Petition for Writ of Certiorari — T-Mobile USA, Inc. v. Janda (No. 07-1331)

reme Court, U.S.

— FILED

(1) 07133 1APR1 8 2008

No. 07- OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

T-MOBILE USA, INC.,

Petitioner,

Vv.

KEVIN JANDA AND MANJIT SINGH, INDIVIDUALLY, AND

ON BEHALF OF OTHER PERSONS SIMILARLY SITUATED

AND THE GENERAL PUBLIC,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

STEPHEN M. RUMMAGE CARTER G. PHILLIPS*

KRISTINA SILJA BENNARD PAULJ. ZIDLICKY

DAVIS WRIGHT TREMAINE PETER C. PFAFFENROTH

LLP JAMES C. OWENS

Suite 2200 SIDLEY AUSTIN LLP

1201 Third Avenue 1501 K Street, N.W.

Seattle, WA 98101 Washington, D.C. 20005

(206) 622-3150 (202) 736-8000

Counsel for Petitioner T-Mobile USA, Inc.

April 18, 2008 * Counsel of Record

WILSON-EPES PRINTING Co., kc. — (202) 789-0086 — WASHINGTON, D.C. 20002

QUESTION PRESENTED

Whether this petition for certiorari should be held

pending this Court’s disposition of the petition for

certiorari previously filed in 7-Mobile USA, Inc. v.

Laster, No. 07-976 (filed Jan. 23, 2008), given that

both cases present the same important question:

Whether, under the Federal Arbitration Act, a

federal court may refuse to enforce the terms of an

agreement to arbitrate based upon a state-law policy

that individual arbitration is unconscionable in cases

involving small claims by a consumer.

il

LIST OF PARTIES AND AFFILIATES

Pursuant to Rule 29.6 of the Rules of this Court, T-

Mobile USA, Inc., states that it is a wholly-owned

subsidiary of T-Mobile Global Holding GmbH, which

is a wholly-owned subsidiary of T-Mobile Inter-

national AG, which, in turn, is a wholly-owned

subsidiary of Deutsche Telekom AG. Deutsche

Telekom AG is a publicly-traded company, of which

approximately 14.83% and 16.87% is owned by the

Federal Republic of Germany and the Kreditanstalt

fir Wiederaufbau (a bank controlled by the

Government of the Federal Republic of Germany),

respectively. No other publicly-held company owns

10% or more of T-Mobile USA, Inc.

TABLE OF CONTENTS

QUESTION PRESENTED

LIST OF PARTIES AND AFFILIATES

TABLE OF AUTHORITIES

PETITION FOR A WRIT OF CERTIORARI

OPINIONS BELOW

JURISDICTION

FACTUAL BACKGROUND

REASONS FOR GRANTING THE PETITION... 10

CONCLUSION

APPENDIX A: Kevin Janda; Manjit Singh et

al. v. T-Mobile USA, Inc., No. 06-15712 (9th

Cir. Feb. 25, 2008)

APPENDIX B: Kevin Janda et al. v. T-Mobile

USA, Inc., No. C 05-03729 JSW (N.D. Cal.

Mar. 17, 2006)

APPENDIX C: T-Mobile Terms and Conditions 24a

1V

TABLE OF AUTHORITIES

CASES

Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265 (1995)

Circuit City Stores v. Adams, 5382 U.S. 105

Dean Witter Reynolds Inc. v. Byrd, 470

U.S. 213 (1985)

Discover Bank v. Superior Court, 113 P.3d

1100 (Cal. 2005)

Doctor’s Assocs. Inc. v. Casarotto, 517 U.S.

681 (1996)

Gatton v. T-Mobile USA, Inc., 152 Cal.

App. 4th 571 (2007)

Gay v. CreditInform, £11 F.3d 369 (3d Cir.

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991)

Ingle v. Circuit City Stores, Inc., 328 F.3d

1165 (9th Cir. 2003)

Jenkins v. First Am. Cash Advance, 400

F.3d 868 (11th Cir. 2005), cert. denied,

546 U.S. 1214 (2006)

Johnson v. West Suburban Bank, 225 F.3d

366 (3d Cir. 2000)

Livingston v. Associates Fin., Inc., 339 F.3d

553 (7th Cir. 2003)

Lowden v. T-Mobile USA, Inc., 512 F.3d

1213 (9th Cir. 2008)

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)

Moses H. Cone Mem’ Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983)

Perry v. Thomas, 482 U.S. 483 (1987)

Randolph v. Green Tree Fin. Corp., 244

F.3d 814 (11th Cir. 2001)

Vv

TABLE OF AUTHORITIES -— continued

Shroyer v. New Cingular Wireless Seruvs.,

Inc., 498 F.3d 976 (9th Cir. 2007)

Snowden v. CheckPoint Check Cashing,

290 F.3d 631 (4th Cir. 2002)

Southland Corp. v. Keating, 465 U.S. 1

T-Mobile USA, Inc. v. Laster, No. 07-976

(filed Jan. 23, 2008)

Tillman v. Commercial Credit Loans, Inc.,

655 S.E.2d 362 (N.C. 2008)

Volt Info. Scis., Inc. v. Board of Trs., 489

U.S. 468 (1989)

STATUTES

9 U.S.C. § 2

SS EES LS

PETITION FOR A WRIT OF CERTIORARI

Petitioner T-Mobile USA, Inc. (“T-Mobile”),

respectfully requests that this Court grant the

petition for a writ of certiorari to review the decision

and judgment of the United States Court of Appeals

for the Ninth Circuit.

OPINIONS BELOW

The decision of the United States District Court for

the Northern District of California denying T-

Mobile’s motion to compel arbitration is unreported

and is reproduced in the Appendix to this Petition

(“Pet. App.”) at 3a-23a. The opinion of the Ninth

Circuit affirming the district court is_ likewise

unreported and is reproduced at Pet. App. la-2a.

JURISDICTION

Plaintiffs originally filed this lawsuit in the

Superior Court of California in and for Alameda

County. T-Mobile removed the action to federal court

in September 2005. Pet. App. 4a. The district court

had jurisdiction under 28 U.S.C. §§ 1832(d) and

1453(b). The Ninth Circuit, which rendered its

decision below on February 25, 2008, had appellate

jurisdiction over the district court’s denial of T-

Mobile’s motion to compel arbitration under 9 U.S.C.

§ 16(a)(1). T-Mobile invokes the jurisdiction of this

Court under 28 U.S.C. § 1254(1). ;

STATUTES INVOLVED

Section 2 of the Federal Arbitration Act, 9 U.S.C.

§ 2, provides in pertinent part:

A written provision in any .. . contract eviden-

cing a transaction involving commerce to settle

by arbitration a controversy thereafter arising

2

out of such contract or transaction .. . shall be

valid, irrevocable, and enforceable, save upon

such grounds as exist in law or equity for the

revocation of any contract.

STATEMENT OF THE CASE

This case presents the recurring question whether

Section 2 of the Federal Arbitration Act (“FAA”)

permits federal courts to refuse to enforce the terms

of private agreements that expressly preclude class-

based arbitration because state law deems

agreements requiring individual arbitration of

consumer claims to be substantively unconscionable.

The petition for certiorari in T-Mobile USA, Inc. v.

_ Laster, No. 07-976 (filed Jan. 23, 2008), presents the

same question. For the reasons fully set forth in the

petition in Laster, the question presented warrants

the grant of certiorari. Accordingly, petitioner

respectfully requests that this case be held pending

disposition of the petition in Laster and resolved

consistent with that petition.!

Respondents Kevin Janda and Manjit Singh were

T-Mobile subscribers who each entered into contracts

in which they agreed to resolve any disputes with T-

Mobile through individual arbitration. _ Notwith-

standing those agreements, they filed a class action

on behalf of themselves and all similarly situated

California consumers claiming that petitioner

violated California law by charging Universal Service

Fund fees in addition to advertised prices, and by

allegedly billing customers for telephone calls made

1In addition, the same issue also is presented and has been

briefed in T-Mobile USA, Inc. v. Ford, No. 07-1103 (filed Feb. 22,

2008).

3

during a different billing period or for calls that had

been advertised as being free of charge.

