MacClelland v. Cellco Partnership d/b/a Verizon Wireless

• Court: District Court, N.D. California
• Decided: July 1, 2022
• Docket: 3:21-cv-08592
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TERESA MACCLELLAND, et al., Case No. 21-cv-08592-EMC

8 Plaintiffs,

ORDER DENYING DEFENDANTS’ 9 v. MOTION TO COMPEL ARBITRATION AND STAY 10 CELLCO PARTNERSHIP, et al., PROCEEDINGS, AND DENYING DEFENDANTS’ REQUEST FOR 11 Defendants. LEAVE TO FILE NOTIFICATION OF CHANGE TO CUSTOMER 12 AGREEMENT 13 Docket Nos. 20, 43

14 15 I. INTRODUCTION 16 Plaintiffs, individually, as private attorneys general, and on behalf of a putative class of 17 other customers similarly situated, allege that Defendants Cellco Partnership d/b/a Verizon 18 Wireless and Verizon Communications Inc. (collectively, “Verizon”), engaged in false advertising 19 by failing to disclose an “Administrative Charge” for wireless services, and misrepresenting that 20 the fee is a tax or government regulation. Plaintiffs assert claims under California law pursuant to 21 the Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law seeking 22 public injunctive relief, private injunctive relief, and restitution. 23 Now pending is Verizon’s motion to compel the entirety of the action to arbitration subject 24 to an arbitration agreement that prohibits non-individualized relief. Docket No. 20 (Motion to 25 Compel Arbitration, or “MTC”). For the following reasons, the Court DENIES Verizon’s motion 26 to compel arbitration. 27 /// 1 II. BACKGROUND 2 A. Summary of Allegations 3 In the operative complaint, Plaintiffs allege that Verizon has engaged, and continues to 4 engage, in a false advertising scheme because Verizon publicly advertises flat monthly rates for its 5 wireless service plans but then charges higher rates “by padding the bill with an invented and 6 undisclosed” extra charge of $1.95 per month (which Verizon calls the “Administrative Charge”). 7 See Docket No. 10 (First Amended Complaint or “FAC”) ¶ 1. The FAC alleges that the 8 “Administrative Charge” was concocted by Verizon beginning in September 2005 as a means to 9 covertly increase customers’ rates. Id. ¶¶ 1–2. Since 2005, Verizon has allegedly improperly 10 collected over $1 billion in additional charges from its California subscribers through use of 11 Administrative Charges. Id. ¶ 2. 12 Plaintiffs bring claims individually, as private attorneys general, and on behalf of a 13 putative class consisting of “[a]ll individual consumers in California who currently subscribe or 14 formerly subscribed to a postpaid wireless service plan from Verizon and were charged what 15 Verizon labeled an ‘Administrative Charge’ within the applicable statutes of limitations.” Id. ¶ 16 501. Plaintiffs bring claims under the Consumer Legal Remedies Act (“CLRA”), California Civil 17 Code § 1750 et seq., False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500 et seq., and 18 Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. Id. ¶¶ 511–567. As an 19 alternative to their statutory claims, Plaintiffs also bring a claim alleging breach of the implied 20 covenant of good faith and fair dealing. Id. ¶ 569. The FAC seeks public injunctive relief to stop 21 Verizon’s allegedly ongoing false and deceptive price advertising to the general public under the 22 UCL, FAL, and CLRA. Id. ¶¶ 531, 548, 566, Prayer § A. Under the CLRA, FAL, and UCL, 23 Plaintiffs also seek, on behalf of themselves and the proposed class, restitution, damages, 24 attorneys’ fees, and a private injunction ordering Verizon to “adequately and accurately disclose to 25 its subscribers the existence of the Administrative Charge, its true nature or basis, and its amount, 26 including on all of Verizon’s customer bills.” Prayer § B, C. 27 B. Procedural Background 1 filed the complaint. Docket No. 1. On November 10, 2021, Plaintiffs sent a demand letter to 2 Verizon that described their claims and this dispute. Docket No. 29 (Opposition to Motion to 3 Compel, or “MTC Opp.”) at 8. On December 31, 2021, Plaintiffs filed the operative FAC, adding 4 24 additional Plaintiffs. Docket No. 10. Verizon then moved to compel arbitration and stay 5 proceedings. Docket No. 20. On May 19, 2022, the Court heard oral argument regarding 6 Verizon’s motion to compel arbitration. Docket No. 42. Almost three weeks later, Verizon 7 requested leave to file a “notification of change” to Verizon’s Customer Agreement 8 (“Agreement”) that addressed a statute of limitations issue that the Court had raised during the 9 hearing. Docket No. 43. Plaintiffs then filed an opposition to Verizon’s motion for leave. Docket 10 No. 46. On June 23, 2022, the Court granted leave for the parties to submit supplemental briefing 11 to address Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022). Docket No. 50. 12 C. Arbitration Agreement 13 Before activating his or her wireless service, each plaintiff was required to accept the 14 Agreement. Docket No. 21 (Declaration of Lacey Kennedy, or “Kennedy Decl.”) ¶¶ 3–5. Over 15 time, Verizon has made minor adjustments to its Agreement over time, but every version of the 16 Agreement contained an arbitration clause that required arbitration and expressly prohibited class 17 arbitrations. MTC at 3; Docket No. 21-1 (Agreement) ¶ 3. 18 Plaintiffs do not dispute that they assented to the arbitration agreement. MTC Opp. at 8. 19 Nor do they contest Verizon’s legal argument that their claims fall within the scope of the 20 arbitration clause. Id. at 8. Instead, Plaintiffs argue that the dispute resolution provisions are 21 permeated with unconscionability and are thus unenforceable. Id. at 8. The relevant provisions of 22 the Agreement are excerpted and discussed below. 23 III. LEGAL STANDARD 24 Neither party disputes the application of the Federal Arbitration Act (“FAA”). Under the 25 FAA, an agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such 26 grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The final 27 clause of § 2, its saving clause, “permits agreements to arbitrate to be invalidated by ‘generally 1 apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is 2 at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 340 (2011) (quoting Doctor’s 3 Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). 4 IV. DISCUSSION 5 In ruling on a motion to compel arbitration, a district court must decide “(1) whether a 6 valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the 7 dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 8 2000). “If the response is affirmative on both counts, then [absent application of the savings 9 clause] the Act requires the court to enforce the arbitration agreement in accordance with its 10 terms.” Id. 11 Accordingly, the Court will first address whether there is an arbitration agreement between 12 the parties. 13 A. Whether An Agreement to Arbitrate Exists 14 The initial question of whether an agreement to arbitrate exists has a simple answer. 15 Plaintiffs do not dispute that the Agreement, and its arbitration provision, constitute an agreement 16 to which they assented. MTC Opp. at 8. Before activating his or her wireless service, each 17 plaintiff was required to accept the Agreement. Kennedy Decl. ¶¶ 3–5. While Verizon has made 18 minor adjustments to its Agreement over time, every version of the Agreement contained an 19 arbitration clause that required arbitration and expressly prohibited class arbitrations. MTC at 3; 20 Agreement ¶ 3. 21 Accordingly, an agreement to arbitrate exists. 22 B. Whether Plaintiffs’ Claims Are Covered By the Agreement 23 The next question is whether Plaintiffs’ claims are within the scope of the arbitration 24 agreement. This again has a straightforward answer—Plaintiffs do not contest Verizon’s legal 25 argument that their claims fall within the scope of the arbitration clause. MTC Opp. at 8. 