provision is part of an agreement that is substantively 

unconscionable, for it is overtly one-sided. Section 3 of the agreement limits plaintiffs’ 

rights to exemplary, special, and consequential damages. Section 13 of the agreement 

provides that any amounts plaintiffs owe shall be charged interest at the rate of 1.5 

percent per month or 18 percent per year. This appears to be an illegal penalty. (Garrett 

v. Coast & Southern Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731, 740.) Section 18 of 

the agreement authorizes defendant to withdraw directly from plaintiffs’ bank account 

“any amount due under this agreement”—a questionable self-help provision.

By precluding class actions, defendants have, in large part, insulated themselves 

from liability. Plaintiffs do not claim the principal of the loan obligation as suggested by 

the trial court, but rather interest plus treble damages because of alleged usury. This 

could be an amount of $20,000 according to plaintiffs.1 

The reality is that few, if any, lawyers will pursue a claim for such an amount. 

The Superior Court has held in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) 

that a class action waiver is unenforceable if it has the practical effect of making it more 

difficult for those damaged to pursue a legal remedy. The court said, “Indeed, the Court 

of Appeal in Bell [v. Farmers Ins. Exchange (2004)] 115 Cal.App.4th 715 rejected the 

argument that even an award as large as $37,000 would be ‘ample incentive’ for an 

individual lawsuit for overtime pay, and would obviate the need for a class action, 

pointing to the expense and practical difficulties of such individual suits.” (Id. at p. 458; 

see Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1295 [suggested 

 

1

Plaintiffs did not pray for attorney fees.
4

class action waiver when claims were $26,500 was not subject to invalidation]2; 

Quinonez v. Empire Today LLC (N.D. Cal. 2010) 2010 U.S. Dist. LEXIS 117393 

[refused to enforce class action waiver when claims accrued $22,000].) Gentry should 

not be restricted to employee-employer cases. Gentry dealt with statutory rights. 

Plaintiffs here invoke their statutory rights to be free from usury. The trial court did not 

even evaluate whether a class action waiver is unenforceable under Gentry.

I would reverse the order striking the class action allegations. The trial court may 

determine in further proceedings whether plaintiffs have claims and can determine the 

appropriateness of the class action claim on a motion to certify the class.

MOSK, J.

 

2

The trial court asserts that plaintiffs misstated the amount in Franco. The court in 

that case said, “even if Franco’s overtime claim is included in the analysis—raising his 

total potential recovery to $26,500—the class arbitration waiver would fare no better.” 

(Franco v. Athens Disposal Co., Inc., supra, 171 Cal.App.4th at p. 1295.)