Chad Carter v. Rent-A-Center, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 12, 2017
• Docket: 16-15835
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 12 2017 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

CHAD CARTER, No. 16-15835

Plaintiff-Appellant, D.C. No. 2:15-cv-00178-GMN-CWH v.

RENT-A-CENTER, INC., MEMORANDUM*

Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada Gloria M. Navarro, Chief Judge, Presiding

Argued and Submitted October 20, 2017 San Francisco, California

Before: WALLACE and CALLAHAN, Circuit Judges, and RESTANI,** Judge.

Plaintiff, Chad Carter (Carter), appeals from the district court’s decisions

compelling arbitration on an individual basis and denying Carter’s motion for

reconsideration of an order dismissing Carter’s complaint, including his class

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Jane A. Restani, Judge for the United States Court of International Trade, sitting by designation. claims. We affirm.1

1. An order to compel arbitration is not ordinarily appealable, see 9 U.S.C.

§ 4, but we have appellate jurisdiction where the district court compels arbitration

and dismisses the action. See Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d

1072, 1074 (9th Cir. 2014). Although the dismissal here was “without prejudice,”

the district court’s orders and their context “sufficiently show that the court

intended to close this case without precluding the parties from bringing a new

action after completing arbitration. It is only in this sense that the dismissal was

‘without prejudice.’” Interactive Flight Techs., Inc. v. Swissair Swiss Air Transp.

Co., 249 F.3d 1177, 1179 (9th Cir. 2001) (rejecting the argument that the court

lacked appellate jurisdiction because the district court’s dismissal was without

prejudice).

2. The decision to grant a motion to compel arbitration, including the

determination of the validity of an arbitration agreement, is reviewed de novo.

Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 816 F.3d 1208, 1211 (9th Cir.

2016). Carter does not challenge the district court’s decision to compel arbitration,

but only the decision to compel arbitration on an individual basis. That decision is

based on the district court’s ruling that the class action waiver provision in the

1 The facts are familiar to the parties and are restated here only as necessary to resolve the legal issues of the appeal.

2 “Lease-Purchase Agreement” is enforceable. Carter argues the class action waiver

provision is unconscionable under Nevada law.

Carter’s argument is foreclosed by AT&T Mobility LLC v. Concepcion, 563

U.S. 333 (2011). We have interpreted Concepcion as foreclosing any argument

that a class action waiver, by itself, is unconscionable under state law or that an

arbitration agreement is unconscionable solely because it contains a class action

waiver. See Kilgore v. KeyBank, Nat. Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013)

(en banc) (plaintiffs’ argument that a class action waiver in a promissory note is

unconscionable under California law “is now expressly foreclosed by

Concepcion”); Johnmohammadi, 755 F.3d at 1074 (noting that plaintiff, who

challenged the enforceability of a class action waiver in her employment contract,

could not “argue that the class-action waiver is unenforceable under California

law”) (citing Concepcion, 563 U.S. at 347–48). Nevada courts are in accord. See

Tallman v. Eighth Jud. Dist. Ct., 359 P.3d 113, 122 (Nev. 2015) (“Concepcion

teaches that the FAA protects class waivers in arbitration agreements, even when

requiring individual arbitration hampers effective vindication of statutory

claims.”).

Carter’s rationale for applying Nevada’s unconscionability doctrine to

invalidate the class action waiver is indistinguishable from the California Supreme

Court’s rationale in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), a

3 case expressly overruled by Concepcion.2

3. Even if Carter’s unconscionability argument were not barred by

Concepcion, his argument of procedural unconscionability is unavailing. The

Lease-Purchase Agreement, together with the arbitration agreement, is not a classic

“take-it-or-leave-it” contract. The arbitration agreement sets forth a procedure for

opting out of the arbitration agreement and states this option in prominent bold

lettering near the top of the first page of the agreement. Carter was thus free to do

business with defendant, Rent-A-Center, Inc. (Rent-A-Center), without being

bound by the arbitration agreement. See Kilgore, 718 F.3d at 1059 (concluding the

arbitration provision was not procedurally unconscionable because it allowed

students obtaining loans to reject arbitration within sixty days of signing the

promissory note); Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199 (9th Cir.

2002) (“[T]his case lacks the necessary element of procedural unconscionability.