26 Instead, Plaintiffs argue that the dispute resolution provisions are permeated with 27 unconscionability and are thus unenforceable. Id. Verizon responds that the parties agreed to 1 unconscionability must be determined by the arbitrator in the first instance. Reply at 2–3. The 2 Court now turns to the threshold question of delegation of arbitrability. 3 C. Delegation of Arbitrability 4 Verizon presents two arguments regarding the purported delegation of arbitrability. First, 5 on reply, Verizon argues for the first time that all of Plaintiffs’ arguments about contract invalidity 6 must be decided in the first instance by the arbitrator given the arbitration provision’s 7 incorporation by reference of the AAA rules. See Reply at 1 (contending that the arbitration 8 clause’s incorporation of the AAA rules is “clear and unmistakable evidence” that the parties 9 intended to delegate challenges to arbitrability to the arbitrator). 10 In general, “whether the court or the arbitrator decides arbitrability is ‘an issue for judicial 11 determination unless the parties clearly and unmistakably provide otherwise.’” Oracle Am., Inc. v. 12 Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir. 2013) (citation and internal quotation marks 13 omitted). There is no presumption in favor of arbitration of arbitrability. See, e.g., Rent-A-Ctr., 14 W., Inc. v. Jackson, 561 U.S. 63, 69 n.1 (2010) (explaining that unless the parties clearly and 15 unmistakably provide otherwise, the gateway question of whether the parties agreed to arbitrate is 16 to be decided by the court, not the arbitrator); Litton Fin. Printing Div., Litton Bus. Sys., Inc. v. 17 N.L.R.B., 501 U.S. 190, 208 (1991) (“Whether or not a company is bound to arbitrate, as well as 18 what issues it must arbitrate, is a matter to be determined by the court . . .”); First Options of 19 Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“If . . . the parties did not agree to submit the 20 arbitrability question itself to arbitration, then the court should decide that question just as it would 21 decide any other question that the parties did not submit to arbitration, namely, independently.”) 22 (emphasis in original). Courts, therefore, “apply a more rigorous standard” when determining 23 whether arbitrability is a matter for the arbitrator pursuant to a delegation clause. See Momot v. 24 Mastro, 652 F.3d 982, 987 (9th Cir. 2011). Clear and unmistakable evidence of an agreement to 25 arbitrate arbitrability might include “a course of conduct demonstrating assent” or “an express 26 agreement to do so.” Id. at 988 (citation and internal quotation marks omitted). 27 The Ninth Circuit has held that incorporation of the AAA rules constitutes clear and 1 expressly left open the question of whether this holding applies in the context of unsophisticated 2 parties. Brennan v. Opus Bank, 796 F.3d 1125, 1131 (9th Cir. 2015). Where at least one party is 3 unsophisticated, courts in this district and elsewhere have routinely found that the incorporation of 4 the AAA rules is insufficient to establish a clear and unmistakable agreement to arbitrate 5 arbitrability. See, e.g., Magill v. Wells Fargo Bank, N.A., No. 4:21-cv-01877-YGR, 2021 WL 6 6199649, at *5 (N.D. Cal. June 25, 2021) (holding that incorporation of the AAA rules does not 7 clearly and unmistakably establish an agreement to delegate questions of arbitrability where one 8 party was unsophisticated); Ingalls v. Spotify USA, Inc., No. 16-cv-03533-WHA, 2016 WL 9 6679561, at *3–4 (N.D. Cal. Nov. 14, 2016) (noting that “every district court decision in our 10 circuit to address the question since Brennan has held that incorporation of the AAA rules was 11 insufficient to establish delegability in consumer contracts involving at least one unsophisticated 12 party” and reasoning that unsophisticated parties to an arbitration agreement “could not be 13 expected to appreciate the significance of incorporation of the AAA rules”) (collecting cases); 14 Eiess v. USAA Fed. Sav. Bank, 404 F. Supp. 3d 1240, 1253 (N.D. Cal. 2019) (same and noting that 15 “[f]or an unsophisticated plaintiff to discover she had agreed to delegate gateway questions of 16 arbitrability, she would need to locate the arbitration rules at issue, find and read the relevant rules 17 governing delegation, and then understand the importance of a specific rule granting the arbitrator 18 jurisdiction over questions of validity – a question the Supreme Court itself has deemed ‘rather 19 arcane’”) (citation omitted); Money Mailer, LLC v. Brewer, No. 15-cv-1215, 2016 WL 1393492, 20 at *2 (W.D. Wash. Apr. 8, 2016) (determining that incorporation of AAA rules was not clear and 21 unmistakable delegation where one party was unsophisticated). 22 The Court agrees with this holding. The Agreement states, “[f]or claims over $10,000, the 23 AAA’s consumer arbitration rules will apply.” Agreement (Docket No. 21-1). AAA Consumer 24 Arbitration Rule 14(a) in turn provides that “[t]he arbitrator shall have the power to rule on his or 25 her own jurisdiction, including any objections with respect to the existence, scope, or to validity of 26 the arbitration agreement or to the arbitrability of any claim or counterclaim.” AAA Consumer 27 Arbitration Rules at R-14(a). The AAA Rules are not quoted or appended to the Agreement. 1 incorporation by reference of the AAA rules—without spelling out the actual provision—would 2 mean that the validity and enforceability of the arbitration provision would be resolved by an 3 arbitrator rather than a court, a result contrary to common expectation. Cf. First Options of 4 Chicago, 514 U.S. at 945 (“[G]iven the principle that a party can be forced to arbitrate only those 5 issues it has specifically agreed to submit to arbitration, one can understand why courts might 6 hesitate to interpret silence or ambiguity on the ‘who should decide arbitrability’ point as giving 7 the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter 8 they reasonably would have thought a judge, not an arbitrator, would decide.”). This is especially 9 true because the Agreement provides that for claims of $10,000 or less, the party bringing the 10 claim can choose either the AAA’s consumer arbitration rules or the BBB’s rules for binding 11 arbitration. See Agreement at 6. The BBB rules do not contain an explicit delegation clause. The 12 Court thus finds there is not clear and unmistakable evidence that the parties agreed to arbitrate 13 issues of arbitrability, particularly since it is not clear that the consumer would consider any 14 individual claim to be worth over $10K. 15 Second, Verizon also argues that several of the provisions that Plaintiffs attack as 16 substantively unconscionable are “fundamentally challenges to the enforceability of the 17 Agreement itself, not the arbitration clause, and are therefore delegated to the arbitrator.” MTC 18 Reply at 2. Verizon is correct that some of the provisions in question—the 180-day notice period, 19 the pre-dispute jury waiver, the punitive damages waiver, and the purported exculpatory clause— 20 are located outside of the arbitration clause. See Agreement at 4–5, 8. But this argument “exalts 21 form over substance. It places a dispositive premium upon the location of the objectionable 22 clause—whether they are written within the arbitration paragraph or the paragraph preceding it— 23 even though the arbitration clause clearly contemplates that all disputes will be resolved through 24 arbitration and that these clauses would apply to arbitration.” Newton v. Am. Debt Servs., Inc., 25 854 F. Supp. 2d 712, 726 (N.D. Cal. 2012), aff’d, 549 F. App’x 692 (9th Cir. 2013). All but one 26 of these provisions are functionally intertwined with the arbitration clause and thus were 27 anticipated to affect the scope of arbitration. The presumption that the Court decides arbitrability 1 evidence to the contrary. 2 The Court now turns to the question of whether the arbitration provisions are enforceable. 3 D. Enforceability of the Arbitration Clause 4 Plaintiffs argue that the arbitration agreement is both procedurally and substantively 5 unconscionable and thus unenforceable. Courts apply state contract law to determine the 6 enforceability of an arbitration agreement. Pokorny v. Quixtar, 601 F.3d 987, 994 (9th Cir. 2010). 