Volume 1 of 2

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CONNIE A. NAGRAMPA, 

Plaintiff-Appellant, No. 03-15955

v. D.C. No. 

M CV-03-00208-MJJ AILCOUPS, INC.; THE AMERICAN

ARBITRATION ASSOCIATION, OPINION

Defendants-Appellees. 

Appeal from the United States District Court

for the Northern District of California

Martin J. Jenkins, District Judge, Presiding

Argued and Submitted En Banc

September 27, 2005—San Francisco, California

Filed December 4, 2006

Before: Mary M. Schroeder, Chief Judge, Stephen Reinhardt,

Alex Kozinski, Diarmuid F. O’Scannlain,

Sidney R. Thomas, Susan P. Graber, Kim McLane Wardlaw,

Raymond C. Fisher, Ronald M. Gould, Richard C. Tallman,

and Richard R. Clifton, Circuit Judges.

Opinion by Judge Wardlaw;

Partial Concurrence and Partial Dissent by Judge Clifton;

Dissent by Judge O’Scannlain;

Dissent by Judge Kozinski

18885
COUNSEL

Kate Gordon & Leslie A. Bailey, Trial Lawyers for Public

Justice, Oakland, California; F. Paul Bland, Trial Lawyers for

Public Justice, Washington, D.C.; Sanford M. Cipinko, Law

Offices of Sanford M. Cipinko, San Francisco, California, for

the plaintiff-appellant. 

Glenn J. Plattner and Christine S. Oh, Jenkens & Gilchrist,

LLP, Los Angeles, California, for the defendant-appellee

MailCoups, Inc. 

John S. Warnlof, Warnlof & Sumnick, Walnut Creek, California; Shirley M. Hufstedler, Morrison & Foerster, LLP, Los

Angeles, California, for the defendant-appellee, American

Arbitration Association. 

OPINION

WARDLAW, Circuit Judge, with whom Chief Judge

SCHROEDER, Judges REINHARDT, THOMAS, GRABER,

FISHER, and GOULD join, and with whom Judge CLIFTON

joins as to Part II-A and II-B: 

The question before us is whether a provision to submit to

arbitration in a written franchise agreement is valid and

enforceable, therefore requiring the district court to stay proceedings and refer the disputed franchise agreement to arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C.

NAGRAMPA v. MAILCOUPS, INC. 18891
§§ 1-16 (2000). In a now-withdrawn opinion, a three-judge

panel of our court held that the unconscionability of an arbitration provision contained in the franchise agreement is a

question for the arbitrator to decide. Here, however, the plaintiff did not seek invalidation of the franchise agreement as a

whole on grounds of unconscionability; instead she challenged the unconscionability of solely the arbitration provision. Therefore, it was error to hold that consideration of the

unconscionability of the arbitration provision was to be determined by the arbitrator. 

We review this case en banc to clarify, as the Supreme

Court has recently reiterated, that when the crux of the complaint challenges the validity or enforceability of the agreement containing the arbitration provision, then the question of

whether the agreement, as a whole, is unconscionable must be

referred to the arbitrator. See Buckeye Check Cashing, Inc. v.

Cardegna, 126 S. Ct. 1204, 1209 (2006); Prima Paint Corp.

v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).

When the crux of the complaint is not the invalidity of the

contract as a whole, but rather the arbitration provision itself,

then the federal courts must decide whether the arbitration

provision is invalid and unenforceable under 9 U.S.C. § 2 of

the FAA.1 The federal courts cannot shirk their statutory obligation to do so simply because controlling substantive state

law requires the court to consider, in the course of analyzing

the validity of the arbitration provision, the circumstances surrounding the making of the entire agreement. See Buckeye,

126 S. Ct. at 1209-10; Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. 681, 687 (1996); Prima Paint, 388 U.S. at 403-04.

Judge O’Scannlain’s dissent mistakenly argues that holding

1

Judge O’Scannlain’s dissent acknowledges that Nagrampa challenges

the arbitration provision separately and independently from the contract as

a whole in two isolated causes of action. Indeed, no cause of action in the

complaint alleges that the franchise agreement is invalid because it is a

contract of adhesion; nor does Nagrampa seek to invalidate the franchise

agreement; nor would it be invalidated if the arbitration provision is

deemed unconscionable. 

18892 NAGRAMPA v. MAILCOUPS, INC.
the arbitration agreement unconscionable based partly on a

finding that the franchise agreement is a contract of adhesion

— the required California law analysis — is a “ground that

directly affects the entire agreement.” Buckeye, 126 S. Ct. at

1208. Judge O’Scannlain’s dissent fails to recognize a further

aspect of California law that provides for striking unconscionable provisions, while leaving the remainder of the agreement intact, valid, and enforceable. 

One must closely examine Nagrampa’s complaint and

apply California legal principles to understand why striking

the arbitration provision does not affect the validity of the

franchise agreement at issue. Nagrampa asserts six separate

causes of action2 in her (since removed) state complaint, none

of which seeks to invalidate the contract as a whole. Her fifth

and sixth causes of action specifically and exclusively challenge the validity of the arbitration provision. Although she

argues appropriately under California law that the arbitration

provision is procedurally unconscionable based, in part, on its

inclusion in a contract of adhesion, Nagrampa does not assert

that the entire agreement is unconscionable or invalid; nor

does she seek any form of relief from the agreement as a

whole. To the contrary, the other four causes of action provide

relief only if the franchise agreement is valid and binding

upon the parties. 

2A “cause of action” under California law is equivalent to a “claim”

under federal law, although the California system is based upon the old

code pleading system, which creates differences between the two pleading

systems that affect splitting, amendment, and res judicata principles. See

4 B.E. Witkin, California Procedure § 25 (4th ed. 2006). Under the federal

system, “[t]he word ‘claim’ denotes the allegations that give rise to an

enforceable right to relief.” Moore’s Federal Practice § 10.03[2][a] at 10-

23 (3d ed. 2006); see also Fed. R. Civ. P. 8(a)(2) (“A pleading which sets

forth a claim for relief . . . shall contain . . . (2) a short and plain statement

of the claim showing that the pleader is entitled to relief . . . .” ); Original

Ballet Russe, Ltd. v. Ballet Theatre, Inc., 133 F.2d 187, 189 (2d Cir. 1943)

(A claim “denote[s] the aggregate of operative facts which give rise to a

right enforceable in the courts.”). 

NAGRAMPA v. MAILCOUPS, INC. 18893
Because § 2 of the FAA provides that arbitration agreements are generally valid and enforceable, “save upon such

grounds as exist at law or in equity for the revocation of any

contract,” we are required to turn to California law to address

Nagrampa’s arguments regarding the unconscionability of the

arbitration provision. California law holds that unconscionable provisions generally are unenforceable. Such unenforceable provisions may, however, be severed from any valid and

enforceable provisions, even those also contained within the

arbitration provision. The district court correctly proceeded to

an analysis of unconscionability under California law as a

defense to enforcement of the arbitration provision included

in Nagrampa’s franchise agreement. Because the district court

failed to properly apply California law, which has continued

to evolve since the district court ruled, we reverse and remand

for further proceedings in accordance with this opinion. 

I

In June 1998, Connie Nagrampa received an offering circular from MailCoups, Inc. On August 24, 1998, Nagrampa

entered into an agreement with MailCoups to establish and

operate a direct mail coupon advertising franchise under MailCoups’s Super Coups system. The franchise agreement contains a provision requiring the parties to arbitrate, in

accordance with the rules of the American Arbitration Association (“AAA”), any dispute that arises out of or relates to the

franchise agreement. The arbitration provision further provides:

[T]his clause shall not be construed to limit MailCoups’ right to obtain any provisional remedy,

including, without limitation, injunctive relief from

any court of competent jurisdiction, as may be necessary in MailCoups’ sole subjective judgment, to

protect its Service Marks and proprietary information. The decision of the arbitrator shall be binding

upon the parties and judgment upon the award may

18894 NAGRAMPA v. MAILCOUPS, INC.
be entered in any court having jurisdiction thereof.

The situs of the arbitration proceedings shall be the

regional office of the American Arbitration Association which is located in Boston, Massachusetts. The

costs of arbitration shall be borne equally by MailCoups and Franchisee. Each party shall be responsible for the fees and expenses of its respective

attorneys and experts. 

In September 2000, after two years of unprofitable operation of her MailCoups franchise, Nagrampa unilaterally terminated the franchise agreement. This contract dispute arose in

December 2001 when MailCoups initiated arbitration proceedings by filing a Demand for Arbitration with the AAA,

claiming that at the time Nagrampa terminated the agreement,

she owed MailCoups in excess of $80,000 in fees. Nagrampa,

in turn, charged that rather than making a forty-one percent

profit per year, as MailCoups had promised, she incurred over

$180,000 in personal debt and had to pay over $400,000 in

various fees to MailCoups. Nagrampa states that the forty-one

percent profit figure was orally communicated to her by MailCoups and that this was not a figure that she had calculated

herself. Furthermore, in a letter sent to MailCoups on September 22, 2000, Nagrampa agreed to pay only the amount due

on the mailings, which would be reduced by unused Advertising Funds and CoolSavings charges. 

MailCoups’s initial arbitration demand designated Los

Angeles, California, as the hearing locale. In a letter dated

February 6, 2002, Nagrampa’s attorney objected to the arbitration proceeding. He clearly stated, “We are not ready or

willing to proceed with arbitration.” He also asserted “serious

concerns about the validity of the arbitration clause” and disagreed that Nagrampa was “in fact compelled by the alleged

clause to arbitrate.” He further objected to the venue selection, requesting that the venue for the arbitration be Contra

Costa, California, the county in which Nagrampa operated her

MailCoups franchise. He also objected to the arbitration fee

NAGRAMPA v. MAILCOUPS, INC. 18895
clause. Based on those objections, Nagrampa’s counsel

refused to file a response to the arbitration. 

Following further procedural skirmishes, on September 11,

2002, the AAA case manager notified the parties that the arbitration hearing would take place in Boston, Massachusetts, in

accordance with the forum selection clause in the arbitration

provision. On October 16, 2002, the arbitrator suggested that

arbitration proceed in Fresno, California, as a more costefficient and convenient venue. MailCoups vigorously

objected to the Fresno venue, and the AAA case manager

confirmed that the arbitration would take place in Boston,

Massachusetts. After Nagrampa failed to obtain a fee waiver

from the AAA, Nagrampa sent a letter indicating that she

would not participate in the arbitration proceedings. 

Instead, Nagrampa filed this action against MailCoups and

AAA in the Superior Court of the State of California, Contra

Costa County. Because Buckeye instructs that we examine the

crux of the complaint to determine whether it is a challenge

to the contract as a whole or to the arbitration provision, 126

S. Ct. at 1208, we describe the complaint at length. The first

three causes of action allege common law torts: first,

Nagrampa claims relief for intentional misrepresentation; second, she claims relief for negligent misrepresentation; and

third, she claims relief for fraud and deceit and suppression of

fact. For these three causes of action, Nagrampa prays for

damages, costs of suit, legal interest, attorney’s fees, and any

other relief the court might deem proper. The fourth cause of

action sets forth allegations that MailCoups violated the California Franchise Law, and Nagrampa again prays for damages, cost of suit, legal interest, attorney’s fees, and any other

relief deemed proper. Nagrampa’s fifth and sixth causes of

action specifically challenge the validity and enforceability of

the arbitration provision. The fifth cause of action, for violation of the California Consumer Legal Remedies Act, Cal.

Civ. Code §§ 1750-1785, alleges that the arbitration provision

is substantially one-sided, does not fall within the reasonable

18896 NAGRAMPA v. MAILCOUPS, INC.
expectations of Nagrampa, and is unduly oppressive, unlawful, unfair, fraudulent, and unconscionable. Nagrampa further

alleges that the arbitration provision is contained within a

contract of adhesion, that the AAA has a strong incentive to

be biased, and that the arbitration provision denies her and

other franchisees due process. For this cause of action,

Nagrampa prays for damages, costs of suit, legal interest,

attorney’s fees, and any other relief that the court might deem

proper. The sixth cause of action, for violation of the California Unfair Competition Law, Cal. Bus. & Prof. Code

§§ 17200-17208, alleges that Nagrampa is acting as a private

attorney general to contest MailCoups’s requirement that its

franchisees resolve disputes through arbitration. The relief

Nagrampa seeks for the sixth cause of action is that “this

court preliminarily and permanently enjoin MailCoups Inc.

from unilaterally imposing its Arbitration Provision on plaintiff Connie A. Nagrampa” and that she be awarded attorney’s

fees, costs of suit, and any other relief that the court might

deem proper. Nagrampa nowhere in her complaint seeks to

have the franchise agreement as a whole invalidated or

declared unenforceable. 

On January 14, 2003, invoking jurisdiction on the basis of

diversity of citizenship, MailCoups removed this action to the

United States District Court for the Northern District of California. MailCoups thereafter filed a motion to compel arbitration and dismiss or stay Nagrampa’s action, alternatively

seeking transfer to the United States District Court for the

District of Massachusetts, which Nagrampa opposed principally upon the ground that the arbitration provision is unconscionable. 

Although the choice of law clause in article 36.17 of the

franchise agreement provides that the governing law is that of

the State of Massachusetts, both parties have proceeded

throughout the district court and on appeal on the assumption

that the franchise agreement is governed by California law.

As a result, the district court applied California law in deterNAGRAMPA v. MAILCOUPS, INC. 18897
mining whether the arbitration provision is unconscionable.

We will follow suit because the parties through their course

of conduct have waived the provision of the agreement that

specifies the application of Massachusetts law. See 13 Williston on Contracts § 39:27 (4th ed. 2005) (stating that parties to

a contract impliedly waive a term through a course of conduct

clearly manifesting an intention to waive the term). This principle is recognized both in California, Daugherty Co. v.

Kimberly-Clark Corp., 14 Cal. App. 3d 151, 158 (1971), and

in Massachusetts, see Porter v. Harrington, 159 N.E. 530,

531 (Mass. 1928). 

In ruling on the motion, the district court, quoting Bischoff

v. DirecTV, Inc., 180 F. Supp. 2d 1097, 1107 (C.D. Cal.

2002), and citing Prima Paint, 388 U.S. at 403-04, properly

recognized: “On a motion to compel arbitration, a court cannot consider whether the contract as a whole is unconscionable. Instead, a court is limited to considering whether the

arbitration clause in the agreement is unconscionable.” Misapplying California law, the district court glossed over the question of whether the arbitration provision is procedurally

unconscionable and concluded that procedural unconscionability was not a “dispositive” issue for the motion to compel.

The district court addressed only whether the arbitration provision is substantively unconscionable and found that the arbitration provision is both valid and enforceable and that the

contract issues were for the arbitrator to decide. Finally,

because it found that the parties had agreed to arbitrate in

Boston, Massachusetts, not the district in which the court presides, see 9 U.S.C. § 4, it dismissed the action, permitting

MailCoups to move in the District Court for the District of

Massachusetts to compel arbitration. 

Nagrampa timely appealed. On March 21, 2005, in a nowwithdrawn opinion, a three-judge panel of our court affirmed

the district court on grounds different from those upon which

the district court relied. Nagrampa v. MailCoups, Inc., 401

F.3d 1024 (9th Cir. 2005). We now address en banc the valid18898 NAGRAMPA v. MAILCOUPS, INC.
ity and enforceability of the arbitration provision in Nagrampa’s franchise agreement.

II

The validity and scope of an arbitration clause are reviewed

de novo. See Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d

931, 936 (9th Cir. 2001). Whether a party has waived the right

to sue by agreeing to arbitrate is reviewed de novo. See Kummetz v. Tech Mold, Inc., 152 F.3d 1153, 1154 (9th Cir. 1998).

A dismissal without leave to amend also is reviewed de novo.

See Smith v. Pac. Props. & Dev. Corp., 358 F.3d 1097, 1100

(9th Cir. 2003), cert. denied, 543 U.S. 869 (2004) (noting

underlying legal determination requires de novo review). We

review for clear error the factual findings underlying the district court’s decision. Woods v. Saturn Distrib. Corp., 78 F.3d

424, 427 (9th Cir. 1996).

A. 

[1] The arbitrability of a particular dispute is a threshold

issue to be decided by the courts. See Howsam v. Dean Witter

Reynolds, Inc., 537 U.S. 79, 83 (2002) (“The question

whether the parties have submitted a particular dispute to

arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue for

judicial determination [u]nless the parties clearly and unmistakably provide otherwise.’ ” (alteration in original) (quoting

AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S.

643, 649 (1986))); John Wiley & Sons, Inc. v. Livingston, 376

U.S. 543, 547 (1964) (“The duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot

precede judicial determination that the . . . agreement does in

fact create such a duty.”). Under the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of

any contract.” 9 U.S.C. § 2. In analyzing whether an arbitration agreement is valid and enforceable, “generally applicable

contract defenses, such as fraud, duress, or unconscionability,

NAGRAMPA v. MAILCOUPS, INC. 18899
may be applied to invalidate arbitration agreements without

contravening § 2.” Doctor’s Assocs., 517 U.S. at 687. 

[2] In Buckeye, the United States Supreme Court recognized that challenges to arbitration agreements fall into two

categories: (1) those “challeng[ing] specifically the validity of

the agreement to arbitrate;” and (2) those “challeng[ing] the

contract as a whole, either on a ground that directly affects the

entire agreement (e.g., the agreement was fraudulently

induced), or on the ground that the illegality of one of the

contract’s provisions renders the whole contract invalid.” 126

S. Ct. at 1208. The Court held that “unless the challenge is to

the arbitration clause itself, the issue of the contract’s validity

is considered by the arbitrator in the first instance.” Id. at

1209. The complaint in Buckeye, unlike Nagrampa’s complaint, did not contain claims that the arbitration provision

alone was void and unenforceable, but rather alleged that the

arbitration provision was unenforceable because it was contained in an illegal usurious contract which was void ab initio.

Id. at 1208. The opinion by the Florida Court of Appeal

describes the claims of the plaintiff class in Buckeye: 

Appellees do not challenge the validity of the arbitration provision. Rather, they contend that the

underlying contract is void ab initio because it is

criminally usurious and, therefore, never existed at

all. They further argue . . . that a trial court must

determine the legal validity of the underlying contract before compelling arbitration. 

Buckeye Check Cashing, Inc. v. Cardegna, 824 So. 2d 228,

230 (Fla. Dist. Ct. App. 2002). The Supreme Court in Buckeye examined the claims alleged in the complaint to determine

the nature of the challenge to the validity of the arbitration

agreements under § 2 of the FAA. 126 S. Ct. at 1208. It noted

that “[t]he crux of the complaint [was] that the contract as a

whole (including its arbitration provision) [was] rendered

invalid by the usurious finance charge.” Id. A conclusion that

18900 NAGRAMPA v. MAILCOUPS, INC.
the agreement was usurious or violated Florida’s public policy

necessarily would invalidate the entire contract because “Florida public policy and contract law . . . permit no sever[ance]

or salvage[ ] [of] parts of a contract found illegal and void

under Florida law.” Id. at 1209 (internal quotation marks

omitted). The Buckeye Court rejected the application of state

severability rules, holding that enforceability of the arbitration

agreement cannot turn on state public policy and contract law.

Id. The Supreme Court further reasoned, that Prima Paint had

established the proposition that, as a matter of substantive federal arbitration law, “an arbitration provision is severable

from the remainder of the contract.” Id. The Court concluded

that “because respondents challenge the Agreement, but not

specifically its arbitration provisions, those provisions are

enforceable apart from the remainder of the contract.” Id.

Thus, the Supreme Court in Buckeye held that the claim that

the contract as a whole, including the arbitration provision,

was rendered void ab initio by the usurious finance charges,

was for the arbitrator to decide. Id. at 1208-09. 

Similarly, in Prima Paint, the plaintiff did not include a

claim challenging the validity of the arbitration provision, but

rather alleged that the contract as a whole was fraudulently

induced, rendering the arbitration provision unenforceable.

388 U.S. at 398-400. The Court in Prima Paint made clear

that “no claim ha[d] been advanced by Prima Paint that F &

C fraudulently induced it to enter into the agreement to arbitrate ‘(a)ny controversy or claim arising out of or relating to

this Agreement, or the breach thereof.’ ” Id. at 406 (alteration

in original). Because “the statutory language does not permit

the federal court to consider claims of fraud in the inducement

of the contract generally,” the Court held that the dispute was

for the arbitrator to decide. Id. at 404. However, the Court

also held that challenges specifically to the arbitration agreement were for the court to decide: 

[T]he federal court is instructed to order arbitration

to proceed once it is satisfied that “the making of the

NAGRAMPA v. MAILCOUPS, INC. 18901
agreement for arbitration or the failure to comply

(with the arbitration agreement) is not in issue.”

