Shroyer v. New Cingular Wireless Service

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KENNITH SHROYER, individually and 
as Representative for all others
similarly situated and the General
Public, No. 06-55964
Plaintiff-Appellant,
v.  D.C. No.
CV-06-01792-R
NEW CINGULAR WIRELESS SERVICES, OPINION
INC., a Delaware corporation;
AT&T CORPORATION,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Submitted June 13, 2007*
Pasadena, California
Filed August 17, 2007
Before: Dorothy W. Nelson, Stephen Reinhardt, and
Pamela Ann Rymer, Circuit Judges.
Opinion by Judge Reinhardt;
Concurrence by Judge Rymer
*This panel unanimously finds this case suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).
9993
9996 SHROYER v. NEW CINGULAR WIRELESS
COUNSEL
William Weinstein, Wechsler Harwood LLP, New York, New
York, for the plaintiff-appellant.
Robert K. Friedl, Kirtland & Packard LLP, El Segundo, Cali-
fornia, for the plaintiff-appellant.
Donald M. Falk, Mayer, Brown, Rowe & Maw LLP, Palo
Alto, California, for the defendants-appellees.
Evan Tager and Timothy C. Lambert, Mayer, Brown, Rowe
& Maw LLP, Washington, DC, for the defendants-appellees.
Michael J. Stortz, Drinker Biddle & Reath LLP, San Fran-
cisco, California, for the defendants-appellees.
SHROYER v. NEW CINGULAR WIRELESS 9997
OPINION
REINHARDT, Circuit Judge:
In this case, we consider whether a class arbitration waiver
in New Cingular Wireless Service Inc.’s standard contract for
cellular phone services is unconscionable under California
law, and whether the Federal Arbitration Act preempts a hold-
ing that the waiver is unenforceable. We hold that the waiver
is unconscionable, and, thus, unenforceable, and that the
invalidation of the contract provision is not preempted by the
Federal Arbitration Act. Accordingly, we reverse the district
court’s order compelling arbitration.1
I. Procedural and Factual Background
On February 22, 2006, Appellant Kennith Shroyer filed a
class action lawsuit in the California Superior Court against
Appellees New Cingular Wireless Services, Inc., AT&T
Corp. (AT&T), and Does 1 through 100, alleging that he and
similarly situated plaintiffs (“the class” or “class members”)
1
Our conclusion here is similar to that reached by district judges in the
Northern, Central and Southern Districts of California in at least ten other
cases. See Bradberry v. T-Mobile USA, Inc., No. 06-6567, 2007 U.S. Dist.
LEXIS 34826 (N.D. Cal. Apr. 27, 2007) (Wilken, J.); Winig v. Cingular
Wireless, LLC, 06-4297, 2006 U.S. Dist. LEXIS 73137 (N.D. Cal. Sept.
27, 2006) (Chesney, J.); Hoffman v. Cingular Wireless, LLC, No. 06-1021,
2006 U.S. Dist. LEXIS 79067 (S.D. Cal. Oct. 26, 2006) (Whelan, J.);
Page v. Verisign, Inc., No. 06-0906 (S.D. Cal. Aug. 3, 2006) (Miller, J.);
Herrington v. Verisign, Inc., No. 1915 (S.D. Cal. Aug. 3, 2006) (Miller,
J.); Stern v. Cingular Wireless Corp., 453 F. Supp. 2d 1138 (C.D. Cal.
July 24, 2006) (Snyder, J.); Janda v. T-Mobile, USA, Inc., No. 05-3729,
2006 U.S. Dist. LEXIS 15748 (N.D. Cal. Mar. 17, 2006) (White, J.); Ford
v. Verisign, Inc., No. 05-0819, 2006 U.S. Dist. LEXIS 88856 (Mar. 8,
2006) (Miller, J.) (discussing the court’s December 19, 2005 order); Cer-
vantes v. Pacific Bell Wireless, No. 05-1469, 2006 U.S. Dist. LEXIS
89198 (S.D. Cal. Mar. 8, 2006) (Miller, J.) (discussing the court’s January
10, 2006 order); Laster v. T-Mobile United States, Inc., 407 F. Supp. 2d
1181 (S.D. Cal. Nov. 30, 2005) (Sabraw, J.).
9998 SHROYER v. NEW CINGULAR WIRELESS
had suffered injuries as a result of the 2004 merger between
Cingular Wireless LLC and AT&T Wireless Services, Inc.
(AT&T) that created New Cingular Wireless Services, Inc.
(Cingular), and in particular by the actions of Cingular subse-
quent to the merger. Shroyer pled seven causes of action
based on California state statutes and common law, including
(1) unfair competition under Cal. Bus. & Prof. Code § 17200,
et seq.; (2) untrue and misleading advertising under Cal. Bus.
& Prof. Code § 17500; (3) violations of the Consumers Legal
Remedies Act, Cal. Civil Code § 1750; (4) breach of contract;
(5) breach of the covenant of good faith and fair dealing; (6)
fraud and deceit under Cal. Civil Code § 1710; and (7) unjust
enrichment. Shroyer requested damages, declaratory relief,
and injunctive relief.
Shroyer’s complaint alleges that when AT&T and Cingular
merged the cellular phone services received by AT&T’s cus-
tomers deteriorated significantly. Simultaneously, Cingular
sought to induce the customers of AT&T to transfer their ser-
vice plans and equipment from AT&T to Cingular in order to
increase the company’s profits. When class members com-
plained about the new problems associated with their AT&T
service plans, Cingular allegedly told them that it could pro-
vide members with a “chip” that would restore their service
quality. To receive the chip, however, class members would
be required to extend their current contracts by entering into
“Wireless Service Agreements” (Agreements) with Cingular,
and, thus, to switch their service plans from AT&T to Cingu-
lar. Cingular also allegedly told class members that when they
extended their contracts with Cingular, they would not be able
to retain the more favorable rates contained in their existing
AT&T contacts.
Shroyer initially subscribed to AT&T service plans in 2000
and 2003. After the merger, he complained about his service,
and Cingular told him that it would be improved if he signed
a new contract with Cingular. On January 2, 2005, Shroyer
switched his two cellular phone accounts from AT&T to
SHROYER v. NEW CINGULAR WIRELESS 9999
Cingular by entering into new Agreements with Cingular.
Shroyer, like other class members who entered into Agree-
ments with Cingular, executed an electronic signature over
the telephone to assent to the terms of the Agreements.
Shroyer selected the answer “Yes” in response to the state-
ment “You agree to the terms as stated in the Wireless Service
Agreement and terms of service.”