The court below, applying prior Ninth Circuit and

California precedent in Shroyer v. New Cingular

Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007),

and Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th

571 (2007), held that respondents’ agreements to

arbitrate on an individual basis were unenforceable.

As set forth in T-Mobile’s pending petition for

certiorari in Laster (No. 07-976), such decisions

conflict with the Third Circuit’s ruling in Gay v.

CreditInform, 511 F.3d 369 (3d Cir. 2007). There, the

Third Circuit, relying on this Court’s decision in

Perry v. Thomas, 482 U.S. 483 (1987), ruled that the

FAA precludes a court from refusing to enforce an

agreement to arbitrate individually based upon a

state-law determination that individual arbitration of

small consumer claims is unconscionable. 511 F.3d

at 395. The Gay court concluded that the FAA

preempts state unconscionability standards to the

extent that they would render individual arbitration

unenforceable. Denying enforcement on_ those

grounds, the Third Circuit explained, would be

6a

tantamount to “rely[ing] on the uniqueness of an

agreement to arbitrate as a basis for a state-law

holding that enforcement would be unconscionable.”

Id. (quoting Perry, 482 U.S. at 492 n.9).2

2 The Gay decision builds on decisions by other federal circuits

holding that individual arbitration is appropriate for resolving

federal and state claims by consumers in cases involving

relatively small individual amounts. See Johnson v. West

Suburban Bank, 225 F.3d 366, 373 (3d Cir. 2000); accord

Jenkins v. First Am. Cash Advance, 400 F.3d 868, 878 (11th Cir.

2005), cert. denied, 546 U.S. 1214 (2006); Livingston v.

Associates Fin., Inc., 339 F.3d 553, 559 (7th Cir. 2003); Snowden

v. CheckPoint Check Cashing, 290 F.3d 631, 638-39 (4th Cir.

4

The Ninth Circuit has expressly declined “to follow

the Third Circuit’s holding in Gay.” Lowden vy. T-

-Mobile USA, Inc., 512 F.3d 1213, 1221 n.3 (9th Cir.

2008). And, more recently, a majority of the Supreme

Court of North Carolina followed the approach staked

out by the Ninth Circuit in striking down an

arbitration agreement that required individual

arbitration. Tillman v. Commercial Credit Loans,

Inc., 655 S.E.2d 362, 373 (N.C. 2008). In contrast,

the dissent in Tillman would have upheld the

agreement to arbitrate under the Third Circuit’s

reasoning in Gay. Id. at 387 (Newby, J., dissenting).

This case, like the ruling in Laster, implicates the

same conflict over the enforceability of agreements to

arbitrate consumer claims individually. In the ruling

below, the Ninth Circuit applied Shroyer to hold that

the FAA does not mandate enforcement. of these

agreements. Pet. App. 2a. In contrast, the Third

Circuit in Gay ruled that the FAA does require

enforcement of agreements requiring individual

arbitration of consumer claims, and thus preempts

state law to the contrary. Moreover, the Third,

Fourth, Seventh, and Eleventh Circuits all have

held — unlike the decision below — that individual

arbitration allows for the effective resolution of

claims in cases involving consumers. See Pet’n for

Certiorari at 11-25, T-Mobile USA, Inc. v. Laster, No.

07-976 (filed Jan. 23, 2008).

Resolution of this conflict by this Court is necessary

because the proper application of the FAA to

consumer arbitration agreements’ presents a

recurring issue of fundamental and national

importance. The enforceability of agreements to

2002); Randolph v. Green Tree Fin. Corp., 244 F.3d 814, 818

(11th Cir. 2001).

5

arbitrate under the FAA affects the rights of tens of

millions of consumers and businesses. Indeed, a

state-law rule that arbitration must provide a class-

wide mechanism for resolving disputes directly

undercuts the benefit of arbitration as a streamlined,

low-cost alternative to litigation. Decisions by courts

that invalidate the terms of these arbitration

agreements undermine the “primary purpose” of the

FAA: to counteract judicial hostility to arbitration

and to ensure that arbitration remains a viable

alternative to litigation through enforcement of

agreements to arbitrate in accordance with their

terms. See Volt Info. Scis., Inc. v. Board of Trs., 489

U.S. 468, 479 (1989); 9 U.S.C. § 4; see also Pet’n for

Certiorari at 25-29, T-Mobile USA, Inc. v. Laster, No.

07-976 (filed Jan. 23, 2008).

Petitioner requests that this case be held pending

the disposition of the petition for certiorari in Laster,

No. 07-976 (filed Jan. 23, 2008), and resolved as

appropriate in liaht

Vpsscrivw + 44p440

STATUTORY BACKGROUND

In 1925, Congress enacted the FAA in response “to

hostility of American courts to the enforcement of

arbitration agreements.” Circuit City Stores v.

Adams, 532 U.S. 105, 111 (2001). Congress sought to

promote arbitration as a meaningful alternative to

litigation. “[B]y agreeing to arbitrate, a party ‘trades

the procedures and opportunity for review of the

courtroom for the _ simplicity, informality, and

expedition of arbitration.” Gilmer v. Interstate/

Johnson Lane Corp., 500 U.S. 20, 31 (1991). Indeed,

“it is typically a desire to keep the effort and expense

required to resolve a dispute within manageable

bounds that prompts [parties] to forgo access to

judicial remedies.” Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985).

6

For that reason, “Congress, when enacting [the FAA],

had the needs of consumers, as well as others, in

mind.” Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265, 280 (1995).

The “primary purpose” of the FAA is to “ensurfe]

that private agreements to arbitrate are enforced

according to their terms.” Volt Info. Scis., Inc. v.

Board of Trs., 489 U.S. 468, 479 (1989). Arbitration

agreements must be “rigorously enforce[d]” even if

“the result is ‘piecemeal’ litigation.” Dean Witter

Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (19885).

Indeed, Section 2 of the FAA “compels judicial

enforcement of a wide range of written arbitration

agreements,” Circuit City, 532 U.S. at 111,

“notwithstanding any &tate substantive or procedural!

policies to the contrary.” Perry v. Thomas, 482 U.S.

' 483, 489 (1987) (quoting Moses H. Cone Mem'l Hosp.

v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

Under the FAA, “the underlying issue of

arbitrability” is “a question of substantive federal

law,” Southland Corp. v. Keating, 465 U.S. 1, 12

(1984), that “must be addressed with a healthy

regard for the federal policy favoring arbitration.”

Moses H. Cone, 460 U.S. at 24. In determining

whether an agreement to arbitrate is enforceable,

“the text of § 2 provides the touchstone for choosing

between state-law principles and the principles of

federal common law.” Perry, 482 U.S. at 492 n.9. As

explained in Perry, “[aJn agreement to arbitrate is

valid, irrevocable, and enforceable, as a matter of

federal law ‘save upon such grounds as exist at law or

in equity for the revocation of any contract.” Id.

(quoting 9 U.S.C. § 2) (internal citation omitted;

emphasis added by Court). “[S]tate law ... is

applicable if that law arose to govern issues

7

concerning the validity, revocability, and enforce-

ability of contracts generally.” Jd. at 493 n.9.

“Courts may not . . . invalidate arbitration agrce-

ments under state laws applicable only to arbitration

provisions.” Doctor’s Assocs. Inc. v. Casarotto, 517

U.S. 681, 687 (1996); see Perry, 482 U.S. at 493 n.9.

Likewise, courts may not (i) refuse enforcement based

on state laws applicable only to certain types or

categories of contracts, Southland, 465 U.S. at 16

n.l1, or (ii) rely upon a fundamental aspect of

arbitration as a basis for a ruling that arbitration is

unconscionable, Perry, 482 U.S. at 493 n.9.

FACTUAL BACKGROUND

Petitioner T-Mobile markets and sells wireless

telecommunications services, phones, and accessories

throughout the United States. Pursuant to require-

ments established by the Federal Communications

Commission, T-Mobile is required to pay a Universal

Service Fund (“USF”) fee, and T-Mobile at certain

times has passed through USF fees to its customers

in accordance with FCC guidance. See 9th Cir.

Excerpts of Record (“ER”) at 14-16. In addition, T-

Mobile charges customers for calls on a per-minute

basis when they have exceeded their allotted minutes

and may also charge additional fees for certain calls.

