Court Opinion

ID: 4089404
Source: CourtListenerOpinion
Date Created: 2016-10-13 17:01:27.573259+00
Date Added: 2024-06-11T14:34:06.184458
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

DAVID TOMPKINS, an                      No. 14-16405
individual, on behalf of himself
and others similarly situated,            D.C. No.
              Plaintiff-Appellant,   5:13-cv-05682-LHK

                v.
                                        ORDER AND
23ANDME, INC.,                           AMENDED
          Defendant-Appellee.             OPINION

      Appeal from the United States District Court
        for the Northern District of California
        Lucy H. Koh, District Judge, Presiding

          Argued and Submitted May 12, 2016
               San Francisco, California

                Filed August 23, 2016
               Amended October 13, 2016

        Before: Stephen S. Trott, Sandra S. Ikuta,
          and Paul J. Watford, Circuit Judges.

                        Order;
               Opinion by Judge Ikuta;
             Concurrence by Judge Watford
2                 TOMPKINS V. 23ANDME, INC.

                           SUMMARY*

                 Arbitration / California Law

    The panel affirmed the district court’s order enforcing the
terms of a Terms of Service agreement, and granting
23andMe, Inc.’s motion to compel arbitration.

   Plaintiffs are a class of 23andMe customers who
purchased a DNA test kit and assented to an online Terms of
Service, and they challenged the 23andMe arbitration
provision under the California doctrine of unconscionability.

    The panel held that none of the challenged portions of the
arbitration provision, alone or in concert, rendered the
arbitration provision unconscionable under current California
law.

    The panel rejected the plaintiffs’ challenges to the
arbitration provision. First, concerning the arbitration
provision’s prevailing party clause, which provided that the
arbitration costs would be borne by the losing party, the panel
held that the plaintiffs did not carry their burden of
demonstrating unconscionability of the clause where: the
bilateral attorneys’ fee shifting clause in the Terms of Service
was not unconscionable under California law; and the
arbitration fee-shifting provision was not unconscionable
under the case-specific standard announced in Sanchez v.
Valencia Holding Co., LLC, 61 Cal. 4th 899, 911 (2015).
Second, concerning the arbitration provisions’ forum

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                TOMPKINS V. 23ANDME, INC.                      3

selection clause, which stated that arbitration proceedings
would be held in San Francisco, California, the panel held
that the plaintiffs had not met their burden of proving that the
clause was unreasonable. Third, concerning the clause
excluding intellectual property claims from mandatory
arbitration, the panel held that plaintiffs had not carried their
burden of demonstrating that the exemption was
unconscionable under current California law. The panel
concluded that the arbitration agreement was valid and
enforceable under the Federal Arbitration Act, 9 U.S.C. § 2.

    The panel also rejected plaintiffs’ challenges to provisions
in the Terms of Service not contained within the arbitration
clause itself. First, the panel held that the agreement’s one-
year statute of limitations did not make the arbitration
provision itself unconscionable under California law where
California courts afford parties considerable freedom to
modify the length of a statute of limitations, and the statute of
limitations in the Terms of Service was not unfairly one-
sided. Second, the panel held that a provision giving
23andMe a unilateral right to modify the agreement did not
make the arbitration provision itself unconscionable. Judge
Watford concurred in the judgment. He agreed with the
majority that the arbitration provision was valid and
enforceable, albeit for different reasons.

                         COUNSEL

Jeremy Robinson (argued), Jason C. Evans, and Gayle M.
Blatt; Casey, Gerry, Schenk, Francavilla, Blatt & Penfield,
LLP, San Diego, California; Mark Ankcorn, Ankcorn Law
Firm, PC, San Diego, California; for Plaintiff-Appellant.
4                TOMPKINS V. 23ANDME, INC.

Robert P. Varian (argued), James N. Kramer, M. Todd Scott,
and Alexander K Talarides; Orrick Herrington & Sutcliffe,
LLP, San Francisco, California, for Defendant-Appellee.

Jennifer D. Bennett, Public Justice, P.C., Oakland, California;
F. Paul Bland, Jr., Public Justice, P.C., Washington, D.C.; for
Amicus Curiae Public Justice, P.C.

                          ORDER

    The opinion filed August 23, 2016, is hereby amended as
follows:

On page 28 of the slip opinion:

       

is amended to:

       .

On page 28 of the slip opinion, the following sentence is
deleted:

       .

On page 29 of the slip opinion:

       

is amended to:

       .

    No further petitions for rehearing or rehearing en banc
will be entertained from this amendment.
6               TOMPKINS V. 23ANDME, INC.

                          OPINION

IKUTA, Circuit Judge:

    Under the terms of the agreement at issue here, the
customers of 23andMe, Inc., were required to arbitrate the
present action. The district court enforced the terms of that
agreement and granted 23andMe’s motion to compel
arbitration. We hold that none of the challenged portions of
the arbitration provision, alone or in concert, render the
arbitration provision unconscionable under current California
law. We therefore affirm.

                               I

    23andMe, Inc., provides a direct-to-consumer genetic
testing service, which it calls the “Personal Genome Service.”
A customer interested in obtaining the genetic testing service
must visit the 23andMe website to purchase an online DNA
testing kit. When purchasing the kit, the customer can click
on a link to the company’s Terms of Service that was
available at the bottom of the webpage. However, the
customer is not required to read or click through the terms
before making a purchase.

    After receiving the kit, the customer returns to the website
to create an online account with 23andMe to register the
DNA kit. At this stage, and in order to proceed to use the
genetic testing service, a customer has to click on a box
indicating agreement to the Terms of Service. The Terms of
Service is a multipage agreement which states that it
constitutes the entire agreement between 23andMe and its
customers. Paragraph 28(b) of the Terms of Service contains
a mandatory arbitration provision which states, in full:
               TOMPKINS V. 23ANDME, INC.                   7

       Applicable law and arbitration. Except for
       disputes relating to intellectual property
       rights, obligations, or any infringement
       claims, any disputes with 23andMe arising out
       of or relating to the Agreement (“Disputes”)
       shall be governed by California law regardless
       of your country of origin or where you access
       23andMe, and notwithstanding of any
       conflicts of law principles and the United
       Nations Convention for the International Sale
       of Goods. Any Disputes shall be resolved by
       final and binding arbitration under the rules
       and auspices of the American Arbitration
       Association, to be held in San Francisco,
       California, in English, with a written decision
       stating legal reasoning issued by the
       arbitrator(s) at either party’s request, and with
       arbitration costs and reasonable documented
       attorneys’ costs of both parties to be borne by
       the party that ultimately loses. Either party
       may obtain injunctive relief (preliminary or
       permanent) and orders to compel arbitration
       or enforce arbitral awards in any court of
       competent jurisdiction.