The form contract to which Shroyer assented states that the
Agreement incorporates by reference Cingular’s Terms and
Conditions Booklet, “including its binding arbitration clause,”
and that at the time the consumer signs the Agreement he has
read and agrees to be bound by the Agreement and the terms
in the Booklet, “including . . . [the] Arbitration provisions.”
The booklet referred to by the Agreement includes an arbitra-
tion clause, which states that “Cingular and you . . . agree to
arbitrate all disputes and claims . . . arising out of or relating
to this Agreement, or to any prior oral or written agreement,
for Equipment or services between Cingular and you.” The
clause further states that the arbitration will be governed by
the procedures of the American Arbitration Association
(AAA) and administered by AAA.
Most important, the arbitration provision contains a class
arbitration waiver that bars individuals from bringing repre-
sentative claims:
You and Cingular agree that YOU AND CINGU-
LAR MAY BRING CLAIMS AGAINST THE
OTHER ONLY IN YOUR OR ITS INDIVIDUAL
CAPACITY, and not as a plaintiff or class member
in any purported class or representative proceeding.
Further, you agree that the arbitrator may not consol-
idate proceedings of more than one person’s claims,
and may not otherwise preside over any form of rep-
resentative or class proceeding, and that if this spe-
cific proviso is found to be unenforceable, then the
10000 SHROYER v. NEW CINGULAR WIRELESS
entirety of this arbitration clause shall be null and
void.
One month after Shroyer filed his complaint, Cingular
removed the action to the United States District Court for the
Central District of California pursuant to 28 U.S.C. §§ 1441,
1446, and 1453, asserting subject matter jurisdiction under the
Class Action Fairness Act of 2005 (CAFA), Pub. L. 109-2,
119. Stat. 14 (2005), 28 U.S.C. § 1332(d). Cingular then
promptly filed a motion to compel arbitration and stay further
proceedings in the litigation pursuant to § 32 and § 43 of the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 3-4. It asserted
that the arbitration clause is valid and enforceable under § 2
of the Federal Arbitration Act4 and that the clause is neither
procedurally nor substantively unconscionable. Alternatively,
it asserted that a holding that the clause is unconscionable
2
Section 3 provides that “If any suit or proceeding be brought in any of
the courts of the United States upon any issue referable to arbitration
under an agreement in writing for such arbitration, the court in which such
suit is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration under such an agreement, shall on
application of one of the parties stay the trial of the action until such arbi-
tration has been had in accordance with the terms of the agreement, pro-
viding the applicant for the stay is not in default in proceeding with such
arbitration.” 9 U.S.C. § 3.
3
Section 4 provides that “A party aggrieved by the alleged failure,
neglect, or refusal of another to arbitrate under a written agreement for
arbitration may petition any United States district court which, save for
such agreement, would have jurisdiction under Title 28, in a civil action
or in admiralty of the subject matter of a suit arising out of the controversy
between the parties, for an order directing that such arbitration proceed in
the manner provided for in such agreement.” 9 U.S.C. § 4.
4
Section 2 provides that “A written provision in any maritime transac-
tion or a contract evidencing a transaction involving commerce to settle
by arbitration a controversy thereafter arising out of such contract or trans-
action, or the refusal to perform the whole or any part thereof, or an agree-
ment in writing to submit to arbitration an existing controversy arising out
of such a contract, transaction, or refusal, 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.
SHROYER v. NEW CINGULAR WIRELESS 10001
would be expressly preempted by § 2 of the Federal Arbitra-
tion Act, as well as impliedly preempted, because such a hold-
ing would frustrate the purpose of the Act.
After hearing oral argument, District Judge Manuel Real
announced that he would grant Cingular’s motion to compel
arbitration and dismiss the action without prejudice. Ten days
later, Cingular filed a seven-page proposed order — “[Defen-
dant’s Proposed] Order Compelling Arbitration and Dismiss-
ing the Action Without Prejudice” — that contained virtually
all of the legal arguments and factual allegations that Cingular
had made in its memorandum to support its motion to compel
arbitration, and nothing else. Shortly thereafter, Judge Real
entered the proposed order without making any changes to it.
Shroyer filed a timely notice of appeal.
II. Jurisdiction and Standard of Review
The district court had subject matter jurisdiction pursuant
to 28 U.S.C. § 1332(d), and we have appellate jurisdiction
over its order compelling arbitration and dismissing the action
without prejudice pursuant to 9 U.S.C. § 16(a)(3). See San-
ford v. MemberWorks, Inc., 483 F.3d 956, 961 (9th Cir. 2007)
(citing Interactive Flight Techs., Inc. v. Swissair Swiss Air
Transp. Co., 249 F.3d 1177, 1179 (9th Cir. 2001)).
We review the district court’s order de novo. Davis v.
O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007)
(citing Circuit City Stores, Inc. v. Mantor, 417 F.3d 1060,
1063 (9th Cir. 2005)); accord Nagrampa v. MailCoups, Inc.,
469 F.3d 1257, 1267 (9th Cir. 2006) (en banc) (“The validity
and scope of an arbitration clause are reviewed de novo.” (cit-
ing Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d 931, 936
(9th Cir. 2001))).
10002 SHROYER v. NEW CINGULAR WIRELESS
III. Discussion
A. Unconscionability
[1] Section 2 of the Federal Arbitration Act 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. “It is
well-established that unconscionability is a generally applica-
ble contract defense, which may render an arbitration provi-
sion unenforceable.” Nagrampa, 469 F.3d at 1280 (citing
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87
(1996)). Both Shroyer and Cingular agree that we should
apply California contract law to determine whether the class
arbitration waiver is unconscionable. Applying that law to the
class arbitration waiver at issue here, we conclude that under
the test set forth in Discover Bank v. Superior Court of Los
Angeles, 36 Cal. 4th 148 (Cal. 2005), the waiver is both pro-
cedurally and substantively unconscionable and, therefore,
unenforceable. Accordingly, we agree with Shroyer that the
district court erred in holding that the class arbitration waiver
is neither procedurally nor substantively unconscionable.
[2] Under California law, a contract provision is unenforce-
able due to unconscionability only if it is both procedurally
and substantively unconscionable. Nagrampa, 469 F.3d at1280 (citing Armendariz v. Found. Health Psychcare Servs.,
Inc., 24 Cal. 4th 83, 114 (Cal. 2000)); see also Discover Bank,
36 Cal. 4th at 160. But the two types of unconscionability
“need not both be present to the same degree.” Nagrampa,
469 F.3d at 1280. California courts apply a “sliding scale,” so
that “ ‘the more substantively oppressive the contract term,
the less evidence of procedural unconscionability is required
to come to the conclusion that the term is unenforceable, and
vice versa.’ ” Id. (quoting Armendariz, 24 Cal. 4th at 114).
