Tompkins v. 23andMe, Inc.

Citation840 F.3d 1016
Decision Date23 August 2016
Docket NumberNo. 14-16405,14-16405
Parties David Tompkins, an individual, on behalf of himself and others similarly situated, Plaintiff–Appellant, v. 23andMe, Inc., Defendant–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

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 PlaintiffAppellant.

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

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.

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

Concurrence by Judge Watford

ORDER

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

On page 1031 of the opinion:

Even assuming we can review the two outside provisions, we are limited to considering whether, in the specific circumstances of the parties and the context in which the contract was formed, these outside provisions contribute to making the arbitration provision itself unconscionable.>

is amended to:

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).>.

On page 1031 of the opinion, the following sentence is deleted:

.

On page 1031–32 of the opinion:

is amended to:

.

No further petitions for rehearing or rehearing en banc will be entertained from this amendment.

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:

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 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 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 declaration of a liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (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, 131 S.Ct. 1740, 179 L.Ed.2d 742 (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, 103 S.Ct. 927 ; 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, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)

. The FAA forecloses both “state legislative attempts to undercut the enforceability of arbitration agreements,” id. , at 16, 104 S.Ct. 852, and state common law principles that interfere with “the enforcement of arbitration agreements according to their terms,” Concepcion , 563 U.S. at 344, 131 S.Ct. 1740. 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, 131 S.Ct. 1740 (quoting Doctor's Assocs., Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (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, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987).

Even when the state rule at issue is “a doctrine normally thought to be generally...

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