2 To be clear, Concepcion does not foreclose application of state unconscionability doctrines to arbitration agreements generally. See Sonic- Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1142–43 (2013) (“[A]fter Concepcion, unconscionability remains a valid defense to a petition to compel arbitration.”). However, Carter’s unconscionability argument is directed at the class action waiver provision only. He does not contend the entire arbitration agreement—or any aspect of it other than the class action waiver—is unconscionable. Our decision does not provide a “sweeping reading of Concepcion” as asserted in the concurring opinion. Rather, our decision is based on the ground that Carter’s argument is foreclosed by Concepcion because, as the concurrence states, the “argument is materially indistinguishable from the rationale underlying the Discover Bank rule invalidated in Concepcion.”

4 Ahmed was not presented with a contract of adhesion because he was given the

opportunity to opt-out of the Circuit City arbitration program by mailing in a

simple one-page form [within thirty days].”).

4. The denial of a motion for reconsideration is reviewed for abuse of

discretion. Smith v. Pac. Properties & Dev. Corp., 358 F.3d 1097, 1100 (9th Cir.

2004). Carter, concerned that the district court might have dismissed his class

claims with prejudice, argues the district court abused its discretion by not

clarifying whether the dismissal was with or without prejudice. The order

dismissing the complaint clearly states the dismissal was without prejudice, which

Rent-A-Center concedes. Carter has not shown an abuse of discretion.

AFFIRMED.

5 FILED Carter v. Rent-A-Center, No. 16-15835 DEC 12 2017 WALLACE, Circuit Judge, concurring in the result: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

I concur in the result, but write separately to express my disagreement with

the majority’s reading of Concepcion. Unlike my colleagues, I do not read

Concepcion as categorically foreclosing Carter, or any other consumer, from

arguing that class action waivers in arbitration agreements are unconscionable

under state law.

I.

The issue in Concepcion was whether the Federal Arbitration Act (FAA)

preempted California’s judge-made Discover Bank rule that classified most class

action waivers in consumer contracts as unconscionable. AT & T Mobility LLC v.

Concepcion, 563 U.S. 333, 340 (2011). The Supreme Court answered this question

in the affirmative, and stressed that the Discover Bank rule—which provided that

class action waivers were unconscionable when they involved contracts of

adhesion, small amounts of damages, and disparities in bargaining power between

companies and customers—disfavored arbitration. Id. at 341–42. The Court

explained the rule could not stand because it effectively conditioned the

enforceability of arbitration agreements on the availability of classwide arbitration

procedures, thereby interfering with fundamental attributes of arbitration. Id. at

344. The holding in Concepcion reflected and reaffirmed the core principle of the

Supreme Court’s arbitration jurisprudence: that “courts must place arbitration

agreements on an equal footing with other contracts.” Id. at 339 (citing Buckeye

Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)). This principle also is

reflected in section 2 of the FAA itself, which provides that arbitration agreements

“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. Under this saving

clause, arbitration agreements may 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

Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). In other words, the FAA

recognizes the applicability of state-law based contract defenses, including

unconscionability, but preempts state-law rules that disfavor or have a

disproportionate impact on arbitration. Id. at 343–44.

Consistent with this equal footing principle, the Court in Concepcion

invalidated the Discover Bank rule because the rule applied unconscionability law

in a way that was hostile to arbitration. See id. at 343 (“Although § 2’s saving

clause preserves generally applicable contract defenses, nothing in it suggests an

2 intent to preserve state-law rules that stand as an obstacle to the accomplishment of

the FAA’s objectives.”). But the case did not call into question the availability of

state-law based unconscionability doctrine as a means of challenging class action

waivers under appropriate circumstances. Indeed, to read Concepcion as doing so

would turn the equal footing principle on its head by inoculating core provisions of

arbitration agreements from challenge. I do not think Concepcion can be so read,

nor do I think the FAA compels such a reading.

II.

The cases my colleagues cite to support their sweeping reading of

Concepcion are either distinguishable or do not directly support the proposition for

which they are cited. In Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1058 (9th

Cir. 2013), we stated that Concepcion “expressly foreclosed” plaintiffs’ argument

that a class action waiver was unconscionable under California law. But that

determination reflected the fact that the district court had relied on the Discover

Bank rule to hold the waiver at issue unconscionable. Our statement that plaintiffs’

unconscionability argument was “foreclosed by Concepcion” simply recognized

the impact of Concepcion on the continued validity of the Discover Bank rule. We

did not use Kilgore to hold that all state-law unconscionability challenges to class

action waivers were barred by Concepcion.