    After conducting a self-test, a customer would send the
completed DNA kit to 23andMe, which performed the
genetic testing services and provided the results to the
customer.

   Until 2013, 23andMe claimed that its service could be
used to help customers manage health risks, as well as
prevent or mitigate diseases such as diabetes, heart disease,
and breast cancer. In November 2013, the Food and Drug
8               TOMPKINS V. 23ANDME, INC.

Administration (FDA) told 23andMe to discontinue
marketing its services for health purposes until the company
obtained government approval. The company then ceased its
health-related marketing.

    As a result of the FDA’s determination, multiple plaintiffs
filed different class actions against 23andMe relating to the
company’s health claims. The claims were consolidated by
agreement in federal district court in the Northern District of
California. David Tompkins represents a consolidated class
of customers bringing a number of separate causes of actions
against 23andMe for unfair business practices, breach of
warranty, and misrepresentations about the health benefits of
23AndMe’s services. All the named plaintiffs in the present
action purchased a DNA test kit, created an online account
with 23andMe to register their DNA kits, and assented to the
Terms of Service.

    In April 2014, 23andMe filed a motion to compel all
plaintiffs to arbitrate their claims. A few months later, the
district court granted 23andMe’s motion. After reviewing the
mandatory arbitration provision in the Terms of Service, the
district court concluded that although the arbitration provision
was procedurally unconscionable, it was not substantively
unconscionable and therefore was enforceable under
California law. The court held that plaintiffs’ other
challenges to the Terms of Service had to be determined by
the arbitrator in the first instance. Plaintiffs timely appealed.

    The district court had jurisdiction under 28 U.S.C.
§ 1332(d)(2) because the parties satisfied minimal diversity
and the amount in controversy exceeded $5 million. We have
jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a)(3).
We “review de novo district court decisions about the
                     TOMPKINS V. 23ANDME, INC.                        9

arbitrability of claims.” Kramer v. Toyota Motor Corp.,
705 F.3d 1122, 1126 (9th Cir. 2013). We review factual
findings for clear error, Balen v. Holland Am. Line Inc.,
583 F.3d 647, 652 (9th Cir. 2009), and review “[t]he
interpretation and meaning of contract provisions” de novo,
Lee v. Intelius Inc., 737 F.3d 1254, 1258 (9th Cir. 2013).

                                      II

    In order to determine whether a state legislative or
common law rule makes an agreement to arbitrate
unenforceable, we must consider both the federal law of
arbitration and the state rule at issue.

                                      A

    Congress enacted the Federal Arbitration Act (FAA) in
1925 in order to “counter prevalent judicial refusal to enforce
arbitration agreements.” Mortensen v. Bresnan Comm’ns,
722 F.3d 1151, 1157 (9th Cir. 2013). Section 2 of the FAA
makes a written provision in a contract to settle a controversy
by arbitration “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. § 2.1 “Section 2 is a congressional

 1
     9 U.S.C. § 2 states, in full:

                A written provision in any maritime transaction or
                a contract evidencing a transaction involving
                commerce to settle by arbitration a controversy
                thereafter arising out of such contract or
                transaction, or the refusal to perform the whole or
                any part thereof, or an agreement in writing to
                submit to arbitration an existing controversy
                arising out of such a contract, transaction, or
10              TOMPKINS V. 23ANDME, INC.

declaration of a liberal federal policy favoring arbitration
agreements.” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24 (1983). “The overarching
purpose of the FAA . . . is to ensure the enforcement of
arbitration agreements according to their terms so as to
facilitate streamlined proceedings.” AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 344 (2011). Any doubts about the
scope of arbitrable issues, including applicable contract
defenses, are to be resolved in favor of arbitration. Moses H
Cone, 460 U.S. at 24–25; Ferguson v. Corinthian Colls., Inc.,
733 F.3d 928, 938 (9th Cir. 2013).

    The Supreme Court has long made clear that the FAA’s
“national policy favoring arbitration” also applies to the
states. See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 10
(1984). The FAA forecloses both “state legislative attempts
to undercut the enforceability of arbitration agreements,” id.,
at 16, and state common law principles that interfere with
“the enforcement of arbitration agreements according to their
terms,” Concepcion, 563 U.S. at 344. The text of the FAA
makes only one exception to the validity of an arbitration
agreement: the savings clause in § 2 provides that a court may
strike or limit an arbitration provision on “such grounds as
exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. The savings clause “permits agreements to
arbitrate to be invalidated by ‘generally applicable contract
defenses, such as fraud, duress, or unconscionability,’ but not
by defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at
issue.” Concepcion, 563 U.S. at 339 (quoting Doctor’s

           refusal, shall be valid, irrevocable, and
           enforceable, save upon such grounds as exist at
           law or in equity for the revocation of any contract.
                TOMPKINS V. 23ANDME, INC.                     11

Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). “[I]n
assessing the rights of litigants to enforce an arbitration
agreement” a court may not “construe that agreement in a
manner different from that in which it otherwise construes
nonarbitration agreements under state law.” Perry v. Thomas,
482 U.S. 483, 492 n.9 (1987).

    Even when the state rule at issue is “a doctrine normally
thought to be generally applicable,” such as
unconscionability, it may nevertheless be preempted if it has
been “applied in a fashion that disfavors arbitration,”
Concepcion, 563 U.S. at 341, or in a manner that, in practice,
would “have a disproportionate impact on arbitration
agreements,” id. at 342. We have interpreted this rule
broadly, holding that “[a]ny general state-law contract
defense, based in unconscionability or otherwise, that has a
disproportionate effect on arbitration is displaced by the
FAA.” Mortensen, 722 F.3d at 1159.

