FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ELLEN CHALK; PAUL STEWART, 

husband and wife, and all others

similarly situated,

Plaintiffs-Appellants, No. 06-35909

v. D.C. No.  CV-06-00158-BR T-MOBILE USA, INC., a Delaware

corporation; SONY ERICSSON OPINION

MOBILE COMMUNICATIONS USA,

INC., a Delaware corporation,

Defendants-Appellees. 

Appeal from the United States District Court

for the District of Oregon

Anna J. Brown, District Judge, Presiding

Argued and Submitted

July 10, 2008—Portland, Oregon

Filed March 27, 2009

Before: Alfred T. Goodwin, Harry Pregerson, and

Stephen Reinhardt, Circuit Judges.

Opinion by Judge Reinhardt

3731
COUNSEL

Karen E. Read, Lake Oswego, Oregon, for the plaintiffsappellants. 

Scott Ferrell, John O’Malley, and Ward Lott, Call, Jensen &

Ferrell, Newport Beach, California, Nancy Erfle, Christopher

Dorr, and Michael T. Garone, Schwabe, Williamson, &

Wyatt, Portland, Oregon, for the defendants-appellees. 

3734 CHALK v. T-MOBILE USA
OPINION

REINHARDT, Circuit Judge: 

In this case, we consider whether the district court properly

dismissed a consumer class action pursuant to an arbitration

agreement between T-Mobile and its customers. We hold that

the agreement’s class action waiver is substantively unconscionable and therefore unenforceable under Oregon law. We

also note that under the agreement the waiver is not severable.

We reverse the district court’s order dismissing the case pending arbitration. 

I. Procedural and Factual Background

Plaintiffs-Appellants Paul Stewart and Ellen Chalk bought

a GC79 GPRS/Wireless LAN PC card (“card”), a device manufactured by Defendant-Appellee Sony Ericsson Mobile

Communications (USA), Inc. (“Sony”) that enables computers to connect wirelessly to the Internet, from DefendantAppellee T-Mobile USA, Inc. (“T-Mobile”). Plaintiffs also

signed a one-year service agreement with T-Mobile. The Service Agreement provided:

BY SIGNING THIS FORM OR ACTIVATING OR

USING T-MOBILE SERVICE I ACKNOWLEDGE

AND AGREE THAT: 

• THIS IS MY CONTRACT WITH T-MOBILE

USA, INC. FOR WIRELESS SERVICES. MY

CONTRACT IS CALLED A “SERVICE

AGREEMENT” AND IT INCLUDES THIS

DOCUMENT, THE SEPARATE T-MOBILE

TERMS AND CONDITIONS, AND MY RATE

PLAN INFORMATION. THE T-MOBILE

TERMS AND CONDITIONS ARE IN MY

WELCOME GUIDE OR WERE OTHERWISE

PROVIDED TO ME AT THE TIME OF SALE.

CHALK v. T-MOBILE USA 3735
. . . BY SIGNING, I ACKNOWLEDGE THAT

I HAVE RECEIVED AND READ THIS DOCUMENT, THE T-MOBILE TERMS AND CONDITIONS, AND MY RATE PLAN

INFORMATION. . . .

• I UNDERSTAND THAT THE SERVICE

AGREEMENT AFFECTS MY AND TMOBILE’S LEGAL RIGHTS. AMONG OTHER

THINGS, IT:

• REQUIRES MANDATORY ARBITRATION OF DISPUTES; 

• REQUIRES MANDATORY WAIVER OF THE RIGHT TO JURY

TRIAL AND WAIVER OF ANY

ABILITY TO PARTICIPATE IN A

CLASS ACTION;

The box containing the card and Welcome Guide was

sealed with a label that stated: 

IMPORTANT

Read the enclosed T-Mobile Terms & Conditions.

By using T-Mobile service, you agree to be bound

by the Terms & Conditions, including the mandatory

arbitration and early termination fee provisions. 

The first paragraph of the Terms and Conditions instructs

purchasers to read the terms carefully and advises those who

do not agree to refrain from using the service or the unit. Section Three of the Terms and Conditions contains a mandatory

arbitration clause, which provides that the parties will arbitrate all claims, and, in doing so, will follow the American

Arbitration Association’s published wireless industry arbitration rules. The clause states that each party agrees to pay its

3736 CHALK v. T-MOBILE USA
“own other fees, costs and expenses including those for counsel, experts, and witnesses.” 

That section also contains a class action waiver and a severability clause:

Neither you nor we may be representative of other

potential claimants or a class of potential claimants

in any dispute . . . YOU AND WE ACKNOWLEDGE AND AGREE THAT THIS SEC. 3 WAIVES

ANY RIGHT TO A JURY TRIAL OR PARTICIPATION AS A PLAINTIFF IN A CLASS ACTION.