Accordingly, if the claim is fraud in the inducement

of the arbitration clause itself—an issue which goes

to the “making” of the agreement to arbitrate—the

federal court may proceed to adjudicate it. 

Id. at 403-04 (footnotes omitted) (quoting 9 U.S.C. § 4 of the

FAA). 

On the other hand, the Court in Buckeye noted approvingly

that the claims advanced by the plaintiff class in Southland

Corp. v. Keating, 465 U.S. 1 (1984), were of the type “challeng[ing] specifically the validity of the agreement to arbitrate,” 126 S. Ct. at 1208, and thus were for the court to

decide. The plaintiff class in Southland alleged violation of

the disclosure requirements of the California Franchise

Investment Law, Cal. Corp. Code § 31512, arguing that

claims brought under the Franchise Investment Law required

judicial consideration and, therefore, the arbitration agreement

was unenforceable as to such claims. 465 U.S. at 4. The

Southland Court held that the claims were arbitrable because

it “s[aw] nothing in the Act indicating that the broad principle

of enforceability is subject to any additional limitations under

State law.” Id. at 11. The Court concluded that “the defense

to arbitration found in the California Franchise Investment

Law is not a ground that exists at law or in equity ‘for the

revocation of any contract’ but merely a ground that exists for

the revocation of arbitration provisions in contracts subject to

the California Franchise Investment Law.” Id. at 16 n.11

(quoting 9 U.S.C. § 2 of the FAA). 

[3] We must “remain attuned to well-supported claims that

the agreement to arbitrate resulted from the sort of fraud or

overwhelming economic power that would provide grounds

for the revocation of any contract.” Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985)

(internal quotation marks omitted). Examining the “crux of

18902 NAGRAMPA v. MAILCOUPS, INC.
the complaint” makes it abundantly clear that Nagrampa’s

challenge goes specifically, and only, to the arbitration clause.

Nagrampa’s complaint does not allege a single ground for

invalidation of the entire agreement. To the contrary, the very

first request Nagrampa makes in paragraph six of her complaint is that “this court decide that the arbitration requirements unilaterally imposed on its franchisees by MailCoups

Inc. are each unlawful, unfair, deceptive and unenforceable,

and enjoin MailCoups Inc. from unilaterally imposing these

requirements on its franchisees.” The two arbitration-related

claims, her fifth and sixth causes of action, seek to invalidate

the arbitration agreement only on the basis of unconscionability. Although Nagrampa makes an allegation in support of

her fifth cause of action that the contract is one of adhesion,

her contract of adhesion allegation is not a separate cause of

action for which Nagrampa seeks independent relief, such as

rescission or invalidation of the entire contract.3 Nor does this

3Pleading requirements differ between federal law and California law.

California law requires that a complaint contain “a statement of the facts

constituting the cause of action, in ordinary and concise language,” Cal.

Civ. Proc. Code § 425.10(a)(1), which explains why Nagrampa’s attorney

would include the factual allegation that the contract was one of adhesion

in support of the cause of action challenging the arbitration agreement as

unconscionable, even though she did not seek invalidation of the entire

agreement on that ground. On the other hand, “[t]he Federal Rules do not

use the term ‘cause of action,’ and their emphasis is on the factual rather

than the ‘legal right’ aspects of the cause of action.” 4 B.E. Witkin, California Procedure § 25 (4th ed. 2006). The Federal Rules do not require

that the complaint state all of the facts constituting a cause of action: 

Conspicuously absent from Federal Rule 8(a)(2) is the requirement found in the codes that the pleader set forth the ‘facts’ constituting a ‘cause of action.’ The substitution of ‘claim showing

that the pleader is entitled to relief’ for the code formulation of

the ‘facts’ constituting a ‘cause of action’ was intended to avoid

the distinctions drawn under the codes . . . and eliminate the

unfortunate rigidity and confusion surrounding the words ‘cause

of action.’ 

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure

§ 1216 (3d ed. 2006). Under federal law, the primary aim of the pleading

NAGRAMPA v. MAILCOUPS, INC. 18903
allegation, though necessary to establish unconscionability of

the arbitration provision, serve as a ground that directly

affects the entire agreement, unlike the usurious finance

ground in Buckeye. Prevailing on the fifth or sixth cause of

action means only that the arbitration provision is not enforceable; there is absolutely no effect, direct or indirect, on the

contract as a whole. In addition, forty-one of the forty-eight

General Allegations in Nagrampa’s complaint state facts supporting the causes of action challenging arbitration. Although

Nagrampa also includes four other causes of action not targeting the arbitration provision, California’s strict pleading

requirements and rules restricting the splitting of causes of

action provided a strong incentive for her to do so. 

[4] Furthermore, the genesis of Nagrampa’s complaint can

be found in the arbitration proceedings: Nagrampa filed suit

only after MailCoups successfully moved the arbitral venue

for the contract claims at issue to Boston and the AAA

rejected her petition to waive the arbitral fees. In other words,

Nagrampa filed suit only after the very issues rendering the

provision unconscionable against her had been resolved.

Thus, the crux of Nagrampa’s complaint is a challenge to the

arbitration provision itself. Where, as here, no claim threatens

to invalidate or otherwise directly affect the entire contract,

the federal court must decide claims attacking the validity of

the arbitration provision, even if substantive state law requires

an examination of the making of the entire contract as part of

that analysis. 

requirements is to give fair notice to the other party. Unlike under California law, “[a] reading of Garcia, Conley, and Swierkiewicz, and a host of

other cases . . . suggests that the complaint, and other relief-claiming

pleadings need not state with precision all of the elements that are necessary to give rise to a legal basis for recovery as long as fair notice of the

nature of the action is provided to the opposing party.” Id. (citing Swierkiewicz v. Sorema N.A., 534 U.S. 506, 510 (2002); Conley v. Gibson, 355

U.S. 41, 45-46 (1957); Garcia v. Hilton Hotels Int’l, 97 F. Supp. 5, 8

(D.P.R. 1951)). 

18904 NAGRAMPA v. MAILCOUPS, INC.
Our sister circuits also examine the nature of claims to

determine whether they are arbitrable. They hold that, where

the causes of action or claims within a complaint are, in

essence, an effort to invalidate the entire contract, then the

federal court will send the dispute to arbitration. They also

hold that where, as here, there are separate and independent

claims specifically challenging enforcement of the arbitration

provision, then the federal court will proceed to consider the

challenge to arbitrability of the dispute. 

The plaintiff in the First Circuit case, Rosenberg v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 16 (1st Cir.

1999), alleged that the arbitration provision contained in the

Uniform Application For Securities Industry Registration Or

Transfer (“U-4 Form”), a prerequisite to work as a securities

broker, was unenforceable because it was adhesive. The plaintiff did not seek to invalidate the entire U-4 agreement, but

rather argued that the arbitration clause was adhesive and

invalid because signing the U-4 was a condition of employment and excision of the arbitration provision was not permitted. Id. at 17. The First Circuit did not find it necessary to

address whether the plaintiff’s contract of adhesion argument

was precluded by Prima Paint; to the contrary, it proceeded

without comment to consider the contract of adhesion argument in determining whether the plaintiff had satisfied the

requirements for unconscionability. Id. The First Circuit ultimately found the arbitration clause enforceable because the

plaintiff failed to satisfy the additional requirements for

unconscionability in demonstrating “both a lack of meaningful choice about whether to accept the provision in question,

and that the disputed provisions were so onesided as to be

oppressive.” Id. (internal quotation marks omitted). 

Similarly, the Second Circuit considered a plaintiff’s claim

that the arbitration provisions of the London Metal Exchange

Rules were unenforceable because the contracts which incorporated them were contracts of adhesion. David L. Threlkeld

& Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 249 (2d Cir.

NAGRAMPA v. MAILCOUPS, INC. 18905
1991). Like Nagrampa, the plaintiff there did not seek to

invalidate the entire contract on the basis of adhesion but to

strike its arbitration clause. Id. The Second Circuit considered

the contract of adhesion claim and ultimately rejected it

because, “[f]or an arbitration provision to be stricken as a

contract of adhesion there must be a showing of unfairness,

undue oppression, or unconscionability.” Id. (internal quotation marks omitted). 

The Third Circuit examined a contract of adhesion allegation while analyzing the procedural unconscionability of an

arbitration provision in a wrongful discharge and employment

discrimination suit. Alexander v. Anthony Int’l, L.P., 341 F.3d

256, 265 (3d Cir. 2003). The complaint filed by the plaintiff

class contained five causes of action under Virgin Islands law.

Id. at 261. The plaintiffs alleged that the arbitration provision

in the employment agreement was unenforceable as a contract

of adhesion presented to them on a “take-it-or-leave-it” basis

as a condition of employment, unconscionable, and offensive

to public policy by forcing plaintiffs to arbitrate statutory

claims. Id. at 261-62. Like Nagrampa, the plaintiffs did not

allege that the entire employment contract was an invalid contract of adhesion. Id. The Third Circuit found that because an

“agreement to arbitrate may be unenforceable based on a generally applicable contractual defense, such as unconscionability,” the court had the authority to consider plaintiffs’

arguments that the arbitration provision was invalid. Id. (citing Doctor’s Assoc., 517 U.S. at 687). The Third Circuit then

proceeded to hold that the arbitration provision was procedurally unconscionable under Virgin Islands law because “[a]

multinational corporation presented [the plaintiffs] with an

agreement to arbitrate without providing any opportunity to

negotiate its terms,” and thus, the agreement was one of adhesion. Id. at 265, 270. The court further ruled that the arbitration provision was substantively unconscionable because it

limited the time in which to bring a claim, limited the damages and fees awardable to plaintiffs, and required the losing

party to bear the costs of arbitration. Id. at 266-71. Because

18906 NAGRAMPA v. MAILCOUPS, INC.
unconscionability permeated the agreement to arbitrate, the

Third Circuit refused to sever the unconscionable provisions

or to enforce the arbitration clause, and remanded the case to

the district court for resolution of plaintiffs’ claims. Id. at 270-

72. 

The Fifth Circuit likewise has considered defenses to arbitration provisions that implicate the entire contract, but has

limited its consideration to claims which challenge the

enforceability and validity of the arbitration provision. In

Washington Mutual Finance Group, LLC v. Bailey, 364 F.3d

260 (5th Cir. 2004), the plaintiffs, who were illiterate, filed

suit against Washington Mutual, alleging primarily that they

had been sold and charged for insurance that they did not

need or want. Id. at 262. In defense to a motion to compel

arbitration, plaintiffs claimed that Washington Mutual had

fraudulently induced them into entering into the agreements

to arbitrate by misrepresenting the nature of the documents

that they were signing. Id. at 265. The district court denied

Washington Mutual’s motion to compel arbitration, finding

that the arbitration provision was procedurally unconscionable

and thus unenforceable. Id. at 268. On appeal, the Fifth Circuit rejected Washington Mutual’s argument that plaintiffs’

fraudulent inducement claim was for an arbitrator to decide

under Prima Paint and Primerica Life Insurance Co. v.

Brown, 304 F.3d 469, 472 (5th Cir. 2002). The Fifth Circuit

explained that in both Prima Paint and Primerica Life Insurance Co., the claims asserted applied to the entire contract and

were therefore part of the underlying dispute, whereas, the

Washington Mutual plaintiffs’ claim “relates specifically to

the arbitration agreement, [and therefore] a federal court may

consider the [claim] as it relates to the making and performance of the agreement to arbitrate.” Wash. Mut. Fin. Group,

364 F.3d at 266 n.4 (internal quotation marks omitted). The

Fifth Circuit ultimately held that the arbitration provision was

enforceable, but only because the Washington Mutual plaintiffs had not fulfilled their legal obligation to read the contract

or have someone read it to them, and thus could not advance

NAGRAMPA v. MAILCOUPS, INC. 18907
a claim of oral misrepresentation or fraudulent inducement

under Mississippi law. Id. at 266. 

In the Sixth Circuit case, Burden v. Check Into Cash of

Kentucky, LLC, 267 F.3d 483, 486 (6th Cir. 2001), the plaintiff class alleged that defendants loaned money at usurious

interest rates through a scheme where the defendants would

provide cash in exchange for a check written for a higher

amount. If the customer did not have sufficient funds to cover

the check at the payment date, defendants would permit the

borrower to “roll-over” the debt and execute a new loan

agreement, paying an additional service fee. Id. Plaintiffs’

complaint alleged violations of the Truth in Lending Act

(“TILA”), 15 U.S.C. §§ 1601-1667f, the Racketeer Influenced

and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, and

several consumer protection statutes under Kentucky law.

Burden, 267 F.3d at 486. In defense to a motion to compel

arbitration, plaintiffs alleged that the arbitration provision was

unenforceable because the initial loan agreements that they

had signed did not include an arbitration provision. Id. at 487.

Plaintiffs became aware of the provision, which defendants

had added to the reverse side of the “roll-over” loan agreements, only when defendants attached it to their motion to

compel. Id. The Sixth Circuit, however, rejected this claim

because the “[p]laintiffs offer[ed] no legal authority for the

position that Defendants had a duty to inform them of their

insertion of the arbitration clauses.” Id. at 491 n.2. Plaintiffs

additionally alleged that the arbitration provision was used to

further defendants’ overall fraudulent scheme and, alternatively, that the provision would impose burdensome costs on

unsophisticated consumers of limited education, deny statutory rights, and constitute an uninformed waiver of jury trial

rights. Id. at 491-92. The Sixth Circuit rejected the fraudulent

scheme defense to arbitration because “[p]laintiffs fail[ed] to

identify, in connection with the alleged fraudulent scheme,

any misrepresentation particular to the arbitration agreements,

separate from the loan agreements.” Id. at 491. However, the

Sixth Circuit held that the alternative grounds offered by the

18908 NAGRAMPA v. MAILCOUPS, INC.
plaintiffs attacked the enforceability of the arbitration clause

itself, separate from the underlying loan agreements, and thus

required a remand to the district court to decide in the first

instance. Id. at 492-93. 

The Sixth Circuit employed similar reasoning in Stout v.

J.D. Byrider, 228 F.3d 709, 713-15 (6th Cir. 2000), where the

plaintiff class alleged that the defendant vehicle sales and

leasing company engaged in a standard practice of misrepresenting the quality and value of the used vehicles sold and the

cost and value of warranties purchased. Plaintiffs’ complaint

alleged violations of the TILA, the Ohio Consumer Sales

Practices Act (“OCSPA”), Ohio Rev. Code § 1345.01, and

common law fraud. Stout, 228 F.3d at 713-14. In defense to

arbitration, plaintiffs claimed that the arbitration agreements

were unconscionable and unenforceable because they were

against Ohio public policy. Id. at 715-16. The Sixth Circuit

found that Ohio public policy could not mandate judicial resolution of the claims because there is “nothing in the [FAA]

indicating that the broad principle of enforceability is subject

to any additional limitations of state law.” Id. at 716 (internal

quotation marks omitted). The court further found that plaintiffs’ claims for fraud and for violations of the OCSPA and

the TILA arose under the purchase and finance contracts as a

whole and, thus, were arbitrable absent a showing under Ohio

law that the arbitration provision itself was unconscionable.

Id. However, the Sixth Circuit asserted that had plaintiffs

alleged that the contract was one of adhesion, the court could

address it. Id. But, “[i]n the absence of any factual evidence

that these agreements were entered into fraudulently or mistakenly, and absent any showing by Plaintiffs that the arbitration arrangements are themselves one-sided or unfair,” the

plaintiffs’ claims were arbitrable. Id.

The Eighth Circuit has also required federal courts to

examine claims made by a party seeking to invalidate an arbitration clause in order to determine whether the claims of

invalidity go to the contract as a whole or relate specifically

NAGRAMPA v. MAILCOUPS, INC. 18909
to the arbitration provision. In Madol v. Dan Nelson Automotive Group, 372 F.3d 997, 998 (8th Cir. 2004), the plaintiff

class alleged that in the course of selling and financing vehicles, defendants had violated Iowa consumer protection statutes and the federal TILA, and committed common-law fraud.

In response to a motion to compel arbitration, plaintiffs

argued that the dispute resolution agreement (“DRA”) that

they had signed was invalid because the vehicle transactions

as a whole were unconscionable. Id. The plaintiffs argued that

they were given no choice as to what they signed, and that

they were overwhelmed by the sheer magnitude of the paperwork and number of clauses per document. Id. Unlike

Nagrampa, the plaintiffs in Madol made no independent challenges to the DRA itself, and “plaintiffs acknowledged in a

hearing before the district court that they were not arguing

that the DRA [was] ‘in and of itself invalid,’ but that their theory was that ‘the transactions as a whole from start to finish’

were unconscionable.” Id. at 1000. The Eighth Circuit thus

held that “plaintiffs’ arguments that their vehicle purchase

transactions were generally unconscionable were subject to

resolution by an arbitrator, absent a showing by the plaintiffs

that the DRA, standing alone, was invalid.” Id. 

The only circuit that appears to be at odds with this

approach is the Eleventh. In Jenkins v. First American Cash

Advance of Georgia, LLC, 400 F.3d 868, 877 (11th Cir.

2005), cert. denied, 126 S. Ct. 1457 (2006), the plaintiffs, like

the putative plaintiff classes in Buckeye and Burden, had

entered into a series of “payday loans”— small-dollar, shortterm loans with high interest rates used to obtain cash

advances. Id. at 871. Each time the plaintiff had obtained a

loan, she was required to sign a promissory note and an arbitration agreement that obligated her to submit all disputes

between the parties to binding arbitration under the FAA. Id.

at 871-72. As in Buckeye, the plaintiff filed a complaint challenging the contract as a whole. Id. at 872-73. The Jenkins

plaintiff alleged that the payday loan agreements violated

Georgia’s usury statutes, Ga. Code Ann. §§ 7-4-2, 7-4-18

18910 NAGRAMPA v. MAILCOUPS, INC.
(2004), and that the loans violated the Georgia Racketeer

Influenced and Corrupt Organizations Act, Ga. Code Ann.

§ 16-14-4. Id. at 873. 

When the defendants removed the case to federal court and

sought to enforce the arbitration agreement, the plaintiff

asserted that the FAA did not apply to the loan agreements at

issue, that the arbitration agreements were unconscionable,

and that the arbitration agreements were unenforceable

because the underlying payday loans were illegal and void ab

initio under Georgia law. Id. at 873-74. In assessing the

unconscionability of the arbitration provision, the Eleventh

Circuit concluded that the plaintiff’s contract of adhesion

claim challenged the validity of the loan agreements as a

whole, not the arbitration agreements specifically. Id. at 877.

The “adhesion arguments were (1) that the consumers lacked

bargaining power because these type[s] of consumer loans . . .

would only appeal to extremely desperate consumers, and (2)

that the consumers were allegedly unable to negotiate the

terms and conditions of the preprinted agreements.” Id. (internal quotation marks omitted and alteration in original). The

Eleventh Circuit applied Prima Paint and Benoay v.

Prudential-Bache Securities., Inc., 805 F.2d 1437, 1441 (11th

Cir. 1986), which hold that if the unconscionability claims

“ ‘pertain to the contract as a whole, and not to the arbitration

provision alone,’ ” then those claims should be decided by the

arbitrator. Jenkins, 400 F.3d at 877 (quoting Benoay, 805 F.2d

at 1441) (emphasis added). In Jenkins, the Eleventh Circuit

therefore held that “the FAA does not permit a federal court

to consider claims alleging the contract as a whole was adhesive.” Jenkins, 400 F.3d at 877. 

The Eleventh Circuit may have applied Prima Paint too

broadly by requiring that the contract of adhesion claim pertain specifically and exclusively to the arbitration agreement.

The Supreme Court has clarified that to decide whether the

federal court or the arbitrator will hear the claims, we are to

determine whether the crux of the complaint is a challenge to

NAGRAMPA v. MAILCOUPS, INC. 18911
the arbitration clause itself or the validity of the contract as a

whole. Buckeye, 126 S. Ct. at 1208-09. The Supreme Court

did not require that the claims in the complaint address the

arbitration agreement alone.4Id. 