    The plaintiffs here challenge the 23andMe arbitration
provision under the California doctrine of unconscionability.
Under the savings clause in § 2, we must first
determine whether California has a generally applicable
unconscionability doctrine that would make the arbitration
provision invalid. In discerning California law, “[d]ecisions
of the California Supreme Court, including reasoned dicta,
are binding on us as to California law.” Muniz v. United
Parcel Serv., Inc., 738 F.3d 214, 219 (9th Cir. 2013). “When
the state’s highest court has not squarely addressed an issue,
we must predict how the highest state court would decide the
issue using intermediate appellate court decisions, decisions
from other jurisdictions, statutes, treaties and restatements for
guidance.” Glendale Assocs., Ltd. v. NLRB, 347 F.3d 1145,
1154 (9th Cir. 2003) (internal quotation marks omitted).
12             TOMPKINS V. 23ANDME, INC.

“Decisions of the six district appellate courts are persuasive
but do not bind each other or us,” although we generally will
“follow a published intermediate state court decision
regarding California law unless we are convinced that the
California Supreme Court would reject it.” Muniz, 738 F.3d
at 219.

                              B

     Under California law, a state court may refuse to enforce
a provision of a contract if it finds that the provision was
“unconscionable at the time it was made.” Cal. Civil Code
§ 1670.5(a). Courts may find a contract as a whole “or any
clause of the contract” to be unconscionable. Id. The party
asserting that a contractual provision is unconscionable bears
the burden of proof. Sanchez v. Valencia Holding Co., LLC,
61 Cal. 4th 899, 911 (2015). Unconscionability 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.” Id. at 910
(internal quotation marks omitted). Both procedural and
substantive unconscionability must be present in order for a
clause to be unconscionable, but they need not necessarily be
present to the same degree. Armendariz v. Found. Health
Psychcare Services, 24 Cal. 4th 83, 114 (2000). Although
California courts have characterized “substantive
unconscionability” in various ways, “[a]ll of these
formulations point to the central idea that unconscionability
doctrine is concerned not with ‘a simple old-fashioned bad
bargain’ but with terms that are ‘unreasonably favorable to
the more powerful party.’” Sonic-Calabasas A, Inc. v.
Moreno, 57 Cal. 4th 1109, 1145 (2013) (Sonic II).
                TOMPKINS V. 23ANDME, INC.                   13

    Under California law, “[a]n evaluation of
unconscionability is highly dependent on context.” Sanchez,
61 Cal. 4th at 911. California courts give the parties “a
reasonable opportunity to present evidence as to [the
provision’s] commercial setting, purpose, and effect,” Cal.
Civil Code § 1670.5, and then examine the context in which
the contract was formed and the “respective circumstances of
the parties” as they existed at the formation of the agreement.
Nagrampa v. Mailcoups, Inc., 469 F.3d 1257, 1288 (9th Cir.
2006) (en banc) (quoting Bolter v. Super. Ct., 87 Cal. App.
4th 900, 909 (Cal. Ct. App. 2001)).

    The California Supreme Court has recently revisited the
general principles of unconscionability under state law, and
has explained how they apply to arbitration provisions in light
of Concepcion and other recent U.S. Supreme Court cases.
See Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237 (2016);
Sanchez, 61 Cal. 4th at 911; Sonic II, 57 Cal. 4th at 1143–45.
In doing so, the California Supreme Court confirmed that
California’s “unconscionability standard is, as it must be, the
same for arbitration and nonarbitration agreements” under the
FAA’s savings clause. Sanchez, 61 Cal. 4th at 912. We are
bound by the California Supreme Court’s most recent
articulation of its standard in determining whether the
arbitration provisions challenged by plaintiffs are
unconscionable. See, e.g., In re NCAA Student-Athlete Name
& Likeness Licensing Litig., 724 F.3d 1268, 1278 (9th Cir.
2013).

                              III

    We now apply these principles to the plaintiffs’ claim that
the arbitration provision in Paragraph 28(b) of the Terms of
14                 TOMPKINS V. 23ANDME, INC.

Service is substantively unconscionable.2 The plaintiffs
challenge the provision’s prevailing party clause, the forum
selection clause, and the clause excluding intellectual
property claims from arbitration. They claim that these
clauses together, along with the one-year statute of limitations
and 23andMe’s right to modify the Terms of Service, render
the provision unenforceable. We consider these claims in
turn.

                                   A

    We first turn to the arbitration provision’s prevailing
party clause, which states that “arbitration costs and
reasonable documented attorneys’ costs of both parties” will
“be borne by the party that ultimately loses.” Plaintiffs claim
that this provision is unconscionable because AAA arbitrators
charge $1500 a day for arbitration, and 23andMe’s “top-tier
lawyers” would also have significant charges.

    We begin with California cases addressing the
enforceability of prevailing party clauses that shift attorneys’
fees to the losing party. The California Supreme Court has
held that as a general rule, “[p]arties may validly agree that
the prevailing party will be awarded attorney fees incurred in
any litigation between themselves, whether such litigation
sounds in tort or in contract.” Santisas v. Goodin, 17 Cal. 4th
599, 608 (1998) (quoting Xuereb v. Marcus & Millichap, Inc.,
3 Cal. App. 4th 1338, 1341 (1992)). A number of California
appellate courts have enforced prevailing party clauses under
this general rule in the nonarbitration context. See Lennar

 2
  The parties do not dispute the court’s finding that the Terms of Service
were procedurally unconscionable, and thus we do not address that
question.
                TOMPKINS V. 23ANDME, INC.                      15

Homes of Cal., Inc. v. Stephens, 232 Cal. App. 4th 673, 694
(Cal. Ct. App. 2014) (“[T]here is nothing generally absurd or
unconscionable about prevailing party clauses.”); Maynard v.
BTI Grp., Inc., 216 Cal. App. 4th 984, 989 (Cal. Ct. App.
2013) (“It is quite clear from the case law . . . that parties may
validly agree that the prevailing party will be awarded
attorney fees incurred in any litigation between themselves.”).