IF A COURT OR ARBITRATOR DETERMINES

THAT YOUR WAIVER OF YOUR ABILITY TO

PURSUE CLASS OR REPRESENTATIVE

CLAIMS IS UNENFORCEABLE, THE ARBITRATION AGREEMENT WILL NOT APPLY AND

OUR DISPUTE WILL BE RESOLVED BY A

COURT OF APPROPRIATE JURISDICTION. . . .

SHOULD ANY OTHER PROVISION OF THIS

ARBITRATION AGREEMENT BE DEEMED

UNENFORCEABLE, THAT PROVISION SHALL

BE REMOVED, AND THE AGREEMENT SHALL

OTHERWISE REMAIN BINDING. 

For approximately three weeks after the purchase of the

card, Plaintiffs were able to insert it into their IBM ThinkPad

laptop computer (“ThinkPad”) and connect to the internet

without any difficulty. They then did not attempt to use the

card again for a few months, at which time they were unable

to insert the card into their ThinkPad. They contacted TMobile technical support several times and received refurbished cards on three separate occasions. They could not,

however, insert any of the refurbished cards into the ThinkPad. After they were unable to insert the third card, staff from

T-Mobile technical support informed Plaintiffs that they

would have to pursue the issue at the T-Mobile store where

they purchased the original card. At the store, a Sony repreCHALK v. T-MOBILE USA 3737
sentative attempted to insert the card and he failed to succeed

in this task as well. He then promised to contact Plaintiffs

about how to solve the problem. Plaintiffs never heard back

from him, despite multiple email inquiries. 

Ultimately, Plaintiffs filed a class action lawsuit in federal

district court against T-Mobile and Sony. Plaintiffs alleged

violations of various federal and state laws, including Oregon’s Unlawful Trade Practices Act (“UTPA”), OR. REV.

STAT. § 646.605, the federal Magnuson-Moss Warranty Act,

15 U.S.C. § 2301, and the federal Lanham Act, 15 U.S.C.

§ 1125(a). Plaintiffs also raised a number of common law theories of liability, including negligence, unjust enrichment,

fraud by concealment, negligent misrepresentation, breach of

implied warranties, breach of express warranty, breach of

implied warranty of merchantability, and breach of implied

warranty of fitness. The complaint alleged that defendants

knew or should have known that the card “was not compatible

and/or did not fit into the IBM ThinkPad laptop” computers,

and that Defendants allowed customers to purchase cards and

enter into long-term service contracts from which consumers

would receive no benefit without a compatible card. 

Three months after Plaintiffs filed their lawsuit, Defendants

filed a motion to dismiss the case or stay proceedings and

compel arbitration under the Federal Arbitration Act, 9 U.S.C.

§ 1 et seq. (“FAA”). Plaintiffs opposed the motion, contending that the arbitration clause was unconscionable and therefore unenforceable. The district court granted Defendants’

motion and dismissed the case. The court agreed with Plaintiffs that the provision requiring each party to bear its own

attorney fees was unconscionable because Oregon’s UTPA

provides for prevailing party attorney fees, and severed that

provision from the agreement.1 The court rejected Plaintiffs’

remaining arguments, however, including the argument that

the prohibition against class actions was unconscionable, and

1Neither Plaintiffs nor Defendants challenge this ruling on appeal. 

3738 CHALK v. T-MOBILE USA
concluded that Plaintiffs were required to arbitrate their

claims under the agreement.2 Plaintiffs filed a timely notice of

appeal.3

II. Standard of Review and Applicable Law

We review the district court’s ruling on the validity and

scope of an arbitration clause de novo. Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007).

The Federal Arbitration Act provides that 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. Plaintiffs allege that T-Mobile’s

arbitration agreement is unconscionable. As we have repeatedly recognized, unconscionability is a generally applicable

contract defense that may render an agreement to arbitrate

unenforceable. Shroyer, 498 F.3d at 981; see also Nagrampa

v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (en

banc). 