7 Under California law, “a contractual provision is unenforceable if it is both procedurally and 8 substantively unconscionable.” Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1058 (9th Cir. 9 2013) (citing Armendariz v. Found. Health Psychare Servs., Inc., 24 Cal. 4th 83, 89 (2000)). 10 These two prongs operate on a sliding scale: the lesser the procedural unconscionability, the 11 greater substantive unconscionability must be shown, and vice versa. Armendariz, 24 Cal. 4th at 12 89. “When evaluating procedural unconscionability, courts focus on oppression or surprise that 13 results from unequal bargaining power; while evaluating substantive unconscionability, courts are 14 more concerned with overly harsh or one-sided results.” Klink v ABC Phones of North Carolina, 15 No. 20-cv-06276-EMC, 2021 WL 3709167, at *9 (N.D. Cal. Aug. 20, 2021) (citing Sonic- 16 Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1145 (2013)). If the Court determines that any 17 contractual provisions are unconscionable, the Court must then decide whether the unconscionable 18 provisions are severable from the rest of the contract. Armendariz, 24 Cal. 4th at 121–122. 19 1. Procedural Unconscionability 20 Plaintiffs argue that the agreement is procedurally unconscionable because it is a contract 21 of adhesion. MTC Opp. at 10. 22 “Procedural unconscionability concerns the manner in which the contract was negotiated 23 and the respective circumstances of the parties at that time, focusing on the level of oppression and 24 surprise involved in the agreement.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th 25 Cir. 2013). “Oppression addresses the weaker party’s absence of choice and unequal bargaining 26 power that results in ‘no real negotiation.’” Id. (internal quotation omitted). “Surprise involves 27 the extent to which the contract clearly discloses its terms as well as the reasonable expectations of 1 The arbitration agreement is at least minimally procedurally unconscionable if it is a 2 contract of adhesion. Ting v. AT&T, 319 F.3d 1126, 1148 (9th Cir. 2003). As explained in Ting, 3 “[a] contract is procedurally unconscionable if it is a contract of adhesion, i.e., a standardized 4 contract, drafted by the party of superior bargaining strength, that relegates to the subscribing 5 party only the opportunity to adhere to the contract or reject it.” Id. Here, Verizon drafted the 6 Agreement and presented it to Plaintiffs on a “take it or leave it” basis. See Kennedy Decl. ¶¶ 3–4. 7 Plaintiffs did not have an opportunity to negotiate its terms, and each Plaintiff was required to 8 accept the Agreement in order to active his or her wireless service. Id. ¶¶ 3–5. 9 This finding of procedural unconscionability alone is not enough, though, to deny a motion 10 to compel arbitration. Klink, 2021 WL 3709167, at *10; see also Lane v. Francis Capital Mgmt. 11 LLC, 224 Cal. App. 4th 676, 689 (2014) (“[C]ourts have consistently held that [a contract of 12 adhesion] alone is insufficient to invalidate an arbitration agreement: Rather, an adhesion contract 13 remains fully enforceable unless . . . the provision falls outside the reasonable expectations of the 14 weaker party or it is unconscionable.”) (internal quotation omitted); see also O’Donoghue v. 15 Superior Ct., 219 Cal. App. 4th 245, 258–59 (2013) (finding that a declaration that “agreements 16 were presented in ‘take-it-or-leave-it manner’ . . . does not carry the day . . . because the ‘adhesive 17 aspect’ of a contract ‘is not dispositive’ on the issue of unconscionability”). 18 As in Lane and O’Donoghue, the agreement here is a contract of adhesion, but the 19 adhesive nature of the agreement presents only a minimal finding of procedural unconscionability. 20 2. Substantive Unconscionability 21 Since Plaintiffs have only established a minimal amount of procedural unconscionability, 22 they must show significant substantive unfairness to avoid arbitration. Ajamian v. CantorCO2e, 23 L.P., 203 Cal. App. 4th 771, 796 (2012) (“Where . . . the degree of procedural 24 unconscionability . . . is low, [ ] the agreement will be enforceable unless the degree of substantive 25 unconscionability is high.”). Under California law, substantive unconscionability focuses on the 26 terms of the agreement and whether those are “overly harsh” or “one-sided.” Circuit City Stores, 27 Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir. 2002); Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1 Here, Plaintiffs assert that six provisions of the Agreement are substantively 2 unconscionable: (1) a 180-day contractual statute of limitations; (2) a pre-dispute jury waiver; (3) 3 a punitive damages waiver; (4) a public injunctive relief waiver; (5) an exculpatory clause with 4 unreasonable discovery limits; and (6) a mass arbitration provision. MTC Opp. at 11. Plaintiffs 5 maintain that these unconscionable terms so permeate the agreement that they are non-severable 6 and the entire agreement is unenforceable. Id. at 32–24. Verizon denies that any term is 7 unconscionable, and contends that any terms the Court does deem unconscionable should be 8 severed. Reply at 9–12. 9 The Court examines each provision in turn. 10 a. 180-Day Contractual Statute of Limitations Provision 11 Plaintiffs first assert that the Agreement is substantively unconscionable because it 12 contains a “180-day contractual statute of limitations for all disputes related to charges on a 13 customer’s bill.” MTC Opp. at 11. Plaintiffs contend that this provision is substantively 14 unconscionable because it “significantly shortens the limitations period on Plaintiffs’ CLRA, FAL, 15 and UCL claims, which range from 3 to 4 years.” Id. The provision establishes that:

16 If you’re a Postpay customer, you can dispute your bill within 180 days of receiving it . . . You may call us to dispute charges on your 17 bill or any service(s) for which you were billed, but if you wish to preserve your right to bring an arbitration or small claims case 18 regarding such dispute, you must write to us at the customer service address on your bill, or send us a completed notice of dispute form 19 (available at verizon.com), within the 180-day period mentioned above. If you do not notify us in writing of such dispute within the 20 180-day period, you will have waived your right to dispute the bill or such service(s) and to bring an arbitration or small claims case 21 regarding any such dispute. 22 Agreement at 4 (capitalization altered for clarity). 23 Verizon counters that the provision is not a statute of limitations because it merely requires 24 customers to provide notice within a 180-day period. Reply at 5–6. Because “[p]roviding notice 25 is not the same as commencing a lawsuit,” the 180-day notice requirement “is not properly 26 understood as a modification of the statute of limitations.” Id. Verizon also points out that the 27 Agreement separately addresses the applicable statute of limitations: the Agreement provides that 1 Agreement at 6. And even if the provision did modify the statute of limitations, Verizon contends 2 that would not necessarily be unconscionable. Id. at 6. 3 A provision which requires consumers to notify Verizon of a dispute within a set amount of 4 time differs from a statute of limitations. There is a difference between having to notify a 5 potential defendant of a claim and having to bring a lawsuit. The former is easier to accomplish. 6 Cf. Davis v. O’Melveny & Myers, 485 F.3d 1066, 1076 (9th Cir. 2007) (“The challenged provision 7 covers more than merely ‘notice’; it also requires a demand for mediation within a year . . . the 8 one-year notice provision thus functions as a statute of limitations.”). 