    Several state appellate courts have held that provisions
shifting attorneys’ fees are unconscionable in the arbitration
context, see, e.g., Carmona v. Lincoln Millenium Car Wash,
Inc., 226 Cal. App. 4th 74, 88 (Cal. Ct. App. 2014),
Samaniego v. Empire Today LLC, 205 Cal. App. 4th 1138,
1143 (Cal. Ct. App. 2012), Ajamian v. CantorCO2e, L.P.,
203 Cal. App. 4th 771, 799–800 (Cal. Ct. App. 2012). These
cases, however, all involved unilateral, rather than bilateral
fee-shifting provisions. For instance, Carmona considered a
provision in an arbitration agreement between a buyer and
seller that permitted the seller to recover attorneys’ fees and
costs whenever it instituted litigation or arbitration, and did
not give employees any reciprocal right. The court held that
this clause contributed to unconscionability because it was
“oppressively one-sided and unenforceable as written” under
section 1717 of the California Civil Code. Id. at 89.
Similarly, Samaniego noted that a clause which required the
employees to pay attorneys’ fees incurred by the employer,
but imposed no reciprocal obligation on the employer to pay
the employees’ fees, “contributes to a finding of
unconscionability.” 205 Cal. App. 4th at 1147; see also
Ajamian, 203 Cal. App. 4th at 799 (invalidating a clause that
required the employee, but not the employer, to pay both
parties’ attorneys’ fees because “[t]he provision is obviously
not mutual and, on that basis alone, is unconscionable and
unenforceable.”).
16                  TOMPKINS V. 23ANDME, INC.

    By contrast, the plaintiffs have not identified any case
where a state appellate court held that a bilateral clause
awarding attorneys’ fees and costs to the prevailing party was
unconscionable, whether in an arbitration or nonarbitration
context. Indeed, section 1717 of the California Civil Code
appears to approve such bilateral prevailing party clauses,
since it requires courts to treat all unilateral prevailing party
clauses as if they were bilateral clauses.3 This rule is equally
applicable to contracts of adhesion. See Sys. Inv. Corp. v.
Union Bank, 21 Cal. App. 3d 137, 163 (Cal. Ct. App. 1971)
(“Section 1717 was enacted to make all parties to a contract,
especially an ‘adhesion contract,’ equally liable for attorney’s
fees and other necessary disbursements.”).

    In this case, the prevailing party clause is explicitly
bilateral, providing that either party can request binding
arbitration, and the “arbitration costs and reasonable
documented attorneys’ costs of both parties [are] to be borne
by the party that ultimately loses,” whoever that might be. In
light of the California Supreme Court’s ruling that the
standard for unconscionability must be the same for
arbitration and nonarbitration agreements, see Sanchez,
61 Cal. 4th at 911, and the general rule that parties may
validly agree to a bilateral prevailing party clause, see

 3
     Section 1717 of the California Civil Code states, in full:

          In any action on a contract, where the contract
          specifically provides that attorney’s fees and costs,
          which are incurred to enforce that contract, shall be
          awarded either to one of the parties or to the prevailing
          party, then the party who is determined to be the party
          prevailing on the contract, whether he or she is the
          party specified in the contract or not, shall be entitled to
          reasonable attorney’s fees in addition to other costs.
                TOMPKINS V. 23ANDME, INC.                      17

Santisas, 17 Cal. 4th at 608; see also Cal. Civ. Code § 1717,
we conclude that the bilateral attorneys’ fee shifting clause in
the Terms of Service is not unconscionable under California
law.

    Plaintiffs next claim that the portion of the prevailing
party clause that shifts the arbitrators’ fees to the losing party
is unconscionable because it would require consumers to
shoulder fees that they would not have to bear in litigation.

    We again start with California Supreme Court precedent.
Plaintiffs rely on Armendariz v. Foundation Health
Psychcare Services, which held that “when an employer
imposes mandatory arbitration as a condition of employment,
the arbitration agreement or arbitration process cannot
generally 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.” 24 Cal. 4th at 110–11.
We have previously struck down arbitration fee-shifting
clauses as unconscionable under this Armendariz rule. See,
e.g, Pokorny v. Quixtar, Inc., 601 F.3d 987, 1004 (9th Cir.
2010); Ting v. AT & T, 319 F.3d 1126, 1135 (9th Cir. 2003).

    The California Supreme Court has since indicated that
this Armendariz rule is limited to the employment context.
See Sanchez, 61 Cal. 4th at 918–19. In the area of consumer
arbitration, Sanchez explained, the California legislature took
a different approach by enacting section 1284.3 of the
California Code of Civil Procedure. Id. Section 1284.3
provides that “[a]ll fees and costs charged to or assessed upon
a consumer party by a private arbitration company in a
consumer arbitration, exclusive of arbitrator fees, shall be
waived for an indigent consumer.” Cal. Civ. Proc.
§ 1284.3(b)(1). According to Sanchez, this shows the
18                TOMPKINS V. 23ANDME, INC.

legislature’s decision to adopt “an ability-to-pay approach” to
arbitration fees in the consumer context, requiring a “case-by-
case determination of affordability” for consumers, and a
rejection of the Armendariz categorical approach. 61 Cal. 4th
at 919. Sanchez explained that while “jobseekers are more
likely to face ‘particularly acute’ economic pressure to sign
an employment contract with a predispute arbitration
provision . . . [c]onsumers, who face significantly less
economic pressure, would seem to require measurably less
protection.” Id. at 919–20. Deferring to this legislative
determination, Sanchez held that in the consumer context, a
fee-shifting “provision cannot be held unconscionable absent
a showing that appellate fees and costs in fact would be
unaffordable or would have a substantial deterrent effect.”
Id. at 920.4

     Applying this case-specific approach to a provision which
made the party appealing an arbitral ruling responsible for
filing fees and other arbitration costs, Sanchez concluded that
because the plaintiff “does not claim, and no evidence in the
record suggests, that the cost of appellate arbitration filing
fees were unaffordable for him, such that it would thwart his
ability to take an appeal in the limited circumstances where
such appeal is available,” the provision imposing arbitral
appeal fees on the plaintiff was not unconscionable. Id. at
921. Only if the agreement “impos[es] arbitral forum fees
that are prohibitively high,” such that the agreement
“effectively blocks every forum for the redress of disputes,

 4
   Because Section 1284.3 is applicable only in the arbitration context,
there is a question whether it would be preempted by the FAA if used to
invalidate a fee-shifting clause. We need not reach this issue, however,
because we determine that the fee-shifting provision in this case is not
unconscionable under existing California law.
                   TOMPKINS V. 23ANDME, INC.                           19

including arbitration itself,” would the provision be
unenforceable. See id. (quoting Sonic II, 57 Cal. 4th at
1144–45).