In Discover Bank, in which the California Supreme Court
held that a class arbitration waiver in a consumer credit card
SHROYER v. NEW CINGULAR WIRELESS 10003
agreement was unconscionable, the court “recapitulate[d]” its
“principles of unconscionability”:
the doctrine has both a procedural and a substantive
element, the former focusing on oppression or sur-
prise due to unequal bargaining power, the latter on
overly harsh or one-sided results. The procedural
element of an unconscionable contract generally
takes the form of a contract of adhesion, which,
imposed and drafted by the party of superior bar-
gaining strength, relegates to the subscribing party
only the opportunity to adhere to the contract or
reject it. Substantively unconscionable terms may
take various forms, but may generally be described
as unfairly one-sided.
36 Cal. 4th at 160 (citations and internal quotations omitted).
[3] On two prior occasions, we have held that class arbitra-
tion waivers in contracts of adhesion are both procedurally
and substantively unconscionable. Ingle v. Circuit City Stores,
Inc., 328 F.3d 1165, 1176 (9th Cir. 2003) (holding that a class
arbitration waiver in an employment contract was unconscio-
nable); Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir. 2003)
(holding that a class arbitration waiver in a contract for AT&T
telephone services was unconscionable). In both Ingle and
Ting, we relied heavily upon Szetela v. Discover Bank, 97
Cal. App. 4th 1094 (2002), in which the California Court of
Appeal “found procedural unconscionability in the adhesive
nature of the contract” for credit card services, and “found
substantive unconscionability in the imposition of a one-sided
and oppressive class action waiver provision.” Discover Bank,
36 Cal. 4th at 159-60 (describing Szetela, 97 Cal. App. 4th at
1100-01, and noting that Ingle and Ting relied on Szetela); see
also Ingle, 328 F.3d at 1171-72, 1176 (stating that Circuit
City’s class arbitration waiver “is manifestly and shockingly
one-sided” given that a company like Circuit City would
10004 SHROYER v. NEW CINGULAR WIRELESS
never “bring a class proceeding against an employee”); Ting,
319 F.3d at 1149-50.
[4] Subsequent to Ingle and Ting, the California Supreme
Court in Discover Bank expressed approval of the California
Court of Appeal’s decision in Szetela, and affirmed that — as
we had concluded in both Ingle and Ting — class action
waivers, including those in arbitration clauses, may be uncon-
scionable under California law, although not necessarily in all
cases. Discover Bank, 36 Cal. 4th at 162.
Discover Bank involved a plaintiff whose credit card agree-
ment contained a class arbitration waiver. The plaintiff
alleged that the company had misrepresented the date by
which it needed to receive consumers’ payments in order to
avoid charging late payment fees. Id. at 152. The trial court
enforced the arbitration agreement, but permitted classwide
arbitration because it concluded that the class arbitration pro-
vision was unconscionable. Id. The California Court of
Appeal reversed on the ground that the trial court’s holding of
unconscionability was preempted by the Federal Arbitration
Act. Id. at 153. Reversing the Court of Appeal, the California
Supreme Court “conclude[d] that, at least under some circum-
stances, the law in California is that class action waivers in
consumer contracts of adhesion are unenforceable, whether
the consumer is being asked to waive the right to class action
litigation or the right to classwide arbitration.” Id.5 Moreover,
the court explained the circumstances in which a class action
waiver in a consumer contract will be procedurally and sub-
stantively unconscionable under California law:
We do not hold that all class action waivers are nec-
essarily unconscionable. But when the waiver is
found in a consumer contract of adhesion in a setting
in which disputes between the contracting parties
5
It also concluded that the “Court of Appeal [wa]s incorrect that the
FAA preempts California law in this respect.” Id.; see also id. at 163-73.
SHROYER v. NEW CINGULAR WIRELESS 10005
predictably involve small amounts of damages, and
when it is alleged that the party with the superior
bargaining power has carried out a scheme to delib-
erately cheat large numbers of consumers out of
individually small sums of money, then, at least to
the extent the obligation at issue is governed by Cali-
fornia 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.) Under these cir-
cumstances, such waivers are unconscionable under
California law and should not be enforced.
Id. at 162.
[5] The California Courts of Appeal have construed Dis-
cover Bank as providing for a three-part inquiry in order to
determine whether a class action waiver in a consumer con-
tract is unconscionable. See Cohen v. DirecTV, Inc., 142 Cal.
App. 4th 1442, 1451-53 (2006); Klussman v. Cross Country
Bank, 134 Cal. App. 4th 1283, 1297 (2005); Aral v.
EarthLink, Inc., 134 Cal. App. 4th 544, 556-57 (2005). Under
this three-part inquiry, courts are required to determine: (1)
whether the agreement is “ ‘a consumer contract of adhe-
sion’ ” drafted by a party that has superior bargaining power;
(2) whether the agreement occurs “ ‘in a setting in which dis-
putes between the contracting parties predictably involve
small amounts of damages’ ”; and (3) whether “ ‘it is alleged
that the party with the superior bargaining power has carried
out a scheme to deliberately cheat large numbers of consum-
ers out of individually small sums of money.’ ” Cohen, 142
Cal. App. 4th at 1151-53 (quoting Discover Bank, 36 Cal. 4th
at 162-63); see also Klussman, 134 Cal. App. 4th at 1297
(summarizing the three parts identified in Discover Bank).
Although there are most certainly circumstances in which a
class action waiver is unconscionable under California law
despite the fact that all three parts of the Discover Bank test
are not satisfied, it is unnecessary to explore those circum-
10006 SHROYER v. NEW CINGULAR WIRELESS
stances here because the instant action satisfies them all and
cannot be distinguished from Discover Bank. Cohen, 142 Cal.
App. 4th at 1455.
[6] First, as in Discover Bank, Cingular’s Agreements for
cellular phone services are “consumer” contracts. They are
also “contracts of adhesion.” Under California law, “[a] con-
tract of adhesion is defined as ‘a standardized contract,
imposed upon the subscribing party without an opportunity to
negotiate the terms.’ ” Nagrampa, 469 F.3d at 1281 (quoting
Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th
846, 853 (2001)). There is no dispute that the Cingular Agree-
ments, which refer to the Terms of Service, constitute stan-
dardized contracts. In addition, as Cingular conceded before
the district court, it did not offer customers such as Shroyer
an opportunity to negotiate the terms of the Agreements or to
sign Agreements without class arbitration waivers. Instead, it
presented the customers with take-it-or-leave-it standardized
contracts, which it had prepared, forcing customers who
would not accept a class action waiver to not extend their
Agreements with AT&T/Cingular. Finally, compared to the
individual class members, Cingular had substantially greater
bargaining power as a large, sophisticated corporation, partic-
ularly since many class members faced termination fees and
the costs of obtaining replacement services if they did not sign
the Agreements with Cingular. See Nagrampa, 469 F.3d at
1282-84.