Id. at 16.

a. In or about August 2002, respondent Manjit

Singh (“Singh”) initiated wireless service with T-

Mobile, and later, in April 2004, Singh exchanged his

handset for another T-Mobile phone. Pet. App. 4a.

The district court below found that Singh agreed to

the terms of T-Mobile service agreements applicable

in 2002 and 2004 (“Singh Agreement”). Jd. at 14a.

Respondent Kevin Janda (“Janda”) executed and

signed a T-Mobile service agreement on or about

8

March 31, 2005 (“Janda Agreement’). Jd. at 8a; ER

65.

Respondents Singh and Janda both signed service

agreements that made it clear that they were

agreeing to mandatory arbitration, and their T-

Mobile phones came with the T-Mobile Welcome

Guide that set forth in full the terms and conditions

of service. Respondent Janda’s Service Agreement

advised that it “REQUIRES MANDATORY ARBI- .

TRATION OF DISPUTES” including “WAIVER OF

THE RIGHT TO JURY TRIAL AND WAIVER OF

ANY ABILITY .TO PARTICIPATE IN A CLASS

ACTION.” ER 69 (capitalization in original,

emphasis omitted). Respondent Singh’s service

agreement set forth the mandatory arbitration

agreement in full. Pet. App. 24a-25a. Respondents’

Welcome Guides also advised: “By using T-Mobile

service, you acknowledge that you have read and

agree to the terms and conditions of the Service

Agreement.” ER 73, 112. Respondents’ agreements

provided them with the opportunity to cancel service

without paying any cancellation fee. ER 97, 108.

Respondents chose to keep their phones, to continue

their T-Mobile’ service, and to accept’ the

corresponding terms and conditions. See Pet. App.

14a; ER 69.

Section 3 of the terms and conditions sets forth an

arbitration agreement, which provides in relevant

part that both parties agree to arbitrate any disputes.

Pet. App. 24a, 26a-27a. The arbitration provision

applicable to Respondent Singh is reproduced at Pet.

App. 24a-25a; the arbitration agreement applicable to

Respondent Janda is reproduced at Pet. App. 26a-

28a.

b. Notwithstanding respondents’ agreements to

arbitrate any disputes with T-Mobile on an individual

9

basis, in September 2005, they filed a proposed class

action in California state court on behalf of three

putative California classes: T-Mobile customers who

were charged USF fees; T-Mobile customers who

allegedly were charged for calls made during a billing

period other than the period in which the calls were

made; and T-Mobile customers who allegedly were

charged additional fees for certain unspecified types

of calls. ER 2. Respondents asserted four California

causes of action arising from the assessment of USF

fees and other usage charges associated with the use

of T-Mobile phones. See First. Am. Compl. at 9-12

(ER 9-12). They sought injunctive relief, restitution,

rescission, “[a]ctual damages,” pre-judgment and

post-judgment interest, costs of suit and attorney’s

fees, and “punitive damages.” Jd. at 12-13 (ER 12-13).

c. After removal to federal court, petitioner

moved to compel arbitration under the FAA. Pet.

App. 4a. On March 17, 2006, the district court denied

T NAA

ava motion

£ “VEU LAT OD faU U1001,

ruling the

agreement was unconscionable under Discover Bank

v. Superior Court, 113 P.3d 1100 (Cal. 2005), because

it required individual arbitration. Pet. App. 19a-20a.

After highlighting California precedent that purports

to disallow arbitration agreements whenever a

“weaker party ‘is presented a clause and told to

“take it or leave. it” without the opportunity for

meaningful negotiation,” Pet. App. 15a (alteration

omitted) (quoting Szetela v. Discover Bank, 97 Cal.

App. 4th 1094, 1100 (2002)), the district court ruled

that the arbitration provisions were procedurally

unconscionable. Id. at 15a-17a.

Further, following Discover Bank, the district court

ruled that the class action waiver contained in the

arbitration clauses was substantively unconscionable

because the waiver was contained in standardized

10

consumer contracts, the claims involved allegations

that T-Mobile had defrauded plaintiffs out of small

amounts of damages, and thus “enforcing the class

action waiver would effectively exempt ‘T-Mobile

‘from responsibility for its own fraud or willful injury

to the person or personal property of another.” Pet.

App. 19a (quoting Discover Bank, 113 P.3d at 1110).

The court also ruled, following Discover Bank and the

Ninth Circuit’s decision in Ingle v. Circuit City Stores,

Inc., 328 F.3d 1165, 1176 n.15 (9th Cir. 2003), that

the FAA did not preempt its unconscionability

analysis. Pet. App. 19a-20a (following Discover Bank,

113 P.3d at 1110-12).

d. The Ninth Circuit affirmed. It concluded, in an

unpublished memorandum decision, that T-Mobile’s

arbitration agreement was “not substantively

distinguishable” from an agreement that the Ninth

Circuit had previously refused to enforce in Shroyer

v. New Cingular Wireless Services, Inc., 498 F.3d 976

(9th Cir. 2007) and Lowden v. T-Mobile USA, Inc.,

512 F.3d 1213 (9th Cir. 2008). Pet. App. 2a. The

panel explained that Shroyer “rejected the argument

that California law on this issue is preempted by the

Federal Arbitration Act.” Id.

REASONS FOR GRANTING THE PETITION

This case implicates a conflict among the federal

appellate courts on the question whether the Federal

Arbitration Act requires enforcement of agreements

to arbitrate that call for individual arbitration of

consumer disputes, or whether such agreements can

be invalidated based on state-law policy in favor of

class actions.

This case presents the same issue as the one

squarely presented in a prior petition filed by

petitioner T-Mobile that is pending before this Court.

11

T-Mobile USA, Inc. v. Laster, No. 07-976 (filed Jan.

23, 2008). The Laster case involved a single arbitra-

tion agreement and the class claims addressed only

the relationship between T-Mobile and its customers

with respect to the sales tax associated with the

purchase of a free wireless phone. See Pet’n for Writ

of Certiorari at 6-11, Laster, No. 07-976. As

explained in the Laster petition, that case presents an

ideal vehicle to address and resolve the sarae conflict

presented in this case. Although the issue presented

in this case is equélly worthy of review, there is no

reason for the Court to consider more than one

petition raising that same question.

To promote efficiency, petitioner requests that the

Court grant review in Laster and hold the petition in

this case pending the disposition in Laster.

12

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be held pending the Court’s

disposition of J-Mobile USA, Inc. v. Laster, No. 07-

976 (filed Jan. 23, 2008), and then disposed of

accordingly.

Respectfully submitted,

STEPHEN M. RUMMAGE CARi«R G. PHILLIPS*

KRISTINA SILJA BENNARD PAULJ. ZIDLICKY

DAVIS WRIGHT TREMAINE PETER C. PFAFFENROTH

LLP JAMES C. OWENS

Suite 2200 SIDLEY AUSTIN LLP

1201 Third Avenue 1501 K Street, N.W.

Seattle, WA 98101 Washington, D.C. 20005

(206) 622-3150 (202) 736-8000

Counsel for Petitioner T-Mobile USA; Inc.

April 18, 2008 * Counsel of Record

APPENDIX

la

APPENDIX A

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS,

NINTH CIRCUIT

No. 06-15712

KEVIN JANDA; MANJIT SINGH, on behalf of themselves

and all others similarly situated and as private

attorneys general on behalf of the members of

the general public residing within the State of

California,

Plaintiffs-Appellees,

¥

T-MOBILE USA, INC.,

Defendant-Appellant.

Submitted Feb. 15, 2008

Filed Feb. 25, 2008.

Appeal from the United States District Court for the

Northern District of California;

Jeffrey S. White, District Judge, Presiding.

D.C. No. CV-05-03729-JSW

Before D.W. NELSON and HAWKINS, Circuit

Judges, and TIMLIN, Senior District Judge.

‘This panel unanimously finds this case suitable for decision

without oral argument. See Fed. R. App. P. 34(a)(2).

“The Honorable Robert J. Timlin, Senior United States Dis-

trict Judge for the Central District of California, sitting by

designation.

2a.