9 On the other hand, a customer who fails to notify Verizon within the 180-day notice 10 window (because, e.g., they are unaware of this contractual provision which has no precedent in 11 the California Civil Code) will forfeit her right to bring suit. A short notice period (significantly 12 shorter than the limitations period) sets a trap for the unwary. Functionally, this provision may 13 well have the same effect as a statute of limitations in limiting the vindication of Plaintiffs’ rights. 14 Cf. administrative exhaustion requirements that effectively function as a limitations period such as 15 Cal. Gov’t Code §§ 911.2 (requiring a person to present his or her claim to the California Victim 16 Compensation and Government Claims Board within six months of the accrual of the cause of 17 action before filing certain actions for damages against a California governmental entity or 18 employee); 945.6(a)(1) (requiring that a claimant must file suit within six months following 19 written notice of rejection of the claim by the Board. 20 “Contractual agreements to shorten the statute of limitations period are generally 21 disfavored because they derogate statutory intent.” Jackson v. S.A.W. Ent. Ltd., 629 F. Supp. 2d 22 1018, 1028 (N.D. Cal. 2009) (internal quotation omitted). “A contractual clause restricting the 23 period in which an arbitration may be commenced is unconscionable where the period is ‘far 24 shorter’ than that otherwise available under California law.” Brown v. Dow Chem. Co., No. 18- 25 cv-07098-MMC, 2019 WL 484211, at *4 (N.D. Cal. Feb. 7, 2019) (quoting Wherry v. Award, 26 Inc., 192 Cal. App. 4th 1242, 1249 (2011)). Courts have found that a 180-day statute of 27 limitations is unconscionable where it “significantly shortens” the limitations period for the 1 provision substantively unconscionable where plaintiff would otherwise have had three to four 2 years to assert some of her claims); Martinez v. Master Prot. Corp., 118 Cal. App. 4th 107, 114, 3 117–18 (2004) (same). Here, like in Jackson and Martinez, the statute of limitations for Plaintiffs’ 4 claims ranges from three to four years. See Cal. Civ. Code § 1783 (3 years for CLRA), Cal. Civ. 5 Proc. Code § 338(a) (3 years for FAL), Cal. Bus. & Prof. Code § 17208 (4 years for UCL). 6 Although not quite as draconian as a limitation clause, the short notice provision here 7 erects a potential trap to the unwary that may have the same effect as a short limitations period. 8 The Court concludes that there is at least some degree of substantive unconscionability associated 9 with the 180-day notice provision. 10 b. Pre-Dispute Jury Trial Waiver Provision 11 Second, Plaintiffs argue that the pre-dispute jury trial waiver provision is substantively 12 unconscionable. MTC Opp. at 13. The provision establishes that:

13 If for any reason a claim proceeds in court rather than through arbitration, you and Verizon agree that there will not be a jury trial. 14 You and Verizon unconditionally waive any right to trial by jury in any action, proceeding or counterclaim arising out of or relating to 15 this agreement in any way. 16 Agreement at 8 (capitalization altered for clarity). 17 “Under California law, pre-dispute jury trial waivers are invalid unless expressly 18 authorized by statute.” In re County of Orange, 784 F.3d 520, 523 (9th Cir. 2015) (citing Grafton 19 Partners, L.P. v. Superior Ct., 36 Cal. 4th 944 (2005)). Courts have held that an arbitration 20 agreement is unenforceable where it “require[s] plaintiffs to waive in advance their right to a jury 21 trial for any dispute for which arbitration is not allowed by law.” Dougherty v. Roseville Heritage 22 Partners, 47 Cal. App. 5th 93, 107 (2020); see also Lange v. Monster Energy Co., 46 Cal. App. 23 5th 436, 452 (2020) (finding that pre-dispute jury trial waiver provision in arbitration agreement 24 was substantively unconscionable); Durruthy v. Charter Commc’ns, LLC, No. 20-cv-1374, 2020 25 WL 6871048, at *12 (S.D. Cal. Nov. 23, 2020) (same). 26 Verizon cites Grafton for the principle that pre-dispute arbitration agreements are 27 “specifically authorized by statute” and thus distinguishable from waivers of the right to jury trial. 1 arbitration agreements, Plaintiffs take issue with the jury trial waiver preceded by the words “if for 2 any reason a claim proceeds in court rather than through arbitration.” That jury trial waiver “is not 3 susceptible to any interpretation other than as an unconscionable predispute jury trial waiver.” 4 Lange, 46 Cal. App. 5th at 452 (emphasis in original) (citing Grafton, 36 Cal. 4th at 961). 5 While the Court concludes that the pre-dispute jury trial waiver is unenforceable and 6 substantively unconscionable, this provision only applies to claims that proceed outside of 7 arbitration. See Agreement at 8 (“If for any reason a claim proceeds in court rather than through 8 arbitration, you and Verizon agree that there will not be a jury trial.”). In other words, by its 9 express terms, the provision is triggered when a claim is not being arbitrated. Id. Thus, because 10 the jury trial waiver does not “limit the scope of the arbitration,” the Court puts no weight on this 11 provision in assessing the substantive unconscionability of the arbitration clause. Newton, 854 F. 12 Supp. 2d at 726. 13 c. Punitive Damages Waiver Provision 14 Third, Plaintiffs argue that the punitive damages waiver is substantively unconscionable 15 because it prohibits punitive damages, which are available under the CLRA. MTC Opp. at 13–14; 16 Cal. Civ. Code § 1780(a)(4). Plaintiffs have not actually sought punitive damages in the FAC but 17 seek leave to do so.1 The relevant provision establishes that:

18 You and Verizon both agree to limit claims against each other solely to direct damages. That means neither of us will claim any damages 19 that are indirect, special, consequential, incidental, treble or punitive. 20 21 Agreement at 5. Verizon does not address Plaintiffs’ arguments regarding this provision. 22 California courts have found substantive unconscionability where an arbitration clause 23 limits the types of remedies that would be available under the statute, thus violating the “principle 24 that an arbitration agreement may not limit statutorily imposed remedies such as punitive damages 25 and attorney fees.” Newton, 854 F. Supp. 2d at 724 (quoting Armendariz, 24 Cal. 4th at 103); see 26

27 1 Plaintiffs explained that they inadvertently omitted a specific prayer for punitive damages in the 1 also Zaborowski v. MHN Gov’t Servs., Inc., 936 F. Supp. 2d 1145, 1155 (N.D. Cal. 2013), aff’d, 2 601 F. App’x 461, 463 (9th Cir. 2014) (“California courts have repeatedly refused to enforce 3 contractual limitations on statutorily imposed remedies such as punitive damages as 4 unconscionable, based primarily on the rationale that the remedies are important to the 5 effectuation of that statute’s policy.”) (internal quotation omitted). Because the limitation of 6 liability clause prevents Plaintiffs from receiving damages that they are entitled to under CLRA, 7 this term is substantively unconscionable. Newton, 854 F. Supp. 2d at 725; Dougherty, 47 Cal. 8 App. 5th at 107. As noted above, although this limitation is located outside the arbitration clause, 9 it is intertwined with and enforced via arbitration. 10 The Court concludes that this provision is substantively unconscionable. 11 d. Public Injunctive Relief Waiver Provision 12 Fourth, Plaintiffs argue that the public injunctive relief waiver provision is substantively 13 unconscionable. MTC Opp. at 14–15. The provision establishes that:

14 Notwithstanding any other provision of this agreement, the arbitrator may award money or injunctive relief only in favor of the individual 15 party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. 16 17 Agreement at 6 (capitalization altered for clarity). 18 Under California law, a contractual provision purporting to waive the right to seek public 19 injunctive relief in any forum is unenforceable. McGill v. Citibank, N.A., 2 Cal. 5th 945, 952 20 (2017). Verizon’s agreement limits the award of any injunctive relief to “the individual party 21 seeking relief and only to the extent necessary to provide relief warranted by that party’s 22 individual claim.” Agreement at 6. By precluding injunctive relief benefitting anyone other than 23 the individual claimant, the contract prevents Plaintiffs from seeking public injunctive relief in any 24 forum, a right which cannot be denied whether in arbitration or otherwise. Therefore, if Plaintiffs’ 25 requested relief qualifies as public injunctive relief, Verizon may not negate that claim. McGill, 2 26 Cal. 5th at 952. 27 Verizon contends that Plaintiffs are not seeking “true public relief” within the meaning of 1 injunction must be ‘for the benefit of the general public as a whole, as opposed to a particular class 2 of persons.’” Cottrell v. AT&T Inc., No. 20-cv-16162, 2021 WL 4963246 (9th Cir. Oct. 26, 2021) 3 (quoting Hodges v. Comcast Cable Commc’ns, LLC, 21 F.4th 535, 542 (9th Cir. 2021)). “[T]he 4 statutory schemes set out in ‘the UCL, the CLRA, and the false advertising law’ are explicitly 5 designed to provide for ‘public injunctive relief’ that is ‘[b]y definition’ ‘primarily for the benefit 6 of the general public.’” Vasquez v. Cebridge Telecom CA, LLC, No. 21-cv-06400-EMC, 2021 7 WL 5113217, at *7 (N.D. Cal. Nov. 3, 2021) (quoting McGill, 2 Cal. 5th at 961). Indeed, in 8 Hodges, the Ninth Circuit observed that “[t]he paradigmatic example [of public injunctive relief] 9 would be the sort of injunctive relief sought in McGill itself, where the plaintiff sought an 10 injunction against the use of false advertising to promote a credit protection plan.” 12 F.4th at 11 542. 12 Here, the FAC seeks this “paradigmatic example” of public injunctive relief: to enjoin 13 Verizon from falsely advertising the prices of its wireless service plans to members of the general 14 public via public injunctions under the UCL, FAL, and CLRA—the very same statutes and type of 15 relief at issue in McGill. See, e.g., FAC ¶ 12 (“Plaintiffs, by this action, seek a public injunction 16 for the benefit of the general public to . . . enjoin Verizon from falsely advertising the prices of its 17 wireless service plans to members of the general public”); ¶ 14 (“Plaintiffs want Verizon to 18 include the amount of the Administrative Charge in the wireless service plan prices it advertises to 19 the general public”); ¶ 512 (“Each Plaintiff brings this claim in his or her individual capacity, in 20 his or her capacity as a private attorney general seeking the imposition of public injunctive relief 21 to protect the general public”); Prayer § A(1)–(3) (“In order to prevent injury to the general public, 22 Plaintiffs individually, and as private attorneys general, request that the Court enter a public 23 injunction against Verizon under the CLRA, FAL, and UCL . . . [to] [p]ermanently enjoin Verizon 24 from falsely advertising the prices of its wireless service plans to members of the general public”). 25 Verizon is thus incorrect that Plaintiffs’ “claims and requested remedy only pertain to the limited 26 universe of customers who have specific contracts with Verizon.” MTC at 10. 27 Verizon also complains that Plaintiffs have “only conclusorily allege[d] their right to such 1 allegations of false advertising less detailed than those here—for example, that the defendant 2 “‘continue[s] to violate’ the UCL by selling the Plan ‘with advertising that includes false, 3 misleading or deceptive information.” 4 During the hearing, Verizon argued that the Supreme Court’s impending decision in Viking 5 River Cruises, Inc. v. Moriana may implicate and undermine McGill. After the decision was 6 handed down, the Court allowed the parties to submit supplemental briefing to address the 7 applicability of Viking River. Docket Nos. 50–52. After carefully considering the parties’ 8 arguments, the Court agrees with Plaintiffs that Viking River does not undermine McGill or 9 otherwise bear on the present case. Viking River focused on a procedural mechanism particular to 10 California’s Labor Code Private Attorneys General Act of 2004 (“PAGA”), which allows any 11 “aggrieved employee” to initiate an action against a former employer to obtain civil penalties that 12 previously could have been recovered only by the State. Viking River, No. 20-1573, Slip Op. at 2 13 (quoting Cal. Lab. Code Ann. § 2699(a)). Viking River held that the FAA preempts a rule of 14 California law that PAGA claims could not be split into arbitrable “individual” claims, which are 15 based on a violation personally experienced by the plaintiff, and nonarbitrable “representative” 16 claims, which are brought on behalf of violations experienced by other employees. Id. at 20. 17 Importantly, Viking River found that the FAA does not preempt a rule of California law 18 prohibiting wholesale waivers of the right to assert representative claims under PAGA. Id. at 21. 19 Thus nothing in Viking River overrules or undermines McGill’s core holding that an arbitration 20 agreement cannot prohibit a party from seeking public injunctive relief in any forum. 21 Under McGill, this provision of the arbitration agreement is unenforceable. 22 e. Exculpatory Clause and Its Discovery Limitations Provision 23 Fifth, Plaintiffs argue that the purported “exculpatory clause” and “its discovery 24 limitation” are substantively unconscionable. MTC Opp. at 16–17. The provision provides that:

25 This agreement and the documents it incorporates form the entire agreement between us. You can’t rely on any other documents, or 26 on what’s said by any Sales or Customer Service Representatives, and you have no other rights regarding Service or this agreement. 27 1 The parties have very different understandings of the meaning of this provision. From 2 Plaintiffs’ perspective, the provision “purports to exculpate Verizon from the misleading 3 misrepresentations made in its advertisements or by its sales and customer service 4 representatives.” MTC Opp. at 16. Any reliance on such evidence would be barred. Plaintiffs 5 further argue that the provision “unconscionably limits a consumer’s right to adequate discovery 6 in arbitration by commanding that a consumer ‘cannot rely’ upon (and therefore cannot discover) 7 the very documents and statements that formed the basis of the false advertising or fraud.” Id. 8 Verizon, on the other hand, characterizes this provision as a “routine integration clause.” Reply at 9 8. 10 The problem with Verizon’s theory is that this provision appears to sweep broader than a 11 common integration clause—it purports to exclude all extrinsic evidence without any exceptions, 12 even to claims for which extrinsic or parol evidence may be considered. For instance, “[e]vidence 13 extrinsic to the contract is always permissible to prove fraud in the inducement of the contract 14 pursuant to both common and statutory law.” 625 3rd St. Assocs., L.P. v. Alliant Credit Union, 15 633 F. Supp. 2d 1040, 1051 (N.D. Cal. 2009); see also In re Lund, 357 F. App’x 139, 141 (9th Cir. 16 2009) (noting that “the parol evidence rule does not bar introduction of extrinsic evidence to show 17 fraudulent inducement”); Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass’n, 55 18 Cal. 4th 1169, 1180–81 (2013) (“[I]t was never intended that the parol evidence rule should be 19 used as a shield to prevent the proof of fraud.”) (quoting Ferguson v. Koch, 204 Cal. 342, 345 20 (1928)). The exculpatory claims here thus may function to negate substantive legal rights and 21 remedies of Verizon consumers. 22 Verizon contends that Plaintiffs’ arguments are not applicable because “Plaintiffs have not 23 even asserted a fraud claim.” Reply at 8. But Plaintiffs have alleged that Verizon has violated the 24 UCL by engaging in “unfair and fraudulent business acts and practices,” including by, among 25 other things, “[m]isrepresenting the prices of Verizon’s wireless service plans and concealing the 26 true prices of its wireless service plans,” “[m]isrepresenting the prices of Verizon’s wireless 27 service plans by advertising or quoting prices that do not include the monthly Administrative 1 consumers sign up for Verizon’s wireless service plans.” FAC ¶¶ 554(a)–(c). These allegations 2 may imply fraud in the inducement. 3 The Court concludes that because the provision does not allow for extrinsic evidence to be 4 considered under any circumstances, including to show fraud, this provision is substantively 5 unconscionable. 6 f. Mass Arbitration Provision 7 Finally, Plaintiffs argue that the mass arbitration provision is substantively unconscionable. 8 MTC Opp. at 17–23. The provision establishes that:

9 If 25 or more customers initiate notices of dispute with Verizon Wireless raising similar claims, and counsel for the Verizon 10 Wireless customers bringing the claims are the same or coordinated for these customers, the claims shall proceed in arbitration in a 11 coordinated proceeding. Counsel for the Verizon Wireless customers and counsel for Verizon Wireless shall each select five 12 cases to proceed first in arbitration in a bellwether proceeding. The remaining cases shall not be filed in arbitration until the first ten 13 have been resolved. If the parties are unable to resolve the remaining cases after the conclusion of the bellwether proceeding, 14 each side may select another five cases to proceed to arbitration for a second bellwether proceeding. This process may continue until the 15 parties are able to resolve all of the claims, either through settlement or arbitration. A court will have authority to enforce this clause and, 16 if necessary, to enjoin the mass filing of arbitration demands against Verizon. 17 18 Agreement at 7 (capitalization altered for clarity). 19 In other words, the mass arbitration provision, which is triggered when 25 or more 20 customers who are represented by the same counsel raise “similar claims,” sets a cap on the 21 number of arbitrations against Verizon that may proceed at one time. Id. It also functions to delay 22 arbitration of cases until each preceding tranche of 10 cases is adjudicated. Counsel for plaintiffs 23 and counsel for Verizon each select five cases; all remaining cases “shall not be filed in 24 arbitration” until the first ten have been resolved. Id. Once the first ten have been resolved, then 25 the additional cases with “similar claims” and the same plaintiffs’ counsel are arbitrated in batches 26 of ten. Id. Plaintiffs’ counsel currently represent 2,712 Verizon customers. See Docket No. 30 27 (Declaration of Daniel M. Hattis, or “Hattis Decl.”) ¶ 3. The provision specifically requires that 1 arbitration until the first ten have been resolved.” Agreement at 7 (emphasis added). According to 2 statistics from the American Arbitration Association showing that the average disposition time for 3 an arbitration takes a little under seven months, Plaintiffs calculate that it would take 4 approximately 156 years to resolve the claims of all of Plaintiffs’ counsel’s clients. MTC Opp. at 5 17–18 & 18 n.17. 6 Plaintiffs argue that this provision “contains all of the hallmarks of unconscionability: it is 7 overly harsh, unduly oppressive, and unfairly one-sided; it lacks mutuality; it would deter potential 8 litigants from enforcing their rights, it contravenes public policy, and it interferes with consumers’ 9 constitutional right to their choice of counsel.” Id. at 17. Verizon characterizes Plaintiffs’ 10 arguments as “speculative distractions.” Reply at 12. According to Verizon, the “27 Plaintiffs in 11 the instant case could have their claims resolved in three concurrent proceedings—a far cry from 12 the 156 years speculated by Plaintiffs.” Id. at 13. Verizon maintains that its “coordinated 13 proceeding approach” is “designed precisely to expedite resolution of similar cases.” Id. 14 Verizon also insists that the unconscionability analysis must be limited to the twenty-seven 15 Plaintiffs in this case without regard to the other 2,685 customers of Verizon that are clients of 16 Plaintiffs’ law firm. See Reply at 1 (“Plaintiffs further ask this Court to look beyond their suit and 17 to consider thousands of unnamed Verizon Wireless customers purportedly also retained by 18 Plaintiffs’ counsel but who have yet to file any action in this Court or elsewhere.”). According to 19 Verizon, “[t]heoretical issues facing individuals not before this Court cannot serve as the basis for 20 an unconscionability challenge.” Id.; see also id. at 13 (“Plaintiffs [sic] arguments rely almost 21 entirely on delay that would theoretically be experienced by 2,7122 individuals who are not before 22 this Court.”). On this point, Verizon is wrong. In assessing unconscionability, the Court must 23 examine the validity of a contractual provision as of the time of the contract is made – it is a 24 prospective analysis which does not require proof that a particular plaintiff has already been 25

26 2 For clarity, the Court notes that according to the Hattis Declaration, Hattis & Lukacs have been retained by 2,712 separate clients from around the country who each have false advertising claims 27 against Verizon that are similar to the claims alleged in the present suit. Hattis Decl. ¶ 3. Twenty- 1 adversely affected. See, e.g., Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 875 (9th 2 Cir. 1979) (“[W]hether a contract is fair or works an unconscionable hardship is determined with 3 reference to the time when the contract was made and cannot be resolved by hindsight.”); 4 Yerkovich v. MCA, Inc., 11 F. Supp. 2d 1167, 1173 (C.D. Cal. 1997), aff’d, 211 F.3d 1276 (9th 5 Cir. 2000) (“An unconscionability claim accrues at the moment when the allegedly 6 unconscionable contract is formed . . . [the] unconscionability of a contract or a contract clause is 7 determined based on the law and facts at the time of the agreement.”). 8 Moreover, the California Supreme Court in Armendariz considered the potential chilling 9 effect that an arbitration clause would exert on employees seeking to file workplace discrimination 10 claims. See Armendariz, 24 Cal. 4th at 110 (“Such a system still poses a significant risk that 11 employees will have to bear large costs to vindicate their statutory right against workplace 12 discrimination, and therefore chills the exercise of that right.”). In the wake of Armendariz, courts 13 routinely consider the chilling effect on non-parties who may yet seek to vindicate their rights. 14 See, e.g., Pereyra v. Guaranteed Rate, Inc., No. 18-cv-06669-EMC, 2019 WL 2716519, at *8 15 (N.D. Cal. June 28, 2019) (finding substantive unconscionability where “[t]he existence of the fee 16 provision may well have a chilling effect on employees seeking to vindicate their rights”); 17 Yeomans v. World Fin. Grp. Ins. Agency, Inc., 485 F. Supp. 3d 1168, 1188 (N.D. Cal. 2020) 18 (“This provision undermines the balance of the risk of fee shifting prescribed by statute and can 19 have a substantial chilling effect on plaintiffs seeking to vindicate their rights. This provision is 20 substantively unconscionable.”); Martinez, 118 Cal. App. 4th at 118 (rejecting provision because 21 “[t]he mere inclusion of the costs provision in the arbitration agreement produces an unacceptable 22 chilling effect”); cf. Capili v. Finish Line, Inc., 116 F. Supp. 3d 1000, 1009 (N.D. Cal. 2015), 23 aff’d, 699 F. App’x 620 (9th Cir. 2017) (rejecting company’s offer to waive unconscionable 24 provisions in arbitration agreement and noting that “the mere inclusion of these unconscionable 25 provisions has an improper chilling effect”). Taken collectively, these cases indicate that courts 26 may consider the chilling effect of an arbitration clause on individuals to whom it would apply but 27 are not currently plaintiffs. As a result, the Court will consider the unconscionability of the mass 1 individuals who are represented by Plaintiffs’ firm. 2 The Court agrees with Plaintiffs that this provision is substantively unconscionable. 3 Requiring the consumers who retain counsel willing to represent them in cases such as this 4 to wait months, more likely years before they can even submit a demand for arbitration is 5 “unreasonably favorable” to Verizon. Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1261 (9th 6 Cir. 2017). Delaying the ability of one to vindicate a legal claim by years, possibly 156 years, 7 “conflict[s] with one of the basic principles of our legal system—justice delayed is justice denied.” 8 Dietrich v. Boeing Co., 14 F.4th 1089, 1095 (9th Cir. 2021). Terms that “contravene the public 9 interest or public policy” are substantively unconscionable. Baltazar v. Forever 21, Inc., 62 Cal. 10 4th 1237, 1244 (2016). 11 In addition to the length of delay, the provision is pregnant with the risk that claims will be 12 effectively barred when coupled with the statute of limitations. The Agreement expressly reserves 13 Verizon’s right to raise a statute of limitations defense in arbitration. See Opp. at 18; Agreement 14 at 6 (“The same defenses are also available to both parties as would be available in court, 15 including any applicable statute of limitations.”). Under the Mass Arbitration Provision, 16 consumers may not “file” their claims in arbitration until all preceding traunches are adjudicated. 17 Those in the queue who are not able to file within the limitations period would be forever barred. 18 The clause contains no tolling provision. The forfeiture of entire legal rights contravenes public 19 policy. See Doe 1 v. AOL LLC, 552 F.3d 1077, 1084 (9th Cir. 2009) (noting that “California 20 public policy is violated by forcing such plaintiffs to waive their rights to a class action and 21 remedies under California consumer law”); Kooiman v. Siwell, Inc., No. 20-cv-00565, 2021 WL 22 899095, at *5 (C.D. Cal. Jan. 4, 2021) (refusing to enforce a forum selection clause which 23 “violates public policy by “allowing unwaivable rights to be diminished”). 24 After the hearing, Verizon sought leave to notify the Court of upcoming changes to the 25 Agreement. See Docket No. 43, Docket No. 44. According to these filings, Verizon plans to 26 update the Agreement “in or around August 2022” to “expressly provide that, upon initiating a 27 notice of dispute or filing a complaint in court, the statutes of limitations applicable to a 1 described in Paragraph (6).” Docket No. 44 at 2. In response, Plaintiffs pointed out that the 2 Agreement precludes Verizon from changing the terms of dispute resolution proceedings once a 3 dispute is pending. See Docket 46 at 3. Plaintiffs are correct: the Agreement specifically provides 4 that “if [Verizon] make[s] any changes to the dispute resolution provision of this Agreement, such 5 changes will not affect the resolution of any disputes that arose before such change.” Agreement 6 at 2. As a result, Verizon’s efforts to cure the statute of limitations problem for the Plaintiffs 7 herein are unavailing. And in any event, the contemplated changes are not in effect. 8 The provision also lacks mutuality, which is a “paramount” consideration in assessing 9 substantive unconscionability. Pokorny, 601 F.3d at 997 (internal quotation omitted). Although 10 the provision imposes restrictions on a law firm representing twenty-five or more of Verizon’s 11 customers with “similar claims,” Verizon is apparently free to select the same law firm to 12 represent it in all of its arbitrations. See Agreement at 6. Verizon is thus able to enjoy all of the 13 advantages that come from being a “repeat player,” while law firms that represent twenty-five or 14 more of Verizon’s customers may be forced to sideline any clients which would exceed the 15 numeric cap. 16 This case stands in stark contrast to McGrath v. DoorDash, where this Court examined the 17 validity of a mass arbitration provision modeled off of the Employment-Related Mass Claims 18 Protocol of the International Institute for Conflict Prevention & Resolution.3 McGrath v. 19 DoorDash, Inc., No. 19-cv-05279-EMC, 2020 WL 6526129, at *4 (N.D. Cal. Nov. 5, 2020). Like 20 with the present provision, DoorDash’s “Mass-Claims Protocol” applied any time more than a 21 certain number of individual employment-related arbitration claims “of a nearly identical nature” 22 were filed against DoorDash in “close proximity” to one another. Id. But the similarities ended 23 there. Under the Protocol, claims were randomly assigned numbers. Id. The Protocol provided 24 that the claims numbered 1-10 would, in general, be the “initial Test Cases” to proceed to 25 arbitration. Id. Importantly, the Protocol generally required that “these claims will be resolved 26 within 120 days of the initial pre-hearing conference.” Id. “Thereafter, the results of the initial 27 1 cases are given to a mediator who will try to resolve the remaining cases. After a mediation 2 period of 90 days, the parties may choose to opt out of the arbitration process and proceed in court 3 with the remaining claims.” Id. (internal quotation omitted). 4 Because the DoorDash arbitration agreement contained a delegation clause, the Court’s 5 role was limited to evaluating whether the Protocol was “so biased that it negates the agreement to 6 arbitrate.” Id. at *11. In explaining why the terms of the Mass-Claims Protocol “appear fair,” the 7 Court noted that there was “little concrete evidence to support Plaintiffs’ argument that the Mass- 8 Claims Protocol would result in significant delay in resolution of the Dashers’ claims.” Id. at *10. 9 And the Court observed that “[m]ost important, after the mediation process, a claimant can choose 10 to opt out of the arbitration process and go back to court – an option not generally available under, 11 e.g., AAA rules.” Id. at *10. In short, the DoorDash Mass-Claims Protocol did not create the 12 possibility of significant delay that is facially present here. 13 This provision at issue herein also stands in stark contrast to the American Arbitration 14 Association’s (“AAA”) Supplementary Rules for Multiple Case Filings, which the AAA 15 developed last year to “provide parties and their representatives with an efficient and economical 16 path toward the resolution of multiple individual disputes.” See Am. Arbitration Ass’n, 17 Supplementary Rules for Multiple Case Filings 3 (Aug. 1, 2021). The Supplementary Rules apply 18 where 25 or more similar demands for arbitration are filed against or on behalf of the same party 19 or related parties, and where representation of the parties is consistent or coordinated across the 20 cases. Id. at 4. The Supplementary Rules do not require that a party wait a set amount of time 21 before initiating a demand for arbitration. Nor do they require that arbitrations proceed in 22 tranches. And while the Supplementary Rules provide that the parties shall participate in a global 23 mediation within a set amount of time, “any party may unilaterally opt out of mediation upon 24 written notification to the AAA and the other parties to the arbitration.” Id. at 8–9. The Rules 25 also make clear that the global mediation shall take place currently with the arbitrations and “shall 26 not act as a stay of the arbitration proceedings.” Id. at 8. Verizon’s mass arbitration provision 27 thus has little in common with the Supplementary Rules. It is one thing to set up a bellwether 1 resolution via ADR. It is another to formally bar the timely adjudication of cases that do not 2 settle. 3 For all of the foregoing reasons, the Court concludes that the provision is substantively 4 unconscionable. 5 3. Severability 6 Because the Court finds that both procedural and substantive unconscionability are present, 7 the Court must analyze whether the unconscionable parts of the arbitration provision should be 8 severed or whether it should refuse to enforce the arbitration agreement altogether because 9 unconscionability permeates the entire agreement. 