[7] Second, the Cingular Agreements occurred “in a setting
in which disputes between the contracting parties predictably
involve small amounts of damages.” Discover Bank, 36 Cal.
4th at 162. In Discover Bank, the plaintiff sought to recover
for a $29 fee charged to him for late payments and other
finance charges. Id. at 154. Here, the monthly service fee that
Cingular charged to Shroyer was $59.99 per month for his
first account, and $9.99 per month for his second account.
Although Shroyer’s complaint alleges that the class members
are entitled to several types of damages, the damages stem
SHROYER v. NEW CINGULAR WIRELESS 10007
primarily from the decline in the quality of service under cus-
tomers’ monthly service plans, the cost of terminating exist-
ing service Agreements, and the cost of obtaining new cellular
phone services with other companies. At most, Shroyer and
similarly situated class members suffered individual damages
in the hundreds of dollars, an objectively small amount, and
a smaller figure than the $1,000 amount that the Court of
Appeal in Cohen found to be a small enough sum to satisfy
the second element of the Discover Bank test. See Cohen, 142
Cal. App. 4th at 1452 (holding that “[d]amages that may or
may not exceed $1,000 do not take DirecTV’s class action
waiver outside ‘a setting in which disputes between the con-
tracting parties predictably involve small amounts of dam-
ages’ ” (quoting Discover Bank, 36 Cal. 4th at 162)); see also
Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th 571, 587
(2007) (following Cohen and holding that a claim of $200 for
terminating phone service is not large enough to distinguish
the case from Discover Bank).
[8] Third, Shroyer’s complaint plainly “allege[s] that the
party with the superior bargaining power has carried out a
scheme to deliberately cheat large numbers of consumers out
of individually small sums of money.” Discover Bank, 36 Cal.
4th at 162. Shroyer’s complaint alleges that for the purpose of
increasing profits, Cingular took the deliberate action of
inducing thousands of AT&T customers to enter into Cingular
Agreements by misrepresenting to customers that their ser-
vices would be improved only if they would enter into con-
tract extensions with Cingular. The gravamen of Shroyer’s
complaint is that Cingular undertook a fraudulent scheme,
and, in fact, one of his causes of action is for fraud and deceit.
Cohen, 142 Cal. App. 4th at 1453; Aral, 134 Cal. App. 4th at
557 (“Although Aral did not allege fraud, the gravamen of the
complaint is that numerous consumers were cheated out of
small sums of money through deliberate behavior.”).
Because all three parts of the Discover Bank test are satis-
fied, Cingular’s class arbitration waiver is both procedurally
10008 SHROYER v. NEW CINGULAR WIRELESS
and substantively unconscionable, and cannot be enforced.
Discover Bank, 36 Cal. 4th at 163.
Cingular raises several arguments regarding why its Agree-
ments are neither procedurally nor substantively unconsciona-
ble, and how its arbitration clause differs from the clause in
Discover Bank. We reject all its arguments.
Cingular first argues that there was no procedural uncons-
cionability because after Discover Bank the California Courts
of Appeal have stated that “[t]here can be no ‘oppression’
establishing procedural unconscionability, even assuming
unequal bargaining power and an adhesion contract, when the
customer has meaningful choices: ‘[A]ny claim of ‘oppres-
sion’ may be defeated if the complaining party has reasonably
available sources of supply from which to obtain desired
goods or services free of the terms claimed to be unconsciona-
ble.’ ” Wayne v. Staples, Inc., 135 Cal. App. 4th 466, 482
(2006) (quoting Dean Witter Reynolds, Inc. v. Super. Ct., 211
Cal. App. 3d 758, 768 (1989)). Cingular also points to Morris
v. Redwood Empire Bancorp, 128 Cal. App. 4th 1305, 1320
(2005), and Crippen v. Central Valley RV Outlet, Inc., 124
Cal. App. 4th 1159, 1165 (2004), and contends that Shroyer
has failed to demonstrate that he and the class members
lacked “meaningful alternatives” to the arrangements offered
by Cingular.
In three opinions subsequent to both Discover Bank and all
of the cases to which Cingular cites, we have rejected Cingu-
lar’s “meaningful alternatives” or “marketplace alternatives”
argument. See Douglas v. U.S. Dist. Court for the Central
Dist. of Cal., ___ F.3d ___, No. 06-75424, 2007 U.S. App.
LEXIS 17061, at * 9-*10 (9th Cir. July 18, 2007) (per
curiam); O’Melveny & Myers, 485 F.3d at 1074-75;
Nagrampa, 469 F.3d at 1283. In Nagrampa, after reviewing
California case law, this court, sitting en banc, “noted that
California ‘has rejected the notion that the availability . . . of
substitute . . . services alone can defeat a claim of procedural
SHROYER v. NEW CINGULAR WIRELESS 10009
unconscionability.’ ” Douglas, ___ F.3d ___ (quoting
Nagrampa, 469 F.3d at 1283); accord O’Melveny & Myers,
485 F.3d at 1074-75 (same). Although there is clearly some
disagreement among the California Courts of Appeal over this
issue, compare Villa Milano Homeowners Ass’n v. Il
Davorge, 84 Cal. App. 4th 819, 827 (2000), and Szetela, 97
Cal. App. 4th at 1100, with Wayne, 135 Cal. App. 4th at 482,
we have consistently followed the courts that reject the notion
that the existence of “marketplace alternatives” bars a finding
of procedural unconscionability. See, e.g., Nagrampa, 469
F.3d at 1283; Ingle, 328 F.3d at 1172 (“We follow the reason-
ing in Szetela . . . in which the California Court of Appeal
held that the availability of other options does not bear on
whether a contract is procedurally unconscionable.”). In fact,
in a recent decision finding a cellular phone company’s class
arbitration waiver unconscionable, the California Court of
Appeal held that “absent unusual circumstances, use of a con-
tract of adhesion establishes a minimal degree of procedural
unconscionability notwithstanding the availability of market
alternatives,” and explained that “[t]he Ninth Circuit, sitting
en banc in Nagrampa [ ], reached the same conclusion.” Gat-
ton, 152 Cal. App. 4th at 585.