Both parties recognize that unconscionability is governed

by state law—in this case, by Oregon law. We must “approximate state law as closely as possible” and are bound by the

2The court determined that Plaintiffs’ claims against Sony were subject

to arbitration under the provision providing that “this agreement to arbitrate extends to claims that you assert against other parties, including . . .

equipment manufacturers and dealers, if you also assert claims against [TMobile] in the same proceeding.” Plaintiffs do not challenge this ruling on

appeal. 

3The district court had jurisdiction pursuant to 28 U.S.C. § 1331, 15

U.S.C. § 2310, and 15 U.S.C. § 1125(a). See The Anaconda v. Am. Sugar

Refining Co., 322 U.S. 42, 44 (1944) (noting that the FAA “obviously

envisages action in a court on a cause of action and does not oust the

court’s jurisdiction of the action, though the parties have agreed to arbitrate”). We have jurisdiction over the district court’s order dismissing

Plaintiffs’ claims pending arbitration pursuant to 9 U.S.C. § 16(a)(3) and

28 U.S.C. § 1291. Sanford v. Memberworks, Inc., 483 F.3d 956, 961-62

(9th Cir. 2007). 

CHALK v. T-MOBILE USA 3739
pronouncements of the state’s highest court. Ticknor v.

Choice Hotels Int’l, Inc., 265 F.3d 931, 939 (9th Cir. 2001)

(quoting Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir.

1980)). Where the state supreme court has not yet decided an

issue but “there is relevant precedent from the state’s intermediate appellate court, the federal court must follow the state

intermediate appellate court decision unless the federal court

finds convincing evidence that the state’s supreme court likely

would not follow it.” Ryman v. Sears, Roebuck and Co., 505

F.3d 993, 994 (9th Cir. 2007) (emphasis omitted).

III. Analysis

A. Burden of Production

We begin by addressing Defendants’ assertion that Plaintiffs have not met their burden of producing evidence to support their claims of unconscionability. Defendants claim that

“[g]overning law required [Plaintiffs] to prove both that jurisdiction existed and that the arbitration agreement was unconscionable — a burden Plaintiffs failed to meet by failing to

submit any competent evidence regarding any of the facts and

circumstances in existence at the time the binding arbitration

agreement was made.” Defendants-Appellees’ Brief at 13. 

[1] Under the Oregon law of unconscionability, Defendants’ argument is meritless. First, although “[t]he party

asserting unconscionability bears the burden of demonstrating

that the arbitration clause in question is, in fact, unconscionable,” Motsinger v. Lithia Rose-FT, Inc., 156 P.3d 156, 159-60

(Or. Ct. App. 2007), Oregon’s courts consider the contract

itself to be evidence of unconscionability where the terms of

the contract are unconscionable on their face. In Motsinger,

for example, the Oregon Court of Appeals considered whether

a contract provision requiring the plaintiff to submit all potential claims to arbitration without similarly binding the plaintiff’s employer was unconscionable. Id. at 166. The court

based its decision entirely on the terms of the provision. Id.

3740 CHALK v. T-MOBILE USA
Under Defendants’ approach, however, this analysis would

have been improper because it was not supported by “evidence” other than the contract terms at issue. Likewise, in

Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940 (Or.

Ct. App. 2007), the Oregon Court of Appeals considered the

unconscionability of two different contract provisions by

looking exclusively to the contract terms, without considering

any other evidence. See id. at 950-51 (class action waiver); id.

at 952-53 (confidentiality provision). Because the terms of TMobile’s arbitration agreement are properly before this court

and provide evidence of unconscionability, Plaintiffs have

met their burden of production. 

Defendants’s reliance on Motsinger is misplaced. Motsinger involved an arbitration agreement that was silent as to

how costs would be apportioned between the parties and no

evidence was introduced as to what those costs were likely to

be. Motsinger, 156 P.3d at 161. While the likely effect of a

class action waiver, a confidentiality provision, or a nonmutual agreement to arbitrate can be evaluated by reference

to the terms of the contract alone, see Motsinger, 156 P.3d at

166; Vasquez-Lopez, 152 P.3d at 950-53, a contract’s silence

regarding a particular issue provides little evidence as to the

likely effect of that omission upon the plaintiff; the contract

simply presents a risk of unconscionability. In Motsinger, the

Oregon Court of Appeals found that the mere possibility that

the failure to apportion costs would result in hardship for the

plaintiff was, in the absence of evidence suggesting that the

plaintiff would in fact face a serious adverse consequence,

insufficient to render the contract unconscionable. 156 P.3d at

162. 

