[00:00:00] Speaker 04:
Good morning, Your Honors.

[00:00:02] Speaker 04:
Good morning.

[00:00:03] Speaker 04:
Let's just take a minute.

[00:00:03] Speaker 04:
I don't think other councilors have quite settled yet.

[00:00:07] Speaker 04:
All right, Council, thank you.

[00:00:22] Speaker 03:
May it please the court, Michelle Ibarra, for Appellant Avya Gaines.

[00:00:26] Speaker 03:
I'd like to reserve four minutes for rebuttal.

[00:00:28] Speaker 03:
All right.

[00:00:29] Speaker 03:
Thank you, counsel.

[00:00:29] Speaker 03:
Please watch your time.

[00:00:31] Speaker 03:
To affirm here, the court would have to arrive at three holdings, each of which is contrary to the record and controlling law.

[00:00:39] Speaker 03:
First, the court would have to ignore binding precedent to find that a consumer arbitration agreement with a meaningful opt-out is nevertheless procedurally unconscionable.

[00:00:50] Speaker 03:
When faced with the same issue in Muhammad v. Uber, this court expressly stated that it does not have the authority to ignore circuit court precedent and reverse the district courts holding a procedural unconscionability there.

[00:01:02] Speaker 03:
Second, this court would have to hold that Avia's bellwether provision, which borrows directly from MDL procedures federal courts use to manage mass filings, is nonetheless substantively unconscionable based on speculative delay and chilling, even though the record below shows

[00:01:20] Speaker 03:
4,100 individuals with claims similar to plaintiffs initiated a mass arbitration last year against Avia in AAA, which is now nearly resolved.

[00:01:31] Speaker 03:
Clearly, those litigants were not chilled and those claims were not delayed.

[00:01:35] Speaker 03:
Finally, the court would have to hold that the district court did not abuse its discretion when it misapplied Ramirez and Rennes Center in declining to sever the Bellwether provision.

[00:01:46] Speaker 00:
Council, if I might follow up on your second point.

[00:01:50] Speaker 00:
Under the standard of review, are there any facts that we will have to determine are found by the district court that are clearly erroneous?

[00:01:58] Speaker 00:
For example, what the district court said about chilling.

[00:02:01] Speaker 00:
Do we have to find that that is clearly erroneous?

[00:02:04] Speaker 03:
Your Honor, I don't believe so.

[00:02:06] Speaker 03:
I don't see that finding by the district court as a finding of fact.

[00:02:11] Speaker 03:
In fact, there were no facts to support it.

[00:02:15] Speaker 03:
The district court's conclusion

[00:02:17] Speaker 03:
that the Bellwether Clause would have a chilling effect on hypothetical future litigants was deeply flawed because it relied on a chain of speculative inferences to reach that conclusion.

[00:02:28] Speaker 03:
And for example, I'll say to the record at 1 ER 10 to 12, the district court speculated

[00:02:33] Speaker 03:
It is, quote, predictable that a player could have a dispute that would apply to others.

[00:02:38] Speaker 03:
If the dispute applied to others, the player who arbitrates will likely be subject to the Bellwether provision.

[00:02:44] Speaker 03:
There will likely be coordination of claims.

[00:02:46] Speaker 03:
There would likely be delay in resolution, which would likely have a chilling effect on others.

[00:02:52] Speaker 03:
Those inferences describe circumstances too attenuated to give rise to substantive unconscionability.

[00:02:59] Speaker 03:
And they're contravened by the mass arbitration that was initiated in parallel with the class action, which I just mentioned.

[00:03:06] Speaker 03:
For those reasons, we don't believe the Bellwether provision was sufficient to chill claims.

[00:03:11] Speaker 03:
And the availability of small claims court and the opt-out provision further rebut the notion that a player's claim would be chilled.

[00:03:21] Speaker 03:
I'll point out additionally, Your Honors, the district court's rulings on procedural and

[00:03:27] Speaker 03:
substantive unconscionability are directly at odds with each other.