Thus, contrary to Cingular’s contention, a contract may be
procedurally unconscionable under California law when the
party with substantially greater bargaining power “presents a
‘take-it-or-leave it’ contract to a customer—even if the cus-
tomer has a meaningful choice as to service providers.” Doug-
las, ___ F.3d ___ (holding in a case involving a class action
waiver in a contract for long distance telephone services that
the district court erred when it concluded that the waiver was
not procedurally unconscionable on the basis of the availabil-
ity of “meaningful alternative choices for telephone service”
(citing Nagrampa, 469 F.3d at 1284) (finding sufficient evi-
dence of oppression to establish procedural unconscionability
because the franchisor “had overwhelming bargaining power,
drafted the contract, and presented it to [the franchisee] on a
10010 SHROYER v. NEW CINGULAR WIRELESS
take-it-or-leave-it basis”))); see also Ting, 319 F.3d 1148;
Discover Bank, 36 Cal. 4th at 160.
Next, Cingular contends that the class arbitration waiver at
issue here is not substantively unconscionable because, unlike
the waiver in Discover Bank, it does not operate to “insulate
a party from liability that otherwise would be imposed under
California law,” or exempt Cingular “from responsibility for
[its] own fraud, or willful injury to the person or property of
another.” 36 Cal. 4th at 161. The main difference, according
to Cingular, is that under its arbitration clause Cingular pays
for the full cost of arbitration — so long as a claim is not
brought under circumstances that would result in sanctions
under the standard in Rule 11(b) of the Federal Rules of Civil
Procedure — and plaintiffs who receive awards that are equal
to or greater than their demands receive attorneys’ fees. As a
result, Cingular asserts that the arbitration clause does not
deter customers from arbitrating individual small-value claims
and does not insulate Cingular from liability.
Cingular’s attempt to distinguish Discover Bank based on
the availability of attorneys’ fees and arbitration costs is with-
out merit. The California Supreme Court in Discover Bank
rejected “the rationale . . . that the potential availability of
attorney fees to the prevailing party in arbitration or litigation
ameliorates the problem posed by such class action waivers.”
36 Cal. 4th at 162 (citations omitted). As the court reasoned,
“[t]here is no indication . . . that, in the case of small individ-
ual recovery, attorney fees are an adequate substitute for the
class action or arbitration mechanism.” Id. This rationale
applies with equal force to arbitration costs, which are almost
always far less than attorneys’ fees.6 Contrary to Cingular’s
6
As Cingular notes, under the policy in Discover Bank, the cost to the
plaintiff of participating in individual consumer arbitration would be $125
through JAMS or $100 through the National Arbitration Forum. These
one-time fixed costs represent only a fraction of the cost of hiring a com-
petent attorney for an hour of legal services.
SHROYER v. NEW CINGULAR WIRELESS 10011
contention, the court was concerned that when the potential
for individual gain is small, very few plaintiffs, if any, will
pursue individual arbitration or litigation, which greatly
reduces the aggregate liability a company faces when it has
exacted small sums from millions of consumers. See id. at
158-62. It did not suggest that a waiver is unconscionable
only when or because a plaintiff in arbitration may experience
a net loss (including attorneys’ fees and costs).
[9] Because Cingular has failed to distinguish its class arbi-
tration waiver from the waiver in Discover Bank, we hold that
the former is unconscionable and unenforceable under Cali-
fornia law. In addition, because the class arbitration waiver is
unenforceable, we must also hold that the entire arbitration
clause is void. Cingular’s arbitration provision has a non-
severability clause, which states that if the “specific proviso”
that “the arbitrator may not . . . preside over any form of a
representative or class proceeding,” “is found to be unen-
forceable, then the entirety of this arbitration clause shall be
null and void.” (emphasis added). Accordingly, here, the
entire arbitration clause is void and arbitration cannot be com-
pelled under the Federal Arbitration Act.
B. Preemption
Having concluded that the district court erred in holding
that the Cingular class arbitration waiver is not unconsciona-
ble, we turn to its alternative holding that a finding that the
waiver is unconscionable would be expressly and impliedly
preempted by the Federal Arbitration Act. Again, we con-
clude that the district court erred. The Federal Arbitration Act
does not bar federal or state courts from applying generally
applicable state contract law principles and refusing to
enforce an unconscionable class action waiver in an arbitra-
tion clause.
i. Express Preemption
[10] Cingular contends that the district court correctly held
that a finding that Cingular’s arbitration provision is uncon-
10012 SHROYER v. NEW CINGULAR WIRELESS
scionable under California law would be expressly preempted
by the Federal Arbitration Act because such a finding would
“fall outside Section 2’s saving clause for ‘grounds as exist at
law or in equity for the revocation of any contract.’ ” (quoting
9 U.S.C. § 2). It asserts that the unconscionability principles
applied in Discover Bank — the same principles that we have
applied here to find a provision of Cingular’s arbitration
clause to be unconscionable — “subject arbitration clauses to
special scrutiny,” Iberia Credit Bureau, Inc. v. Cingular Wire-
less LLC, 379 F.3d 159, 167 (5th Cir. 2004), and, therefore,
results in preemption under the rule set forth in Perry v.
Thomas, 482 U.S. 483 (1987) and reaffirmed in Doctor’s
Assocs., 517 U.S. 681. Perry held that “state law, whether of
legislative or judicial origin, is applicable [under § 2 of the
Federal Arbitration Act and not preempted] if that law arose
to govern issues concerning the validity, revocability, and
enforceability of contracts generally,” whereas “[a] state-law
principle that takes its meaning precisely from the fact that a
contract to arbitrate is at issue does not comport with this
requirement of § 2” and is preempted. Perry, 482 U.S. at 492
n.9; see also Doctor’s Assocs., 517 U.S. at 685, 687 (“Courts
may not . . . invalidate arbitration agreements under state laws
applicable only to arbitration provisions.” (citation omitted)).
The California Supreme Court in Discover Bank soundly
rejected this very same express preemption argument that
Cingular now makes, 36 Cal. 4th at 163-66, and we have done
so in two prior decisions that held that class action waivers
were unconscionable under California law and applied the
same generally applicable California unconscionability princi-
ples as the California court in Discover Bank. Ingle, 328 F.3d
at 1176 n.15; Ting, 319 F.3d at 1150 n.15. The rule
announced in Discover Bank is simply a refinement of the
unconscionability analysis applicable to contracts generally in
California, as discussed in Armendariz v. Foundation Health
Psychcare Services, Inc., 24 Cal. 4th 83 (Cal. 2000). As we
explained in Ingle, “the Armendariz court applied ordinary
principles of contract law in evaluating the arbitration agree-
SHROYER v. NEW CINGULAR WIRELESS 10013
ment in that case” and its analysis “was fully consistent with
federal law.” 328 F.3d at 1170 n.3; see also Am. Online, Inc.
v. Super. Ct., 90 Cal. App. 4th 1, 17-18 (2001) (refusing to
enforce forum selection clause that effectively waived class
action relief under the California Consumers Legal Remedies
Act). Moreover, as we explained in Ting,
[b]ecause unconscionability is a generally applicable
contract defense, it may be applied to invalidate an
arbitration agreement without contravening § 2 of
the FAA. See Doctor’s Assocs., 517 U.S. at 687[ ].