Here, Plaintiffs’ allegations of unconscionability do not

depend upon mere possibilities in the operation of the agreement: It is undisputed that the arbitration agreement, among

other provisions, waives the customer’s ability to participate

in class actions, prohibits an award of attorney fees to a prevailing customer, and requires that all arbitrations be conCHALK v. T-MOBILE USA 3741
ducted according to the American Arbitration Association’s

Wireless Industry Arbitration Rules. The likely effect of those

provisions can be evaluated by looking to their terms alone.

See id. at 166; Vasquez-Lopez, 152 P.3d at 950-53. Accordingly, Motsinger’s requirement of additional evidence is irrelevant here, and Plaintiffs have met their burden of production.

B. Unconscionability

[2] In assessing a claim of unconscionability, Oregon

courts consider both procedural and substantive unconscionability. See Vasquez-Lopez, 152 P.3d at 948. Although both

forms of unconscionability “are relevant, . . . only substantive

unconscionability is absolutely necessary.” Id.

1. Procedural Unconscionability

[3] Procedural unconscionability focuses on two factors in

contract formation: oppression and surprise. Motsinger, 156

P.3d at 160. 

Oppression arises when there is inequality in bargaining power between the parties to a contract,

resulting in no real opportunity to negotiate the terms

of the contract and the absence of meaningful

choice. Surprise involves the extent to which the

supposedly agreed terms were hidden from the party

seeking to avoid enforcement of the agreement. 

Id. (internal citations omitted). 

In Motsinger, the Oregon Court of Appeals explained that

a contract of adhesion—an agreement presented on a take-itor-leave-it basis—reflects unequal bargaining power, but the

adhesive nature of a contract standing alone is insufficient to

render an agreement procedurally unconscionable. Id. at 160-

61. The court declined to find procedural unconscionability

where an arbitration clause was not hidden or disguised and

3742 CHALK v. T-MOBILE USA
where the plaintiff was given time to read the documents

before assenting to their terms. Id. at 161 (“A party is presumed to be familiar with the contents of any document that

bears the person’s signature.”) (internal quotations and citation omitted). 

[4] Under the circumstances of the present case, the district

court properly concluded that T-Mobile’s arbitration agreement is not procedurally unconscionable. The take-it-orleave-it nature of T-Mobile’s agreement is insufficient to render it unenforceable. Stewart’s signature appears on the Service Agreement below the arbitration clause and class action

waiver—both of which are featured in boldface and uppercase

text. Although Plaintiffs are correct that the Welcome Guide

contained additional terms, the box containing the device and

Welcome Guide was sealed with a label that brought the

Terms and Conditions to the buyer’s attention. To access the

equipment, Plaintiffs were required to break the seal of the

label. Under these circumstances, there is insufficient evidence of oppression or surprise to render the agreement procedurally unconscionable under Oregon law. 

2. Substantive Unconscionability

[5] The arbitration agreement, while not procedurally

unconscionable, was adhesive and therefore reflected an

underlying inequality in the parties’ ability to bargain. See,

e.g., Best v. U.S. Nat’l Bank of Oregon, 739 P.2d 554, 556

(Or. 1987); see also Vasquez-Lopez, 152 P.3d at 948. Because

Oregon law does not require that a contract exhibit procedural

unconscionability in order to be invalid, see Vasquez-Lopez,

152 P.3d at 948 (“[O]nly substantive unconscionability is

absolutely necessary.”), we must still determine whether the

terms of T-Mobile’s arbitration agreement are unfairly onesided. To determine whether the district court properly dismissed Plaintiffs’ claims pending arbitration, “we must consider whether the arbitration clause is rendered

unconscionable when the disparity in bargaining power”

CHALK v. T-MOBILE USA 3743
reflected in the clause’s adhesive nature “is combined with

terms that are unreasonably favorable to the party with the

greater power.” Motsinger, 156 P.3d at 161 (internal quotations and citation omitted); see also Carey v. Lincoln Loan

Co., 125 P.3d 814, 830 (Or. Ct. App. 2005) (“Although there

is no evidence of trickery or deceit, as there often is in unconscionability cases, the gross inequality in knowledge and bargaining power is sufficient to require us to consider the

substance of the challenged provisions.”).4 Thus, if the terms

of the agreement are unreasonably favorable to T-Mobile, the

agreement may be unenforceable despite its lack of procedural unconscionability. 