Judge O’Scannlain’s dissent misconstrues the holdings of

our sister circuits. The dissent asserts that the Second Circuit

in JLM Industries, Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 170

(2d Cir. 2004), refused to consider a contract of adhesion

claim that did not apply to “the arbitration clause alone.”

However, the dissent disregards the significant fact that

JLM’s sole challenge to arbitration was that the contract as a

whole was one of adhesion. Indeed, JLM did not assert any

independent claim specifically directed to the invalidity of the

arbitration clause contained in the contract. Id. at 170. As the

Second Circuit itself noted, “[a]lthough JLM’s brief is not

wholly clear on this point, we understand its argument to be

that the [standard form charter contract] as a whole amounts

to a contract of adhesion, rather than that the arbitration

clause alone so qualifies.” Id. at 169. The Second Circuit further explained that “there is no indication [in JLM’s arguments] that the arbitration clause itself is an unconscionable

or oppressive term of adhesion.” Id. at 170 n.5. The Second

Circuit distinguished between a claim that the entire contract

was invalid as a contract of adhesion, as opposed to a claim

that the arbitration clause itself was adhesive. “ ‘For an arbitration provision to be stricken as a contract of adhesion there

must be a showing of unfairness, undue oppression, or unconscionability.’ ” Id. (quoting David L. Threlkeld, 923 F.2d at

249). Here, Nagrampa, unlike JLM, argues that the arbitration

provision itself is procedurally and substantively unconscionable because she was unaware of its existence and that it was

4

Indeed, it would be absurd to require that the complaint allege only

claims attacking the arbitration agreement and not also include any other

claims related to the contract. Moreover, as discussed infra at n.5, a California state plaintiff would be precluded from doing so by California’s

pleading requirements. 

18912 NAGRAMPA v. MAILCOUPS, INC.
hidden on page twenty-five of a thirty-page agreement. If

Nagrampa, like JLM, had made only a claim that the entire

contract was invalid because it was a contract of adhesion, we

certainly would agree with our dissenting colleagues that it

would be a question for the arbitrator to decide. 

Nor can Rojas v. TK Communications, Inc., 87 F.3d 745,

749 & n.3 (5th Cir. 1996), bear the weight that Judge

O’Scannlain’s dissent assigns to it. In Rojas, the Fifth Circuit

found that the plaintiff’s contract of adhesion claim was

solely a challenge to the entire contract and not specifically

directed to the arbitration clause. Id. at 749 n.3. While the

court acknowledged that Rojas had attacked the arbitration

clause in her brief, the Rojas court did not indicate whether

she had made a claim challenging the procedural or substantive unconscionability of the arbitration clause itself. Id.

Therefore, when the Rojas court held that the claim was for

the arbitrator to resolve, it was discussing a claim that challenged the validity of the contract as a whole. 

Judge O’Scannlain’s dissent also misreads the Sixth Circuit’s statement in Burden, that “ ‘the grounds for revocation

must relate specifically to the arbitration clause and not just

to the contract as a whole.’ ” 267 F.3d at 492-93 (quoting

Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir.

1999)). However, the Burden court did not say that the

grounds for revocation must relate only to the arbitration

clause; it said that the grounds for revocation must be asserted

separately as to the arbitration clause “and not just to the contract as a whole.” Id. (emphasis added). Unlike the plaintiffs’

claims in Burden, Nagrampa’s claims of procedural and substantive unconscionability attack the arbitration provision

itself, separate and apart from the underlying contract. 

Furthermore, the Eighth Circuit holdings in Houlihan v.

Offerman & Co., 31 F.3d 692, 695 (8th Cir. 1994) and Madol,

372 F.3d at 1000, are consistent with our majority opinion,

not with Judge O’Scannlain’s dissent. In Houlihan, the plainNAGRAMPA v. MAILCOUPS, INC. 18913
tiffs’ sole argument was that they had been fraudulently

induced to enter into the contract; none of their claims separately and independently challenged the arbitration clause. 31

F.3d at 695. Similarly, in Madol, the claims of invalidity went

only to the contract as a whole, as the plaintiffs themselves

acknowledged. 372 F.3d at 1000. 

[5] We do not construe either Buckeye or Prima Paint to

stand for the principle that if plaintiffs challenge an arbitration

provision as unenforceable due to unconscionability, they

may not include additional contractual or statutory claims in

their complaint.5 An argument that the arbitration agreement

itself is procedurally unconscionable may be informed, as

required by California state substantive law, by a determination of whether it is contained within a larger contract of

adhesion. If the district court decides that the arbitration provision is unenforceable, then the remaining claims that

address the contract as a whole were never properly arbitrable; a claim such as fraud in the inducement would lie within

the jurisdiction of the district court. The district court also has

the discretion under federal arbitration law, Buckeye, 126

S. Ct. at 1209, as well as under California law, Cal. Civ. Code

§ 1670.5, to sever the unconscionable arbitration provision

and enforce the remainder of the contract. If, on the other

hand, the district court decides that the arbitration agreement

is valid and enforceable, then it should stay or dismiss the

action pending arbitration proceedings to allow the arbitrator

to decide the remaining claims, including those relating to the

5

Indeed, California pleading requirements prohibit plaintiffs from splitting causes of action into separate suits. See Crowley v. Katleman, 8 Cal.

4th 666, 682 (1994) (“[N]umerous cases hold that when there is only one

primary right an adverse judgment in the first suit is a bar even though the

second suit is based on a different theory or seeks a different remedy.”

(citations omitted)); see also 4 B.E. Witkin, California Procedure § 25 (4th

ed. 2006) (“The special situations presented by the rule against splitting

a cause of action sometimes make it necessary to say that the same set of

facts will, for one purpose, constitute only one cause of action, but for

other purposes may be regarded as creating multiple causes.”). 

18914 NAGRAMPA v. MAILCOUPS, INC.
contract as a whole. Finally if, after examining the crux of the

complaint, the district court concludes that the challenge is

not to the arbitration provision itself but, rather, to the validity

of the entire contract, then the issue of the contract’s validity

should be considered by an arbitrator in the first instance.

Buckeye, 126 S. Ct. at 1208-09. 

[6] Throughout the course of these proceedings—before the

AAA, the district court, and on appeal—Nagrampa has continuously challenged the validity of the arbitration provision

separate from any litigation over the entire contract. Unlike

the complaints in Jenkins and Buckeye, Nagrampa’s complaint asserts two causes of action specifically challenging

only the arbitration provision. Nagrampa’s first, second, third,

and fourth causes of action are claims for relief under the contract and, thus, are not before us. However, Nagrampa’s fifth

and sixth causes of action are directed specifically to the arbitration provision, placing these challenges squarely within the

category of claims that must be decided by a federal court.

Buckeye, 126 S. Ct. at 1208-10. In addition, Nagrampa, in her

appellate brief, further emphasizes the substantively unconscionable aspects of the arbitration provision, arguing that the

arbitration provision is one-sided and that the venue and cost

provisions are unfair. While Nagrampa argues that the arbitration provision is procedurally unconscionable because it is

contained in a contract of adhesion, nowhere in her complaint

does she seek rescission or invalidation of the entire contract

based on it being a contract of adhesion.6 Therefore, Nagram6

Judge O’Scannlain’s dissent disregards what the Supreme Court

plainly said in Buckeye and Prima Paint—that we must look to the complaint to determine whether the validity of the arbitration provision is in

jeopardy. The obvious reason for the Court’s instruction is that relief is

granted, or not, as to claims, or under California law, causes of action. The

type of claim asserted in the complaint dictates the nature of the relief that

may be afforded to the plaintiff. Nagrampa does not assert any claim for

which the appropriate relief would be invalidation of the entire franchise

agreement. The inclusion of language in the remedies section seeking

“such other and further relief as the court may deem proper” is mere

NAGRAMPA v. MAILCOUPS, INC. 18915
pa’s contract of adhesion argument may be addressed insofar

as it bears on the question of procedural unconscionability of

the arbitration provision. 

B.

Before we reach the question of whether the arbitration

agreement is unconscionable under California law, we detour

to address MailCoups’s argument that Nagrampa “voluntarily

participat[ed] in arbitration proceedings . . . without objecting

to the arbitration” and therefore waived her right to challenge

the arbitrability of the dispute.7

As a factual matter, MailCoups is wrong. Nagrampa’s

counsel’s first act was to object to proceeding with arbitration,

stating: “We are not ready or willing to proceed with arbitration.” He also asserted “serious concerns” about the validity

of the arbitration provision and his disagreement with the

notion that “we are in fact compelled by the alleged clause to

arbitrate.” He further specifically objected to the venue and

fee provisions, although he left open the possibility of negotiating those issues. 

Nagrampa’s “participation” in the arbitration proceedings

thereafter was minimal, limited to procedural issues and

undertaking certain actions to preserve her rights.8 Nagramboilerplate, meant to cover all bases as to the claims asserted in the complaint. That boilerplate language does not constitute a claim not already

asserted in the complaint, as Judge O’Scannlain suggests. It hardly needs

to be said that an attorney’s arguments also do not constitute a claim if

they are not asserted in the complaint. 

7We note that the district court elected not to reach the question of

waiver and the three-judge panel, by addressing the unconscionability of

the arbitration agreement on the merits, implicitly rejected MailCoups’s

waiver argument. 

8

It is ironic that Nagrampa’s very efforts to amicably resolve the question of the substantive unconscionability of the arbitration provision and

to preserve her rights have been twisted by MailCoups into an alleged

waiver of those rights. 

18916 NAGRAMPA v. MAILCOUPS, INC.
pa’s “participation” consisted of a letter to seek a ninety-day

continuance, a letter objecting to the validity of the arbitration

provision (specifically its venue and fee clauses), one conference call that resulted in a scheduling order, an unsuccessful

attempt to file a counter-demand, that was not accepted when

she could not afford to pay the fee demanded by the arbitrator,

and one set of discovery requests. Both the counter-demand

and discovery requests were filed to avoid losing her right to

do so in the event the venue, fee, and costs issues were amicably resolved before the proceeding reached the merits of the

contract dispute. 

The record clearly demonstrates that only two telephonic preliminary9

 hearing conferences were held, and that Nagrampa

was present during only one of the two.10 On June 20, 2002,

the arbitrator scheduled the first conference call for the first

week of July 2002. On June 23, 2002, Nagrampa notified the

arbitrator that her attorney would not be available. On July 2,

2002, the hearing took place in the absence of both Nagrampa

and her attorney. Nagrampa was present during a second preliminary conference call held on July 30, 2002. 

On August 15, 2002, AAA sent Nagrampa and MailCoups

the arbitrator’s scheduling order outlining deadlines that

would be “strictly enforced.” The deadline for discovery

requests was August 30, 2002, the day on which Nagrampa

filed her discovery request. The deadline for filing a counterclaim was August 19, 2002; Nagrampa attempted to file her

counterclaim on August 15, 2002. In the scheduling order, the

arbitrator made clear that the parties were “awaiting a final

9By definition a “preliminary” hearing conference takes place before a

hearing on the merits and deals with preliminary matters, such as scheduling and deadlines. See Am. Arb. Ass’n, Commercial Arbitration Rules and

Mediation Procedures, R-20 (2003). 

10Judge Kozinski says there were three teleconferences, but there is no

evidence in the record, other than a statement in MailCoups’s Motion to

Compel, that a third call took place. 

NAGRAMPA v. MAILCOUPS, INC. 18917
decision with regard to the venue” and that the Notice of

Hearing would be issued only once venue had been determined. Thus, Nagrampa acted reasonably by filing her discovery request and counterclaim to preserve her rights on the

chance that AAA and MailCoups would relent in their efforts

to impose the one-sided and onerous fee, venue and associated costs clauses upon Nagrampa. Indeed, venue remained an

open issue through October 16, 2002. Although the arbitrator’s August 15, 2002 order noted that a third preliminary

conference call was scheduled, there is no evidence that this

conference occurred. Thus, Nagrampa never participated in

any proceedings which even touched the merits of the contractual claims that were to be the subject of arbitration.

Although Nagrampa withdrew from arbitration in October

2002, she never withdrew her original objections to the arbitration agreement. She elected instead to include them in her

state court complaint filed November 12, 2002. 

[7] The Supreme Court has defined waiver as the “intentional relinquishment or abandonment of a known right.”

United States v. Olano, 507 U.S. 725, 733 (1993) (internal

quotations omitted). There is no evidence that Nagrampa

intentionally relinquished or abandoned her right to object to

arbitration. Judge Kozinski attempts to twist Nagrampa’s limited participation in preliminary matters—while she maintained her objection to proceeding by way of arbitration at all

—into conduct that would constitute a waiver. The evidence

simply does not support Judge Kozinski’s conclusion. 

[8] Nagrampa’s limited involvement in preliminary matters

does not preclude her from challenging arbitrability. The

Supreme Court, in First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938, 946 (1995), considered whether an objecting

party had consented to arbitration. The plaintiffs “denied that

their disagreement . . . was arbitrable and filed written objections to that effect with the arbitration panel.” Id. at 941. After

the arbitrator rejected the plaintiffs’ objections, they participated in the arbitration on the merits and lost. The Court

18918 NAGRAMPA v. MAILCOUPS, INC.
allowed the plaintiffs to challenge arbitrability because

“merely arguing the arbitrability issue to an arbitrator does

not indicate a clear willingness to arbitrate that issue.” Id. at

946. Even though the issue in First Options was consent, the

reasoning is applicable to waiver because the considerations

are essentially the same.11

Our decision in Textile Unlimited, Inc. v. A..BMH & Co.,

240 F.3d 781 (9th Cir. 2001), makes it even more clear that

Nagrampa did not waive her right to object to arbitration. In

Textile Unlimited, Textile failed to object to arbitration within

the time period provided by the AAA, but eventually objected

by sending a letter claiming that the arbitration provision was

not part of the contract. We held that there was no valid arbitration agreement, and also made clear that “Textile only participated in the arbitration to contest the arbitration itself [and]

[i]n so doing, Textile did not waive its objection to the arbitration.” Id. at 788.

[9] In cases where we have found waiver, the objecting

party has participated far more extensively than Nagrampa did

before resorting to the courts. In Nghiem v. NEC Electronic,

Inc., 25 F.3d 1437, 1440 (9th Cir. 1994), we held that the

plaintiff, a terminated employee, could not challenge the

authority of the arbitrator because the plaintiff had “initiated

the arbitration, attended the hearings with representation,

presented evidence, and submitted a closing brief of fifty

pages” before filing suit in state court. Similarly, in Fortune,

Alsweet & Eldridge, Inc. v. Daniel, 724 F.2d 1355 (9th Cir.

1983) (per curiam), on which MailCoups bases its waiver

argument, the plaintiff objected to arbitration after attending

two hearings on the merits and after his employer had presented all of its evidence. Id. at 1356-57. In Textile Unlimited,

11In an attempt to distinguish First Options, Judge Kozinski presumes

that the parties “consented” to arbitration. But that is a shaky premise,

given that Nagrampa’s position throughout was that she did not voluntarily consent to the arbitration provision. 

NAGRAMPA v. MAILCOUPS, INC. 18919
we distinguished Fortune on the basis that “the [Fortune]

plaintiff participated in the arbitration proceedings on the

merits of the dispute and did not like the final results.” 240

F.3d at 788 (second emphasis added). Similarly, in Ficek v.

Southern Pacific Co., 338 F.2d 655, 656-57 (9th Cir. 1964),

we held that the claimant, an injured former employee,

waived his right to contest arbitrability because he voluntarily

participated in arbitration and waited until after an unfavorable decision had been handed down before challenging the

authority of the arbitrators. 

[10] Unlike in the arbitration cases where we have found

waiver, Nagrampa forcefully objected to arbitrability at the

outset of the dispute, never withdrew that objection, and did

not proceed to arbitration on the merits of the contract claim.

Thus, she did not waive her right to challenge the arbitrability

of the dispute. 

C.

[11] It is well-established that unconscionability is a generally applicable contract defense, which may render an arbitration provision unenforceable. See Doctor’s Assocs., 517 U.S.

at 686-87. California courts have extended the doctrine of

unconscionability to embrace franchise agreements. See

Indep. Ass’n of Mailbox Ctr. Owners, Inc. v. Superior Court,

133 Cal. App. 4th 396, 407 (2005) (“Franchise agreements are

not per se unenforceable, but their provisions can be examined to see if the characteristics of unconscionability are present in part or in whole.”). Because we exercise our diversity

jurisdiction to entertain this contract dispute, we must apply

California law to determine whether the arbitration provision

in the MailCoups contract is unconscionable. See Ferguson v.

Countrywide Credit Industry, Inc., 298 F.3d 778, 782-83 (9th

Cir. 2002); see also Abramson v. Juniper Networks, Inc., 115

Cal. App. 4th 638, 651 (2004) (“Employing general contract

law principles, [California] courts will refuse to enforce arbi18920 NAGRAMPA v. MAILCOUPS, INC.
tration provisions that are unconscionable or contrary to public policy.” (internal quotation marks omitted)). 

[12] California courts analyze contract provisions for both

procedural and substantive unconscionability. See Armendariz

v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114

(2000). In California, the “prevailing view” is that procedural

unconscionability and substantive unconscionability need not

both be present to the same degree: “ ‘Essentially a sliding

scale is invoked which disregards the regularity of the procedural process of the contract formation . . . in proportion to

the greater harshness or unreasonableness of the substantive

terms themselves.’ ” Id. (quoting 15 Williston on Contracts

§ 1763A, at 226-27 (3d ed. 1972)). “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.” Id.;

see also Mercuro v. Superior Court, 96 Cal. App. 4th 167,

175 (2002) (“Given Countrywide’s highly oppressive conduct

in securing Mercuro’s consent to its arbitration agreement, he

need only make a minimal showing of the agreement’s substantive unconscionability.”). 

Procedural unconscionability analysis focuses on “ ‘oppression’ or ‘surprise.’ ” Flores v. Transamerica HomeFirst, Inc.,

93 Cal. App. 4th 846, 853 (2001). “Oppression arises from an

inequality of bargaining power that results in no real negotiation and an absence of meaningful choice,” while “[s]urprise

involves the extent to which the supposedly agreed-upon

terms are hidden in a prolix printed form drafted by the party

seeking to enforce them.” Id. (citing A & M Produce Co. v.

FMC Corp., 135 Cal. App. 3d 473, 486 (1982)). 

An arbitration provision is substantively unconscionable if

it is “ ‘overly harsh’ ” or generates “ ‘one-sided’ results.”

Armendariz, 24 Cal. 4th at 114 (quoting A & M Produce, 135

Cal. App. 3d at 486-87). “[T]he paramount consideration in

assessing conscionability is mutuality.” Abramson, 115 Cal.

NAGRAMPA v. MAILCOUPS, INC. 18921
App. 4th at 657. California law requires an arbitration agreement to have a “modicum of bilaterality,” see Armendariz, 24

Cal. 4th at 117, and arbitration provisions that are “unfairly

one-sided” are substantively unconscionable, see Little v.

Auto Stiegler, Inc., 29 Cal. 4th 1064, 1071 (2003). 

[13] The district court sidestepped the requisite procedural

unconscionability analysis, erroneously finding it “nondispositive.” Instead, it proceeded directly to the substantive analysis. The district court’s failure to analyze the evidence of

procedural unconscionability in proportion to the evidence of

substantive unconscionability was error. Because California

courts employ a sliding scale in analyzing whether the entire

arbitration provision is unconscionable, even if the evidence

of procedural unconscionability is slight, strong evidence of

substantive unconscionability will tip the scale and render the

arbitration provision unconscionable. Armendariz, 24 Cal. 4th

at 114.

1.

The threshold inquiry in California’s unconscionability

analysis is “whether the arbitration agreement is adhesive.”

Armendariz, 24 Cal. 4th at 113. A contract of adhesion is

defined as “a standardized contract, imposed upon the subscribing party without an opportunity to negotiate the terms.”