3 The majority also cites Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d

1072, 1074 (9th Cir. 2014), in which we stated in dicta, citing Concepcion, that

plaintiff could not argue the class action waiver in that case was unenforceable

under California law. But the plaintiff in Johnmohammadi did not challenge the

waiver at issue on unconscionability grounds. Rather, the issue in Johnmohammadi

was whether federal labor law rendered the waiver unenforceable. Our dicta in that

case should not be read as affirming an interpretation of Concepcion that was

neither advanced by the parties, nor relevant to the disposition of the case.

Finally, the majority cites Tallman v. Eighth Jud. Dist. Ct., 359 P.3d 113

(Nev. 2015), where the Nevada Supreme Court acknowledged that Concepcion

overruled a previous Nevada Supreme Court decision holding that class action

waivers in arbitration agreements were unenforceable because such waivers

violated Nevada’s public policy. But this aspect of the Tallman decision was

simply a natural application of the “equal footing” principle—i.e., that state law (in

this case, Nevada’s public policy favoring class actions) could not be applied in a

way that disfavored arbitration. No part of the Tallman decision established a rule

that Concepcion categorically bars unconscionability challenges to class action

waivers in arbitration agreements.

III.

4 The majority’s reading of Concepcion also fails to take into account the

diversity of the common law. State unconscionability doctrines vary in subtle but

important ways, and Concepcion was not premised on the assumption that all such

doctrines were as equally hostile to arbitration as the Discover Bank rule. Rather

than establish an ex ante preclusion rule foreclosing unconscionability arguments

altogether, Concepcion provides a principle to which state-law rules must adhere to

survive federal preemption. This makes sense given that not all state

unconscionability doctrines resemble the Discover Bank rule invalidated in

Concepcion.

A brief hypothetical illustrates the point. Assume that a consumer signs an

arbitration agreement containing a class action waiver, and that Washington law

governs disputes over enforceability of the waiver. Assume also that the consumer

subsequently seeks to invalidate the class action waiver by arguing the waiver is

unconscionable under Washington law. On these facts, Concepcion would not

necessarily require preemption of the state-law rule. This is because Washington

law permits a finding of unconscionability on the basis of procedural

unconscionability alone, Gandee v. LDL Freedom Enters., Inc., 293 P.3d 1197,

1199 (Wash. 2013), which may be present when the manner in which the contract

was entered, and the format and presentation of the contractual terms, indicates a

5 party lacked meaningful choice, Zuver v. Airtouch Commc’ns, Inc., 103 P.3d 753,

759–60 (Wash. 2004) (en banc). Also, unlike the Discover Bank rule,

Washington’s procedural unconscionability doctrine neither “derive[s] [its]

meaning from the fact that an agreement to arbitrate is at issue,” nor is formulated

in a way that disfavors arbitration. Concepcion, 563 U.S. at 339. A hypothetical

consumer presumably could challenge a class action waiver under Washington law

by arguing the waiver was presented in fine print or was expressed in convoluted

language, or by alleging some other form of procedural unconscionability not at

issue in Concepcion. Such a challenge would be entirely consistent with

Concepcion’s holding and rationale. That my colleagues’ reading of the case would

bar such a valid challenge highlights the error in their interpretation.

IV.

I harbor no delusions about Concepcion’s far-reaching impact on

consumers’ ability to challenge class action waivers on the basis of

unconscionability. In holding that the FAA preempted the Discover Bank rule, the

Supreme Court made clear that some of the most common features of an

unconscionability challenge—in particular, the adhesive nature of consumer

agreements and the vast disparity in bargaining power between companies and

their customers—will not invalidate class action waivers in arbitration agreements.

6 In practice, this makes it extremely difficult to invalidate class action waivers on

the basis of unconscionability. That result, however, does not justify the conclusion

that Concepcion categorically forecloses all such challenges. Although Concepcion

makes clear that generally applicable contract defenses will not survive federal

preemption when those defenses are hostile to arbitration, for the reasons stated

above I do not think the decision eliminates unconscionability challenges to class

action waivers altogether.

Nonetheless, I agree with my colleagues that Carter’s unconscionability

argument fails on the merits. Carter argues, based upon Nevada law, that the class

action waiver in this case is unconscionable because the waiver is a one-sided

contract of adhesion that was presented by a party with superior bargaining power.

This argument is materially indistinguishable from the rationale underlying the

Discover Bank rule invalidated in Concepcion. Therefore, while I disagree with the

majority’s sweeping reading of Concepcion, I concur in the result reached here.