Plaintiffs allege that numerous provisions of the arbitration

agreement are substantively unconscionable, but we need

address only one to resolve the present dispute. In an opinion

issued after the district court’s order in this case, the Oregon

Court of Appeals held that a class action waiver in an arbitration provision may be substantively unconscionable. VasquezLopez, 152 P.3d at 949-50. Applying Vasquez-Lopez, we conclude that the class action waiver in the present case is substantively unconscionable and unenforceable under Oregon

law. 

The Vasquez-Lopez court explained that a class action

waiver in a consumer contract is unreasonably favorable to a

company like T-Mobile for two distinct reasons. First, such a

waiver is inherently one-sided when contained in a consumer

contract. Id. Even if the waiver on its face applies equally to

4California courts take a similar approach, and have explained that they

evaluate unconscionability on a sliding scale. The more substantively

unconscionable a provision, the less procedural unconscionability is

required. Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th

83, 114 (Cal. Ct. App. 2000) (“ ‘Essentially a sliding scale is invoked

which disregards the regularity of the procedural process of the contract

formation, that creates the terms, in proportion to the greater harshness or

unreasonableness of the substantive terms themselves.’ ”) (quoting 15 Williston on Contracts (3d ed. 1972) § 1763A, pp. 226-27). 

3744 CHALK v. T-MOBILE USA
both parties, it is entirely unilateral in effect. Wryly noting the

well-known literary passage that “ ‘the majestic equality of

the laws . . . forbid[s] rich and poor alike to sleep under the

bridges, to beg in the streets, and to steal their bread,’ ” the

Oregon Court of Appeals observed, “Although the arbitration

rider with majestic equality forbids lenders as well as borrowers from bringing class actions, the likelihood of the lender

seeking to do so against its own customers is as likely as the

rich seeking to sleep under bridges.” Id. (quoting Anatole

France, The Red Lily 95 (Winifred Stephens trans., Frederic

Chapman ed., 1894)). 

Second, a consumer class action waiver frequently prevents

individuals from vindicating their rights. A ban on class

action denies plaintiffs a crucial opportunity “without which

many meritorious claims would simply not be filed” because

the cost of pursuing each claim individually outweighs the

potential relief. Id. at 950. “ ‘The policy at the very core of the

class action mechanism is to overcome the problem that small

recoveries do not provide the incentive for any individual to

bring a solo action prosecuting his or her rights.’ ” Id. (quoting Amchem Products Inc. v. Windsor, 521 U.S. 591, 617

(1997)). As Vasquez-Lopez explained, by preventing consumers from pursuing small but meritorious claims a class action

waiver “gives defendant[s] a virtual license to commit, with

impunity, millions of dollars’ worth of small-scale fraud.” Id.

at 951. 

[6] Like the Supreme Courts of California and Washington,

see Discover Bank v. Superior Court, 113 P.3d 1100, 1116

(Cal. 2005); Scott v. Cingular Wireless, 161 P.3d 1000, 1006

(Wash. 2007), the Vasquez-Lopez court declared that a class

action waiver in a contract where individual damages are

likely to be small is substantively unconscionable as a matter

of state contract law. Because Defendants have presented no

convincing evidence that Oregon’s Supreme Court would disagree with Vasquez-Lopez,

5

 we must follow Vasquez-Lopez in

5Notably, Defendants do not cite any Oregon state court decisions to

support their argument that the Oregon Supreme Court would uphold the

class action waiver at issue here. 

CHALK v. T-MOBILE USA 3745
determining whether T-Mobile’s waiver is substantively

unconscionable. Ryman, 505 F.3d at 994.6

[7] The class action waiver in T-Mobile’s Service Agreement presents the same problems that led the Vasquez-Lopez

court to find substantive unconscionability in that case. First,

like the class action waiver in Vasquez-Lopez, T-Mobile’s

waiver is unilateral in effect: It can hardly be imagined that

T-Mobile or its suppliers would ever want or need to bring a

class action against T-Mobile’s customers. 