Flores, 93 Cal. App. 4th at 853. The California Court of

Appeal has held that “[a] finding of a contract of adhesion is

essentially a finding of procedural unconscionability.” Id.; see

also Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893

(9th Cir. 2002) (“The DRA is procedurally unconscionable

because it is a contract of adhesion: a standard-form contract

. . . .” ); Aral v. Earthlink, Inc., 134 Cal. App. 4th 544, 557

(2005) (finding “quintessential procedural unconscionability”

where “the terms of the [arbitration] agreement were presented on a ‘take it or leave it’ basis . . . with no opportunity

to opt out”). However, the California courts have also held

that though “adhesion contracts often are procedurally oppres18922 NAGRAMPA v. MAILCOUPS, INC.
sive, this is not always the case.” Morris v. Redwood Empire

Bancorp, 128 Cal. App. 4th 1305, 1320 (2005); see also Dean

Witter Reynolds, Inc. v. Superior Court, 211 Cal. App. 3d

758, 769 (1989) (“While we recognize significant overlap

between the two concepts [adhesion and oppression], we are

not prepared to hold that they are identical.”). Under current

California law, it is unclear whether a contract of adhesion is

inherently oppressive, and therefore automatically procedurally unconscionable, or whether oppression is a separate element that must be present. However, both standards for

procedural unconscionability are satisfied by a finding that the

arbitration provision was presented on a take-it-or-leave-it

basis and that it was oppressive due to “an inequality of bargaining power that result[ed] in no real negotiation and an

absence of meaningful choice.” Flores, 93 Cal. App. 4th at

853. 

MailCoups concedes that the contract was non-negotiable

and that Nagrampa’s only choice was to sign it as written or

to opt out. However, MailCoups argues that there was no

oppression because Nagrampa had meaningful choice and

bargaining power, specifically the freedom to continue to

work for ValPak, her then employer, or to enter into a contract with another direct mail company. In addition, MailCoups posits that there was no surprise because Nagrampa is

a sophisticated party who could have read and understood the

terms and thus had at least constructive notice. In addition,

Nagrampa signed a declaration under penalty of perjury that

she had read the entire Franchise Agreement and accepted and

agreed to all of its provisions, including the arbitration provision. 

[14] Under California law, the critical factor in procedural

unconscionability analysis is the manner in which the contract

or the disputed clause was presented and negotiated: 

Procedural unconscionability focuses on the manner in which the disputed clause is presented to the

NAGRAMPA v. MAILCOUPS, INC. 18923
party in the weaker bargaining position. When the

weaker party is presented the clause and told to “take

it or leave it” without the opportunity for meaningful

negotiation, oppression, and therefore procedural

unconscionability, are present. 

Szetela v. Discover Bank, 97 Cal. App. 4th 1094, 1100

(2002); see also Martinez v. Master Prot. Corp., 118 Cal.

App. 4th 107, 114 (2004) (“An arbitration agreement that is

an essential part of a ‘take it or leave it’ employment condition, without more, is procedurally unconscionable.”); Mercuro, 96 Cal. App. 4th at 174 (“Procedural unconscionability

turns on adhesiveness—a set of circumstances in which the

weaker or ‘adhering’ party is presented a contract drafted by

the stronger party on a take it or leave it basis.”). California

courts have long recognized that franchise agreements have

some characteristics of contracts of adhesion because of the

“vastly superior bargaining strength” of the franchisor. See

Keating v. Superior Court, 31 Cal. 3d 584, 593 (1982), overruled on other grounds by Southland Corp. v. Keating, 465

U.S. 1 (1984). As the California Court of Appeal stated in

Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704,

1715-16 (1996): 

Although franchise agreements are commercial

contracts they exhibit many of the attributes of consumer contracts. The relationship between franchisor

and franchisee is characterized by a prevailing,

although not universal, inequality of economic

resources between the contracting parties. Franchisees typically, but not always, are small businessmen or businesswomen or people like the Sealys

seeking to make the transition from being wage earners and for whom the franchise is their very first

business. Franchisors typically, but not always, are

large corporations. The agreements themselves tend

to reflect this gross bargaining disparity. Usually

18924 NAGRAMPA v. MAILCOUPS, INC.
they are form contracts the franchisor prepared and

offered to franchisees on a take-[it-] or leave-it basis.

. . . Franchising involves the unequal bargaining

power of franchisors and franchisees and therefore

carries within itself the seeds of abuse. Before the

relationship is established, abuse is threatened by the

franchisor’s use of contracts of adhesion presented

on a take-it-or-leave-it basis. 

Internal quotation marks and citations omitted. 

[15] Here, Nagrampa was in a substantially weaker bargaining position than MailCoups. As reported in the franchise

offering circular attached to Nagrampa’s complaint, Advo,

MailCoups’s parent company, is a large corporation which in

1997 had $208,553,000 in assets and $1,016,492,000 in revenues. Nagrampa, on the other hand, had a yearly salary of

approximately $100,000 and had never owned her own business. As the district court noted, MailCoups conceded that it

presented the contract on a take-it-or-leave-it basis. Nagrampa’s complaint specifically alleges that she attempted to negotiate the “line-charges” cost calculation to be “lump-sum,” but

was rebuffed by MailCoups, who responded only that the base

rate “line-charges” would be reduced by “credits.” 

The California Court of Appeal has rejected the notion that

the availability in the marketplace of substitute employment,

goods, or services alone can defeat a claim of procedural

unconscionability. See, e.g., Martinez, 118 Cal. App. 4th at

114 (finding employment contract adhesive where arbitration

agreement was presented as a specific “condition of employment”); Villa Milano Homeowners Ass’n v. IL Davorge, 84

Cal. App. 4th 819, 827 (2000) (“[I]n a given case, a contract

might be adhesive even if the weaker party could reject the

terms and go elsewhere.”); Stirlen v. Supercuts, Inc., 51 Cal.

App. 4th 1519, 1533-34 (1997) (noting that even though

sophisticated corporate executive “was not a person desperNAGRAMPA v. MAILCOUPS, INC. 18925
ately seeking employment,” the employment contract was

procedurally unconscionable because it was presented on a

“take it or leave it basis”). But see Dean Witter, 211 Cal. App.

3d at 771 (noting that “even though a contract may be adhesive, the existence of ‘meaningful’ alternatives available to

such contracting party in the form of other sources of supply

tends to defeat any claim of unconscionability”). Dean Witter,

on which Judge Kozinski’s dissent relies, is factually distinguishable. There, the California Court of Appeal held that the

combination of the plaintiff’s sophistication and “a meaningful choice of available alternative sources of supply” defeated

his claim of procedural unconscionability in a dispute over the

assessment of fees on an individual retirement account. Id. at

772. The Dean Witter plaintiff was an investor-attorney who

specialized in class action litigation involving financial institutions, and who had a great degree of experience with financial service contracts. Id. at 762. Whereas Nagrampa, who

was a first-time franchise owner and, despite having been a

sales manager in the direct marketing industry, apparently had

no specialized education or training in the field. Therefore,

the potential availability of other franchise opportunities alone

does not defeat Nagrampa’s claim of procedural unconscionability. 

Moreover, the sophistication of a party, alone, cannot

defeat a procedural unconscionability claim. See Graham v.

Scissor-Tail, Inc., 28 Cal. 3d 807, 818-19 (1981) (finding procedural unconscionability where successful and prominent

music producer Bill Graham was required by the “realities of

his business as a concert promoter to sign [union] form contracts”); A & M Produce Co., 135 Cal. App. 3d at 489-90

(commenting that the California Supreme Court is among the

many courts that “have begun to recognize that experienced

but legally unsophisticated businessmen may be unfairly surprised by unconscionable contract terms”); Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267, 1283-84 (2004)

(finding procedural unconscionability even where employee

was represented by a lawyer in settlement negotiations). 

18926 NAGRAMPA v. MAILCOUPS, INC.
Nagrampa argues that the element of surprise was present

because the contract was adhesive and she was not informed

of the existence of the arbitration provision, which appeared

on page twenty-five of a thirty-page agreement. See Wheeler

v. St. Joseph Hosp., 63 Cal. App. 3d 345, 359-60 (1976) (citing Smith v. Westland Life Ins. Co., 15 Cal. 3d 111, 122-23

(1975) (“Where the contract is one of adhesion, conspicuousness and clarity of language alone may not be enough to satisfy the requirement of awareness. Where a contractual

provision would defeat the ‘strong’ expectation of the weaker

party, it may also be necessary to call his attention to the language of the provision.”). However, under California law, surprise need not be demonstrated if the court determines that the

arbitration provision of an adhesive contract is oppressive.

See Armendariz, 24 Cal. 4th at 113 (“[A] contract or provision, even if consistent with the reasonable expectations of the

parties, will be denied enforcement if, considered in its context, it is unduly oppressive or unconscionable.” (internal quotation marks omitted)); Nyulassy, 120 Cal. App. 4th at 1281

(“ ‘Where an adhesive contract is oppressive, surprise need

not be shown.’ ” (quoting Abramson, 115 Cal. App. 4th at

656)); Mercuro, 96 Cal. App. 4th at 174 (“[P]rocedural

unconscionability focuses on the oppressiveness of the

stronger party’s conduct.”). The California Court of Appeal

recently extended these principles to a franchise agreement,

reversing a trial court’s ruling that the arbitration provisions

of the franchise agreements at issue were not unconscionable.

Indep. Ass’n of Mailbox Ctr. Owners, 133 Cal. App. 4th at

410. The Court of Appeal there held that the trial court’s findings regarding sophistication of the franchisees, alternative

business opportunities, and ability of the franchisees to read

and understand the terms of the agreement “beg the question

of whether the nature of these franchise agreements and the

business relationship between the parties fell within accepted

criteria for adhesion contracts.” Id. 

Judge O’Scannlain’s dissent mistakenly asserts that Brookwood v. Bank of America, 45 Cal. App. 4th 1667, 1672

NAGRAMPA v. MAILCOUPS, INC. 18927
(1996), stands for the proposition that MailCoups had no duty

to apprise Nagrampa of the existence of the arbitration clause

or the costs of arbitration. In Brookwood, the plaintiff did not

argue that the arbitration clause was invalid because it was

procedurally or substantively unconscionable, but rather that

the arbitration clause should not be enforced because of unilateral mistake. Id. at 1673. The analysis of procedural unconscionability under California law focuses on the manner in

which the contract or the disputed clause was presented and

negotiated and the disparity in bargaining power, not on

whether the party claiming procedural unconscionability

should have known of the arbitral provision. 

[16] Therefore, regardless of whether MailCoups had a

duty to inform Nagrampa of the clause, it remains true that

MailCoups had overwhelming bargaining power, drafted the

contract, and presented it to Nagrampa on a take-it-or-leave-it

basis. While we acknowledge that the evidence of procedural

unconscionability appears minimal, it is sufficient to require

us, under California law, to reach the second prong of the

unconscionability analysis. We therefore next examine the

extent of substantive unconscionability to determine, whether

based on the California courts’ sliding scale approach, the

arbitration provision is unconscionable. 

2.

Nagrampa argues that the arbitration provision is substantively unconscionable because it is “one-sided,” contains

unconscionable fee-splitting and arbitral forum provisions,

and does not counteract the “repeat player effect,” thus failing

to ensure an impartial arbitrator.12 We reject Nagrampa’s con12Contrary to Judge O’Scannlain’s dissent, Nagrampa did not waive her

argument that the arbitration provision was unconscionably “one-sided.”

She alleged the one-sided nature of the arbitration provision in her complaint and argued this point in her opening brief, stating in support of her

contention that California courts “have refused to uphold venue provisions

18928 NAGRAMPA v. MAILCOUPS, INC.
tentions that the fee-splitting provision and the “repeat player

effect” render the arbitration provision substantively unconscionable. First, the fee-splitting provision is not per se substantively unconscionable under California law. See Cal. Civ.

Proc. Code § 1284.2 (mandating default rule of arbitration

that administrative costs be split equally and legal costs be

borne individually). However, as discussed infra, to the extent

the fee-splitting provision may impede Nagrampa from vindicating statutory rights, it would be unenforceable and illegal

under California law as contrary to public policy. 

Second, merely raising the “repeat player effect” claim,

without presenting more particularized evidence demonstrating impartiality, is insufficient under California law to support

an unconscionability finding. See McManus v. CIBC World

Mkts. Corp., 109 Cal. App. 4th 76, 94-95 (2003) (holding that

an arbitration provision was not unconscionable because the

plaintiff produced no specific evidence of “repeat player

effect” or that the arbitrator would not be impartial, where

arbitration rules allowed each party one peremptory challenge

and an unlimited number of challenges for cause); Mercuro,

96 Cal. App. 4th at 178 (“While our Supreme Court has taken

notice of the ‘repeat player effect,’ the court has never

declared this factor renders the arbitration agreement unconscionable per se.”); cf. Sheet Metal Workers Int’l Ass’n v. Kinney Air Conditioning Co., 756 F.2d 742, 746 (9th Cir. 1985)

(holding that to challenge an arbitral award in a collective bargaining dispute, “[t]he party alleging evident partiality must

that work to deny the weaker party any real access to a forum in which

to air — or defend — her or his claims, while allowing the stronger party

full access to the same forum.” Moreover, MailCoups’s brief argued in

response that the arbitration provision does have mutuality of obligation.

We may consider the claim that the fee-splitting provision is unconscionable because both parties have briefed the issue and argued the question

before us, the record is adequately developed, and the cost of arbitration

is undisputed. See In re Am. West Airlines, Inc., 217 F.3d 1161, 1165 (9th

Cir. 2000). 

NAGRAMPA v. MAILCOUPS, INC. 18929
establish specific facts which indicate improper motives on

the part of the [arbitrators]”). Nagrampa has not specifically

pointed to evidence of bias on the part of the AAA or its arbitrators. 

Two other provisions set forth in the arbitration clause,

however, exhibit a lack of mutuality supporting a finding of

substantive unconscionability. First, the contract gives MailCoups access to a judicial forum to obtain provisional remedies to protect its intellectual property, while it provides

Nagrampa with only the arbitral forum to resolve her claims.

Second, the arbitral forum is designated as Boston, Massachusetts, a location considerably more advantageous to MailCoups. 

[17] Where the party with stronger bargaining power has

restricted the weaker party to the arbitral forum, but reserved

for itself the ability to seek redress in either an arbitral or judicial forum, California courts have found a lack of mutuality

supporting substantive unconscionability. As the California

Supreme Court held in Armendariz, substantive unconscionability may manifest itself in the form of “an agreement requiring arbitration only for the claims of the weaker party but a

choice of forums for the claims of the stronger party.” 24 Cal.

4th at 119; see also Martinez, 118 Cal. App. 4th at 115 (holding that an arbitration agreement requiring employees to arbitrate all claims, but reserving the right of employer to obtain

injunctive or other equitable relief in a judicial forum for certain causes of action, lacks mutuality). 

In O’Hare v. Municipal Resource Consultants, 107 Cal.

App. 4th 267, 277 (2003), the California Court of Appeal was

called upon to analyze the unconscionability of an arbitration

clause in an employment contract that required the employee

to arbitrate all claims against the employer, but expressly permitted the employer to file a lawsuit seeking injunctive and

equitable relief against the employee and remained silent as

to the employer’s obligation to arbitrate claims. The Court of

18930 NAGRAMPA v. MAILCOUPS, INC.
Appeal there recognized that “unconscionability turns not

only on a one-sided result, but also on an absence of justification for it.” Id. at 273 (internal quotation marks omitted).

Therefore, the Court of Appeal rejected the employer’s contention that it had a legitimate business justification in the

“highly confidential and proprietary nature” of its auditing

and consulting work for allowing it, but not the employee, to

seek injunctive relief in court. Id. at 277. Citing the California

Supreme Court’s Armendariz opinion, the Court of Appeal

noted that to constitute a reasonable business justification, the

justification must be “ ‘something other than the employer’s

desire to maximize its advantage based on the perceived superiority of the judicial forum.’ ” Id. at 277 (quoting Armendariz, 24 Cal. 4th at 120). Reasoning that the arbitration rules

themselves permit such relief, the Court of Appeal held that

there was no justification for the one-sided provision. Id. at

278. Because the one-sided clause permeated the entire arbitration provision, the Court of Appeal refused to enforce it on

grounds of unconscionability. Id. at 277-78; see also Flores,

93 Cal. App. 4th at 854 (finding lack of mutuality of remedies

where a debtor was forced to arbitrate any controversy arising

out of a loan, but the lender could “proceed by judicial or

non-judicial foreclosure, by self-help remedies such as setoff,

and by injunctive relief to obtain appointment of a receiver”);

Stirlen, 51 Cal. App. 4th at 1539-42 (finding an arbitration

provision unconscionable where employment disputes were

required to be submitted to arbitration, but breach of noncompete or confidentiality clause claims could be brought in

court). 

[18] The MailCoups arbitration provision lacks mutuality.

Like the contract in O’Hare, it requires that Nagrampa submit

to arbitration any controversy related to the franchise agreement, “or any breach thereof, including without limitation,

any claim that this Agreement or any portion thereof is

invalid, illegal or otherwise voidable or void,” while reserving

MailCoups’s right to obtain any provisional remedy “including, without limitation, injunctive relief from any court of

NAGRAMPA v. MAILCOUPS, INC. 18931
competent jurisdiction, as may be necessary in MailCoups’s

sole subjective judgment to protect its Service Marks and proprietary information.” This language, read plainly, means that

MailCoups could go to court to obtain “any provisional remedy,” even if it related to a claim for breach of contract, as long

as the claim also implicated MailCoups’s Service Marks or

proprietary information. Moreover, it is far more likely that

Nagrampa—and not MailCoups—would assert claims related

to the invalidity or unenforceability of the non-negotiable

contract written by MailCoups. Thus, this provision is clearly

one-sided, effectively giving MailCoups the right to choose a

judicial forum and eliminating such a forum for Nagrampa.

California courts consistently have found such arbitration provisions unconscionable. See Martinez, 118 Cal. App. 4th at

115; Mercuro, 96 Cal. App. 4th at 176; Stirlen, 51 Cal. App.

4th at 1541-42. 

[19] As noted, the arbitration provision itself states the purported business justification for excluding MailCoups’s right

to obtain provisional relief on any cause of action it might

assert: “to protect its Service Marks and proprietary information.” California courts routinely have rejected this justification as a legitimate basis for allowing only one party to an

agreement access to the courts for provisional relief. O’Hare,

107 Cal. App. 4th at 277; Mercuro, 96 Cal. App. 4th at 177;

Stirlen, 51 Cal. App. 4th at 1536-37. In California, “[a] party

to an arbitration agreement may file in . . . court . . . an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to

which the applicant may be entitled may be rendered ineffectual without provisional relief.” Cal. Civ. Proc. Code

§ 1281.8(b). This provision ensures mutuality between the

parties so that both have access to the courts to obtain preliminary injunctions, temporary restraining orders, and other

forms of provisional relief. We conclude, therefore, that the

clause providing for MailCoups’s right to obtain provisional

relief is one-sided and thus substantively unconscionable. 

18932 NAGRAMPA v. MAILCOUPS, INC.
[20] Nagrampa also argues that the forum selection clause

in the arbitration provision requiring her to arbitrate in Boston, Massachusetts, is unconscionable. “[F]orum selection

clauses are valid and should be given effect unless enforcement of the clause would be unreasonable.” Intershop

Commc’ns AG v. Superior Court, 104 Cal. App. 4th 191, 196

(2002) (citing Smith, Valentino & Smith, Inc. v. Superior

Court, 17 Cal. 3d 491, 495-96 (1976)). However, if the “place

and manner” restrictions of a forum selection provision are

“unduly oppressive,” see Bolter v. Superior Court, 87 Cal.

App. 4th 900, 909-10 (2001), or have the effect of shielding

the stronger party from liability, see Comb v. PayPal, Inc.,

218 F. Supp. 2d 1165, 1177 (N.D. Cal. 2002), then the forum

selection provision is unconscionable. To that end, a “party

may attempt to make a showing that would warrant setting

aside the forum-selection clause—that the agreement was

affected by fraud, undue influence, or overweening bargaining power; that enforcement would be unreasonable and

unjust; or that proceedings in the contractual forum will be so

gravely difficult and inconvenient that the resisting party will

for all practical purposes be deprived of his day in court.”

Mitsubishi Motors Corp., 473 U.S. at 632 (citations and alterations omitted); see also Hayes Children Leasing Co. v. NCR

Corp., 37 Cal. App. 4th 775, 787 n.5 (1995). Similarly, “California favors contractual forum selection clauses so long as

they are entered into freely and voluntarily, and their enforcement would not be unreasonable.” Am. Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 11 (2001). The Court of

Appeal discussed the rationale for this favorable treatment in

Wimsatt v. Beverly Hills Weight Loss Clinics Int’l, Inc., 32

Cal. App. 4th 1511, 1523 (1995), a case involving weight-loss

center franchises. The Court of Appeal there stated that

“[f]orum selection clauses are important in facilitating

national and international commerce, and as a general rule

should be welcomed.” Id. However, this favorable treatment

of forum selection clauses is conditioned on their free and

voluntary procurement, “with the place chosen having some

logical nexus to one of the parties or the dispute, and so long

NAGRAMPA v. MAILCOUPS, INC. 18933
as California consumers will not find their substantial legal

rights significantly impaired by their enforcement.” Am.