    Because Sanchez supersedes prior state appellate court
decisions, we apply its approach in determining whether a
provision in a consumer contract that shifts arbitration fees,
such as the one here, is unconscionable.5 We conclude that
the arbitration fee-shifting provision in the Terms of Service
is not unconscionable. As in Sanchez, the plaintiffs here do
not claim, and no evidence in the record suggests, that the
arbitration fees are unaffordable for them or would thwart
their ability to arbitrate this dispute. Under the case-specific
standard announced in Sanchez, the fee-shifting clause in the
Terms of Service is not unconscionable. Sanchez, 61 Cal. 4th
at 911. We therefore conclude that the plaintiffs here did not
carry their burden of demonstrating the substantive
unconscionability of the bilateral prevailing party clause.

                                    B

    We next turn to the arbitration provision’s forum
selection clause, which states that final and binding
arbitration proceedings will be held in San Francisco,
California. Plaintiffs claim that the district court should have
concluded this clause was substantively unconscionable

 5
   Although we previously applied the Armendariz rule in the context of
a consumer agreement, Ting, 319 F.3d at 1135, we are bound by the
California Supreme Court’s subsequent opinion in Sanchez. See In re
Watts, 298 F.3d 1077, 1082–83 (9th Cir. 2002) (holding that our
interpretation of a state law issue “was only binding in the absence of any
subsequent indication from the California courts that our interpretation
was incorrect,” and we are bound to follow the rationale California
Supreme Court would likely follow).
20              TOMPKINS V. 23ANDME, INC.

because it could potentially require consumers to travel from
a faraway city or state for a small potential recovery.
Because those costs involved in traveling outweigh any
potential remedies, plaintiffs argue, consumers are effectively
forced to give up the right to pursue their claim. As evidence,
plaintiffs point to affidavits by two of the nine plaintiffs
stating that the cost of traveling to San Francisco for
arbitration would be burdensome and expensive.

     We begin by considering when a forum selection clause
is unconscionable under California law. The California
Supreme Court recently indicated that its decision in Smith,
Valentino & Smith, Inc. v. Superior Court, 17 Cal. 3d 491,
495–96 (1976) (In Bank), exemplifies California’s
unconscionability doctrine with respect to forum selection
clauses. See Sanchez, 61 Cal. 4th at 912 (citing Smith,
Valentino, 17 Cal. 3d at 495–96). Smith, Valentino joined the
“modern trend which favors enforceability” of forum
selection clauses, and concluded “that forum selection clauses
are valid and may be given effect, in the court’s discretion
and in the absence of a showing that enforcement of such a
clause would be unreasonable.” 17 Cal. 3d at 495–96. A
clause would be unreasonable if “the forum selected would be
unavailable or unable to accomplish substantial justice.” Id.
at 494. In particular, Smith, Valentino rejected the plaintiff’s
arguments that the clause was unenforceable because of the
inconvenience and expense of the forum. Id. at 496. Because
the contract had been “entered into freely and voluntarily by
parties who have negotiated at arm’s length,” Smith,
Valentino concluded that the parties “reasonably can be held
to have contemplated in negotiating their agreement the
additional expense and inconvenience attendant on the
litigation of their respective claims in a distant forum,” and
therefore “[m]ere inconvenience or additional expense is not
                TOMPKINS V. 23ANDME, INC.                   21

the test of unreasonableness since it may be assumed that the
plaintiff received under the contract consideration for these
things.” Id.

     Following Smith, Valentino, California courts have
generally expressed a policy approving forum selection
clauses because they “play an important role in both national
and international commerce,” Lu v. Dryclean-U.S.A. of
California, Inc., 11 Cal. App. 4th 1490, 1493 (Cal. Ct. App.
1992), and “provide a degree of certainty, both for business
and their customers, that contractual disputes will be resolved
in a particular forum,” Net2Phone, Inc. v. Super. Ct., 109 Cal.
App. 4th 583, 588 (Cal. Ct. App. 2003). “Given the
importance of forum selection clauses, both the United States
Supreme Court and the California Supreme Court have placed
a heavy burden on a plaintiff seeking to defeat such a clause,
requiring it to demonstrate that enforcement of the clause
would be unreasonable under the circumstances of the case.”
Lu, 11 Cal. App. 4th at 1493.

    Although Smith, Valentino approved a forum selection
clause in a negotiated contract, California appellate courts
have implemented this broader policy and enforced forum
selection clauses in adhesion contracts in a non-arbitration
context. In Intershop Communications v. Superior Court, the
court agreed that an employment contract was a contract of
adhesion, but nevertheless held that its forum selection
clause, requiring disputes to be litigated in Germany, was
enforceable. 104 Cal. App. 4th 191, 201 (Cal. Ct. App.
2002). “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.” Id. at 201–02 (internal quotation marks
omitted); see also Olinick v. BMG Entm’t, 138 Cal. App. 4th
22              TOMPKINS V. 23ANDME, INC.

1286, 1294 (Cal. Ct. App. 2006) (upholding a forum selection
clause in an employment contract, and stating that “mere
inconvenience or additional expense is not the test of
unreasonableness of a mandatory forum selection clause”
(internal quotation marks omitted)). California appellate
courts considering forum selection clauses in adhesion
contracts have held that “[n]either inconvenience nor
additional expense in litigating in the selected forum is part
of the test of unreasonability.” Cal-State Bus. Prods. &
Servs., Inc. v. Ricoh, 12 Cal. App. 4th 1666, 1679 (Cal. Ct.
App. 1993); see also Am. Online, Inc. v. Superior Court,
90 Cal. App. 4th 1, 19 (Cal. Ct. App. 2001) (rejecting the
argument that a forum selection clause in an adhesion
contract was unenforceable because it would have required
the members of the putative class to travel out of state to
litigate “the relatively nominal individual sums at issue”).