[8] Second, the class action waiver here creates the same

disincentive to litigate recognized in Vasquez-Lopez. The

actual damages alleged by Plaintiffs do not exceed $693.63,

which includes the monthly service fee over the one-year contract duration and the cost of the card. Cf. Shroyer, 498 F.3d

at 984 (noting that individual damages of less than $1,000

qualify as small amounts for the purpose of determining

whether class action waivers are enforceable under California

law). Moreover, many of the customer claims covered by the

class action waiver will be much smaller than Plaintiffs’

claim, because they will involve something less than a total

hardware failure resulting in a complete loss of service. We

must evaluate unconscionability “under the circumstances

existing at the time of the making of the contract,” W.L. May

Co., Inc., 543 P.2d 283, 286 (Or. 1975), and it is impossible

to know at the time of formation whether a customer’s future

claims against T-Mobile will involve a total failure or some6Nothing in Vasquez-Lopez can be construed to establish a rule that is

specific to arbitration agreements. Rather, Vasquez-Lopez “is simply a

refinement of the unconscionability analysis applicable to contracts generally in [Oregon].” Shroyer, 498 F.3d at 987. Thus, the FAA does not preempt application of the Vasquez-Lopez rule to T-Mobile’s arbitration

agreement. See id. at 987-88. Likewise, because 9 U.S.C. § 2 explicitly

requires us to apply “such grounds as exist at law or in equity for the revocation of any contract” in order to determine whether the class action

waiver at issue here is enforceable, Oregon law, and not the policy behind

the FAA, governs our analysis. 

3746 CHALK v. T-MOBILE USA
thing far less costly. These latter potential claims are as relevant to our analysis of the waiver’s unconscionability as

Plaintiffs’ actual claim. Compare Vasquez-Lopez, 152 P.3d at

951 (“[W]e are simply unconvinced that any significant number of plaintiffs with claims under, say $50, would be sufficiently motivated to spend the time and risk the expense

necessary to take the claim to arbitration.”); with id. at 944

(noting that the jury had awarded $26,639.73 in economic

damages to the plaintiffs). Given the small size of the individual claims covered by the arbitration agreement, the class

action waiver here, like the waiver in Vasquez-Lopez, is likely

to prevent T-Mobile’s customers from vindicating their rights

because the time and expense of prosecuting such claims

makes it impracticable “to embark on litigation in which the

optimum result might be more than consumed by the cost.”

Id. at 950 (quoting Deposit Guar. Nat. Bank v. Roper, 445

U.S. 326, 338 (1980)).7

[9] Because T-Mobile’s class action waiver is identical in

effect to the class action waiver in Vasquez-Lopez, it is substantively unconscionable as a matter of Oregon law. We recognize that, under Oregon law, “every case [involving an

allegedly unconscionable contract] is decided on its own

facts,” id. at 948, and, as in Shroyer, “[w]e do not hold that

all class action waivers are necessarily unconscionable.” 498

7We note that the substantive unconscionability of T-Mobile’s class

action waiver is magnified by its requirement that each party bear its own

costs. We agree with the district court’s decision that this provision is

unconscionable as well, as it discourages individuals from litigating by

precluding an award of otherwise available attorney fees to a prevailing

plaintiff under the Oregon UTPA. OR. REV. STAT. § 646.638(3). VasquezLopez held that, even when an award of attorney fees is available, individuals may not “sufficiently be motivated to spend the time and risk the

expense necessary to take [their] claim[s] to arbitration.” 152 P.3d at 951.

Where the possibility of an award of attorney fees is eliminated, the costs

of individual action become even more onerous and the likelihood that the

class action waiver provides T-Mobile with a “license to commit, with

impunity, millions of dollars’ worth of small-scale fraud,” id., is even

greater. 

CHALK v. T-MOBILE USA 3747
F.3d at 983. Instead, our decision simply applies the holding

of Vasquez-Lopez—that a class action waiver in a consumer

contract involving small claims is substantively

unconscionable—to the virtually identical class action waiver

in T-Mobile’s arbitration agreement. 

Defendants attempt to distinguish Vasquez-Lopez from the

present case by pointing to the procedural unconscionability

of the contract in Vasquez-Lopez and to the hardships resulting from that contract’s cost-sharing provisions. Although

these issues were relevant to the Vasquez-Lopez court’s determination that the contract as a whole was unenforceable, neither bears any relevance to the court’s holding that the class

action waiver in that contract was substantively unconscionable. That analysis was based entirely on the unilateral nature

of the waiver and the disincentive to litigate it created, both

of which are present here. 