Online, 90 Cal. App. 4th at 12. Therefore, to be enforceable,

the selected jurisdiction must be “ ‘suitable,’ ‘available,’ and

able to ‘accomplish substantial justice.’ ” Id. (citing Bremen

v. Zapata Off-Shore Co., 407 U.S. 1, 17 (1972)). 

To assess the reasonableness of the “place and manner”

provisions in the arbitration clause, we must take into account

the “respective circumstances of the parties.” Bolter, 87 Cal.

App. 4th at 909. In Bolter, the Court of Appeal held that place

and manner restrictions were unconscionable where small

“Mom and Pop” franchisees located in California were

required to travel to Utah to arbitrate their claims against an

international carpet-cleaning franchisor. Id. The Court of

Appeal found a forum selection provision unreasonable and

“unduly oppressive” because the remote forum would work

severe hardship upon the franchisees and would unfairly benefit the franchisor by effectively precluding the franchisees

from asserting any claims against it. Id.; see also Comb, 218

F. Supp. 2d at 1177 (“Limiting venue to PayPal’s backyard

appears to be yet one more means by which the arbitration

clause serves to shield PayPal from liability instead of providing a neutral forum in which to arbitrate disputes.”); Armendariz, 24 Cal. 4th at 118 (holding that structuring an

arbitration provision to effectively preclude the other party

from pursuing its claims would be unconscionable, because

“[a]rbitration was not intended for this purpose”). Because the

unconscionable time and place requirements in Bolter had not

tainted the entire agreement, the Court of Appeal chose to

sever them. 87 Cal. App. 4th at 911. 

We respectfully disagree with the view expressed in Judge

O’Scannlain’s dissent that the holding in Bolter rested on the

unfairness and lack of notice engendered by the franchisor’s

insertion of a clause setting the arbitral forum to be out-ofstate into a subsequent franchise agreement. The Bolter court

repeatedly emphasized that its holding rested on the financial

18934 NAGRAMPA v. MAILCOUPS, INC.
hardship the forum selection provision would impose on the

franchisees, effectively precluding them from litigating their

claims, and that the forum selection provision had “no justification other than as a means of maximizing an advantage over

the petitioners.” 87 Cal. App. 4th. at 910. Moreover, Judge

O’Scannlain’s dissent mistakenly relies on Lu v. DrycleanU.S.A. of California, Inc., 11 Cal. App. 4th 1490, 1493

(1992), to support its position that California courts uphold

forum selection provisions where the extenuating circumstances of Bolter are not present. The plaintiffs in Lu did not

argue that the arbitration provision was unconscionable, but

merely stated that the forum selection provision was unreasonable. Id. Unlike Nagrampa and the plaintiffs in Bolter, the

Lu plaintiffs did not argue or present evidence that the out-ofstate forum would impose a financial hardship or preclude

them from litigating their claims, but rather argued that the

clause was unenforceable because they had insufficient connection to the selected forum and because two of the defendants had not signed the agreement containing the forum

selection clause. Id. The court construed the plaintiffs’ first

argument as being, in essence, that the forum was inconvenient and then proceeded simply to state that “[m]ere inconvenience or additional expense is not the test of

unreasonableness.” Id. (internal quotation marks omitted). 

Here, the district court erred by misapplying California law

on the substantive unconscionability of the forum selection

clause. Although it had not actually analyzed procedural

unconscionability, it found that the absence of restrictions

which could be considered “unfair, harsh, or overly onesided” distinguished Nagrampa’s case from Bolter. It then

concluded that because Nagrampa had signed the franchise

agreement containing the arbitration provision, it was “valid,

irrevocable and enforceable.” 

Moreover, the district court did not consider Nagrampa’s

allegations, as stated in the fourth, fifth, and sixth causes of

action in her complaint, that MailCoups’s imposition of the

NAGRAMPA v. MAILCOUPS, INC. 18935
arbitration provision violated three California statutes — (1)

the California Franchise Investment Law (“FIL”), Cal. Corp.

Code §§ 31000-31516; (2) the California Unfair Competition

Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200-17208; and

(3) the California Consumer Legal Remedies Act (“CLRA”),

Cal. Civ. Code §§ 1750-1785 — which establish nonwaivable

statutory rights. See Indep. Ass’n of Mailbox Ctr. Owners, 133

Cal. App. 4th at 416 (holding that claims under the FIL and

the UCL “affect the public interest and appear to fall . . .

within the rules of Armendariz”); Gutierrez v. Autowest, Inc.,

114 Cal. App. 4th 77, 99-100 (2003) (holding that an arbitration provision may not impede statutory rights under the

CLRA). Those allegations bear on both the questions of (1)

who has the burden of proving the unfairness or unreasonableness of the forum selection clause; and (2) the enforceability of the clause itself. Wimsatt, 32 Cal. App. 4th at 1522

(shifting burden of proof to party seeking to enforce a forum

selection clause “to show that litigation in the contract forum

will not diminish in any way the substantive rights afforded

California franchisees under California law”); Am. Online, 90

Cal. App. 4th at 10-11 (finding “identical policy considerations which command shifting the burden of proof here to

[the franchisor], the party seeking enforcement of the forum

selection clause,” because the statute at issue (CLRA) and the

statute in Wimsatt (FIL) contained the same provision prohibiting waivers by consumers of any statutorily granted remedies). Thus, under California law, the burden of proving not

only the reasonableness and fairness of the arbitration provision, but also that the CLRA’s anti-waiver provision is not

violated, rests with MailCoups. Wimsatt, 32 Cal. App. 4th at

1522. MailCoups has not met this burden. 

[21] The parties’ bargaining positions were unequal, resulting in an oppressive contract of adhesion containing a forum

selection clause that places venue in Boston, Massachusetts,

only a few miles away from MailCoups headquarters in Avon,

but three thousand miles away from Nagrampa’s home. As in

Bolter, the MailCoups contract would require a one-woman

18936 NAGRAMPA v. MAILCOUPS, INC.
franchisee who operates from her home to fly across the country to arbitrate a contract signed and performed in California.

Nagrampa would incur additional traveling and living

expenses and “increased costs associated in having counsel

familiar with [Massachusetts] law.” Bolter, 87 Cal. App. 4th

at 909. Nagrampa lost money operating her MailCoups franchise and faces financial hardship. She may not be able to

maintain her claim to recover any of her losses if forced to do

so in Massachusetts. The forum selection provision has “no

justification other than as a means of maximizing an advantage over [franchisees].” Id. at 910. As in Bolter, “[a]rguably,

[MailCoups] understood those terms would effectively preclude its franchisees from ever raising claims against it,

knowing the increased costs and burden on their small businesses would be prohibitive.” Id. Indeed, that was the effect

of requiring arbitration to proceed in Boston, a location so

prohibitively costly to Nagrampa that she was precluded from

participating in the proceeding.13

Moreover, Nagrampa did not have reason to expect that the

arbitration would take place in Boston; nor, apparently, did

MailCoups. We have found that, where the franchise-offering

circular contained language suggesting that the out-of-state

forum selection and choice of law clauses may not be enforceable under California law, there was “no reasonable expecta13Judge O’Scannlain’s dissent asserts that Nagrampa had more than

enough money to pay the $6,500 in arbitration fees and to litigate in an

out-of-state forum, on the false assumption that she had an average of

$16,000 in her bank account during the relevant time period. However, the

dissent misconstrues the record, which contains three bank statements for

the three months preceding September 2002 for the account held jointly

by Nagrampa and her husband. The average monthly deposits during this

period were $41,151.17 and the average monthly withdrawals and debits

were $45,031.30. The ending balance on August 14, 2002 was $9,991.90.

Assuming that, in the following month, Nagrampa and her husband’s

deposits and withdrawals were close to the average, then payment of the

initial $6,500 filing fee alone, without consideration of the additional

expenses required to litigate in an out-of-state forum, would result in a

bank account overdrawn by $388.23. 

NAGRAMPA v. MAILCOUPS, INC. 18937
tion that [the franchisee] had agreed to a forum other than

California.” Laxmi Invs., LLC v. Golf USA, 193 F.3d 1095,

1097 (9th Cir. 1999) (internal quotation marks omitted). We

held in Laxmi that, regardless of whether the California statute

limiting venue to California for franchise disputes, Cal. Bus.

& Prof. Code § 20040.5, was preempted by the FAA, the

franchisor could not include such misleading language in the

offering circular and then later take the position that California law will not control. “A contrary approach would unnecessarily undercut the California public policy which requires

honest disclosures to franchisees.” Laxmi, 193 F.3d at 1098;

see also Bradley v. Harris Research Inc., 275 F.3d 884, 891

(9th Cir. 2001) (holding that section 20040.5 is preempted by

the FAA, but distinguishing Laxmi because, in Laxmi, “there

was no evidence that the franchisor ‘ever indicated that it

would insist upon an out-of-state forum despite the contravening California law’ referred to in the [circular], and the

franchisee had no reason to expect that it had agreed to an

out-of-state forum,” indicating that “there was no ‘meeting of

the minds on the forum selection provision’ ” (quoting Laxmi,

193 F.3d at 1097)). 

Nagrampa and MailCoups entered into the franchise agreement in 1998, when section 20040.5 was still considered good

law and out-of-state forum selection provisions in franchise

agreements were not enforceable under California law. To

this end, the MailCoups offering circular,14 like the offering

circular in Laxmi, 193 F.3d at 1096, contained language suggesting that the forum selection, choice of law, and termination or nonrenewal clauses may be unenforceable under

California law. Under the FIL, the franchisor must disclose

certain information about the subject franchise and franchisor

through a Uniform Franchise Offering Circular and a registered prospectus. Cal. Corp. Code § 31119(a). The FIL pro14We may properly consider the franchise offering circular, which was

attached as an exhibit to Nagrampa’s complaint and was admitted before

the district court. 

18938 NAGRAMPA v. MAILCOUPS, INC.
hibits franchisors from making material misrepresentations or

omissions in the offer and sale of any franchise. Id. at

§§ 31200-31203. Under California law, when fraud or illegality is alleged, the parol evidence rule does not apply, and evidence of pre-contract representations which vary or contradict

the terms of an integrated contract are admissible. See Cal.

Civ. Proc. Code § 1856(g). The theory supporting the exception is that “[s]uch evidence does not contradict the terms of

an effective integration since it shows that the purported

instrument has no legal effect.” See Cont’l Airlines, Inc. v.

McDonnell Douglas Corp., 216 Cal. App. 3d 388, 424-25

(1989) (quoting 2 Witkin, California Evidence § 997 at 944

(3d ed. 1986)). Because Nagrampa argues that the forum

selection provision did not fall within her reasonable expectations, we examine the representations in the franchise offering

circular to discern her reasonable expectations. The salient

point is that, just as in Laxmi, “there is no evidence that [MailCoups] ever indicated that it would insist upon an out-of-state

forum despite the contravening California law” in place at the

time the contract was executed. Laxmi, 193 F.3d at 1097. 

The clauses in Section H of the MailCoups offering circular, which Nagrampa filed as an exhibit to her complaint, are

virtually identical to those at issue in Laxmi: 

(4) Item 17 of this disclosure document is modified to include the following paragraph under the

Summary column of part (u) of both charts: 

The franchise agreement requires binding

arbitration. The arbitration will occur at the

offices of the American Arbitration Association nearest our home office. This provision may not be enforceable under

California law. 

(5) Item 17 of this disclosure document is modified to include the following paragraphs under the

Summary column of parts (v) and (w) of both charts:

NAGRAMPA v. MAILCOUPS, INC. 18939
California Business Professional Code

Sections 20000 through 20043 provide

rights to you concerning termination or

nonrenewal of a franchise. If the franchise

agreement contains a provision that is

inconsistent with the law, the law will control. 

The franchise agreement requires application of the laws of the State of Massachusetts. This provision may not be

enforceable under California law. 

[22] Like the Laxmi court, we conclude that the misleading

language of the MailCoups offering circular provided inadequate notice to Nagrampa that the forum selection clause was

valid. Nagrampa thus had no reason to expect that arbitration

would take place in Boston. To the contrary, she had every

reason to expect that the arbitration, if any, would take place

in California, in accordance with California law, as expressly

raised in the circular. That MailCoups initially filed for Los

Angeles, California, as the arbitration venue only reinforces

the conclusion that both parties reasonably expected arbitration to take place in California. 

[23] Moreover, where a party has not received actual notice

of a forum selection clause, the California Court of Appeal

has refused to enforce it. See Intershop Commc’ns AG, 104

Cal. App. 4th at 201-02 (“A forum selection clause within an

adhesion contract will be enforced ‘as long as the clause provided adequate notice to the [party] that he was agreeing to

the jurisdiction cited in the contract.’ ” (alteration in original)

(quoting Hunt v. Superior Court, 81 Cal. App. 4th 901, 908

(2000))); Carnival Cruise Lines, Inc. v. Superior Court, 234

Cal. App. 3d 1019, 1026-27 (1991) (citing Cal. Civ. Code

§§ 1550, 1565, 1580) (“[T]he forum selection clause is unenforceable . . . if the court determines that [the] plaintiff did not

have sufficient notice of [it]. . . . Absent such notice, the req18940 NAGRAMPA v. MAILCOUPS, INC.
uisite mutual consent to that contractual term is lacking and

no valid contract with respect to such clause thus exists.”).

The misleading language of the offering circular, as well as

MailCoups’s institution of proceedings in California, lead us

to conclude that Nagrampa had no reasonable expectation that

arbitration would take place in Boston. 

Second, California courts refuse to enforce arbitration provisions on public policy grounds if they impede the enforcement of unwaivable statutory rights. See Boghos v. Certain

Underwriters at Lloyd’s of London, 36 Cal. 4th 495, 506-07

(2005) (stating that employees subject to mandatory arbitration agreements must be ensured certain minimum standards

of fairness to “vindicate their public rights in an arbitral

forum” (internal quotation marks omitted)). Under California

law, a right or cause of action created for a public purpose

cannot, by private agreement, be waived, contravened, burdened, or subjected to procedural shortcomings that would

preclude its vindication. See Armendariz, 24 Cal. 4th at 100

(explaining that this rule derives from California Civil Code

section 3513, which prohibits the contractual waiver of legal

rights established for a public purpose, and section 1668,

which makes unlawful those contracts that would exempt a

party from violations of law); see also Little, 29 Cal. 4th at

1076-77; Abramson, 115 Cal. App. 4th at 652. Following this

principle, California courts have stricken arbitration provisions that would prevent the enforcement and vindication of

public rights by imposing unreasonable fees on a party,

Armendariz, 24 Cal. 4th at 110-11, or by requiring arbitration

in a distant and inconvenient forum, Am. Online, 90 Cal. App.

4th at 12 (“California courts will refuse to defer to the

selected forum if to do so would substantially diminish the

rights of California residents in a way that violates our state’s

public policy.”). Because the forum selection provision in this

case could “force [Nagrampa] to forgo unwaivable public

rights,” Little, 29 Cal. 4th at 1079, by imposing unreasonable

costs to arbitrate her claims in Massachusetts, it may also be

NAGRAMPA v. MAILCOUPS, INC. 18941
unenforceable as contrary to California public policy, see Am.

Online, 90 Cal. App. 4th at 12-15. 

To the extent that the fee-splitting clause in the arbitration

provision impedes the exercise of unwaivable statutory rights

under California law, it may also be unenforceable. The arbitration agreement provides:

The costs of arbitration shall be borne equally by

MailCoups and Franchisee. Each party shall be

responsible for the fees and expenses of its respective attorneys and experts. 

The California Court of Appeal has previously found that the

vindication of statutory rights under the FIL, the UCL, and the

CLRA deserves protection from insurmountable and unreasonable arbitration fees. See Indep. Ass’n of Mailbox Ctr.

Owners, 133 Cal. App. 4th at 417 (remanding to trial court to

determine whether fee structure in arbitration agreement

would impede rights under FIL, UCL, and other statutes);

Gutierrez, 114 Cal. App. 4th at 98-99 (holding that imposition

of up-front arbitration fees is unconscionable because it would

prevent consumers from enforcing rights under CLRA). To

qualify for fee protection, Nagrampa’s claims “must be carefully tethered to statutory or constitutional provisions.”

Boghos, 36 Cal. 4th at 508. Nagrampa’s statutory claims must

affect the public interest such that she is invoking “substantive and procedural rights not just for the benefit of individuals but also for public purposes.” Id. at 506. Therefore, at a

minimum, if Nagrampa were to make a prima facie showing

that her statutory claims affect the public interest, she would

be entitled to an advance fee allocation ruling to enable vindication of her statutory rights on that ground. 

D.

[24] We hold that the arbitration provision in the MailCoups’s franchise agreement is both procedurally and sub18942 NAGRAMPA v. MAILCOUPS, INC.
stantively unconscionable. Applying California’s sliding scale

test for unconscionability, even though the evidence of procedural unconscionability is slight, the evidence of substantive

unconscionability is strong enough to tip the scale and render

the arbitration provision unconscionable. 

MailCoups’s reservation to itself of the right to seek any

provisional remedy it decides it needs from any court of competent jurisdiction is substantively unconscionable because it

lacks mutuality. Further, the forum selection clause is substantively unconscionable because (1) as part of a contract of

adhesion, it was not entered into freely and voluntarily; (2)

Nagrampa was provided inadequate notice in the offering circular because the circular contained misleading language creating the reasonable expectation that it would not be enforced;

and (3) considering the respective circumstances of the parties, the “place and manner” requirements are unduly oppressive and harsh upon Nagrampa, who had no bargaining

power. In addition, the forum selection clause, as well as the

fee-splitting clause, may contravene California public policy

to the extent that they impede the exercise of Nagrampa’s

unwaviable statutory rights. Because the district court did not

reach the public policy issue, however, we decline to reach it

now. 

[25] The only portion of the arbitration provision that may

yet be viable is the fee-splitting clause. However, we must

conclude that the fee-splitting clause does not save the arbitration provision from a finding of invalidity. The MailCoups

arbitration provision is so permeated by substantive unconscionability that it cannot be cured by severance or any other

action short of rewriting the contract. See Armendariz, 24 Cal.

4th at 124-25; Legis. Comm. cmt., Cal. Civ. Code § 1670.5

(West 1985). The arbitration provision at issue has “multiple

defects [that] indicate a systematic effort to impose arbitration

on [Nagrampa], not simply as an alternative to litigation, but

as an inferior forum that works to [MailCoups’s] advantage.”

Armendariz, 24 Cal. 4th at 124. There simply is “no single

NAGRAMPA v. MAILCOUPS, INC. 18943
provision [we] can strike or restrict in order to remove the

unconscionable taint from the agreement.” Id. at 124-25. California Civil Code section 1670.5 does not grant us the discretion to reform or modify the arbitration provision through

augmentation and neither does the FAA. Because we are

unable to save the arbitration agreement by severance or

restriction, we hold that the entire arbitration provision is

invalid and unenforceable. Therefore, FAA § 4 did not require

the district court to direct the parties to proceed to arbitration.

Proceedings should continue in the district court. We do not

reach the question of the validity of any provision in the franchise agreement other than “Article 35: Dispute Resolution,”

the arbitration provision.

III

The district court properly undertook to decide whether the

arbitration provision in the MailCoups franchise agreement is

valid and enforceable within the meaning of FAA § 2, and

properly relied upon California law in its analysis. However,

the district court erred by failing to analyze whether there is

evidence of procedural unconscionability and to weigh both

procedural and substantive unconscionability on a sliding

scale as dictated by the California Supreme Court in Armendariz. Thus, we conclude that the district court erroneously

found that the arbitration provision was valid and enforceable

and improperly dismissed the action. We therefore REVERSE

and REMAND for further proceedings consistent with this

opinion.

REVERSED AND REMANDED.