[00:03:32] Speaker 03:
On the one hand, the district court found obvious contract

[00:03:36] Speaker 02:
procedurally unconscionable because uh... let me ask you some questions please because your answer on that chilling is the triple-a supplementary rules for multiple case filings provide this process arbitrator uh... for these you call it bellwether, plaintiffs call it batching, I'll just stick with your term bellwether uh... and the question i have is you rely on the

[00:04:04] Speaker 02:
mass arbitration supplementary rules that are amended in effect of April 1st, 2024.

[00:04:11] Speaker 02:
But these agreements were agreed to by these two named plaintiffs in 2022 and 2023.

[00:04:16] Speaker 02:
So even before this version of these rules existed, and these rules were significantly amended in this April 1, 2024 version.

[00:04:26] Speaker 02:
So why would they even apply here?

[00:04:30] Speaker 02:
Because at the time these agreements

[00:04:35] Speaker 02:
were agreed to, this version didn't exist, right?

[00:04:38] Speaker 02:
It preceded it by one to two years.

[00:04:40] Speaker 02:
And then there's nothing in the language that says then current version.

[00:04:47] Speaker 02:
And you do use that language in the discussion of AAA's consumer arbitration rules.

[00:04:53] Speaker 02:
You say, if you are a consumer, then the then current version of the AAA's consumer arbitration rules will apply.

[00:05:00] Speaker 02:
But with regard to the supplementary rules for multiple case filings, there's no such language.

[00:05:05] Speaker 02:
It's not limited to then current versions.

[00:05:08] Speaker 02:
So then it means that these plaintiffs agreed to the AAA supplementary rules as they existed at the time they entered into an agreement with Avia Games in 2022 and 2023.

[00:05:21] Speaker 02:
So this would be irrelevant.

[00:05:23] Speaker 03:
Your Honor, I would disagree with that.

[00:05:25] Speaker 03:
And I think the courts, this court's holding under Poublon is instructive.

[00:05:30] Speaker 03:
And there the court enforced and upheld an arbitration agreement that incorporated by reference a separate body's arbitrable rules.

[00:05:39] Speaker 03:
It did not have the then current version.

[00:05:42] Speaker 02:
Okay, so then why did you include then current just on the previous page for the AAA's consumer arbitration rules, right?

[00:05:51] Speaker 02:
If it was totally irrelevant, extraneous, surplusage to put in then current, then why is it in the previous page?

[00:05:58] Speaker 03:
I think that they can still be read consistently, Your Honor.

[00:06:01] Speaker 03:
And fundamental fact is that the litigants here agreed to incorporate AAA's rules by reference.

[00:06:08] Speaker 03:
And if the court... Okay, so let me ask you something.

[00:06:11] Speaker 02:
When you say then current version of consumer arbitration rules, but you're silent on which version applies of the AAA supplementary rules, you're saying that inherently means you must assume then current version?

[00:06:26] Speaker 02:
Yes, Your Honor, and I think the court... Then why did you bother to put it in for the consumer arbitration rules?

[00:06:31] Speaker 02:
If it is understood, implied, implicit, it's totally extraneous and surplusage.

[00:06:36] Speaker 03:
I think that it is understood and practically, it's practically understood and commonly adopted for

[00:06:45] Speaker 03:
for litigants to do it either way or for companies to do that either way.

[00:06:49] Speaker 02:
And to mix and match in the same section of the agreement, to mix and match that way?

[00:06:54] Speaker 03:
Your Honor, I don't think that if the court were to hold that the litigants here were bound by the specific rules in effect at the time every individual consumer agreed to the agreement, that would truly upend private arbitration as we know it.

[00:07:12] Speaker 03:
This is a common method of incorporating by reference with the court, which the court has blessed multiple times.

[00:07:17] Speaker 02:
Well, let me ask you.

[00:07:18] Speaker 02:
In Heckman, they said the then-current version of AAA's arbitration rules was somewhat oppressive.