Defendants also attempt to distinguish Vasquez-Lopez by

noting that Plaintiffs claim damages of more than $696.63,

while Vasquez-Lopez discussed “claims of under, say,

$50.00.” Vasquez-Lopez, 152 P.3d at 951. Like Defendants’

other efforts to distinguish Vasquez-Lopez, this argument is

meritless. Vasquez-Lopez mentioned claims of less than $50

only in response to the defendant’s argument that the availability of attorney fees under that contract provided a sufficient incentive to litigate. The court in no way limited its prior

elaboration of the reasons why a class action waiver in a consumer contract involving small claims is substantively unconscionable. By noting that claims of under $50 were likely to

be covered by the contract at issue in Vasquez-Lopez, the Oregon Court of Appeals simply demonstrated that the question

under Oregon law, as under California law, is whether the

contract “occurred ‘in a setting in which disputes between the

contracting parties predictably involve small amounts of damages.’ ” Shroyer, 498 F.3d at 984 (quoting Discover Bank,

113 P.3d at 1110). For reasons already discussed, the TMobile class action waiver, like the waiver in Vasquez-Lopez,

3748 CHALK v. T-MOBILE USA
is likely to cover “claims of less than, say, $50.00.” 152 P.3d

at 951; see also Shroyer, 498 F.3d at 984 (finding “individual

damages in the hundreds of dollars” to be “an objectively

small amount” and “a small enough sum to satisfy” the

requirement that the arbitration agreement occur in a setting

in which disputes will predictably involve small amounts of

damages). Accordingly, Vasquez-Lopez cannot be distinguished on the basis of the size of the claims at issue in this

case. 

In view of the above, it is plain that, under Vasquez-Lopez,

T-Mobile’s class action waiver is substantively unconscionable under Oregon law. 

3. Enforceability and Severability

[10] The substantively unconscionable class action waiver

here was contained in a contract of adhesion reflecting the

parties’ unequal bargaining power. To be certain, Plaintiffs

did not experience the oppression and surprise evident in

Vasquez-Lopez. See 152 P.3d at 943 (noting that plaintiffs

could not read the contract they signed and were misled as to

the contract’s provisions). Nonetheless, the contract here was

adhesive, and Plaintiffs were unable to negotiate with TMobile over its terms. Under Vasquez-Lopez, this combination of unequal bargaining power and clearly demonstrated

substantive unconscionability—the only absolute necessity

for a finding of unenforceability—is sufficient to render the

class action waiver unenforceable as a matter of Oregon law.

[11] In the usual case, we would be required to determine

whether the unenforceable class action waiver should be severed from the arbitration agreement as a whole. See OR. REV.

STAT. § 72.3020 (“If the court as a matter of law finds the

contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce

the contract, or it may enforce the remainder of the contract

without the unconscionable clause, or it may so limit the

CHALK v. T-MOBILE USA 3749
application of any unconscionable clause as to avoid any

unconscionable result.”); Vasquez-Lopez, 152 P.3d at 953

(after a finding of unconscionability, “the trial court could

have severed the unconscionable provisions or declared the

entire [arbitration] rider to be unenforcable”). However, in the

present case the arbitration agreement itself includes a provision prohibiting severance of the class action waiver. Therefore, in accordance with its severability clause, the arbitration

agreement as a whole is unenforceable. See Shroyer, 498 F.3d

at 986-87.8

IV. Conclusion

Under Oregon law, “only substantive unconscionability is

absolutely necessary” to find that an agreement is unenforceable. Vasquez-Lopez, 152 P.3d at 948. Because Oregon courts

have declared that class action waivers in consumer contracts

where individual damages are likely to be small are substantively unconscionable and the waiver here was contained in a

contract of adhesion, the class action waiver in T-Mobile’s

arbitration agreement is not enforceable. Id. at 950. Because

the arbitration agreement prohibits severance of the waiver,

the agreement as a whole is unenforceable. We therefore

reverse the district court’s decision to dismiss the case pending arbitration. 

REVERSED and REMANDED.

8Because the class action waiver, standing alone, renders the agreement

unenforceable, we need not address the alleged unconscionability of the

arbitration agreement’s limits on discovery. 

3750 CHALK v. T-MOBILE USA