We recognize . . . that the FAA preempts state laws
of limited applicability . . . but we follow well-
settled Supreme Court precedent in rejecting the
proposition that unconscionability is one of those
laws. See id. at 686-87 (stating that the Act “declares
that state law may be applied if that law arose to
govern issues concerning validity, revocability, and
enforceability of contracts generally,” and holding
that “generally applicable contract defenses, such as
fraud, duress or unconscionability, may be applied to
invalidate arbitration agreements without contraven-
ing” the FAA) (emphasis added).
319 F.3d at 1150 n.15; see also Ingle, 328 F.3d at 1176 n.15
(stating that “[w]e again reject the [Court of Appeal’s] reason-
ing in Discover Bank” — reasoning which the California
Supreme Court disavowed in reversing the Court of Appeal);
Circuit City Stores v. Adams, 279 F.3d 889, 895 (9th Cir.
2002).
[11] We see no reason to revisit Ingle and Ting, both of
which plainly foreclose Cingular’s express preemption argu-
ment, and Cingular offers no basis upon which to distinguish
these controlling cases. However, we note that the explanation
in Discover Bank that “the principle that class action waivers
are, under certain circumstances, unconscionable as unlaw-
fully exculpatory is a principle of California law that does not
10014 SHROYER v. NEW CINGULAR WIRELESS
specifically apply to arbitration agreements, but to contracts
generally,” Discover Bank, 36 Cal. 4th at 165, provides subse-
quent confirmation that our view of California contract law
was sound and that Ingle and Ting were correct in holding
that California contract law may be applied to invalidate a
class arbitration waiver under § 2 of the Federal Arbitration
Act.
ii. Conflict Preemption
[12] Conflict preemption, a form of implied preemption,
exists if compliance with both federal and state law is impos-
sible, or “where state law ‘stands as an obstacle to the accom-
plishment and execution of the full purposes and objectives of
Congress.’ ” Quicken Loans, Inc. v. Wood, 449 F.3d 944, 949
(9th Cir. 2006) (quoting Gade v. Nat’l Solid Wastes Mgmt.
Ass’n, 505 U.S. 88, 98 (1992)). However, the fact that there
is “[t]ension between federal and state law is not enough to
establish conflict preemption.” Incalza v. Fendi N. Am., Inc.,
479 F.3d 1005, 1010 (9th Cir. 2007) (citing Silkwood v. Kerr-
McGee Corp., 464 U.S. 238, 256 (1984)). As a result, we will
find conflict preemption only in “ ‘those situations where con-
flicts will necessarily arise.’ ” Id. (quoting Goldstein v. Cali-
fornia, 412 U.S. 546, 554 (1973)).
Cingular does not contend that the application of Discover
Bank renders compliance with the Federal Arbitration Act
impossible. Instead, it urges us to conclude, as the district
court did, that “a broad reading” of Discover Bank that invali-
dates its allegedly “consumer-friendly” arbitration clause
“would ‘stand as an obstacle to the accomplishment and exe-
cution of the full purposes and objective of Congress’ in
enacting the [Federal Arbitration Act] and would be pre-
empted under the doctrine of conflict preemption.” (quoting
United States v. Locke, 529 U.S. 89, 109 (2000)).
To determine whether California’s unconscionability prin-
ciples stand as an obstacle to the Federal Arbitration Act, we
SHROYER v. NEW CINGULAR WIRELESS 10015
must first identify the purposes and objectives underlying that
Act. As we have stated, “encouraging alternative dispute reso-
lution outside the courtroom was the principal motivation
behind passage of the Federal Arbitration Act.” Schoenduve
Corp. v. Lucent Techs., Inc., 442 F.3d 727, 730 (9th Cir.
2006) (citing EEOC v. Waffle House, Inc., 534 U.S. 279, 289
(2002) (“[The FAA’s] ‘purpose was to reverse the longstand-
ing judicial hostility to arbitration agreements . . . and to place
arbitration agreements upon the same footing as other con-
tracts.’ ” (quoting Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 24 (1991)))). Because such was the FAA’s pur-
pose, “[i]t simply requires courts to enforce privately negoti-
ated agreements to arbitrate, like other contracts, in
accordance with their terms,” Volt Info. Scis. Inc. v. Bd. of
Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478
(1989), but “not more so.” Id. (quoting Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)
(“As the ‘saving clause’ in § 2 indicates, the purpose of Con-
gress in 1925 was to make arbitration agreements as enforce-
able as other contracts, but not more so.”)).
Another purpose of the Federal Arbitration Act is “the effi-
cient and expeditious resolution of claims,” Sink v. Aden
Enters., Inc., 352 F.3d 1197, 1201 (9th Cir. 2003) (citing H.R.
Rep. No. 96, 68th Cong., 1st Sess., 2 (1924); Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20 (1985)),
although the Supreme Court has “reject[ed] the suggestion
that [such was] the overriding goal of the [Federal] Arbitra-
tion Act.” Dean Witter, 470 U.S. at 219 (emphasis added).7
7
Arbitration furthers the purpose of efficiency because it mitigates some
of the “strict procedural requirements that govern litigation in federal
courts,” and “offers flexibility, an expeditious result, and is relatively
inexpensive when compared to litigation.” Schoenduve, 442 F.3d at 731
(citing Gilmer, 500 U.S. at 31 (“[B]y agreeing to arbitrate, a party ‘trades
the procedures and opportunity for review of the courtroom for the sim-
plicity, informality, and expedition of arbitration.’ ” (quoting Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628
(1985)))).
10016 SHROYER v. NEW CINGULAR WIRELESS
Cingular contends that applying Discover Bank to require
companies to permit class arbitration will undermine these
purposes. It argues that most companies will choose not to
arbitrate at all, if faced with the requirement of class arbitra-
tion, because the cost and complexity of arbitration would
increase, as would the risk of an unfavorable and largely unre-
viewable decision with respect to an entire class of consum-
ers. In particular, Cingular believes that class arbitration
eliminates the benefits of arbitration, including “speed, sim-
plicity, cost savings, informality, and reduced adversariality,”
because many of the features of Federal Rule of Civil Proce-
dure 23 are incorporated into class arbitration. We find no
basis for or merit to these arguments.
First, although conflict preemption “can exist even when
Congress has chosen to include an express preemption clause
in a statute” or a savings clause, Nathan Kimmel, Inc. v.