    In the arbitration context, however, some California
appellate courts have not followed Smith, Valentino and its
progeny, but rather have considered expense and
inconvenience caused by a forum selection clause and
concluded that these factors made the clause unconscionable.
Aral v. EarthLink, Inc., for example, held that a forum
selection clause requiring California customers of an internet
service provider to arbitrate their claims in Georgia was
unreasonable. See 134 Cal. App. 4th 544, 561 (Cal. Ct. App.
2005). The appellate court held that there may be a large
number of “consumers who have suffered losses in the range
of $40 to $50” but that “to expect any or all of them to travel
to Georgia” was “unreasonable as a matter of law.” Id. For
much the same reasons, Bolter held that a forum selection
clause requiring “Mom and Pop” franchisees to arbitrate
disputes in Utah was unconscionable. 87 Cal. App. 4th at
                 TOMPKINS V. 23ANDME, INC.                        23

909; see also Magno v. Coll. Network, Inc., — Cal. Rptr. 3d
—, 2016 WL 3667572, at *6 (Cal. Ct. App. 2016) (same).

      To the extent the state appellate courts apply different
standards in arbitration and nonarbitration contexts,
upholding forum selection clauses in the nonarbitration
context (even in adhesion contracts) without considering
expense and inconvenience, while striking them down in the
arbitration context due to expense and inconvenience, these
cases are not binding on us as California law. We reach this
conclusion because Sanchez has confirmed that California’s
“unconscionability standard is, as it must be, the same for
arbitration and nonarbitration agreements.” 61 Cal. 4th at
912; see also Perry, 482 U.S. at 492 n.9 (“A court may not
. . . construe [an arbitration] agreement in a manner different
from that in which it otherwise construes nonarbitration
agreements under state law.”). In determining whether the
California Supreme Court would adopt the rule in Smith,
Valentino or in Bolter, we are guided by the fact that Sanchez
mentioned Smith, Valentino with approval as exemplary of
how to determine unconscionability of forum selection
clauses. See 61 Cal. 4th at 912. Further, the rule in Bolter
would be grossly overbroad if applied to all contracts: it could
invalidate any forum selection clause in any consumer
contract used by a company to sell moderately priced goods
in more than one state. Such a rule would clearly contravene
California’s general policy preference for the enforcement of
forum selection clauses. See Net2Phone, 109 Cal. App. 4th
at 588; Whimsatt v. Beverly Hills Weight Loss Clinics Int’l,
Inc., 32 Cal. App. 4th 1511, 1523 (Cal. Ct. App. 1995).6

 6
   Although we followed Aral and Bolter’s approach to forum selection
clauses in Nagrampa, 469 F.3d at 1288–90, we did not have guidance
from Sanchez at that time. Sanchez has since barred state courts from
24                 TOMPKINS V. 23ANDME, INC.

    Here, plaintiffs have not met their burden of proving that
the forum selection clause in the Terms of Service is
unreasonable. San Francisco is not “unavailable or unable to
accomplish substantial justice.” Smith, Valentino, 17 Cal. 3d
at 494. San Francisco is the principal place of business of
23andMe and so it has a sufficient nexus to the contract. See
Polimaster Ltd. v. RAE Sys., Inc., 623 F.3d 832, 837 (9th Cir.
2010). Furthermore, the forum selection clause provided
adequate notice that the consumers were agreeing to arbitrate
in San Francisco. See Intershop, 104 Cal. App. 4th at
201–02. Although plaintiffs submitted two affidavits stating
that the cost of traveling to San Francisco for arbitration
would be burdensome and expensive, “[m]ere inconvenience
or additional expense” does not make the locale
unreasonable. Smith, Valentino, 17 Cal. 3d at 496 (citing M/S
Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 16–18 (1972)).

    Moreover, even if California courts continue to consider
expense and inconvenience in their unconscionability analysis
in some circumstances, the plaintiffs have not demonstrated
that San Francisco will be “so gravely difficult and
inconvenient that [the plaintiffs] will for all practical
purposes be deprived of [their] day in court,” Aral, 134 Cal.
App. 4th at 561 (quoting M/S Bremen, 407 U.S. at 18); see
Nagrampa, 469 F.3d at 1290 & n.13. The two affidavits
submitted by plaintiffs do not provide any detail regarding
why the expense of traveling to San Francisco would be too

applying an unconscionability doctrine in a different manner in arbitration
and nonarbitration contexts. 61 Cal. 4th at 912. Because Aral and Bolter
both adopted an arbitration-specific approach to determining the
unconscionability of a forum selection clause, we must reconsider the
current state of California law in light of Sanchez. See In re Watts,
298 F.3d 1077, 1082–83 (9th Cir. 2002).
                TOMPKINS V. 23ANDME, INC.                      25

burdensome. Seven of the plaintiffs in this consolidated
action reside in California, and, as the district court noted, six
of the nine actions in this case were filed in California. All
cases were voluntarily transferred to San Jose, California.
Accordingly, we conclude that the forum selection clause is
not unconscionable.

                                C

    Finally, we consider the arbitration clause’s provision
exempting “any disputes relating to intellectual property
rights, obligations, or any infringement claims” from
mandatory arbitration. The plaintiffs argue that this clause is
substantively unconscionable because 23andMe is more
likely to bring intellectual property claims against its
customers than vice versa, and therefore 23andMe has
reserved for itself the advantages of a judicial forum while
forcing customers to use the arbitral forum. This argument is
based on the assumption that an arbitral forum is inferior to
a judicial forum for resolving disputes.