18944 NAGRAMPA v. MAILCOUPS, INC.
Volume 2 of 2

NAGRAMPA v. MAILCOUPS, INC. 18945
CLIFTON, Circuit Judge, concurring in part and dissenting in

part: 

I agree with the majority that the district court properly

undertook in this case to decide whether the arbitration provision in the MailCoups franchise agreement is valid and

enforceable within the meaning of the Federal Arbitration

Act. I also agree that Nagrampa did not waive her right to

object to the arbitrability of the dispute. I thus concur in sections II-A and II-B of the majority opinion by Judge

Wardlaw. 

I part company with the majority as to its conclusion that

the arbitration provision was unconscionable under California

law. I believe that the district court was correct in concluding

that the arbitration provision was valid and enforceable. I concur in the relevant portions of the dissents by Judge

O’Scannlain (sections II-D and III) and by Judge Kozinski

(section II). Like them, I would affirm the judgment of the

district court. 

O’SCANNLAIN, Circuit Judge, with whom Judges KOZINSKI and TALLMAN join, and with whom Judge CLIFTON

joins as to Parts II-D and III, dissenting: 

I respectfully dissent because I believe that the Court

ignores clear Supreme Court precedent in choosing to entertain Nagrampa’s challenge to the validity of the entire franchise contract. In addition, I cannot agree with much of the

majority’s analysis regarding the substantive unconscionability of the arbitration clause. 

I

Connie A. Nagrampa, a resident of Contra Costa County

(in the San Francisco Bay area), California, earned over

18946 NAGRAMPA v. MAILCOUPS, INC.
$100,000 per year as a Sales Manager for ValPak Direct Marketing Systems, a position she held from 1992-1998. 

In the summer of 1998, a MailCoups, Inc.,1 representative

approached Nagrampa and encouraged her to become a MailCoups franchisee.2

 In June of that year, MailCoups sent

Nagrampa a notebook containing a franchise offering circular

and franchise agreement. After Nagrampa prepared a spreadsheet showing her expected costs and profits, her contact at

MailCoups confirmed that her calculated 41 percent profit figure was “about right.” 

On August 24, 1998, Nagrampa signed the thirty-page franchise agreement, declaring under penalty of perjury that she

had read and agreed to each of its provisions. Article 35 of the

agreement, entitled “Dispute Resolution,” reads: 

Arbitration. Any controversy or claim arising out of

or relating to this Agreement, or any breach thereof,

including, without limitation, any claim that this

Agreement or any portion thereof is invalid, illegal

or otherwise voidable or void, shall be submitted to

arbitration before and in accordance with the rules of

the American Arbitration Association or successor

organization. Provided, however, that this clause

shall not be construed to limit MailCoups’ right to

obtain any provisional remedy, including, without

limitation, injunctive relief from any court of competent jurisdiction, as may be necessary in MailCoups’

sole subjective judgment, to protect its Service

Marks and proprietary information. The decision of

the arbitrator shall be binding upon the parties and

judgment upon the award may be entered in any

1MailCoups is a corporation incorporated under the laws of Delaware

and has its principal place of business in Massachusetts. 

2A MailCoups franchisee recruits businesses to advertise through coupons mailed to residences in her service area. 

NAGRAMPA v. MAILCOUPS, INC. 18947
court having jurisdiction thereof. The situs of the

arbitration proceedings shall be the regional office of

the American Arbitration Association which is

located in Boston, Massachusetts. The costs of arbitration shall be borne equally by MailCoups and

Franchisee. Each party shall be responsible for the

fees and expenses of its respective attorneys and

experts.

The term of the franchise agreement was ten years. 

Although Nagrampa worked over sixty hours a week, her

MailCoups franchise was a failure. Despite her efforts, she

claims that she never received any personal income, instead

incurring substantial debt to cover her living expenses. Owing

in part to her precarious financial situation, Nagrampa sent

MailCoups a September 22, 2000, letter terminating her franchise agreement and stating her intent to pay certain “amounts

due” under the agreement. 

MailCoups never received payment for the full amount it

claimed was due under the franchise agreement, and in

December 2001, it filed a Demand for Arbitration, seeking

payment of over $80,000 owed by Nagrampa. MailCoups

requested the arbitration be held in Los Angeles, the location

of its regional office. Nagrampa initially participated in the

prehearing procedures, but she objected to holding the arbitration in Los Angeles, requesting instead that it take place in

Contra Costa County. When the parties were unable to agree

on a location, the American Arbitration Association (“AAA”)

arbitrator determined that—per the terms of the franchise

agreement—the arbitration would be held in Boston. 

When she received a schedule of fees for the arbitration,

Nagrampa requested a waiver for all fees from the AAA.

However, she failed to complete the necessary forms to

receive the waiver, despite being advised of the requirements.

The waiver became moot when Nagrampa ceased her partici18948 NAGRAMPA v. MAILCOUPS, INC.
pation in the arbitration following the designation of Boston

as the venue. The arbitration proceeded without her and

resulted in an award against her of over $160,000. 

In the meantime, Nagrampa filed suit against MailCoups

and the AAA in California state court, alleging that MailCoups was liable for common-law misrepresentation and

fraud, as well as for violating the California Consumer Legal

Remedies Act and California’s franchise and unfair competition laws. Nagrampa sought monetary damages from MailCoups and an injunction preventing the company from

enforcing the arbitration clause against her. 

Invoking the parties’ diversity of citizenship, MailCoups

removed the case to federal court and then moved to compel

arbitration and to stay or dismiss the court proceedings. In

opposition, Nagrampa argued that the arbitration clause was

unconscionable and thus unenforceable. She argued that the

arbitration clause was procedurally unconscionable because

her “franchise agreement [was] a contract of adhesion. It was

presented to her on a take-it-or-leave-it basis. She was not

allowed to negotiate any of its terms.” She then gave three

grounds for the arbitration clause’s substantive unconscionability: 1) a venue of Boston was unfair, 2) the arbitrator was

not neutral, and 3) MailCoups did not disclose the costs of

arbitration. 

The district court concluded that the agreement was valid

and granted MailCoups’ motion to dismiss.3 Nagrampa timely

3The district court denied MailCoups’ motion to compel arbitration

because § 4 of the Federal Arbitration Act (“FAA”) requires that an arbitration hearing take place in the district in which the motion to compel was

filed. See 9 U.S.C. § 4 (“The hearing and proceedings . . . shall be within

the district in which the petition for an order directing such arbitration is

filed.”). Relying upon the franchise agreement’s designation of Boston as

the arbitration forum, the district court concluded that the District of Massachusetts was the proper venue for MailCoups to obtain an order compelling arbitration. MailCoups did not file a cross-appeal. 

NAGRAMPA v. MAILCOUPS, INC. 18949
appealed, and a three-judge panel affirmed the district court

by written opinion on March 21, 2005. Following Nagrampa’s

petition for rehearing, a majority of the Court voted to rehear

the case en banc. 

II

California law places the burden of proving unconscionability on the party challenging the validity of the arbitration

clause.4See Szetela v. Discover Bank, 97 Cal. App. 4th 1094,

1099 (Ct. App. 2002). “[U]nconscionability has both a procedural and a substantive element, the former focusing on

oppression or surprise due to unequal bargaining power, the

latter on overly harsh or one-sided results.” Armendariz v.

Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal.

2000) (internal quotation marks omitted). Although both elements must be present for a court to exercise its discretion to

invalidate an agreement as unconscionable, they need not be

present in the same degree. Id. Because procedural and substantive unconscionability exist on a sliding scale, “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.” Id.

Nagrampa claims that the franchise agreement’s arbitration

clause was both procedurally and substantively unconscionable. At the district court, Nagrampa insisted that the “franchise agreement [was] a contract of adhesion” and therefore

procedurally unconscionable. I remain convinced that this

Court lacks jurisdiction to consider that argument.

4

I agree with the majority that the parties have waived the franchise

agreement’s choice of law provision, which specified Massachusetts law

as controlling, by arguing their respective causes on the basis of California

law both in the district court and here. See Panno v. Russo, 186 P.2d 452,

454 (Cal. Ct. App. 1947) (“[A] party to a contract may by conduct or representations waive the performance of a condition thereof or be held

estopped by such conduct or representations to deny that he has waived

such performance.”). 

18950 NAGRAMPA v. MAILCOUPS, INC.
A

The Supreme Court has identified two types of challenges

to the validity of an arbitration agreement. Buckeye Check

Cashing, Inc. v. Cardegna, 126 S. Ct. 1204, 1208 (2006).

“One type challenges specifically the validity of the agreement to arbitrate.” Id. “The other challenges the contract as a

whole, either on a ground that directly affects the entire contract (e.g., the agreement was fraudulently induced) or on the

ground that the illegality of one of the contract’s provisions

renders the whole contract invalid.” Id. Section 4 of the FAA

requires that these two types of challenges be treated differently. See id.

Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,

388 U.S. 395, 402 (1967), recognized as much when it considered the question of “whether a claim of fraud in the

inducement of the entire contract is to be resolved by the federal court, or whether the matter is to be referred to the arbitrators.” Under § 4 of the FAA, 9 U.S.C. § 4, a federal court

must order arbitration “once it is satisfied that ‘the making of

the agreement for arbitration or the failure to comply [with the

arbitration agreement] is not in issue.’ ” Id. at 403 (quoting 9

U.S.C. § 4) (alteration in original). “Accordingly, if the claim

is fraud in the inducement of the arbitration clause itself—an

issue which goes to the ‘making’ of the agreement to arbitrate

—the federal court may proceed to adjudicate it.” Id. at

403-04. However, the court may not “consider claims of fraud

in the inducement of the contract generally.” Id. at 404; see

id. (“[A] federal court may consider only issues relating to the

making and performance of the agreement to arbitrate.”). 

Buckeye reaffirmed this approach. 126 S. Ct. at 1208-09.

Drawing from Prima Paint, Buckeye states that “unless the

challenge is to the arbitration clause itself, the issue of the

contract’s validity is considered by the arbitrator in the first

instance.” Id. at 1209. Therefore, “a challenge to the validity

of the contract as a whole, and not specifically to the arbitraNAGRAMPA v. MAILCOUPS, INC. 18951
tion clause, must go to the arbitrator.” Id. at 1210 (emphasis

added). Although Buckeye concerned an attempt to invalidate

an entire contract based on “the illegality of one of the contract’s provisions,” the Supreme Court equated this type of

challenge with one brought “on a ground that directly affects

the entire agreement.” See id. at 1208.

B

Nagrampa clearly challenged the validity of the contract as

a whole. Even her more directed complaint against the arbitration clause incorporates a contract-of-adhesion claim that “directly affects the entire agreement.” See id. Considering the

Supreme Court’s classification of this type of challenge as

one that must be considered by an arbitrator, our duty could

not be clearer. When an agreement to arbitrate is challenged,

we must look to see whether the challenge goes to the validity

of the contract as a whole or whether it goes “specifically” to

the arbitration clause. Id. Whether difficulties result from our

lack of jurisdiction should have no bearing on our decision on

the issue; we “are bound to apply rules enacted by Congress

with respect to matters—here, a contract involving commerce

—over which it has legislative power.” Prima Paint, 388 U.S.

at 406. The FAA was specifically enacted with respect to just

such a matter. See id. at 405. 

Contrary to the majority’s view, Nagrampa does not specifically and exclusively target the arbitration clause as a contract of adhesion. Nor could she, considering her argument on

appeal that the clause was “hidden” in the contract and never

“pointed out or explained to her.” Indeed, she argues that the

arbitration agreement is procedurally unconscionable because

the entire contract was a contract of adhesion, offered on a

“take-it-or-leave-it” basis. A clear statement of her position

can be found in the Plaintiff’s Opposition to Motion to Compel [Arbitration], filed with the district court: “Ms. Nagrampa’s franchise agreement is a contract of adhesion.” It is the

validity of the entire franchise agreement that Nagrampa chal18952 NAGRAMPA v. MAILCOUPS, INC.
lenges. The opposition brief continues: “Ms. Nagrampa’s

entire contract was obtained by fraud and therefore should be

revoked.” 

Refusing to acknowledge these statements made by

Nagrampa to the district court,5 the majority proclaims:

“[N]owhere in her complaint does she seek rescission or

invalidation of the entire contract based on it being a contract

of adhesion.” Majority Opinion at 18915. Yet not only does

Nagrampa’s argument in her opposition brief reveal her

request to revoke the entire agreement, but her complaint

itself offers no reason to believe that she wished the court

only to sever the arbitration clause. In her fourth, fifth, and

sixth causes of action, Nagrampa asked for “such other and

further relief as the court may deem proper.” The majority

blindly ignores Nagrampa’s later statements that shed light on

what “further relief” she desired. 

Adequate review of the district court requires us to evaluate

all relevant documents filed with that court, including those

that led the district court to state: “Plaintiff characterizes the

franchise agreement as a contract of adhesion, and argues that

it is therefore procedurally unconscionable per se.” Because

the full record makes evident that Nagrampa’s claims of pro5The majority states that under Buckeye and Prima Paint a court must

consider only the complaint to discern the “nature of the relief that may

be afforded.” Majority Opinion at 18915 n.6. The majority then concedes

that it is the “type of claim asserted in the complaint” that matters. Id.

(emphasis added). Next the majority decides that certain parts of the complaint should be ignored. In particular, the majority discounts the portion

of the complaint requesting “such other and further relief as the court may

deem proper” as “mere boilerplate,” id. (emphasis added), although

Nagrampa later explained what other relief she sought. 

The majority’s flawed analysis both contorts the claims presented in the

complaint, and disrespects Nagrampa’s abilities. I believe Nagrampa was

capable of choosing substance over form in her complaint, and capable of

reading her “attorney’s arguments” before accepting their inclusion in her

submissions to the district court. 

NAGRAMPA v. MAILCOUPS, INC. 18953
cedural unconscionability were not aimed specifically at the

arbitration provision, Prima Paint and Buckeye require us to

leave this argument to be decided by an arbitrator. 

Turning away from a comprehensive analysis of the documents filed by Nagrampa, the majority seeks to distill the

“crux of the complaint.” Majority Opinion at 18892. This narrowing technique leads the majority to conclude that Nagrampa’s cognizable claims “specifically and exclusively challenge

the validity of the arbitration provision.” Id. at 18893. Having

reached this conclusion, the majority apparently allows

Nagrampa to attack such clause on any ground, “even if substantive state law requires an examination of the making of

the entire contract.” Id. at 18904. Such interpretation would

allow us to reach grounds that the Buckeye Court recognized

to “directly affect[ ] the entire agreement,” Buckeye, 126

S. Ct. at 1208, thus making a mockery of the FAA and its “national policy” in favor of arbitration. Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985).

The majority adopts certain language from Buckeye, while

ignoring more relevant passages. Buckeye notes that two different types of challenges fall within the broader category that

must be submitted to an arbitrator. 126 S. Ct. at 1208. One of

those types is a challenge on a ground that “renders the whole

contract invalid,” id., but that is not the type of challenge

Nagrampa brings. Hers is more correctly characterized as a

challenge “on a ground that affects the entire agreement.” See

id. Nothing in Buckeye suggests that a party can base an

attack on grounds that directly affect the entire contract, so

long as the “crux of the complaint” is not a challenge to the

contract as a whole. 

The majority insists that none of Nagrampa’s claims would

invalidate the entire contract, if proved. Majority Opinion at

18904. Buckeye does not support this approach; it identifies

the first type of challenge that must be submitted to an arbitrator, not based on whether the ground for attack invalidates the

18954 NAGRAMPA v. MAILCOUPS, INC.
entire contract, but on whether the ground “directly affects”

it. See Buckeye, 126 S. Ct. at 1208. The Supreme Court could

have stated that challenges to an arbitration clause “on a

ground that [invalidates] the entire contract” must be decided

by an arbitrator, but it did not do so. See id. Thus, where

Buckeye draws a distinction between the two types of challenges that must be submitted to an arbitrator, the majority’s

approach collapses the two into one. In my view, had the

Supreme Court meant to adopt such an approach, it simply

would have done so.

C

Our sister circuits do not follow the majority’s approach.

Instead, the Second, Fifth, Sixth, Eighth, and Eleventh Circuits6

all agree that any argument of unconscionability must be

directed to the arbitration clause alone to be considered by a

court rather than the arbitrator. 

Speaking directly to the issue, the Eleventh Circuit held

that “the FAA does not permit a federal court to consider

claims alleging the contract as a whole was adhesive.” Jenkins

v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877

(11th Cir. 2005). Specifically, “ ‘[i]f . . . [the party’s] claims

of adhesion, unconscionability, . . . and lack of mutuality of

obligation pertain to the contract as a whole, and not to the

arbitration provision alone, then these issues should be

resolved in arbitration.’ ” Id. (quoting Benoay v. PrudentialBache, Secs., Inc., 805 F.2d 1437, 1441 (11th Cir. 1986))

(alterations in original). The Second Circuit7 reached a similar

6Neither Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170

F.3d 1 (1st Cir. 1999), nor Alexander v. Anthony International, L.P., 341

F.3d 256 (3d Cir. 2003), cited (much less discussed) Prima Paint or analyzed the jurisdictional issue presented in this case. As such, they offer little insight into the approaches taken by our sister circuits on this issue. 

7The majority cites David L. Threlkeld & Co. v. Metallgesellschaft Ltd.,

923 F.2d 245 (2d Cir. 1991), but that case did not discuss the issue of

jurisdiction. As such, like Alexander and Rosenberg, it provides little support for the majority’s position, particularly in light of the Second Circuit’s later JLM decision. 

NAGRAMPA v. MAILCOUPS, INC. 18955
result in JLM Industries, Inc. v. Stolt-Nielsen SA, 387 F.3d

163, 170 (2d Cir. 2004), when it refused to consider a

contract-of-adhesion claim that did not apply to “the arbitration clause alone.” 

Similarly, the Sixth Circuit8 in Burden v. Check Into Cash

of Kentucky, LLC, 267 F.3d 483, 493 (6th Cir. 2001), specifically rejected plaintiffs’ claims that arbitration agreements

were unenforceable because contained in contracts of adhesion; such claims could not be considered because they did

not “attack the arbitration clause, separate from the underlying loan agreements.” Id. at 492 n.3 (emphasis added). While

the Sixth Circuit returned several claims to the district court

because they specifically concerned the arbitration clause, the

contract-of-adhesion claim was not one of them. Id. at 492.

Burden’s holding on the issue we face is unambiguous:

“When determining the enforceability of an arbitration agreement, a court ‘can investigate the existence of such grounds

as exist at law or in equity for the revocation of any contract

. . . . However, the grounds for revocation must relate specifically to the arbitration clause and not just to the contract as

a whole.’ ” Id. at 492—93 (quoting Hooters of Am. v. Phillips,

173 F.3d 933, 938 (4th Cir. 1999), which cites 9 U.S.C. § 2;

Prima Paint, 388 U.S. at 402-04 (alteration in original)). 

Similarly, the Fifth Circuit has stated that “unless a defense

relates specifically to the arbitration agreement, it must be

submitted to the arbitrator as part of the underlying dispute.”

Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 472 (5th Cir.

2002).9 In the same vein, Rojas v. TK Communications, Inc.,

8

Stout v. J.D. Byrider, 228 F.3d 709 (6th Cir. 2000), is not relevant to

the analysis. The decision does not discuss the jurisdictional issue or even

cite to Prima Paint. Moreover, the decision involved free-standing arbitration agreements and is therefore distinguishable from the present case. 

9The majority cites Washington Mutual Finance Group, LLC v. Bailey,

364 F.3d 260, 266 (5th Cir. 2004), but like the Sixth Circuit’s decision in

Stout, the decision concerned an “Alternative Dispute Resolution Agreement” which was executed separately from other contract provisions,

unlike here. 

18956 NAGRAMPA v. MAILCOUPS, INC.
87 F.3d 745 (5th Cir. 1996), rejected an attack on an arbitration clause as an unconscionable contract of adhesion because

it was “an attack on the formation of the contract generally,

not an attack on the arbitration clause itself.” Id. at 749. For

the Rojas Court, one indication that the plaintiff’s attack was

not limited to the arbitration provision was her argument that

the agreement was based on “inequality of bargaining power.”

Id. at 749 n.3. Tellingly, Nagrampa’s contract-of-adhesion

claim is based, in part, on just such an argument. 

Finally, the Eighth Circuit has held that a plaintiff’s claims

must be referred to arbitration when the “arguments of unconscionability ‘cannot fairly be limited to the making of the

arbitration clause.’ ” Madol v. Dan Nelson Auto. Group, 372

F.3d 997, 1000 (8th Cir. 2004) (quoting Houlihan v. Offerman

& Co., Inc., 31 F.3d 692, 695 (8th Cir. 1994)). In Houlihan,

the Eighth Circuit rejected an attempt to target an arbitration

clause on grounds that applied to the entire contract, reasoning that the plaintiff had not presented “any rationale for concluding that the alleged misrepresentations relate[d] only to

the arbitration clause.” 31 F.3d at 695 (emphasis added). 

