Opinion ID: 1361299
Heading Depth: 2
Heading Rank: 2

Heading: Analysis on Remand

Text: Hoffman concedes that South Dakota has a substantial relationship to the instant transaction. Thus, on remand the district court should focus on the second step of the Nedlloyd test and specifically address whether the enforceability of this class arbitration waiver under South Dakota law is contrary to a fundamental policy of California. [2] California has a fundamental policy against unconscionable class arbitration waivers. See Klussman v. Cross Country Bank, 134 Cal.App.4th 1283, 36 Cal.Rptr.3d 728, 739-40 (2005); see also CAL. CIV. CODE § 1668. [3] The California courts have explained the need for this policy, reasoning that a defendant could essentially grant[ ] itself a license to push the boundaries of good business practices to their furthest limits, fully aware that relatively few, if any, customers will seek legal remedies and that [t]he potential for millions of customers to be over-charged small amounts without an effective method of redress cannot be ignored. Klussman, 36 Cal.Rptr.3d at 739 (internal quotation marks omitted) (quoting Discover Bank, 30 Cal.Rptr.3d 76, 113 P.3d at 1108). Thus, if Citibank's class arbitration waiver is unconscionable under California law, enforcement of the waiver under South Dakota law would be contrary to a fundamental policy of California. Whether a specific class arbitration waiver is unconscionable under California law turns on (1) whether the agreement is a consumer contract of adhesion drafted by a party that has superior bargaining powers; (2) whether the agreement occurs in a setting in which disputes between the contracting parties predictably involve small amounts of damages; and (3) whether it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money. Shroyer v. New Cingular Wireless Serv., Inc., 498 F.3d 976, 983 (9th Cir.2007) (internal quotation marks omitted); see also Klussman, 36 Cal.Rptr.3d at 739-40 (citing Discover Bank, 30 Cal.Rptr.3d 76, 113 P.3d at 1110). Although this test has both substantive and procedural elements, these components exist on a sliding scale such that they need not be present in the same degree. See Armendariz v. Found. Health Psychcare Serv., Inc., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 690 (2000). Instead, even if the evidence of procedural unconscionability is slight, strong evidence of substantive unconscionability will tip the scale and render the arbitration provision unconscionable. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir.2006) (en banc); see also Gatton v. T-Mobile USA, Inc., 152 Cal.App.4th 571, 61 Cal.Rptr.3d 344, 356 (2007) ([U]nder Armendariz, we conclude that courts are not obligated to enforce highly unfair provisions that undermine important public policies simply because there is some degree of consumer choice in the market.) (internal citation omitted). Citibank's class arbitration waiver would be substantively unconscionable under California law on the facts alleged. Hoffman claims that Citibank's challenged billing practice resulted in an additional finance charge of approximately $68, which easily constitutes the requisite small amount of damages. See Oestreicher v. Alienware Corp., 502 F.Supp.2d 1061, 1067-68 (N.D.Cal.2007) (finding an amount of over $4,000 not substantial); Cohen v. DirecTV, Inc., 142 Cal.App.4th 1442, 48 Cal. Rptr.3d, 813, 820 (2006) (holding $1,000 insufficient to warrant individual litigation). Hoffman's allegation that Citibank adopted this practice to ensure that it could charge a higher interest rate for at least a month before the affected customers could do anything to avoid these charges qualifies as a scheme to deliberately cheat large numbers of consumers out of individually small sums of money. Discover Bank, 30 Cal.Rptr.3d 76, 113 P.3d at 1108; see Cohen, 48 Cal.Rptr.3d at 820-21. [4] With respect to procedural unconscionability, it is plain that Citibank was in a superior bargaining position to Hoffman and that Citibank's contract was offered in such a way that Hoffman was unable to negotiate its terms. These two elements often render a contract provision oppressive, and therefore procedurally unconscionable. See Gatton, 61 Cal.Rptr.3d at 352-53; Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 113 Cal. Rptr.2d 376, 381-82 (2001). The dispositive questions that the district court has thus far not addressed, however, are the practical impacts of Citibank's non-acceptance instructions and whether, when placed on California's sliding scale, the non-acceptance provision renders the class arbitration waiver conscionable when compared to the degree of substantive unconscionability. We have held that providing a meaningful opportunity to opt out can preclude a finding of procedural unconscionability and render an arbitration provision enforceable. See Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199 (9th Cir.2002). In contrast, although bill stuffer amendments are not per se unconscionable, Discover Bank, 30 Cal.Rptr.3d 76, 113 P.3d at 1107-10, a California court has held that a bill stuffer that includes a class arbitration waiver provision that the customer is deemed to accept unless she closes her account is procedurally unconscionable. See Cohen, 48 Cal.Rptr.3d at 819-20. Moreover, two district courts in our circuit have determined that the ability to rescind a contract within 21 or 30 days does not necessarily insulate class arbitration waivers within such contracts from procedural unconscionability. See Oestreicher, 502 F.Supp.2d at 1070; Brazil v. Dell Inc., No. C-07-01700, 2007 WL 2255296, at  (N.D.Cal. Aug. 3, 2007). Additionally, this circuit has consistently followed the courts that reject the notion that the existence of `marketplace alternatives' bars a finding of procedural unconscionability. Shroyer, 498 F.3d at 985. Given this legal landscape, we remand to the district court so that it may conduct additional fact finding regarding the nature and scope of Citibank's instructions for non-acceptance provision to determine whether the waiver provided enough of a meaningful opportunity to opt out to be enforceable. Expanding the record with respect to issues such as how much additional time the expiration date cutoff typically provides, how many customers exercise their ability to opt out and whether other banks use similar provisions will enable the court to determine whether Citibank provided an actual, meaningful, and reasonable choice such that its class arbitration waiver is not procedurally unconscionable. Circuit City Stores, Inc. v. Mantor, 335 F.3d 1101, 1106 (9th Cir. 2003). [5]