MEMORANDUM

T-Mobile USA, Inc.’s (“T-Mobile”) arbitration agree-

ment, which requires customers to waive class action

and bring claims only in an individual capacity, is not

substantively distinguishable from the Cingular arbi-

tration agreement we held unconscionable in Shroyer

v. New Cingular Wireless Servs., Inc., 498 F.3d 976

(9th Cir.2007). See also Lowden v. T-Mobile, ___ F.3d

___, 2008 WL 170279 (9th Cir.2008).

Even though T-Mobile’s customers may have ac-

cepted the arrangement from the outset (rather than

seeking another service provider), this court specifi-

cally rejected the “marketplace alternatives” ration-

ale in Shroyer, 498 F.3d at 985-86, and California

courts have done the same, Gatton v. T-Mobile USA,

Inc., 152 Cal.App.4th 571, 582-85, 61 Cal.Rptr.3d 344

(2007). Shroyer also expressly and conclusively re-

jected the argument that California law on this issue

is preempted by the Federal Arbitration Act. Shroyer,

498 F.3d at 987-93. We therefore affirm the district

court’s denial of T-Mobile’s motion to dismiss the

action and to compel arbitration.’

AFFIRMED.

Similarly, because the arbitration clauses are sub-

stantively and procedurally unconscionable under

Shroyer, we need not address T-Mobile’s arguments

regarding the additional provisions the district court

found objectionable in Singh’s arbitration agreement.

“™ This disposition is not appropriate for publication and is

not precedent except as provided by Ninth Circuit Rule 36-3.

‘T-Mobile asks us to further rule that plaintiff Singh must

proceed in court; however, this issue is not before us at this

time, as Singh does not currently seek to proceed in arbitration

proceedings (and affirmatively disavows any interest in doing so).

3a

APPENDIX B

NOT FOR CITATION OR PUBLICATION

UNITED STATES DISTRICT COURT,

N.D. CALIFORNIA

No. C 05-03729 JSW

KEVIN JANDA, et al.

Plaintiffs,

Vv

T-MOBILE, USA, INC.,

Defendant.

March 17, 2006

ORDER DENYING T-MOBILE, USA, iNC.’S

MOTION TO DISMISS AND COMPEL

ARBITRATION AND DENYING AS MOOT

PLAINTIFFS’ MOTION TO STRIKE

JEFFREY S. WHITE, J.

INTRODUCTION

This matter comes before the Court upon consid-

eration of the Motion to Strike Defendant’s Affirma-

tive Defense That Plaintiffs’ Claims Must Be Arbi-

trated filed by Plaintiffs Kevin Janda (“Janda”) and

Manjit Singh (“Singh”) (collectively “Plaintiffs”) as

well as the Motion to Dismiss and Compel Arbitra-

tion filed by Defendant T-Mobile, USA, Inc. (“T-

’ Mobile”). Having considered the parties’ pleadings

4a

and the relevant legal authority and having had

the benefit of oral argument, the Court HEREBY

DENIES AS MOOT Plaintiffs’ Motion to Strike and

DENIES T-Mobile’s Motion to Dismiss and Compel

Arbitration.

PROCEDURAL HISTORY

On July 12, 2005, Plaintiffs filed a Complaint in

Alameda County Superior Court. T-Mobile filed a

notice of removal on September 15, 2005. (See Docket

No. 1.) On September 26, 2005, Plaintiffs filed their

First Amended Complaint (“FAC”) alleging causes of

action for violations of California’s Consumer Legal.

Remedies Act (“CLRA”), violations of California Busi-

ness and Professions Code § 17200, et seg. (“Section

17200”), violations of California Business and Profes-

sions Code § 17500, et seg. (“Section 17500”), and

breach of contract on behalf of themselves and a

putative class. T-Mobile filed its Answer to the FAC

on October 11, 2005.

On December 8, 2005, Plaintiffs moved to strike

T-Mobile’s third affirmative defense, which asserts

that Plaintiffs are bound to arbitrate their claims. On

December 15, 2005, T-Mobile moved to dismiss and

compel arbitration.

FACTUAL BACKGROUND’

A. Plaintiff Manjit Singh

In or about August 2002, Singh activated wireless

telephone service with T-Mobile and has had continu-

ous service since that time. (Declaration of Derek

Chang in Support of T-Mobile USA, Inc.’s Motion to

* The facts set forth herein are undisputed unless specifically

noted.

5a

Dismiss and Compel Arbitration (“Chang Decl.”),

{ 4.) T-Mobile states that in order to activate his

service, Singh would have been required to sign

a service agreement. T-Mobile further asserts that

Singh’s service agreement would have been main-

tained by the dealer from whom Singh purchased his

service. (See Chang Decl., J 8, Ex. 3 at 1 (service

agreement containing section entitled “Customer

Acceptance (Required)”).) Singh’s signed service agree-

ment is not part of the record; rather, T-Mobile prof-

fers the version of its service agreement in place in

August 2002 (hereinafter, “the 2002 Service Agree-

ment”).

The 2002 Service Agreement contains the following

language, in small but bold font, immediately above

the signature line: “You also acknowledge that you

have received and reviewed the T-Mobile Terms and

Conditions, and agree to be bound by them... .

Disputes are subject to mandatory arbitration in

accordance with paragraph 3 on the reverse.”

Paragraph 3, in turn, provides in full:

Mandatory Arbitration; Dispute Resolution. ANY

CLAIM OR DISPUTE BETWEEN YOU AND

US ARISING UNDER OR IN ANY WAY

RELATED TO OR CONCERNING THE AGREE-

MENT, AND/OR OUR PROVISION TO YOU OF

GOODS, SERVICE, OR UNITS SHALL BE

SUBMITTED TO FINAL, BINDING ARBITRA-

TION WITH THE AMERICAN ARBITRATION

ASSOCIATION (“AAA”) PURSUANT TO ITS

PUBLISHED WIRELESS INDUSTRY ARBI-

TRATION RULES, INCORPORATED HEREIN

* The reverse side of the 2002 Service Agreement is captioned

“T-Mobile Terms and Conditions.” (Chang Decl., Ex. 3 at 2.)

6a

BY THIS REFERENCE AND AVAILABLE BY

CALLING THE AAA AT 800-778-7879 OR VIS-

ITING ITS WEBSITE AT http://www.adr.org.

Any arbitration proceeding shall be subject to the

choice of law provision in Paragraph 22. Notice of

an arbitration commenced by you must be served

on our registered agent. No party may act as

a representative of other claimants or potential

claimants in any dispute, and two or more

individuals’ disputes may not be consolidated or

otherwise determined in one proceeding. An

arbitrator may not award relief in excess of or

inconsistent with the provisions of the Agree-

ment, order consolidation or arbitration on a

classwide basis, or award lost profits, punitive,

incidental or consequential damages or any other

damages other than the prevailing party’s direct

damages, except that the arbitrator may order

injunctive or declaratory relief pursuant to appli-

cable law. All administrative expenses of an

arbitration will be equally divided between you

and Us, except if the claim is less than $1000,

you will be obligated to pay only $25. If the claim

is less than $25, We will pay all administrative

expenses. Each party agrees to pay the fees and

costs of its own counsel, experts, and witnesses

at the arbitration. Subject to the foregoing

limitations on consolidated or classwide proceed-

ings, you agree, however, that if you fail to

timely pay amounts due, We may assign your

account for collection and the collection agency

may pursue such claims in court limited strictly

to the collection of the past due debt and any

interest or cost of collection permitted by law or

the Agreement. YOU ACKNOWLEDGE AND

AGREE THAT THIS ARBITRATION PROVI-

Ta

SION CONSTITUTES A WAIVER OF ANY

RIGHT TO LOST PROFITS, PUNITIVE, SPE-

CIAL, INDIRECT, INCIDENTAL, CONSE-

QUENTIAL, OR TREBLE DAMAGES (“DIS-

CLAIMED DAMAGES”), A JURY TRIAL OR

PARTICIPATION AS A PLAINTIFF OR AS A

CLASS MEMBER IN A CLASS ACTION. IF

FOR ANY REASON THIS ARBITRATION

CLAUSE IS DEEMED INAPPLICABLE OR

INVALID, YOU AND WE BOTH WAIVE

ANY CLAIMS TO RECOVER DISCLAIMED

DAMAGES AND ANY RIGHT TO PURSUE, OR

PARTICIPATE AS A PLAINTIFF OR AS A

CLASS MEMBER IN, CLAIMS ON A CLASS-

WIDE, CONSOLIDATED, OR REPRESENTA-

TIVE BASIS.