The majority chooses to focus only on whether a plaintiff’s

claim would invalidate the entire contract, ignoring Buckeye’s

plain statement regarding challenges brought on “a ground

that directly affects the entire agreement,” 126 S. Ct. at 1208.

As a result, despite protestations to the contrary, our decision

today places us yet again in conflict with our sister circuits

and likely on course for yet another reversal by the Supreme

Court.

D

In addition to proffering her contract-of-adhesion argument, Nagrampa also contends that the arbitration clause

alone is procedurally unconscionable because it is found on

the twenty-fifth page of the thirty-page franchise agreement

and because she was not informed about the clause or the

NAGRAMPA v. MAILCOUPS, INC. 18957
costs of arbitration. These claims pertain solely to the arbitration provision’s validity and are thus cognizable under Prima

Paint and Buckeye. 

Nagrampa does not cite any authority for the proposition

that MailCoups was required to apprise her of the existence

of the arbitration clause or the costs associated with arbitration. Indeed, California case law establishes that MailCoups

had no such obligation. In Brookwood v. Bank of America, 45

Cal. App. 4th 1667, 1672 (Ct. App. 1996), for example, an

employee sought to obtain a judicial forum for her employment discrimination suit by claiming that she was not aware

that her new-employee paperwork included an arbitration

clause. The court rejected the employee’s attempt to evade

arbitration and explained that she “was bound by the provisions of the [arbitration] agreement regardless of whether

[she] read it or [was] aware of the arbitration clause when

[she] signed the document.” Id. at 1674 (internal quotation

marks omitted; alterations in original); see also id.

(“Reasonable diligence requires the reading of a contract

before signing it. A party cannot use his own lack of diligence

to avoid an arbitration agreement.” (internal quotation marks

omitted)). 

Here, MailCoups sent the franchise agreement to Nagrampa

and asked her to return it with her signature. Nagrampa—an

experienced businessperson who had worked for more than

seven years in the direct marketing field—had ample opportunity to read the arbitration clause and to consider its implications; by her own admission, she had the franchise agreement

containing the arbitration clause for nearly two months. It follows that this case is appreciably different from those in

which an inexperienced consumer was pressured to sign an

agreement without being afforded an opportunity to read or to

comprehend the fine print. See, e.g., Gutierrez v. Autowest,

Inc., 114 Cal. App. 4th 77, 89 (Ct. App. 2003) (holding that

an arbitration clause in an automobile lease was procedurally

unconscionable where the clause was “particularly inconspic18958 NAGRAMPA v. MAILCOUPS, INC.
uous,” it was “printed in eight-point typeface on the opposite

side of the signature page,” and the consumer was not

informed of the clause’s existence). Nagrampa’s failure to

read the arbitration clause—or to consult a lawyer about its

ramifications—does not excuse her from complying with its

terms.10 Thus, in my view, Nagrampa has failed to make any

showing that the arbitration provision was procedurally

unconscionable, and her claim of unconscionability cannot

succeed because California law requires both procedural and

substantive unconscionability.

III

Though Nagrampa’s unconscionability claim fails for the

lack of procedural unconscionability, we may reject her arguments that the arbitration agreement is substantively unconscionable as well. As the majority notes, Nagrampa argued

that the arbitration agreement was substantively unfair for

three reasons. First, she asserted that the venue provision

10The majority concludes that Brookwood is inapplicable because “[t]he

analysis of procedural unconscionability under California law focuses on

the manner in which the contract or the disputed clause was presented and

negotiated and the disparity in bargaining power, not on whether the party

claiming procedural unconscionability should have known of the arbitral

provision.” Majority Opinion at 18928. But when the majority later argues

that procedural unconscionability may exist even with sophisticated parties, it cites A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486

(4th Dist. 1982)), and states that the California Supreme Court “is among

the many courts that ‘have begun to recognize that experienced but legally

unsophisticated businessmen may be unfairly surprised by unconscionable

contract terms.’ ” Majority Opinion at 18926. On the one hand, the majority discounts foreknowledge as irrelevant; on the other hand, the majority

enlists unfair surprise to support its conclusion regarding unconscionability. And the majority continues to discuss the importance of advance

knowledge under California law when it concludes that Nagrampa

received “inadequate notice” of the forum selection provision and therefore that the provision must be ignored “on public policy grounds.” Majority Opinion at 18940-42. It is hard for the majority to say that Brookwood

sheds no light on the case at bar, given the fact that the majority itself

accords substantial weight to considerations of advance awareness. 

NAGRAMPA v. MAILCOUPS, INC. 18959
defeated her ability to defend her claims. Second, she claimed

that the agreement’s fee-splitting provision was unconscionable. Third, she contended that the AAA was a repeat player

and therefore biased against her.

A

I agree with the majority that Nagrampa’s “repeat player”

argument is without merit. See Majority Opinion at 18928-30.

Nagrampa contends that the AAA and its arbitrators have

an interest in ruling in favor of “repeat players” such as MailCoups because corporate parties that frequently appear before

the AAA will take their business elsewhere if they receive an

adverse ruling. Nagrampa is unable, however, to muster any

case law in which courts have questioned the neutrality of the

AAA. Instead, she relies upon Mercuro v. Superior Court,

which held that it was substantively unconscionable to require

an employee to arbitrate his employment discrimination claim

before the National Arbitration Forum because the employer

benefitted from repeatedly appearing before the eight arbitrators the organization employed in the Central District of California. 96 Cal. App. 4th 167, 178 (Ct. App. 2002). 

Mercuro is readily distinguishable because there is no evidence to suggest that the AAA uses a comparably small number of arbitrators or that MailCoups has repeatedly appeared

before the organization. Moreover, the AAA Commercial

Arbitration Rules incorporate safeguards to neutralize any

bias in favor of repeat litigants, requiring arbitrators to “disclose to the AAA any circumstance likely to affect impartiality or independence, including . . . any past or present

relationship with the parties or their representatives.” See

AAA Commercial Arbitration Rules, R-19(a). Because either

party can then request that the arbitrator be removed from the

matter, this rule minimizes the risk of a repeat player effect

favoring corporate parties. See AAA Commercial Arbitration

Rules, R-19(b). 

18960 NAGRAMPA v. MAILCOUPS, INC.
Indeed, California courts have uniformly concluded that the

AAA provides a neutral forum for dispute resolution. See

Armendariz, 6 P.3d at 687-88 (“there are sufficient institutional safeguards, such as scrutiny by the plaintiff’s bar and

appointing agencies like the AAA, to protect against corrupt

arbitrators”); Izzi v. Mesquite Country Club, 186 Cal. App. 3d

1309, 1318 (Ct. App. 1986) (stating that the AAA is not “presumptively biased against either party. The rules of the

[AAA] specified by the clause as governing the resolution of

disputes are generally regarded to be neutral and fair.”). 

Because there is neither case law nor record evidence supporting the proposition that the AAA is a biased forum,

Nagrampa has failed to establish that the arbitration clause is

substantively unconscionable on that basis. 

B

I also agree with the majority that the fee-splitting provision of the arbitration clause is not substantively unconscionable, but I cannot agree that the provision could endanger

Nagrampa’s ability to vindicate her statutory rights. 

Nagrampa argues that the arbitration clause is substantively

unconscionable because it requires the parties to share the

costs of arbitration.11 Her argument is premised, however,

upon an uncountenanced extension of California law. 

11Nagrampa did not raise this argument in opposing MailCoups’ motion

to compel; she argued only that the arbitration clause failed to disclose the

costs. Nowhere did Nagrampa contend that the fee-splitting provision

imposed unconscionably high costs. She accordingly failed to cite any of

the extensive California case law concerning the propriety of fee-splitting

arrangements, and the district court had no opportunity to pass upon this

issue. Therefore, Nagrampa waived it. See In re Am. West Airlines, Inc.,

217 F.3d 1161, 1165 (9th Cir. 2000) (“Absent exceptional circumstances,

we generally will not consider arguments raised for the first time on

appeal, although we have discretion to do so.”). Notwithstanding the foregoing, because Nagrampa did raise the issue in her appellate opening

brief, I will assume that the majority is exercising its discretion to consider

the issue. 

NAGRAMPA v. MAILCOUPS, INC. 18961
Much of Nagrampa’s argument relies upon Armendariz v.

Foundation Health Psychcare Services, Inc. and its progeny.

6 P.3d 669 (Cal. 2000). In Armendariz, the Supreme Court of

California held that where an employer imposes mandatory

arbitration as a condition of employment, the arbitration

agreement cannot “require the employee to bear any type of

expense that the employee would not be required to bear if he

or she were free to bring the action in court.” Id. at 687

(emphasis omitted). The Armendariz decision was strictly

confined to the employment setting, and the Supreme Court

of California recently refused to address whether its holding

should be extended to other contexts. See Cruz v. PacifiCare

Health Sys., Inc., 66 P.3d 1157, 1165 n.3 (Cal. 2003). Further,

as Armendariz recognized, California has established a default

rule that explicitly calls for the parties to split both administrative and legal costs. Cal. Civ. Proc. Code § 1284.2. Therefore, the fee-splitting provision does not automatically render

the parties’ arbitration clause substantively unconscionable. 

Neither have the fees in this particular case forced

Nagrampa “to forgo unwaiveable public rights.” Majority

Opinion at 18941 (quoting Little v. Auto Stiegler, Inc., 29 Cal.

4th 1064, 1079 (2003)). In certain cases, a party may be entitled to fee allocation where it “is necessary to enable [ ] statutory rights to be vindicated.” Indep. Ass’n of Mailbox Ctr.

Owners, Inc., v. Superior Court, 133 Cal. App. 4th 396, 417

(Ct. App. 2005); see also Gutierrez, 114 Cal. App. 4th at 89

(“We conclude that where a consumer enters into an adhesive

contract that mandates arbitration, it is unconscionable to condition that process on the consumer posting fees he or she

cannot pay.”). However, in Mailbox Center, the court was

unable “to evaluate the financial capabilities of the franchisees,” and so returned the case to the trial court for further

hearings on the issue. 133 Cal. App. 4th at 417. Meanwhile,

in Gutierrez, the plaintiffs “presented substantial evidence in

the trial court that the administrative fees exceeded their ability to pay.” Gutierrez, 114 Cal. App. 4th at 90. In any event,

18962 NAGRAMPA v. MAILCOUPS, INC.
the defendant in Gutierrez never contested the plaintiffs’

inability to pay the fees. Id. at 91. 

Nagrampa cannot present evidence that the arbitration fees

would prevent her from vindicating her statutory rights, and

MailCoups never conceded the issue, instead arguing that

Nagrampa’s bank account balance during the relevant time

period belied her claim that she could not afford to pay the

arbitration fees or to go to Boston. Nagrampa had an average

balance of $16,000 in her personal bank account during the

relevant time period, more than enough to pay the $6,500 in

fees. In light of this, there is simply no basis for holding that

the arbitration fees here were insurmountable or unreasonable.12

C

I must also disagree with the majority’s conclusion that the

venue provision—specifying Boston as the arbitration site—

was unconscionable. 

Nagrampa’s argument on this point relies heavily upon

Bolter v. Superior Court, 87 Cal. App. 4th 900 (Ct. App.

2001). There, the court held that a forum selection clause in

a franchise agreement was unconscionable because it required

California carpet-cleaning franchisees to arbitrate their claims

against the franchisor in Utah. Id. at 909. In reaching this conclusion, the court emphasized that the parties’ original franchise agreement did not contain either an arbitration clause or

a forum selection provision and that the franchisees therefore

could not have anticipated that they would be required to

12For the same reason, I reject the majority’s contention that the forum

selection clause might “substantially diminish [Nagrampa’s] rights.”

Unlike the plaintiffs in America Online, Inc. v. Superior Court, 90 Cal.

App. 4th 1, 15 (Ct. App. 2001), who would receive “significantly less consumer protection” under Virginia law when compared to California law,

Nagrampa cannot point to any injury she will suffer from arbitrating in

Boston, particularly where MailCoups conceded at oral argument that it is

not contesting the applicability of California law. 

NAGRAMPA v. MAILCOUPS, INC. 18963
travel to an inconvenient location to arbitrate their claims. Id.

The franchisor added the forum selection clause to subsequent

versions of the contract, to which the franchisees were

required to give their assent if they wished to keep their businesses. Id. at 907. The court specifically noted that “[o]nly a

person contemplating whether to purchase a franchise for the

first time would have been in the position to reject [the

franchisor’s] ‘take it or leave it’ attitude.” Id.

Where Bolter’s extenuating circumstances are absent, however, California courts have sustained the validity of forum

selection clauses in franchise agreements. In Lu v. DrycleanU.S.A. of California, Inc., for example, the court upheld a

clause requiring California franchisees to litigate claims

against their franchisor in Florida. 11 Cal. App. 4th 1490,

1493 (Ct. App. 1992). The court held that it was reasonable

for the franchisor, which had its principal place of business in

Miami, to designate Florida as the forum for all litigation. Id.

at 1493 n.2. The court explained that “[m]ere inconvenience

or additional expense is not the test of [the forum selection

clause’s] unreasonableness since it may be assumed that the

plaintiff received under the contract consideration for these

things.” Id. at 1493 (internal quotation marks omitted). 

Nagrampa’s situation is comparable to that of the franchisees in Lu, because—as the district court recognized—the

oppressive features of the Bolter case are absent from MailCoups’ franchise agreement. Like in Lu, MailCoups’ designation of Boston as the arbitration site is reasonable, as Boston

is MailCoups’ principal place of business. Unlike in Bolter,

the provision designating Boston as the arbitration forum was

included in the original franchise agreement presented to

Nagrampa, and she thus knew—or, if she neglected to read

the agreement, she should have known—that the contract

included a forum selection clause. Moreover, the franchisees

in Bolter introduced evidence suggesting that they would have

been financially unable to pursue their claims against the

franchisor if they were required to arbitrate in Utah. 87 Cal.

18964 NAGRAMPA v. MAILCOUPS, INC.
App. 4th at 909-10. The limited financial evidence presented

by Nagrampa does not establish that her financial situation

precludes her from traveling to Boston for the arbitration. The

forum selection clause therefore is not substantively unconscionable.13

Because Nagrampa had sufficient funds to pursue her claim

against MailCoups even in Boston, there is no danger that the

venue provision would “impede Nagrampa from vindicating

statutory rights.” Majority Opinion at 18929. There is no reason to consider Boston “a location so prohibitively costly to

Nagrampa” that she could not participate. Id. at 18937.

Nagrampa had the funds to participate and chose not to. The

majority’s assertion to the contrary, that Nagrampa “may not

be able to maintain her claim to recover any of her losses if

forced to do so in Massachusetts,” is directly contrary to the

record. Id. Any such claim is also flimsy given the amounts

13The majority’s reliance on Laxmi Investments, LLC v. Golf USA, 193

F.3d 1095 (9th Cir. 1999), is curious, particularly with respect to its analysis of the franchise-offering circular. Nagrampa never cited to this circular

or argued that the statements in the circular had rendered it impossible for

the parties to reach a “meeting of the minds” on venue. Indeed, she did

not include the offering circular in her excerpts of record, and every statement made in her briefs concerned the “contract.” Thus, to the extent she

ever made any argument regarding the offering circular, she has arguably

waived it. Perhaps more importantly, the franchise agreement here states

that the “Agreement . . . constitutes the entire agreement between MailCoups and Franchisee as to the . . . franchise and supersedes all prior

negotiations, understandings, representations and agreements, if any.”

Thus, any reliance on the circular is foreclosed based on the franchise

agreement’s integration clause. “Terms set forth in a writing intended by

the parties as a final expression of their agreement with respect to such

terms as are included therein may not be contradicted by evidence of any

prior agreement or of a contemporaneous oral agreement.” Cal. Civ. Proc.

Code § 1856(a). 

Even if the forum selection clause were substantively unconscionable,

the appropriate remedy would be for this Court to sever that provision,

rather than to invalidate the arbitration clause in its entirety. See Bolter,

87 Cal. App. 4th at 910 (“the unconscionable provisions can be severed

and the rest of the agreement enforced”). 

NAGRAMPA v. MAILCOUPS, INC. 18965
of money that were involved in the franchise. Nagrampa

claims that she paid more than $400,000 in fees to MailCoups

over her franchise’s brief two-year existence, all while receiving no personal income. To claim now that the cost of a

round-trip plane ticket from San Francisco to Boston

($338.60), a four-night hotel stay ($316.00), and twelve meals

($160.00), will prevent her from vindicating her statutory

rights (priceless) is laughable.14

The arbitration provision’s specification of a Boston venue

is not unconscionable, nor will it result in the waiver of

Nagrampa’s statutory rights. 

D

Inexplicably, the majority manufactures an argument that

was never raised by either party. Without explanation as to

why it decided to create a new issue, the majority concludes

that the burden of proof is on MailCoups to establish that the

venue provision will not diminish Nagrampa’s substantive

rights as a California franchisee. While her original complaint

alleged violations of the statutes cited by the majority,

Nagrampa never argued that these statutes shifted the burden

to MailCoups while before the district court, in her opening

brief here, in front of the three-judge panel, or before the en

banc panel. 

Pursuant to Federal Rule of Appellate Procedure 28, our

usual practice is to require parties to make an argument con14The arbitration in this case was scheduled to last only two days. The

price of a round-trip ticket from San Francisco to Boston on American

Airlines is $338.60, assuming Sunday departure and Wednesday return

and sufficient advance notice. See www.mobissimo.com. The La Quinta

in Somerville, Massachusetts, approximately seven minutes from the

AAA’s downtown Boston office, charges $79 per night. See www.lq.com.

As Rachael Ray demonstrated, one can eat well in Boston on $40 per day.

See $40 a Day: Boston, http://www.foodnetwork.com/food/show_ad/episo

de/0,1976,FOOD_9947_22423,00.html. 

18966 NAGRAMPA v. MAILCOUPS, INC.
taining their “contentions and the reasons for them, with citations to the authorities and parts of the record on which the

appellant relies.” We generally enforce this rule by reviewing

“only issues argued specifically and distinctly in a party’s

opening brief.” Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir.

1994); see also Carroll v. Nakatani, 342 F.3d 934, 944 (9th

Cir. 2003) (same); United States v. Hernandez-Valdovinos,

352 F.3d 1243, 1248 n.4 (9th Cir. 2003) (“Issues that were not

presented to the district court generally cannot be raised for

the first time on appeal.”). Indeed, we have refused to “manufacture arguments” for a party who offers only bare assertions. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d

912, 919 (9th Cir. 2001). 

Here the majority manufactures an argument for Nagrampa

that lacks even so much as a bare assertion in support. I am

puzzled; I would have expected a reasoned explanation for

such a drastic departure from our past precedent and practice.

I continue to believe that “[a]s judges, the essence of our role

is restrained service as impartial arbiters of disputes framed

by litigants. It is not, I respectfully suggest, to act as backup

counsel when litigants make poor arguments, or when they

come into court without first having ‘figure[d] out’ their

cases.” Kennedy v. Lockyer, 379 F.3d 1041, 1065 (9th Cir.

2004) (O’Scannlain, J., dissenting). There is no justification

for creating new issues or new arguments to resolve this case,

especially when MailCoups lacks a meaningful opportunity to

be heard on these issues. 

Thus, I would avoid this issue entirely and hold that it was

waived by the parties. 

IV

In summary, I continue to believe that we ignore the

Supreme Court’s direction in Prima Paint and Buckeye at our

peril when we choose to consider Nagrampa’s contract-ofadhesion claim. In any event, the arbitration clause here was

NAGRAMPA v. MAILCOUPS, INC. 18967
neither procedurally nor substantively unconscionable. I

would therefore affirm the judgment of the district court. 

I respectfully dissent.

KOZINSKI, Circuit Judge, with whom Judges

O’SCANNLAIN and TALLMAN join, and with whom Judge

CLIFTON joins as to Part II, dissenting: 

I agree with Judge O’Scannlain that Nagrampa’s unconscionability challenge should have been decided by an arbitrator, and that her contract with MailCoups was not

substantively unconscionable. I write separately to dispute the

majority’s conclusion that Nagrampa did not waive the right

to contest arbitrability after participating in the arbitration

proceedings for almost a year, and its finding that the arbitration was procedurally unconscionable. 