    Such a theory finds some support in California law. In
Armendariz, the California Supreme Court held that an
arbitration provision in an employment agreement was
unconscionably unilateral (and thus unenforceable) because,
among other things, it required the employee to arbitrate all
wrongful termination claims against the employer but gave
the employer a choice of forums for its claims. 24 Cal. 4th at
120. Armendariz explained that “[g]iven the disadvantages
that may exist for plaintiffs arbitrating disputes, it is unfairly
one-sided for an employer with superior bargaining power to
impose arbitration on the employee as plaintiff but not to
accept such limitations when it seeks to prosecute a claim
against the employee.” Id. at 117. Armendariz emphasized,
26               TOMPKINS V. 23ANDME, INC.

however, “that if an employer does have reasonable
justification for the arrangement,” and the arbitration
agreement contained a “modicum of bilaterality,” in the
context of the “business realities” surrounding the contract’s
formation, it would not be unconscionable. Id. at 117–18.

     The California Supreme Court has since clarified
Armendariz’s reasoning on this issue in several ways. First,
the California Supreme Court has backed away from
Armendariz’s assumptions regarding the inferiority of the
arbitral forum. Instead, Sonic II stated that “California and
federal law treat the substitution of arbitration for litigation as
the mere replacement of one dispute resolution forum for
another, resulting in no inherent disadvantage.” 57 Cal. 4th
at 1152. This conclusion is consistent with the Supreme
Court cases holding that a state court cannot “rely on the
uniqueness of an agreement to arbitrate as a basis for a state-
law holding that enforcement would be unconscionable,”
Concepcion, 563 U.S. at 341 (quoting Perry, 482 U.S. at 492
n.9), as well as with our decisions, see Ferguson, 733 F.3d at
936 (holding that the California Supreme Court’s reliance “on
the institutional advantages of the judicial forum” as the basis
for its rule that claims for public injunctive relief could not be
arbitrated was inconsistent with Concepcion.), and that of the
Tenth Circuit, see THI of N.M. at Hobbs Ctr., LLC v. Patton,
741 F.3d 1162, 1167 (10th Cir. 2014) (holding that the FAA
preempts state common law “that is predicated on the view
that arbitration is an inferior means of vindicating rights”).

    Second, the California Supreme Court has confirmed that
a one-sided contract is not necessarily unconscionable. “[A]
contract can provide for a margin of safety that provides the
party with superior bargaining strength a type of extra
protection for which it has a legitimate commercial need
                TOMPKINS V. 23ANDME, INC.                   27

without being unconscionable.” Baltazar, 62 Cal. 4th at 1250
(internal quotation marks omitted). Along these lines,
Sanchez upheld two provisions in a contract between a car
buyer and a car dealership that were alleged to be more
favorable to the stronger party. Sanchez, 61 Cal. 4th at 916.
The first provision forbade appeals of an arbitral decision
unless it reached a specific dollar threshold. Sanchez
concluded that this provision was not unconscionable because
“the appeal threshold provision does not, on its face,
obviously favor the drafting party.” Id. at 916. The second
provision provided that “only arbitral grants of injunctive
relief” were subject to a second arbitration. Id. at 917.
Although acknowledging that “overall the car buyer is more
likely than the seller to seek injunctive relief,” Sanchez held
that the one-sided nature of this provision did not render it
unconscionable because the extra margin of safety provided
by the clause was reasonable given “the broad impact that
injunctive relief may have on the car seller’s business.” Id.
Similarly, Baltazar v. Forever 21, Inc. held that a provision
that “compelled arbitration of all employment-related claims,
while permitting both parties to seek injunctive relief” in a
preliminary court proceeding was not unreasonably
unconscionable even if the employer was “practically
speaking” more likely to seek the remedy of preliminary
injunctive relief. 62 Cal 4th at 1248 & n.4.

    Under this precedent, the provision in the Terms of
Service in this case excluding intellectual property claims
from mandatory arbitration is not unconscionable. As in
Sanchez, the provision in this case exempting “any disputes
relating to intellectual property rights, obligations, or any
infringement claims” from mandatory arbitration “does not,
on its face, obviously favor the drafting party.” 61 Cal. 4th
at 916. Under the Terms of Service, customers retained
28                TOMPKINS V. 23ANDME, INC.

certain intellectual property rights, including rights in user-
generated content and genetic information. The customers
would be able to bring claims against 23andMe based on
these rights in court. Conversely, the plaintiffs have not
identified any intellectual property rights claims that
23andMe are likely to bring against its customers.7 Even
under Armendariz, the intellectual property provision has
more than a “modicum of bilaterality,” Armendariz, 24 Cal.
4th at 117. Moreover, to the extent 23andMe has valuable
intellectual property rights in its website and database, it is
entitled to an extra “margin of safety” based on legitimate
business needs, Baltazar, 62 Cal. 4th at 1250. We therefore
conclude plaintiffs have not carried their burden of
demonstrating that the intellectual property exemption is
unconscionable under current California law.

  7
    In oral argument, the plaintiffs asserted that 23andMe is building a
database of genetic information based on its customers’ DNA results and
that 23andMe might resort to copyright law to prevent customers from
publishing the DNA data of other customers. (Customers are allowed to
publish their own data under the agreement.) There is no support in the
record for this assertion, and it appears to be purely speculative.
Therefore, it does not support the plaintiffs’ argument that 23andMe is
more likely to bring intellectual property claims then consumers.
                    TOMPKINS V. 23ANDME, INC.                           29

                                     D

    Plaintiffs also challenge a provision in the Terms of
Service establishing a one-year statute of limitations period,8
and a provision giving 23andMe a unilateral right to modify
the agreement.9 These provisions are not contained within
the arbitration clause itself.

    Because § 2 of the FAA states that an agreement to
arbitrate is “valid, irrevocable, and enforceable,” and does not
address “the validity of the contract in which it is contained,”
the United States Supreme Court has held that “a party’s
challenge to another provision of the contract, or to the
contract as a whole, does not prevent a court from enforcing
a specific agreement to arbitrate.” Rent-A-Center, W., Inc. v.

 8
     Section 28(d) states:

          Term for cause of actions. You agree that regardless of
          any statute or law to the contrary, any claim or cause of
          action arising out of or related to use of the Services or
          the TOS must be filed within one (1) year after such
          claim or cause of action arose or be forever barred.
 9
     Paragraph 26, entitled “Changes to the Terms of Service” states:

          23andMe may make changes to the TOS [terms of
          service] from time to time. When these changes are
          made, 23andMe will make a new copy of the TOS
          available on its website and any new additional terms
          will be made available to you from within, or through,
          the affected services.