(Chang Decl., Ex. 3.)°

In April 2004, Singh exchanged his handset. (/d.,

current T-Mobile Welcome Guide was included with

his phone and contained a section outlining T-

Mobile’s terms and conditions. (/d., and Ex. 5.) Para-

graph 1 of those terms and conditions states:

[T]he T-Mobile Service Agreement you agreed to,

and the terms and conditions related to use of

any other T-Mobile service (together, the “Agree-

ment”) govern the use of the Service and your

Unit. These Terms and Conditions supersede all

earlier versions and, among other provisions,

impose an early cancellation fee (see paragraph

* The Court will not speculate as to the exact size of the font,

however in the copy of the document provided to the Court, the

font size is significantly smaller than the 12 point font used in

this Order.

8a

7) and require mandatory arbitration of disputes

_ (see paragraph 3). If there is a conflict between

the Agreement and the T-Mobile terms and

conditions sent with your Unit, the Agreement

shall prevail.

(Chang Decl., Ex. 5 at T_M0000796.) Paragraph 2

provides that activation of service constitutes accep-

tance of the “Agreement.” (Jd.) Paragraph 3 contains

the same version of the arbitration clause contained

in the 2002 Service Agreement. (Compare Chang

Decl., Ex. 3 with Chang Decl., Ex. 5 at T_ M000796.)

B. Plaintiff Kevin Janda.

On or about March 31, 2005, Janda executed a T-

Mobile service agreement (hereinafter, the “2005 Ser-

vice Agreement”). (Chang Decl., 4 6, Ex. 1.) The 2005

Service Agreement provides, in pertinent part:

¢ THIS IS MY CONTRACT WITH T-MOBILE

. . . 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. ...

{ UNDERSTAND THAT THE SERVICE

AGREEMENT AFFECTS MY AND MT:

MOBILE’S LEGAL RIGHTS. AMONG

OTHER THINGS, IT REQUIRES MANDA-

TORY ARBITRATION OF DISPUTES;

9a

¢ REQUIRES MANDATORY ARBITRA-

TION OF DISPUTES;

¢ REQUIRES MANDATORY WAIVER OF

THE RIGHT TO JURY TRIAL AND

WAIVER OF ANY ABILITY TO PAR-

TICIPATE IN A CLASS ACTION.

(/d., emphasis in original.)

Paragraph 3 of the T-Mobile terms and conditions

applicable to Janda provides, in pertinent part:

Mandatory Arbitration; Dispute Resolution. YOU

WILL FIRST NEGOTIATE WITH US IN GOOD

FAITH TO SETTLE ANY CLAIM OR DIS-

PUTE BETWEEN YOU AND US IN ANY WAY

RELATED TO OR CONCERNING THE

AGREEMENT, OR OUR PROVISION TO YOU

OF GOODS, SERVICES, OR UNITS (“CLAIM”).

YOU MUST SEND A WRITTEN DESCRIPTION

OF YOUR CLAIM TO OUR REGISTERED

AGENT (See Sec. 22), IF YOU DO NOT REACH

AGREEMENT WITH US WITHIN 30 DAYS,

INSTEAD OF SUING IN COURT, YOU AGREE

THAT ANY CLAIM MUST BE SUBMITTED TO

FINAL, BINDING ARBITRATION WITH THE

AMERICAN ARBITRATION ASSOCIATION

(“AAA”) UNDER ITS PUBLISHED WIRELESS

INDUSTRY ARBITRATION RULES, WHICH

ARE A PART OF THIS AGREEMENT BY THIS

REFERENCE AND WHICH ARE AVAILABLE

BY CALLING THE AAA AT 800-778-7879 OR

BY VISITING ITS WEBSITE AT http://www.

adr.org.

Neither you nor we may be a representative of

other potential claimants or a class of potential

claimants in any dispute, nor may two or more

10a

individuals’ disputes be consolidated or other-

wise determined in one proceeding. While the

prohibition on consolidated or class wide proceed-

ings in this Sec. 3 will continue to apply: (a) you

may take claims to small claims court, if they

qualify for hearing by such court and (b) if you

fail to timely pay amounts due, we may assign

your account for the collection and the collection

agency may pursue such claims in court limited

strictly to the collection of the past due debt and

any interest or cost of collection permitted by law

or the Agreement. YOU AND WE ACKNOWL-

EDGE AND AGREE THAT THIS SEC. 3

WAIVES ANY RIGHT TO A JURY TRIAL OR

PARTICIPATION AS A PLAINTIFF OR AS A

CLASS MEMBER 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 ARBI-

TRATION AGREEMENT WILL NOT APPLY

AND OUR DISPUTE WILL BE RESOLVED BY

A COURT OF APPROPRIATE JURISDICTION,

OTHER THAN A SMALL CLAIMS COURT.

SHOULD ANY OTHER PROVISION OF THIS

ARBITRATION AGREEMENT BE DEEMED

UNENFORCEABLE, THAT PROVISION SHALL

BE REMOVED, AND THE AGREEMENT

SHALL OTHERWISE REMAIN BINDING.

(Chang Decl., Ex. 2 at T_M0000042, emphasis in

original.)*

* See note 3, supra.

lla

ANALYSIS

A. Plaintiffs’ Motion to Strike Affirmative Defense

Federal Rule of Civil Procedure 12(f) provides, in

pertinent part, that “[ulpon motion made by a party.

before responding to a pleading or, if no responsive

pleading is permitted by these rules, upon motion

made by a party within 20 days after the service of

the pleading upon the party . . . the court may order

stricken from any pleading any insufficient de-

fense. ...” Fed.R.Civ.P. 12(f).

In their motion, Plaintiffs challenge the legal suffi-

ciency of T-Mobile’s affirmative defense on arbitra-

tion. Because the Court is required to address that

question in the context of Defendant’s motion to

dismiss or compel, the Court DENIES AS MOOT

Plaintiffs’ motion to strike.

B. T-Mobile’s Motion to Dismiss and Compel

Arbitration

T-Mobile moves to dismiss Plaintiffs’ complaint in

favor of arbitration pursuant to their respective arbi-

tration clauses. Plaintiffs assert that T-Mobile’s arbi-

tration clauses are procedurally and. substantively

unconscionable and, therefore, cannot be enforced.

1. Applicable Legal Standards.

A written provision in... 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, . . . 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.

Once a court has determined that an arbitration

agreement relates to a transaction involving inter-

12a

state commerce, thereby falling under the Federal

Arbitration Act (“FAA”), a court’s only role is to deter-

mine whether a valid arbitration agreement exists

and whether the scope of the parties’ dispute falls

within that agreement. See 9 U.S.C. § 4; Chiron Corp.

v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130

(9th Cir.2000).

The FAA represents the “liberal federal policy

favoring arbitration agreements” and “any doubts

concerning the scope of arbitrable issues should be

resolved in favor of arbitration.” Moses H. Cone

Mem1 Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-

25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Under the

FAA, if a court determines that the parties have

agreed to arbitrate, that the agreement has not been

honored, and that the dispute falls within the scope

of that agreement, a court must order arbitration.

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 400, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

Notwithstanding the liberal policy favoring arbitra-

tion, by entering into an arbitration agreement, two

parties are entering into a contract. Volt Info.

Sciences, Inc. v. Board of Trustees of Leland Stanford

Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248,

103 L.Ed.2d 488 (1989) (noting that arbitration “is a

matter of consent, not coercion”). Thus, an arbitration

agreement is “subject to all defenses to enforcement

that apply to contracts generally.” Ingle v. Circuit

City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir.2003);

see also Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.

681, 686, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)

(“[S]tate law may be applied ‘if that law arose to

govern issues concerning the validity, revocability,

and enforceability of contracts generally.”) (quoting

Perry v. Thomas, 482 U.S. 485, 492 n. 9, 107 S.Ct.

13a

2520, 96 L.Ed.2d 426 (1987)) (emphasis omitted).