DowElanco, 275 F.3d 1199, 1204 (9th Cir. 2002) (citing
Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995)), the
fact that § 2 expressly permits a court to decline enforcement
of an arbitration agreement on grounds that exist at law or in
equity for revoking a contract, such as unconscionability,
strongly suggests that Congress did not contemplate that
implied preemption principles would be applied to mandate
the opposite result. Freightliner, 514 U.S. at 289; cf. Geier v.
Am. Honda Motor Co., Inc., 529 U.S. 861, 872 (2000); see
also Ting, 319 F.3d at 1152 (“the Supreme Court’s general-
ized statements on arbitration do not override the FAA’s par-
ticular rule, which obtains here and which is well-settled:
‘[G]enerally applicable contract defenses, such as fraud,
duress, or unconscionability, may be applied to invalidate
arbitration agreements without contravening § 2.’ ” (quoting
Doctor’s Assocs., 517 U.S. at 687)).8
8
Nevertheless, we acknowledge that Cingular does not bear a “special
burden” to demonstrate conflict preemption merely because § 2 of the
Federal Arbitration Act includes a savings clause, Geier, 529 U.S. at 873,
and we impose no such burden.
SHROYER v. NEW CINGULAR WIRELESS 10017
[13] Second, the Federal Arbitration Act’s purpose of
reversing hostility to arbitration and placing arbitration agree-
ments on the same footing as ordinary contracts does not
appear to be frustrated or undermined in any way by a holding
that class arbitration waivers in contracts of adhesion, like
class action waivers in such contracts, are unconscionable.
The California Supreme Court in Discover Bank placed arbi-
tration agreements with class action waivers on the exact
same footing as contracts that bar class action litigation out-
side the context of arbitration. 36 Cal. 4th at 165-66. To hold
that California unconscionability law may be applied only to
invalidate a class action waiver, but not a class arbitration
waiver, would place arbitration agreements on a different
footing than other contracts, in direct contravention of this
principal purpose of the Federal Arbitration Act. See Scott v.
Cingular Wireless, 161 P.3d 1000, 1008 (Wash. 2007)
(“Congress simply requires us to put arbitration clauses on the
same footing as other contracts, not make them the special
favorites of the law.” (citing 9 U.S.C. § 2)).
Third, to the extent that California law requires Cingular to
permit its consumers to bring class arbitration proceedings, it
is actually “encouraging alternative dispute resolution outside
the courtroom.” Schoenduve, 442 F.3d at 730. As other courts
have noted in rejecting Cingular’s conflict preemption argu-
ment, Cingular offers no authority or support for the main
premise of its argument that the purposes and objectives of
the Federal Arbitration Act encourage individual arbitration
and disfavor class arbitration. Scott, 161 P.3d at 1008; Kinkel
v. Cingular Wireless LLC, 857 N.E.2d 250, 262 (Ill. 2006). In
this respect, we agree with the Illinois Supreme Court that
“[t]he FAA does not require state courts, when applying state
law to a question of the enforceability of a particular contract,
to necessarily reach an outcome that encourages individual
arbitration.” Kinkel, 857 N.E.2d at 262; accord Scott, 161
P.3d at 1008 (stating that “we see no reason why the purposes
of favoring individual arbitration would not equally favor
class-wide arbitration”).
10018 SHROYER v. NEW CINGULAR WIRELESS
Fourth, we reject Cingular’s contention that class proceed-
ings will reduce the efficiency and expeditiousness of arbitra-
tion in general. If anything, when millions of consumers (or
hundreds of thousands, or even lesser numbers) seek compen-
sation based on the same legal theories and factual allega-
tions, a class arbitration proceeding is simpler, cheaper, and
faster for both the consumers and the defendant company,
particularly when one considers the enormous administrative
costs and attorneys’ fees that a company faces in defending an
extremely large number of individual claims. Similarly,
because the use of class proceedings will enable far greater
numbers of individuals to take part in and benefit from arbi-
tration, we conclude that class arbitrations further the FAA’s
purpose of encouraging alternative dispute resolution.
There is no reason to believe that the principal consider-
ation of judicial economy that underlies the class action
mechanism in Rule 23 would not operate similarly in the con-
text of class arbitration. Under the class arbitration rules
adopted by the American Association of Arbitration, a class
proceeding may not go forward unless the arbitrator makes
many of the same determinations that a judge is required to
make with respect to a class action under Rule 23(a), includ-
ing numerosity, commonality, typicality, and the adequacy of
the representatives and their counsel. See American Arbitra-
tion Association, Supplementary Rules for Class Arbitrations,
Rule 4 (2003), http://www.adr.org/sp.asp?id=21936. In addi-
tion, the AAA requires that the arbitrator determine that com-
mon questions of law or fact “predominate over any questions
affecting only individual members, and that a class arbitration
is superior to other available methods for the fair and efficient
adjudication of the controversy.” Id. As the Supreme Court
has noted, inclusion of the predomination and superiority
standards in a “qualification-for-certification list” serves to
“cover cases ‘in which a class action would achieve econo-
mies of time, effort, expense.’ ” Amchem Prods. Inc. v. Wind-
sor, 521 U.S. 591, 615 (1997) (quoting Adv. Comm. Notes,
28 U.S.C. App., p. 697); see also Phillips Petroleum Co. v.
SHROYER v. NEW CINGULAR WIRELESS 10019
Shutts, 472 U.S. 797, 809 (1985) (“Modern plaintiff class
actions . . . permit[ ] litigation of a suit involving common
questions when there are too many plaintiffs for proper join-
der. Class actions also may permit the plaintiffs to pool claims
which would be uneconomical to litigate individually.”).
Therefore, when an arbitrator determines that all of the pre-
requisites for class arbitration are satisfied, a class proceeding
will meet the requirement that it be a superior means of arbi-
tration for the greatest number of individuals and will foster,
not hamper, the efficiency and expeditious nature of arbitration.9
Because we do not foresee class arbitration increasing the
average cost of arbitration for large numbers of small-value
claims, either for companies or consumers, and it may actu-
ally reduce the cost per claim, Cingular’s reliance on Credit
Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th
Cir. 2005), is misplaced. In Grunwald, we held that the Secur-
ities and Exchange Act of 1934 impliedly preempts the ethical
standards that California state law imposed on National Asso-
ciation of Securities Dealers arbitrations. According deference
to the views of the Securities and Exchange Commission, we
concluded that the state law rules would not reduce arbitrator
bias, but would significantly increase the costs of arbitration,
and that the Act’s purpose of investor protection would be
undermined because the “average investor is less likely than
the average brokerage firm to be able to afford the costs of
protracted litigation.” Id. at 1135-36. By contrast, we do not
expect the average plaintiff-consumer or the average
defendant-company to face higher arbitration costs as a result
9
Additionally, as consumers, corporations, lawyers and arbitration asso-
ciations become more familiar with class arbitration, they may increas-
ingly embrace the less formal and more flexible procedures and remedies
that make arbitration desirable in the first place. See W. Mark C. Weidem-
aier, Arbitration and the Individuation Critique, 49 ARIZ. L. REV. 69, 96
(2007) (“The flexibility and informality of arbitration do not make it
unsuitable for class litigation; quite the contrary. These attributes permit
arbitrators to implement innovative procedures that courts have been hesi-
tant to accept.” (citations omitted)).