          You acknowledge and agree that if you use the Services
          after the date on which the TOS have changed,
          23andMe will treat your use as acceptance of the
          updated TOS.
30              TOMPKINS V. 23ANDME, INC.

Jackson, 561 U.S. 63, 70–71 (2010). In other words, if the
plaintiff does not specifically and directly challenge the
“precise agreement to arbitrate at issue,” id. at 71, a court
must treat the arbitration agreement as valid under § 2 and
enforce it, thereby letting the arbitrator decide questions as to
the validity of other provisions in the first instance, id. at 72.
This rule applies even when the plaintiff challenges the
contract 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.” Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006).
Given this precedent, our authority to review portions of the
contract outside the arbitration provision is limited. But as
Rent-A-Center indicates, “[i]t may be that” where a plaintiff
challenges “the validity under § 2 of the precise agreement to
arbitrate at issue” on the ground that certain general contract
provisions “as applied” to the agreement to arbitrate render
it unconscionable, such a “challenge should [be] considered
by the court.” 561 U.S. at 71, 74 (emphasis in original). Cf.
Nagrampa, 69 F.3d at 1276 (holding a court’s determination
whether an arbitration agreement is procedurally
unconscionable may be informed by consideration of the
contract as a whole).

    Turning first to the one-year statute of limitations, we
conclude that it does not make the arbitration provision itself
unconscionable under California law. The leading California
case on this issue is Moreno v. Sanchez, 106 Cal. App. 4th
1415 (Cal. Ct. App. 2003), which was cited by the California
Supreme Court in Sanchez v. Valencia as exemplifying the
application of California’s unconscionability doctrine to
statute of limitations clauses. 61 Cal. 4th at 912. Moreno
explained that California courts “have afforded contracting
                TOMPKINS V. 23ANDME, INC.                   31

parties considerable freedom to modify the length of a statute
of limitations.” Id. 1434; see also Han v. Mobile Oil Corp.,
73 F.3d 872, 877 (9th Cir. 1995) (“A contractual limitation
period requiring a plaintiff to commence an action within 12
months following the event giving rise to a claim is a
reasonable limitation which generally manifests no undue
advantage and no unfairness.”). Moreover, California courts
generally interpret contractual statute of limitations as
incorporating California’s discovery rule, in order to avoid
unfair or unreasonable applications of the limitations period.
Moreno, 106 Cal. App. 4th at 1430. Nor is the statute of
limitations in the Terms of Service in this case unfairly one-
sided; the provision by its terms, applies to claims brought by
both parties. Compare Pokorny, 601 F.3d at 1001 (holding
that a unilateral clause shortening the limitations period
added to the unconscionability of the contract). Accordingly,
the statute of limitations provision does not make the
arbitration provision unconscionable.

    Likewise, under the circumstances here, the unilateral
modification clause does not make the arbitration provision
itself unconscionable. California courts have held that the
implied covenant of good faith and fair dealing prevents a
party from exercising its rights under a unilateral
modification clause in a way that would make it
unconscionable. See, e.g., Casas v. Carmax Auto Superstores
Cal. LLC, 224 Cal. App. 4th 1233, 1237 (Cal. Ct. App. 2014);
see also, e.g., Cobb v. Ironwood Country Club, 233 Cal. App.
4th 960, 965–66 (Cal. Ct. App. 2015). Although we have
held that a unilateral modification provision itself may be
unconscionable, see Ingle v. Circuit City Stores, Inc.,
328 F.3d 1165, 1179 (9th Cir. 2003), we have not held that
such an unconscionable provision makes the arbitration
provision or the contract as a whole unenforceable. Id. at
32              TOMPKINS V. 23ANDME, INC.

1179 n.23. We conclude that plaintiffs have not carried their
burden of demonstrating that the unilateral modification
provision renders the arbitration clause, set forth in a separate
provision, unconscionable. While plaintiffs are free to argue
during arbitration that the unilateral modification clause itself
is unenforceable, we do not reach this claim here. See
Kilgore v. KeyBank, Nat. Ass’n, 718 F.3d 1052, 1059 n.9 (9th
Cir. 2013) (en banc).

                               IV

   We conclude that under principles established by recent
California Supreme Court decisions, California’s common
law rule of unconscionability does not provide a basis to
revoke the arbitration agreement in the Terms of Service here.
Accordingly, the arbitration agreement is “valid, irrevocable,
and enforceable.” 9 U.S.C. § 2.

     AFFIRMED.

WATFORD, Circuit Judge, concurring in the judgment:

    I agree with the majority that the arbitration provision is
valid and enforceable, albeit for different reasons. Like the
district court, I see no need to address whether the fee-
shifting clause is substantively unconscionable because
23andMe has waived its right to enforce that clause—a clause
that would have been severable in any event. As for the
venue-selection clause, it cannot be deemed substantively
unconscionable as to these plaintiffs. Three of the class
actions involved in this appeal were filed in the District Court
for the Northern District of California, and the plaintiffs in
                TOMPKINS V. 23ANDME, INC.                   33

each of the other class actions voluntarily transferred their
actions to that court. So, provided the cases can proceed on
a class-action basis, it seems obvious that litigating in an
arbitral forum in San Francisco will not pose any undue
hardship for the plaintiffs. At oral argument, 23andMe
conceded that these cases may proceed as class arbitrations
(the arbitration provision does not contain a class-action
waiver), and the rules of the arbitration provider designated
by the parties specifically provide for class arbitration.
Finally, the arbitration provision’s carve-out for intellectual
property claims is not so one-sided as to be substantively
unconscionable. The plaintiffs have not shown that
intellectual property claims represent the claims that
23andMe would be most likely to assert against consumers
and that consumers would be least likely to assert against
23andMe.

    I would not address the remaining two clauses—the 1-
year limitations period and the unilateral modification
clause—because the plaintiffs have challenged those two
clauses only insofar as they aggravate the supposed
substantive unconscionability of the other three clauses.