“Courts may not, however, invalidate arbitration

agreements under state law applicable only to arbi-

tration provisions.” Doctor’s Assocs., 517 U.S. at 687,

116 S.Ct. 1652 (emphasis in original).

The Supreme Court recently has reiterated that,

with respect to challenges to arbitration agreements,

“an arbitration provision is severable from the re-

mainder of the contract.” Buckeye Check Cashing,

Inc. v. Cardegna, ___ U.S. ___, 126 S.Ct. 1204, 1209,

163 L.Ed.2d 1038 (2006). Unless a party raises a

challenge to the arbitration clause itself, “the issue of

the contract’s validity is considered by the arbitrator

in the first instance.” Jd. Therefore, although it is

with-in this Court’s province to determine whether a

valid agreement to arbitrate exists, disputes over the

meaning of specific terms within that agreement are

matters for the arbitrator to decide. See Howsam uv.

Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct.

588, 154 L.Ed.2d 491 (2002); Prima Paint, 388 U.S.

at 403-04, 87 S.Ct. 1801 (holding that a “federal court

may consider only issues relating to the making and

performance of the agreement to arbitrate”) (emphasis

added).

2. The Plaintiffs Agreed to Arbitrate and the

Claims Are Within the Scope of the Arbitration

Clause.

Janda concedes that he signed the 2005 Service

Agreement, which incorporates »y reference T-Mobile’s

terms and conditions and states that arbitration is

required. Those terms and conditions, in turn, con-

tain the arbitration clause. Thus, the Court concludes

that an agreement exists between Janda and T-

Mobile to arbitrate disputes.

14a

Singh argues that T-Mobile has not shown he

agreed.to arbitrate his claims. It is undisputed,

however, that Singh activated phone service with T-

Mobile and exchanged his handset in 2004. According

to T-Mobile’s terms and conditions, activation of

service constitutes acceptance of T-Mobile’s terms

and conditions, including the arbitration clause. (See

Chang Decl., Ex. 4 at T_M0000643, Ex. 5 at

T_M0000796.) The terms and conditions Singh would

have received with his original phone and his new

handset contain the same arbitration clause con-

tained in the service agreement alleged to be applica-

ble to him. (Compare id., Ex. 3 with Exs. 4, 5.) As

such, the Court concludes that T-Mobile has estab-

lished that an agreement exists between Singh and

T-Mobile to arbitrate disputes.

Because Plaintiffs do not dispute that the majority

of their claims fall within the arbitration clauses or

that they have honored the agreement, unless the

arbitration clauses are not enforceable based: “upon

such grounds as exist at law or in equity for the

revocation of any contract,” the Court must compel

arbitration.”

3. The Arbitration Clauses Should Not Be

Enforced.

Plaintiffs contend that the arbitration clauses

are unconscionable and, therefore, unenforceable.

Under California law, the “[u]nonscionability analy-

sis begins with an inquiry into whether the con-

tract is one of adhesion.” Armendariz v. Foundation

Health Psychcare Servs., Inc., 24 Cal.4th 83, 113,

* In light of the Court’s ruling denying the motion to compel,

the Court does not reach the issue of whether Plaintiffs’ claims

for injunctive relief are arbitrable.

15a

99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). As the

Armendariz court explained, a contract of adhesion

“signifies a standardized contract, which, imposed

and drafted by the party of superior bargaining

strength, relegates to the subscribing party only the

opportunity to adhere to the contract or reject it.” Jd.

(quoting Neal v. State Farm Ins. Co., 188 Cal.App.2d

690, 694, 10 Cal.Rptr. 781 (1961)).

When a party challenges an arbitration agreement

on the basis of unconscienability, that party must

demonstrate that the arbitration agreement is both

procedurally and substantively unconscionable. See

id. at 114, 99 Cal.Rptr.2d 745, 6 P.3d 669. Although a

party must establish both elements, those elements

exist on a sliding scale. Jd. “In other words, the more

substantively oppressive the contract term, the less

evidence of procedural unconscionability is required

to come to the conclusion that the term is unenforce-

able, and vice versa.” Id.

a. Plaintiffs have met their burden to show

that the arbitration clauses are procedurally

unconscionable.

“Procedural unconscionability addresses the man-

ner in which agreement to the disputed term was

sought or obtained, such as unequal bargaining

power between the parties and hidden terms included

in contracts of adhesion.” Szetela v. Discover Bank, 97

Cal.App.4th 1094, 1099, 118 Cal.Rptr.2d 862 (2002),

cf. Armendariz, 24 Cal.4th at 114, 99 Cal. Rptr.2d

745, 6 P.3d 669 (procedural element focuses on “op-

pression” or “surprise”). When a weaker party “is pre-

sented [a] clause and told to ‘take it or leave it’

without the opportunity for meaningful negotiation,

oppression, and therefore procedural unconscionabil-

16a

ity” will be present. Szetela, 97 Cal.App.4th at 1100,

118 Cal.Rptr.2d 862.

Plaintiffs argue that the arbitration clauses are

procedurally unconscionable primarily on the basis

that the “the arbitration provisions . . . are contained

in form, adhesion contracts.” Although the Service

Agreements and Welcome Guides in question would

satisfy the definition of an “adhesion contract” as set

forth in Armendariz, the Court expresses no opinion

whether those documents in their entirety are uncon-

scionable. Rather, the Court focuses its analysis on

the arbitration clauses, which Plaintiffs also contend

are procedurally unconscionable. See Buckeye, 126

S.Ct. at 1209.

Piaintiffs claim that the arbitration clauses are

procedurally unconscionable because these clauses

are buried and in small font in the Welcome Guide

that is included in T-Mobile’s phone box, rather than

on the face of a Service Agreement. Janda’s 2005

Service Agreement states on its face that it requires

mandatory arbitration of disputes, mandatory waiver

of the right to jury trial, and mandatory waiver of the

ability to participate in a class action. (Chang: Decl.,

Ex. 1.) However, the entire arbitration clause is not

set forth in the 2005 Service Agreement. Rather, it is

contained on page 49 of T-Mobile’s over 60 page

Welcome Guide. As to Plaintiff Singh, the front of the

2002 Service Agreement states in small but bold font

that “[d]isputes are subject to mandatory arbitration

in accordance with paragraph 3 on the reverse,” and

the arbitration clause at issue is set forth in full on

the reverse of that agreement, again in small font. In

addition, as with Janda, the arbitration clause is

also not set forth until near the end of the Welcome

Guide. Plaintiffs also claim that the arbitration

17a

clauses were presented on a take it or leave it basis,

and T-Mobile admits that Janda and Singh could not

have obtained service without agreeing to arbitrate.

The Court concludes that on these facts Plaintiffs

have set forth sufficient evidence to show that the

arbitration clauses applicable to their claims are pro-

cedurally unconscionable.

b. Plaintiffs have met their burden to show

that the class action waiver cannot be

enforced.

Under California law, the concept of substantive

unconscionability relates to the actual terms of the

arbitration agreement and whether those terms are

“overly harsh” or “one-sided.” Armendariz, 24 Cal.4th

at 114, 99 Cal.Rptr.2d 745, 6 P.3d 669. Plaintiffs,

contend that the arbitration clauses’ prohibitions on

class treatment render them substantively uncon-

scionable under the California Supreme Court’s hold-

ing in Discover Bank v. Superior Court, 36 Cal.4th

148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005). In

Discover Bank, that court held that, while not all

class action waivers are unconscionable,

when the waiver is found in a consumer contract

of adhesion in a setting in which disputes be-

tween the contracting parties predictably involve

small amounts of damages, and when it is al-

leged that the party with the superior bargaining

power has carried out a scheme to deliberately

cheat large numbers of consumers out of indi-

vidually small sums of money, then, at least to

the extent the obligation at issue is governed by

California law, the waiver becomes in practice

the exemption of the party “from responsibility

for [its] own fraud, or willful injury to the person

or property of another.” (Civ.Code, § 1668.)

18a

Under these circumstances, such waivers are

unconscionable under California law and should

not be enforced.

Discover Bank, 36 Cal.4th at 162-63, 30 Cal.Rptr.3d

76, 113 P.38d 1100. The Court concludes that the

rationale of Discover Bank applies in this case.