10 “If the court as a matter of law finds the contract or any clause of the contract to have been 11 unconscionable at the time it was made the court may refuse to enforce the contract, or it may 12 enforce the remainder of the contract without the unconscionable clause, or it may so limit the 13 application of any unconscionable clause as to avoid any unconscionable result.” Cal. Civ. Code § 14 1670.5(a). The Court has the discretion to sever or limit unconscionable clauses. See id.; see also 15 Poublon, 846 F.3d at 1272. 16 In making this decision, the Court will look to the purpose of the contract. “If the central 17 purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. 18 If the illegality is collateral to the main purpose of the contract, and the illegal provision can be 19 extirpated from the contract by means of severance or restriction, then such severance and 20 restriction are appropriate.” Armendariz, 24 Cal. 4th at 124. In particular, when an arbitration 21 clause is “permeated” by unconscionability, severance is not required. Id. 22 The California Supreme Court in Armendariz weighed three factors in determining 23 whether severance is appropriate: (1) whether the substantively unconscionable provision relates 24 to the arbitration agreement’s chief objective; (2) whether the arbitration agreement contained 25 multiple substantively unconscionable provisions such that it indicates a systematic effort to 26 impose arbitration not simply as an alternative to litigation, but as an inferior forum; and (3) a lack 27 of mutuality that permeated the entire agreement. 24 Cal. 4th at 124–25, see also Poublon, 846 1 the purpose of the contract). 2 a. Severability Clauses in the Agreement 3 The Agreement has two provisions which bear on severability. First, the arbitration clause 4 has a severability provision, which reads:

5 If for some reason the prohibition on class arbitrations set forth in subsection (3) cannot be enforced as to all or part of a dispute, then 6 the agreement to arbitrate will not apply to that dispute or part of the dispute. 7 8 Agreement at 7 (capitalization altered for clarity). Subsection three, in turn, precludes claims for 9 class, representative or private attorney general, or general injunctive relief. Id. at 6. The 10 Agreement also has a second severability provision, which reads:

11 If any part of this agreement, including anything regarding the arbitration process (except for the prohibition on class arbitrations as 12 explained in part 8 of the dispute resolution section above), is ruled invalid, that part may be removed from this agreement. 13 14 Agreement at 8. 15 “Severability clauses evidence the parties’ intent that, to the extent possible, the valid 16 provisions of the contracts be given effect, even if some provision is found to be invalid or 17 unlawful.” Pereyra, 2019 WL 2716519, at *10 (quoting Baeza v. Superior Ct., 201 Cal. App. 4th 18 1214 (2011)). 19 However, as explained below, the severance clauses are not dispositive in this case. 20 b. Severance Is Not Appropriate Because the Agreement Is Permeated by 21 Unconscionability 22 The existence of the severability clauses does not change the fact that where an agreement 23 is permeated by unconscionability, a court will not sever the unlawful provisions. See Jackson, 24 629 F. Supp. 2d at 1030 (refusing to apply severability clause to save an agreement permeated by 25 unconscionability); Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165, 183–84 (2015) 26 (“[A] court should sever an unconscionable provision unless the agreement is so ‘permeated’ by 27 unconscionability that it cannot be cured by severance.”). As a result, the critical question for the 1 from the generalized severance clause, which instructs that should “any part” of the Agreement be 2 “ruled invalid,” then “that part may be removed” from the Agreement. Agreement at 8. 3 Verizon is correct that, as a mechanical matter, the problematic provisions could be 4 excised from the Agreement, leaving enough of the arbitration and arbitration-related provisions 5 for the Court to enforce and without requiring the Court to reform the agreement. See Armendariz, 6 24 Cal. 4th at 124. “But the fact that a severance can mechanically and grammatically be 7 accomplished is not dispositive.” Jackson, 629 F. Supp. 2d at 1030. As noted above, the 8 California Supreme Court in Armendariz was also concerned with whether there was something in 9 the arbitration agreement—such as the fact of more than one unlawful provision—which 10 suggested that the party in the superior bargaining position was trying to impose arbitration not as 11 an alternative to litigation but rather as an inferior forum. 12 Here, there is strong evidence that Verizon was trying to impose an “inferior forum” on its 13 customers. First, the notice period creates a narrow six-month window in which Verizon’s 14 customers must notify Verizon of the dispute or otherwise waive their claims. Though different 15 from a statute of limitations, as explained above, it may have the same operative effect as a 16 practical matter. Second, the limitations of liability provision prevents Plaintiffs from recovering 17 any punitive damages, therefore negating a statutory right to a remedy. Third, the public 18 injunctive relief waiver prevents Plaintiffs from raising important claims currently protected by 19 statute. Fourth, the exculpatory provision prevents Plaintiffs from relying on information 20 provided to them by, e.g., Verizon’s customer service representatives even for claims such as 21 fraud in the inducement for which an exception to the parol evidence rule has long existed. 22 Finally, the mass arbitration provision means that many of Verizon customers will not be able to 23 file a claim in arbitration for years and possibly ever. It can operate to effectively thwart 24 arbitration and vindication of rights altogether. In sum, the arbitration clause and the applicable 25 limitations as a whole demonstrate a systematic effort to impose arbitration on a customer as an 26 inferior forum. Newton, 854 F. Supp. 2d at 729. The Court reaches this conclusion based on the 27 number of unconscionable provisions, their nature, and the overall effect which is entirely 1 Verizon consumers into an inferior (and, in many circumstances, wholly ineffective) forum. 2 The Court further notes that permitting the Agreement to stand because Verizon proposes 3 to sever any unconscionable provisions creates a “perverse incentive.” See Capili, 116 F. Supp. 4 3d at 1009. If the Court were to sever the numerous unconscionable provisions in a case such as 5 this, companies could be incentivized to retain unenforceable provisions designed to chill 6 customers’ vindication of their rights, then simply propose to sever these provisions in the rare 7 event that they are challenged successfully in court. Id.; cf. Kooiman v. Siwell, Inc., No. 20-cv- 8 00565, 2021 WL 899095, at *5 (C.D. Cal. Jan. 4, 2021) (“Unfortunately, the drafters of such 9 unenforceable provisions are often rewarded because of the chilling effect they have; a California 10 employee is likely to believe the contractual provision to be binding and may therefore simply 11 forego pursuit of her statutory rights . . .”); Armendariz, 24 Cal. 4th at 110 (“Such a system still 12 poses a significant risk that employees will have to bear large costs to vindicate their statutory 13 right against workplace discrimination, and therefore chills the exercise of that right.”). The 14 remedy of severance, therefore, may indirectly reward systemic unconscionability. The remedy of 15 severance deserves close consideration and scrutiny. 16 The Court concludes that severance of the unconscionable provisions is not appropriate 17 and, therefore, DENIES Verizon’s motion to compel arbitration. Verizon’s request to stay 18 proceedings is DENIED as moot. 19 V. CONCLUSION 20 For the foregoing reasons, the Court DENIES Verizon’s motion to compel arbitration. 21 Verizon’s request for leave to file notification of change to the Customer Agreement is DENIED 22 as moot. 23 This order disposes of Docket Nos. 20 and 43. 24 IT IS SO ORDERED. 25 26 Dated: July 1, 2022 27 ______________________________________