David Tompkins v. 23andme, Inc.
840 F.3d 1016, 2016 WL 6072192 (2016)
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Rule of Law:
Under California law, as harmonized with the Federal Arbitration Act (FAA), a mandatory arbitration provision in a consumer contract is not substantively unconscionable if its terms, such as fee-shifting, forum selection, and claim exemptions, are not unreasonably one-sided and are evaluated by the same standards as non-arbitration agreements.
Facts:
- 23andMe, Inc. provides a direct-to-consumer genetic testing service called the 'Personal Genome Service'.
- Customers purchase a DNA testing kit from the 23andMe website, and after receiving it, must create an online account to register the kit.
- In order to use the genetic testing service, customers are required to click a box indicating their agreement to the company's multi-page Terms of Service.
- The Terms of Service contain a mandatory arbitration provision (Paragraph 28(b)) governing disputes.
- Until November 2013, 23andMe marketed its service as being able to help customers manage health risks and prevent or mitigate diseases.
- In November 2013, the Food and Drug Administration (FDA) instructed 23andMe to cease its health-related marketing until it received government approval.
- David Tompkins and the other plaintiffs are customers who purchased a DNA test kit, created an online account, and assented to the Terms of Service prior to the FDA's action.
Procedural Posture:
- Multiple plaintiffs filed separate class action lawsuits against 23andMe regarding its health-related marketing claims.
- These lawsuits were consolidated by agreement in the U.S. District Court for the Northern District of California.
- Defendant 23andMe filed a motion to compel all plaintiffs, including the consolidated class represented by David Tompkins, to arbitrate their claims.
- The district court (trial court) granted 23andMe’s motion, finding the arbitration provision procedurally but not substantively unconscionable and thus enforceable.
- The plaintiffs (appellants) appealed the district court's order compelling arbitration to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Under California law, is a mandatory arbitration provision in a consumer contract of adhesion substantively unconscionable when it includes a bilateral prevailing party fee-shifting clause, a forum selection clause designating the company's principal place of business, and an exemption for intellectual property claims?
Opinions:
Majority - Judge Ikuta
No, the mandatory arbitration provision is not substantively unconscionable. Under the Federal Arbitration Act (FAA), California's unconscionability doctrine must be applied equally to both arbitration and non-arbitration agreements. The challenged clauses are not unconscionable because: 1) the bilateral 'prevailing party' fee-shifting clause is generally valid, and in the consumer context, plaintiffs must show that arbitration fees are in fact unaffordable, which they failed to do; 2) the forum selection clause requiring arbitration in San Francisco is not unreasonable, as mere inconvenience is insufficient to invalidate such a clause, especially when the forum is the company's principal place of business; and 3) the exemption for intellectual property claims is not unconscionably one-sided because it is not facially biased and is justified by legitimate business needs.
Concurring - Judge Watford
No, the arbitration provision is valid and enforceable. The court did not need to address the fee-shifting clause's unconscionability because 23andMe waived its right to enforce it. The forum selection clause is not unconscionable as applied to these specific plaintiffs, as they had already filed or voluntarily transferred their cases to the same judicial district in California, demonstrating no undue hardship. Finally, the carve-out for intellectual property claims is not so one-sided as to be substantively unconscionable, as plaintiffs failed to show it disproportionately favors 23andMe.
Analysis:
This decision reinforces the FAA's strong national policy favoring arbitration and significantly narrows the application of California's unconscionability doctrine to arbitration agreements in the consumer context. By mandating that the unconscionability standard be the same for arbitration and non-arbitration clauses, the court makes it more difficult to challenge common features like forum selection and fee-shifting clauses. The ruling explicitly limits the influential Armendariz cost-shifting rule to the employment context, placing a higher burden on consumers to prove that arbitration fees are prohibitively expensive in their specific case, rather than being able to challenge the provision on its face.