It is undisputed that the contracts at issue in this

case, as a whole, are standardized consumer con-

tracts which were imposed and drafted by T-Mobile,

the party of superior bargaining strength, and the

Plaintiffs were provided only the opportunity to ad-

here to the contract or reject it. Thus, without ex-

pressing an opinion on the validity of the Service

Agreements and Welcome Guides in their entirety,

they would satisfy the. definition of an adhesion

contract as set forth in Armendariz. Armendariz, 24

Cal.4th at 113, 99 Cal.Rptr.2d 745, 6 P.3d 669. Thus,

the Court concludes that the first of the three con-

siderations elucidated in Discover Bank is satisfied

here. T-Mobile also has not contested that the

disputes involved in this case, on an individual basis,

involve small amounts of damages. (See, e.g., Notice

of Removal { 5.) Thus, the second of the three con-

siderations elucidated in Discover Bank is satisfied.

The final question the Court must consider is

whether the complaints allege “a scheme to deliber-

ately cheat large numbers of consumers out of indi-

vidually small sums of money.” Discover Bank, 36

Cal.4th at 163, 30 Cal.Rptr.3d 76, 113 P.3d 1100. In

the FAC, Plaintiffs allege that T-Mobile charged a

“Universal Service Fund Fee” and/or a “Regulatory

Cost Recovery Fee” in addi_ion to the posted and

advertised cost of mobile service, which it was not

required by law to impose. Plaintiffs further contend

that these fees “were created and imposed by [T-

19a

Mobile] on its customers, to cover the cost of” what

was in fact an ordinary business expense. (FAC, {{ 1,

3-9.) Plaintiffs also allege that T-Mobile charged its

customers for telephone calls during a billing period

in a billing period other than which the calls were

made, i.e. for “calls that exceed their monthly allot-

ment of minutes during billing periods other than the

billing periods in which the allotment was actually

exceeded.” (/d., 7] 1, 10-12.) Finally, Plaintiffs

contend they were improperly charged for “roaming

fees, long distance fees, T-Mobile to T-Mobile fees,

and weekend and/or nighttime fees that were

supposed to be free of charge.” (/d., {J 1, 13.)

Plaintiffs contend that each of these alleged prac-

tices violate California laws on unfair competition,

consumer protection and false advertising and also

constitute breaches of contract. ‘The Court finds these

allegations satisfy the last prong of the Discover

Bank test and concludes that enforcing the class

action waiver would effectively exempt T-Mobile

“from responsibility for [its] own fraud or willful in-

jury to the person or personal property of another.”

Discover Bank, 36 Cal.4th at 163, 30 Cal.Rptr.3d 76,

113 P.3d 1100 (quoting Cal. Civ.Code, § 1668). See

also Laster v. T-Mobile U.S.A., Inc., 407 F.Supp.2d

1181, 1190-92 (S.D.Cal.2005) (finding class waiver

provision in T-Mobile arbitration clause substan-

tively unconscionable under Discover Bank and unen-

forceable where plaintiffs demonstrated procedurally

unconscionability).

T-Mobile asserts that the holding in Discover Bank

does not appiy to contracts in general and, thus, is

preempted by the FAA. The California Supreme

Court expressly rejected this argument after it exam-

ined and applied pertinent United States Supreme

20a

Court authority on the issue. Discover Bank, 36

Cal.4th at 163-67, 30 Cal.Rptr.3d 76, 113 P.3d 1100.

The Ninth Circuit similarly has rejected the preemp-

tion argument. See Ingle, 328 F.3d at 1176 n. 15.

Indeed, in Ingle the Ninth Circuit rejected the rea-

soning of the appeals court for the same reason that

the California Supreme Court rejected the court of

appeal’s decision, namely that its holding was prem-

ised on a conclusion that the prohibition against class

actions was substantively unconscionable, a defense

applicable to all contracts not just contracts contain-

ing arbitration clauses. Id.; cf. Ting v. AT&T, 319

F.3d 1126, 1152 (9th Cir.2003) (finding no preemp-

tion where trial court’s decision was based on find-

ings that agreement at issue was substantively

unconscionable, a defense applicable to all contracts).

Accordingly, the Court finds that the class action

waiver is substantively unconscionable and, there-

fore, is unenforceable. This finding resolves the

motion as.to Janda because the express terms of his

arbitration agreement provide that, “[i]Jf a court or

arbitrator determines that your waiver of your ability

to pursue a class or representative claims is unen-

forceable, the arbitration agreement will not apply

and our dispute will be resolved by a court of appro-

priate jurisdiction, other than a small claims court.”

(Chang Decl., Ex. 2.) The arbitration clause applica-

ble to Singh does not, however, contain this language.

Thus, the Court must determine whether the class

waiver can be severed from the arbitration clause.

c. Singh’s arbitration clause is permeated with

an unlawful purpose and shall not be

enforced.

Under California law, “[ilf the central purpose of

[a] contract is tainted with illegality, then the con-

2la

tract as a whole cannot be enforced. If the illegality is

collateral to the main purpose of the contract, and the

illegal provision can be extirpated from the contract

by means of severance or restriction, then such sever-

ance and restriction are appropriate.” Armendariz, 24

Cal.4th at 124, 99 Cal.Rptr.2d 745, 6 P.3d 669. In

Armendariz, the California Supreme Court declined

to sever what it found to be unconscionable provi-

sions of an arbitration agreement because those

provisions so permeated the arbitration clause with

an unlawful purpose that they could not be severed.

Id. That court also noted that there was no single

provision that the trial court could strike or restrict

without having to “in effect, reform the contract, not

through severance or restriction, but by augmenting

it with additional terms. [California] Civil Code

section 1670.5 does not authorize such reformation by

augmentation. .. .” Jd. at 125, 99 Cal.Rptr.2d 745,

6 P.3d 669. “Nor do courts have any such power

limited authority to reform

contracts.” Id. Therefore, the California Supreme

Court concluded the trial court had not abused its

discretion in voiding the offending arbitration clause

in its entirety. Id.

In addition to the class waiver provision, Singh’s

arbitration clause provides that “an arbitrator may

not award relief in excess of or inconsistent with the

provisions of the Agreement... or award lost profits,

punitive, incidental or consequential damages or

any other damages other than the prevailing party’s

direct damages.” (Chang Decl., Ex. 3, Ex. 5 at

T_M0000796.) The arbitration clause further pro- ~

vides that “[elach party agrees to pay the fees and

costs of its own counsel... at the arbitration,” which

based on the language above would appear to limit a

customer’s ability to seek attorneys’ fees to which he

22a

or she might otherwise be entitled. (/d.) Therefore, to

the extent these provisions would deprive an arbitra-

tor to award Singh “authorized remedies, or relief in

court that would otherwise be allowable to” him,

these provisions are also unconscionable. See Inde-

pendent Ass’n of Mailbox Center Owners v. Superior

Court, 133 Cal.App.4th 396, 411-12, 34 Cal.Rptr.3d

659 (2005).° Finally, although neither party focuses

on this provision of Singh’s arbitration clause, it pro-

vides that if it is found to be unenforceable, the

parties “waive any claims to recover disclaimed dam-

ages and any right to pursue or participate as a

plaintiff or as a class member in claims on a class-

wide, consolidated, or representative basis,” i.e. T-

Mobile attempts to import the unconscionable pro-

visions into the judicial forum. The Court finds this

provision to be unconscionable as well.

Accordingly, the. Court concludes that the class

waiver and limitations on remedies provisions, as

well as the fact that T-Mobile attempts to import

these unconscionable provisions from the arbitral to

*T-Mobile argues that the Ninth Circuit’s holding in Ting,

precludes this Court from striking the limitations on remedies

provisions because these remedies are only available under the

CLRA. T-Mobile contends that the FAA preempts application of

the CLRA. See Ting, 319 F.3d at 1148. The Ninth Circuit’s

holding on preemption, however, was based upon the fact that

the district court had applied the CLRA’s antiwaiver provision

to void provisions of the arbitration agreement, something this

Court has not done. See id.(finding CLRA was not law of general

applicability and, therefore, antiwaiver provision of that act was

preempted by the FAA). In contrast, this Court’s decision is

based upon the fact that the provisions are unconscionable, a

principle of law applicable to all contracts. See id. at 1149-50

(affirming district court’s decision on grounds that offending

provisions were unconscionable).