I. Waiver

The majority reads Nagrampa’s February 6, 2002, letter to

the arbitrator as a “forceful” objection to arbitrability. Maj. at

18920. But Nagrampa never said she objected—she merely

expressed “serious concerns” about the “validity” of the arbitration clause. This statement contained none of the traditional

indicia of a properly articulated objection. She never said “I

object,” and she provided no grounds for her purported concerns. Most significantly, she never submitted the issue to the

arbitrator.

For an example of a real objection, we need look no farther

than that same letter, where Nagrampa clearly states that she

“objects” to MailCoups’s proposal to hold the arbitration in

Los Angeles. MailCoups and the arbitrator recognized this as

an objection, and everyone spent the better part of the next

eight months dealing with the matter. The parties submitted

18968 NAGRAMPA v. MAILCOUPS, INC.
written statements and argued by way of telephone conference

about where the proceedings should be held.1 The arbitrator

recognized his duty to resolve the issue and ultimately did so

by issuing a formal ruling on the matter.

There was no similar response to Nagrampa’s “concerns”

about arbitrability. MailCoups never briefed the issue, and the

arbitrator never ruled on it. And Nagrampa never explained

her legal theory or any facts on which her concerns were

based. Had they thought that Nagrampa was actually objecting to arbitrability, MailCoups and the arbitrator would certainly have turned to this issue first, rather than wasting

months resolving matters that are of no consequence if the

contract is not arbitrable in the first place. That Nagrampa’s

expression of “concerns” was met with silence, and that she

did nothing to press an arbitrability claim, fatally undermines

the majority’s conclusion that Nagrampa preserved her objection by presenting it to the arbitrator.2

While Nagrampa failed to make the faintest allusion to her

“concerns” about arbitrability during the course of the arbitration, she showed no such reticence when dealing with other

issues. In addition to fighting tooth-and-nail over venue, she

filed a broad discovery request, pressed four counterclaims

1The majority says there were two conference calls, maj. at 18917, but

MailCoups’s attorney asserts that Nagrampa or her lawyer participated in

at least three calls, and Nagrampa does not contest this assertion in her

brief. 

2Even if one reads the February 6, 2002, letter as objecting to arbitrability, I’m not sure how it helps Nagrampa. All it would mean is that

Nagrampa submitted the question to the arbitrator, thereby acquiescing in

his authority to decide the issue. It would certainly not preserve her right

to withdraw from the arbitration and have the arbitrability issue decided

de novo by a court. Because, unlike the respondent in First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 941 (1995), Nagrampa consented

to arbitration, she was not entitled to submit a question to the arbitrator yet

retain the right to de novo consideration of the same issue in judicial proceedings. 

NAGRAMPA v. MAILCOUPS, INC. 18969
and sought to have fees waived. The majority dismisses these

activities as mere “procedural skirmishes,” but the record

shows that Nagrampa’s participation went to the heart of her

dispute with MailCoups. Take the discovery request:

Nagrampa asked for all documents describing “assumptions

made by Claimant in preparing the Earnings Claims” set forth

in the franchise offering circular, the economic and marketing

conditions existing at the time the offer was made and the

financial status of MailCoups’s existing franchisees. This is

far more information than Nagrampa would have needed to

contest arbitrability; it is information that would only have

been useful to her in litigating her case on the merits. When

the time came for raising counterclaims, Nagrampa didn’t

elaborate on her “concerns” about arbitrability. Instead, she

claimed that MailCoups violated multiple provisions of California’s franchise law. Nagrampa’s actions bespeak not only

acquiescence in the arbitrator’s authority, but a desire to be a

full participant in the proceedings. 

Thus, even if we could somehow read the February 6,

2002, letter as objecting to arbitrability, we must still consider

whether Nagrampa’s participation in the proceedings on matters that have no conceivable bearing on arbitrability was so

extensive as to waive any right she may have had to withdraw. Waiver doctrine in this context is guided by the practical policies of the Federal Arbitration Act, which is designed

to give businesses access to a cheap and speedy means of

resolving disputes. See Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213, 218-19 (1985). When a party actively participates in the arbitration process for many months and then suddenly withdraws, it wastes valuable time and resources. As

we stated in Fortune, Alsweet & Eldridge, Inc. v. Daniel, 724

F.2d 1355 (9th Cir. 1983) (per curiam), “[i]t would be unreasonable and unjust to allow [a party] to challenge the legitimacy of the arbitration process, in which he had voluntarily

participated over a period of several months . . . .” Id. at 1357;

see also Comprehensive Accounting Corp. v. Rudell, 760 F.2d

138, 140 (7th Cir. 1985) (“It was then too late for [the parties

18970 NAGRAMPA v. MAILCOUPS, INC.
contesting arbitrability] to sit back and allow the arbitration to

go forward, and only after it was all done, and enforcement

was sought, say: oh by the way, we never agreed to the arbitration clause. That is a tactic that the law of arbitration, with

its commitment to speed, will not tolerate.”).

The majority discounts Nagrampa’s participation in the

proceedings, because she never participated in a merits hearing. But I don’t see why it should matter whether the hearings

in which Nagrampa or her lawyer participated were on the

merits or preliminary matters; in either event, the opposing

party suffered the unfairness of unnecessary cost and delay.

None of the cases on which the majority relies holds that participation in the merits hearings is necessary for waiver. See

First Options, 514 U.S. at 9463; Textile Unlimited, Inc. v.

A..BMH & Co., 240 F.3d 781, 788 (9th Cir. 2001); Fortune,

724 F.2d at 1357; Ficek v. S. Pac. Co, 338 F.2d 655, 657 (9th

Cir. 1964). And the two cases on which the majority relies

most heavily, First Options and Textile Unlimited, don’t deal

with waiver at all, but rather with what conduct amounts to

consent to arbitrate where there is no written agreement to do

so. See First Options, 514 U.S. at 941; Textile Unlimited, 240

F.3d at 788.4 As the record in this case demonstrates, parties

3First Options is particularly unhelpful to the majority, even if it were

on point. But see note 4 infra. The party objecting to arbitrability in First

Options appeared only to contest arbitrability; he did not participate in any

other aspect of the arbitration. 514 U.S. at 940-41 (explaining that the

Kaplans made an objection to arbitrability in their personal capacities

while Mr. Kaplan participated only as the principal shareholder of his

company for the remainder of the proceedings). 

4Contrary to what the majority claims, consent and waiver are quite different. There is no presumption that parties have consented to arbitration

and thus the party wishing to establish consent by conduct must do so by

making a clear showing that the opposing party’s conduct amounts to consent. First Options, 514 U.S. at 944. But where the parties have consented

to arbitration by contract, as they did here, there is a presumption that all

issues between them are to be decided by the arbitrator. Id. In such circumstances, the party attempting to withdraw a question from arbitration

must affirmatively establish that it preserved the right to do so. Thus, conduct that is insufficient to establish consent may be more than sufficient

to establish waiver. 

NAGRAMPA v. MAILCOUPS, INC. 18971
can waste considerable time and money before ever getting to

a hearing on the merits. It is contrary to the policies of the

Arbitration Act to hold, as the majority does, that waiver can

only occur once an arbitrator hears the merits, no matter how

deeply a party gets involved in the arbitration process. It is

also significant that Nagrampa didn’t attempt to get out of the

arbitration until she lost on venue and hired a new lawyer—at

which point, she picked up her marbles and left. Waiver doctrine, with its emphasis on fairness and efficiency, should discourage such gamesmanship. And before today’s decision,

such was the law in this circuit. See Ficek, 338 F.2d at 657

(“A claimant may not voluntarily submit his claim to arbitration, await the outcome, and, if the decision is unfavorable,

then challenge the authority of the arbitrators to act.”). The

majority’s ruling that there can be no waiver until the merits

hearings means that parties can never be sure, until that point,

that they are litigating in the right forum. No matter how

much time and effort are spent in pre-merits proceedings, the

opposing party retains the right to abort the proceedings and

leave the other side behind to pay the fees. This rule contradicts our caselaw and the policies of the Arbitration Act,

which seeks to promote swift and inexpensive resolution of

commercial disputes. 

II. Procedural Unconscionability

After some handwringing, the majority finds that

Nagrampa has presented “minimal” evidence of procedural

unconscionability, but even this is an overstatement. To show

procedural unconscionability, Nagrampa was required to

prove surprise or oppression. Armendariz v. Found. Health

Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000). She

comes nowhere close. First as to surprise: Nagrampa had the

contract for almost two months before she signed it, ample

time to read and digest its contents. She could afford to consult a lawyer and had every incentive to do so. She was not

purchasing cell phone service or an everyday consumer good

—she was leaving a secure, six-figure job to invest her future

18972 NAGRAMPA v. MAILCOUPS, INC.
in a national franchise with one of her employer’s competitors. Nagrampa admits that she carefully reviewed the financial elements of the contract and obtained confirmation of her

anticipated profit margin. She declared under penalty of perjury that she had read the agreement. Nagrampa doesn’t claim

that she was unaware of the arbitration clause when she

signed the contract. What Nagrampa does claim is that she

was “never informed” of the arbitration clause. This claim is

specious. Page one of the offering circular contains a heading

labeled “Risk Factors,” the first of which reads as follows:

THE FRANCHISE AGREEMENT REQUIRES

YOU TO ARBITRATE AND SUE IN MASSACHUSETTS. OUT-OF-STATE ARBITRATION OR

LITIGATION MAY FORCE YOU TO ACCEPT A

LESS FAVORABLE SETTLEMENT. IT MAY

ALSO COST YOU MORE TO ARBITRATE OR

LITIGATE WITH US IN MASSACHUSETTS

THAN IN YOUR HOME STATE. 

You’d have to be blind to miss this warning. There was no

surprise here. 

So if this agreement is procedurally unconscionable, it must

be because Nagrampa was somehow oppressed. The majority

finds oppression because of the great financial disparity

between MailCoups and Nagrampa, and because MailCoups

presented Nagrampa with a form contract, the terms of which

were non-negotiable. But, these conditions are always present

where an individual signs up for a franchise, and yet

“[f]ranchise agreements are not per se unenforceable” in California. Maj. at 18920 (quoting Indep. Ass’n of Mailbox Ctr.

Owners, Inc. v. Superior Court, 133 Cal. App. 4th 396, 407

(4th Dist. 2005) (internal quotation marks omitted)). 

Franchisors are typically large enterprises with an established business model and a suite of products and services that

enjoy widespread—often nationwide—recognition. That’s the

NAGRAMPA v. MAILCOUPS, INC. 18973
very point of buying a franchise rather than starting a business

from scratch. Franchisees tend to be individuals or families

who hope to achieve economic self-sufficiency by marketing

the franchisor’s products and services. The franchisor invariably has financial resources that far exceed those of the prospective franchisee, but “large business entities may have

relatively little bargaining power, depending on the identity of

the other contracting party and the commercial circumstances

surrounding the agreement.” A&M Produce Co. v. FMC

Corp., 135 Cal. App. 3d 473, 489-90 (Ct. App. 1982). 

Likewise, franchise agreements are typically offered by

means of form contracts, consistent with the standardized

nature of the franchise business model. And, California courts

have recognized that “the fact that [a] provision for arbitration

is contained in a contract of adhesion will not, of itself, render

the provision unenforceable.” Keating v. Superior Court, 645

P.2d 1192, 1198 (Cal. 1982), rev’d on other grounds, Southland Corp. v. Keating, 465 U.S. 1 (1984). So, if franchise

agreements in general and form arbitration clauses in particular are not per se oppressive, we must find a way to separate

enforceable agreements from those that are not. To do this, we

must examine closely the facts and circumstances of this

negotiation. When we do so, it is perfectly clear Nagrampa

was not oppressed. 

First, Nagrampa is a sophisticated businesswoman with

special expertise in the direct mail business. In her complaint,

Nagrampa states: “On or about July 1998 plaintiff prepared a

spreadsheet reflecting her prospective costs and profits based

on conversations with MAILCOUPS INC.’s agent . . . .” In

her declaration, she states: 

I reviewed the materials from SuperCoups and discovered that instead of calculating costs on a line by

line basis, SuperCoups charged its franchisees an

inflated lump sum that is later reduced by postage

overcharge refund and other production credits. 

18974 NAGRAMPA v. MAILCOUPS, INC.
The majority’s romantic vision of Nagrampa as a modern-day

Candide is shattered by her ability to do complicated financial

forecasting and her easy use of terms such as “inflated lump

sum,” “postage overcharge refund” and “production credits.”

In reality, Nagrampa was a savvy businesswoman who knew

the direct mail industry inside and out, and was more than

capable of taking care of herself. To suggest otherwise denies

Nagrampa the respect a woman in her position deserves. 

All this is easily dismissed, according to the majority,

because Nagrampa “apparently” didn’t have “specialized education or training in the field.” Maj. at 18926. But even if this

were supported by the record—and I’ve found nothing to support it—it’s not clear why it matters. Nagrampa obviously had

what it takes to be a high-level executive in this very industry.

Whether she gained these skills through formal training, experience, a knack for business, or a combination of the three, the

point is that if Nagrampa was not sophisticated enough to sign

up as a direct-mail franchisee, nobody is. 

It’s also significant that Nagrampa was under no economic

pressure because she held a lucrative job with another company. That Nagrampa continued to work at her six-figure job

while she considered whether to sign the contract meant that

she was negotiating from a position of strength. She could

have easily said “no” at any time and sought another franchise

opportunity or kept her job and six-figure salary. California

courts have recognized that inequality of bargaining power

“depends in part on the absence of meaningful choice by a

contracting party; and even though a contract may be adhesive, the existence of ‘meaningful’ alternatives available to

such contracting party in the form of other sources of supply

tends to defeat any claim of unconscionability.” Dean Witter

Reynolds, Inc. v. Superior Court, 211 Cal. App. 3d 758, 771

(Ct. App. 1989). 

The majority tries to distinguish Dean Witter by pointing

out that the attorney there “had a great degree of experience

NAGRAMPA v. MAILCOUPS, INC. 18975
with financial service contracts,” maj. at 18926, but misses

the point of that case entirely. In Dean Witter, the plaintiff, an

attorney who specialized in litigation against financial institutions, purchased a self-directed IRA from Dean Witter and

sued to contest the contract’s fee provisions. Dean Witter, 211

Cal. App. 3d at 762. The court held the contract was not procedurally unconscionable, because plaintiff had failed to show

“lack [of] a meaningful choice” in where to purchase an IRA.

Id. at 772. That the plaintiff in Dean Witter was an experienced lawyer while Nagrampa is an experienced businesswoman is a distinction without a difference. Just as the plaintiff in Dean Witter could have purchased an IRA from another

financial institution, so Nagrampa could have looked for

another franchisor—all the while continuing to draw her salary. Dean Witter cites numerous cases, from California and

elsewhere, that reach precisely the same conclusion: A party

who has a meaningful choice cannot be oppressed. See id. at

769-72 (citing Kurashige v. Indian Dunes, Inc., 200 Cal. App.

3d 606, 614 (Ct. App. 1988); Parr v. Superior Court, 139 Cal.

App. 3d 440, 444 (Ct. App. 1983); Henningsen v. Bloomfield

Motors, Inc., 161 A.2d 69, 87, 94 (N.J. 1960)). 

Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519 (Ct. App.

1997), turns on this very point. In Stirlen, the corporation did

not disclose the arbitration requirement to a sophisticated

executive until after he had already accepted employment

with the defendant. Id. at 1534. By that time, he had quit his

previous “highly paid position with a major corporation,” id.

at 1533, and thus was dependent on his new job for his livelihood. That is a very different situation from the one here,

where Nagrampa could have rejected the franchise agreement

and still have had an income with which to pay the mortgage

and put food on the table. 

Our case is the antithesis of Stirlen. As Nagrampa admits,

MailCoups approached her about the possibility of opening a

franchise and pursued her aggressively to keep the negotiations alive. As the solicited party, with a good income and a

18976 NAGRAMPA v. MAILCOUPS, INC.
secure job with one of MailCoups’s competitors, Nagrampa

held the trump card in the negotiations: She could have “just

said no,” and forced MailCoups to go scrambling for the business partner it seems to have desperately needed. Walking

away from the deal would have caused her no loss of livelihood, no inconvenience of any sort, since her sole motivating

factors were self-interest and ambition. These are swell reasons, to be sure, but hardly the stuff of economic duress.

Under these circumstances, I cannot conclude that the contract negotiations were oppressive, nor that the resulting contract was procedurally unconscionable. 

I’d be much less troubled by the majority’s contrary conclusion if my colleagues took seriously the sliding scale test

they discuss in the procedural unconscionability section of the

opinion. Maj. at 18922. After all, the difference between no

procedural unconscionability (as I see it) and “minimal” or

“slight” procedural unconscionability (as the majority sees it)

should make no difference unless there is evidence of overwhelming substantive unconscionability to offset the “minimal” showing on the procedural side of the scale. And, as

Judge O’Scannlain shows, if there is substantive unconscionability at all, it is nowhere near overwhelming; the majority

doesn’t even pretend that it is. 

As it is, the majority pays only lip service to the sliding

scale test. It briefly discusses the test in the procedural unconscionability part of its opinion, but then forgets all about it

when it gets to the other end of the sliding scale. The majority

does say that the evidence of substantive unconscionability is

“strong enough” to offset the “slight” evidence of procedural

unconscionability. Maj. at 18943. But this merely states the

conclusion the majority wants to reach; it does not explain

why the substantive unconscionability it finds is of such a

“high degree” as to offset the “slight” or “minimal” degree of

procedural unconscionability. See, e.g., Nyulassy v. Lockheed

Martin Corp., 120 Cal. App. 4th 1267, 1286-87 (Ct. App.

2004). 

NAGRAMPA v. MAILCOUPS, INC. 18977
So what we’re left with is a sophisticated executive who

willingly left a six-figure job to buy a franchise in an industry

where she’d been doing business for years. There was no

coercion, surprise or duress in the negotiations—indeed,

Nagrampa was being aggressively courted by MailCoups. She

had the contract for two months before she signed it and could

have taken longer if she’d liked. But because she might be

forced to spend something like $800, see O’Scannlain dissent

at 18966, in order to arbitrate in the venue she freely agreed

to, the arbitration clause is thrown out the window. 

As with most paternalistic endeavors, the majority’s opinion carries the seeds of great irony. By invoking the unconscionability doctrine to protect “the little guy” in this case, the

majority has construed California franchise law in a way that

will result in fewer opportunities for other “little guys” in the

future. The ever-growing cost of litigation is one of the most

serious and uncontrollable risks faced by modern businesses.

As the California courts have recognized, arbitration helps

businesses manage this risk by “providing for resolution of

disputes in a presumptively less costly, more expeditious, and

more private manner by an impartial person or persons typically selected by the parties themselves.” Keating, 645 P.2d

at 1198. But, according to the majority, only those who

already control the means of production or possess vast economic resources on par with those of a major corporation are

sophisticated enough to enter into enforceable arbitration

agreements. This undermines the important policies of the

Arbitration Act, denying potential first-time business owners

the very benefits Congress meant to secure for them. The

result is that fewer aspiring business owners—many of whom

are minorities and first generation Americans—will find

franchisors willing to offer them opportunities like the one

MailCoups offered to Nagrampa. 

While I believe that this contract is entirely valid under

California law as construed by the courts in that state, the

majority’s exegesis of unconscionability doctrine does point

18978 NAGRAMPA v. MAILCOUPS, INC.
to a disturbing trend of judicial hostility to form contracts.

Commercial transactions today are typically governed by

standardized contracts, the terms of which are non-negotiable.

The era of the individually-negotiated contract—like that of

the hand-crafted flivver—is fading from living memory. As

the majority opinion demonstrates, however, California courts

have shown a lamentable tendency to hold the arbitration

clauses in such contracts unenforceable. The effect of these

developments is that such provisions are now easily challenged on grounds of unconscionability, routinely channeling

contract disputes away from arbitrators and into the courts.

Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204,

1209 (2006), stands squarely for the proposition that state law

may not be used to so easily divest arbitrators of their authority. I would not be the least surprised to see the Supreme

Court of the United States soon take a close look at whether

the unconscionability doctrine, as developed by some state

courts, undermines the important policies of the Arbitration

Act. 

NAGRAMPA v. MAILCOUPS, INC. 18979