10020 SHROYER v. NEW CINGULAR WIRELESS
of class proceedings, and no agency to which we owe defer-
ence has reached a contrary conclusion.
Furthermore, if we were to hold that class arbitration con-
flicts with the Federal Arbitration Act in light of the Act’s
secondary concern of efficiency, the indisputable result would
be to undermine the primary objective of encouraging arbitra-
tion because far fewer individual consumers will participate
in arbitration absent the class action device. See Amchem, 521
U.S. at 617 (“ ‘The policy at the very core of the class action
mechanism is to overcome the problem that small recoveries
do not provide the incentive for any individual to bring a solo
action prosecuting his or her rights.’ ” (quoting Mace v. Van
Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997))); Eisen
v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) (stating
that in a case involving small damages that the “[e]conomic
reality dictates that [a plaintiff’s] suit proceed as a class action
or not at all”); Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st
Cir. 2006) (“ ‘It would hardly be an improvement to have in
lieu of this single class action 17,000,000 suits each seeking
damages of $ 15.00 to $ 30.00 . . . . The realistic alternative
to a class action is not 17,000,000 individual suits, but zero
individual suits, as only a lunatic or a fanatic sues for
$ 30.00.’ ” (quoting Carnegie v. Household Int’l, Inc., 376
F.3d 656, 661 (7th Cir. 2004))).
Fifth, we read Green Tree Financial Corp. v. Bazzle, 539
U.S. 444 (2003), as an implicit endorsement by a majority of
the Court of class arbitration procedures as consistent with the
Federal Arbitration Act. See Kinkel, 857 N.E.2d at 262; Dis-
cover Bank, 36 Cal. 4th at 171-72. In Bazzle, having granted
certiorari to consider whether the Supreme Court of South
Carolina’s holding that the contracts at issue authorized class
arbitration was “consistent with the Federal Arbitration Act,”
a plurality of four concluded that an arbitrator — not the state
court — should have determined whether an arbitration agree-
ment that was silent on the issue of class arbitration did in fact
authorize class proceedings. 539 U.S. at 454. However, in
SHROYER v. NEW CINGULAR WIRELESS 10021
remanding to the state court, the plurality made it clear that
a class arbitration proceeding would be permissible if the
arbitrator interpreted the contracts to allow for class arbitra-
tion procedures. See id. at 452-54 (citing Volt, 489 U.S. at
474-76). Supplying the fifth vote in support of the judgment
of the Court, Justice Stevens explicitly stated that class arbi-
tration is consistent with the Federal Arbitration Act: “[t]here
is nothing in the Federal Arbitration Act that precludes . . .
the[ ] determination[ ] by the Supreme Court of South Caroli-
na” “that under state law class action arbitrations are permit-
ted if not prohibited by the arbitration agreement.” Id. at 454-
55 (Stevens, J., concurring in the judgment and dissenting in
part) (citing Volt, 489 U.S. at 475-76). Like other courts, we
cannot accept Cingular’s argument that class arbitration “con-
flict[s] with the FAA when the Supreme Court has recognized
the arbitrability of class claims” under the Federal Arbitration
Act in Bazzle. Kinkel, 857 N.E.2d at 262; see also Discover
Bank, 36 Cal. 4th at 172.10
Finally, although Cingular claims that the alleged ineffi-
ciencies and risks of class arbitration will drive most busi-
nesses in California to abandon arbitration altogether if forced
to permit class proceedings, it offers no empirical evidence to
support this bold assertion. In fact, Cingular offers only a sin-
gle example of a company that has rescinded its arbitration
clause since the California Court of Appeal’s decision in Sze-
tela in 2002. Instead, hundreds of companies across the nation
are currently engaging in and receiving the benefits of class
arbitration. See AAA Class Arbitration Docket, http://
www.adr.org/sp.asp?id=25562 (listing more than 175 class
arbitration proceedings that are currently being administered
10
Cingular’s citation to Iberia, 379 F.3d at 174, and Caley v. Gulfstream
Aerospace Corp., 428 F.3d 1359, 1378 (11th Cir. 2005), is misplaced, as
those cases decided whether class action waivers were unconscionable on
the basis of Louisiana and Georgia law, respectively, but not whether the
Federal Arbitration Act impliedly preempts the application of state uncon-
scionability principles to invalidate a class arbitration waiver.
10022 SHROYER v. NEW CINGULAR WIRELESS
under the AAA’s “Supplementary Rules for Class Arbitra-
tions”).11
[14] For all of these reasons, we hold that applying Califor-
nia’s generally applicable contract law to refuse enforcement
of the unconscionable class action waiver in this case does not
stand as an obstacle to the purposes or objectives of the Fed-
eral Arbitration Act, and is, therefore, not impliedly pre-
empted.
IV. Conclusion
In sum, we hold that Cingular’s class arbitration waiver is
unconscionable under California law, and that refusing to
enforce such a provision, as California courts would, is not
expressly or impliedly preempted by the Federal Arbitration
Act. Due to the non-severability clause, under California law
Cingular’s entire arbitration clause is void by its own terms.
Accordingly, we reverse the district court’s order compelling
arbitration and remand for the district court to consider
Shroyer’s class action lawsuit.
REVERSED and REMANDED for further proceedings
consistent with this opinion.
RYMER, Circuit Judge, concurring:
I concur as the result follows from our decisions in Ingle
v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003),
11
Moreover, the deferential standard by which courts review arbitration
judgments is no different in the class arbitration context than it is for indi-
vidual arbitration, and Cingular’s contention that no business would
expose itself to a massive class arbitration award for which judicial review
is limited is belied by the fact that sophisticated financial institutions and
corporations routinely engage in individual arbitrations for disputes
involving large sums of money.
SHROYER v. NEW CINGULAR WIRELESS 10023
Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), and Nagrampa
v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006) (en banc),
as well as the California Supreme Court’s decision in Dis-
cover Bank v. Super. Ct. of L.A., 36 Cal. 4th 148 (2005).