23a

the judicial forum so permeates Singh’s arbitration

clause with an unlawful purpose that these offending

provisions cannot be severed or restricted because to

do so would essentially result in reforming Singh’s

arbitration clause. See Armendariz, 24 Cal.4th at

124, 99 Cal.Rptr.2d 745, 6 P.3d 669. Accordingly, the

Court concludes that Singh’s arbitration clause must

be voided in its entirety.

CONCLUSION

For the foregoing reasons, the Court HEREBY

DENIES T-Mobile’s motion to compel arbitration and

DENIES AS MOOT Plaintiffs’ motion to strike. The

parties shall appear for a case management confer-

ence on Friday, May 26, 2006 at 1:30 p.m. The

parties’ joint case management conference statement

shall be due on Friday, May 19, 2006.

IT IS SO ORDERED.

24a

APPENDIX C

T-MOBILE TERMS AND CONDITIONS

* *K *K

3. Mandatory Arbitration: Dispute Resolution. ANY

CLAIM OR DISPUTE BETWEEN YOU AND US

ARISING UNDER OR IN ANY WAY RELATED TO

OR CONCERNING THE AGREEMENT, AND/OR

-OUR PROVISION TO YOU OF GOODS, SERVICE,

OR UNITS SHALL BE SUBMITTED TO FINAL,

BINDING ARBITRATION WITH THE AMERICAN

ARBITRATION ASSOCIATION (“AAA”) PUR-

SUANT TO ITS PUBLISHED WIRELESS INDUS-

TRY ARBITRATION RULES, INCORPORATED

HEREIN BY THIS REFERENCE AND AVAILABLE

BY CALLING THE AAA AT 800-778-7879 OR

VISITING ITS WEB SITE AT www.adr.org. Any

arbitration proceeding shall be subject to the choice

of law provision in paragraph 22. Notice of an

arbitration commenced by you must be served on our

registered agent. No party may act as a represen-

tative of other claimants or potential claimants in

any dispute, and two or more individuals’ disputes

may not be consolidated or otherwise determined in

one proceeding. An arbitrator may not award relief

in excess of or inconsistent with the provisions of the

Agreement, order consolidation or arbitration on a

classwide basis, or award lost profits, punitive, in-

cidental, or consequential damages or any other

damages other than the prevailing party’s direct

damages, except that the arbitrator may order

injunctive or declaratory relief pursuant to applicable

law. All administrative expenses of an arbitration

will be equally divided between you and Us, except if

the claim |: less than $100, you will be obligated to

pay only $25. If the claim is less than $25, We will

25a

pay all administrative expenses. Each party agrees

to pay the fees and costs of its own counsel, experts,

and witnesses at the arbitration. Subject to the

foregoing limitations on consolidated or classwide

proceedings, you agree, however, that if you fail to

timely pay amounts due, We may assign your account

- for collection and the collection agency may pursue

such claims in court limited strictly to the collection

of the past due debt and any interest or cost of

collection permitted by law or the Agreement.

YOU ACKNOWLEDGE AND AGREE THAT THIS

ARBITRATION PROVISION CONSTITUTES A

WAIVER OF ANY RIGHT TO LOST PROFITS,

PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL,

CONSEQUENTIAL, OR TREBLE DAMAGES

(“DISCLAIMED DAMAGES”), A JURY TRIAL OR

PARTICIPATION AS A PLAINTIFF OR AS A

CLASS MEMBER IN A CLASS ACTION. IF FOR

ANY REASON THIS ARBITRATION CLAUSE IS

DEEMED INAPPLICAB UE OR INVALID, YOU AND

WE BOTH WAIVE ANY CLAIMS TO RECOVER

DISCLAIMED DAMAGES AND ANY RIGHT TO

PURSUE, OR PARTICIPATE AS A PLAINTIFF OR

AS A CLASS MEMBER IN, CLAIMS ON A

CLASSWIDE, CONSOLIDATED, OR REPRESEN-

TATIVE BASIS.

* * * *

Ph erel

T "AOBILE TERMS AND CONDITIONS

*x* Ke K

3. Mandatory Arbitration: Dispute Resolution. YOU

WILL. FIRST NEGOTIATE WITH US IN GOOD

FAITH TO SETTLE ANY CLAIM OR DISPUTE

BETWEEN YOU AND US IN ANY WAY RELATED

TO QR CONCERNING THE AGREEMENT, OR

OUR PROVISION TO YOU OF GOODS, SERVICES,

OR WNITS (“CLAIM”). YOU MUST SEND A

WRITTEN DESCRIPTION OF YOUR CLAIM TO

OUR REGISTERED AGENT (See Sec. 22). IF YOU

DO NOT REACH AGREEMENT WITH US WITHIN

30 DAYS, INSTEAD OF SUING IN COURT, YOU

AGRIJEE THAT ANY “LAIM MUST BE SUBMITTED

TO FINAL, BINDING ARBITRATION WITH THE

AME:RICAN ARBITRATION ASSOCIATION (“AAA”)

UNDER ITS PUBLISHED WIRELESS INDUS-

TRY ARBITRATION RULES, WHICH ARE A PART

OF ‘THE AGREEMENT BY THIS REFERENCE

AND ARE AVAILABLE BY CALLING THE AAA AT

800-778-7879 OR VISITING ITS WEB SITE AT

www’.adr.org. You must serve our registered agent

(See Sec. 22) with a notice of an arbitration in order

to begin an arbitration. This agreement to arbitrate

extemds to claims that you assert against other par-

ties, including without limit equipment manufac-

turers and dealers, if you also assert claims against

us im the same proceeding. The Agreement involves

interstate commerce and despite the choice of law

provision in Sec. 25, the Federal Arbitration Act and

federal arbitration law govern arbitrations under the

Agreement. An arbitrator may only award as much

relief as a court having jurisdiction in the place of

arbitration, limited to the same extent that a court

woulld limit such relief and consistent with the

27a

provisions of the Agreement. An arbitrator may

order injunctive or declaratory relief (so long as that

injunctive or declaratory relief does not apply beyond

your dealings with us) or summary judgment under

applicable law. AAA has a fee schedule for arbitra-

tions. You will pay your share of the arbitrator’s fees

except: (a) for claims less than $25, we will pay all

arbitrator’s fees and (b) for claims between $25 and

$1000, you will pay $25 for the arbitrator’s fee. You

and we agree to pay our own other fees, costs and

expenses including those for counsel, experts, and

witnesses. Visit www.adr.org arbitrator fee informa-

tion in hardship circumstances.

Neither you nor we may be a representative of

other potential claimants or a class of potential

claimants in any dispute, nor may two or more

individuals’ disputes be consolidated or otherwise

determined in one proceeding. While the prohibition

on consolidated or classwide proceedings in wis Sec.

3 wiii continue to apply: (a) you may take claims to

small claims court, if they qualify for hearing by such

court and (b) if you fail to timely pay amounts due,

we may assign your account for collection and the

collection agency may pursue such claims in court

limited strictly to the collection of the past due debt

and any interest or cost of collection permitted by law

or the Agreement. YOU AND WE ACKNOWLEDGE

AND AGREE THAT THIS SEC. 3 WAIVES ANY

RIGHT TO A JURY TRIAL OR PARTICIPATION AS

A PLAINTIFF OR AS A CLASS MEMBER IN A

CLASS ACTION. IF A COURT OR ARBITRATOR

DETERMINES THAT YOUR WAIVER OF YOUR

ABILITY TG PURSUE CLASS OR REPRESEN-

TATIVE CLAIMS IS UNENFORCEABLE, THE

ARBITRATION AGREEMENT WILL NOT APPLY

AND OUR DISPUTE WILL BE RESOLVED BY A

28a

COURT OF APPROPRIATE JURISDICTION,

OTHER THAN A SMALL. CLAIMS COURT.

SHOULD ANY OTHER PROVISION OF THIS

ARBITRATION AGREEMENT BE DEEMED

UNENFORCEABLE, THAT PROVISION SHALL BE

REMOVED, AND THE AGREEMENT SHALL

OTHERWISE REMAIN BINDING.

* * * *