[00:07:27] Speaker 03:
Your Honor, Heckman was oppressive for a number of reasons that are not present here, the most fundamental of which is that Heckman imposed rules upon consumers that were, the court found,

[00:07:39] Speaker 03:
We're more akin to class-wide arbitration than bilateral arbitration.

[00:07:44] Speaker 03:
All right.

[00:07:45] Speaker 02:
Well, Heckman cited Harper at California Court of Appeal case.

[00:07:48] Speaker 02:
It says, under California law, oppression is even more onerous when a clause pegs both the scope and procedure arbitration of the arbitration to rules which might change.

[00:08:00] Speaker 02:
So it was specifically on point about rules changing being oppressive.

[00:08:06] Speaker 03:
Your Honor, it is common practice

[00:08:09] Speaker 03:
If for companies to incorporate by reference, arbitrable providers rules that are in effect at the time arbitration is initiated.

[00:08:16] Speaker 03:
And I was saying the court in Heckman, this court in Heckman said the process.

[00:08:19] Speaker 02:
Well, what about Harper?

[00:08:19] Speaker 02:
What about Harper?

[00:08:20] Speaker 02:
This is California state law.

[00:08:22] Speaker 02:
That's a California court saying this is how our law is interpreted.

[00:08:27] Speaker 03:
I will say Heckman, this court held that the processes there were so one-sided that it was unworthy even of the name arbitration.

[00:08:37] Speaker 03:
This was one data point in a multitude of findings that the court found were oppressive and unaffair to consumers, including that claimants in non-Bellwether cases had no right to participate, no access to the decisions made there, no opportunity to be heard.

[00:08:53] Speaker 03:
The rules in Heckman had all of the red flags associated with

[00:08:56] Speaker 03:
class-wide arbitration.

[00:08:58] Speaker 02:
But that's not an answer to Harper, and this is California state law being interpreted by a California court.

[00:09:04] Speaker 02:
Let's just assume that AAA mass arbitration supplementary rules apply.

[00:09:09] Speaker 02:
So what they say is after all the parties have paid their initiation fees and upon receipt of a party's written notice of a disputed MA-6C issue related to the mass arbitration, then AAA

[00:09:25] Speaker 02:
in its sole discretion may appoint a process arbitrator.

[00:09:29] Speaker 02:
So you have to have one of these 6C issues in order to have a process arbitrator appointed.

[00:09:36] Speaker 02:
And if I look at 6C, it's saying, well, the process arbitrator has the authority to determine the following issues, whether the parties have met the filing requirements,

[00:09:48] Speaker 02:
disputes regarding payment of administrative fees, the selection process for merits arbitrators, whether the applicable AAA rules will govern.

[00:09:59] Speaker 02:
whether cases should be closed or proceed in small claims court, the location of the merits hearings, all very much process and procedure.

[00:10:10] Speaker 02:
So tell me which ones say unconscionability, which is an affirmative defense, is decided by a process arbitrator.

[00:10:19] Speaker 03:
The rules governing the authority of the process arbitrator give the process arbitrator the authority to rule on their own jurisdiction, and this court held

[00:10:29] Speaker 03:
in Oracle v. Myriad, that that is sufficient to delegate gateway issues or arbitrability to an arbitrator.

[00:10:36] Speaker 02:
I will also point out, Your Honor, that those- Right, but none of those cases involve process arbitrators, right?

[00:10:42] Speaker 02:
They involve before the segregation of process arbitrators and merits arbitrators, correct?

[00:10:49] Speaker 02:
All of those cases, none of them are talking about a process arbitrator, correct?

[00:10:52] Speaker 03:
That's correct.

[00:10:53] Speaker 03:
However, I will also point out that the rules that you just cited also give the process arbitrator

[00:10:59] Speaker 03:
the authority to decide if conditions precedent have been met in order to initiate arbitration.

[00:11:06] Speaker 03:
That is a fundamental issue.

[00:11:07] Speaker 02:
Okay, but how is an affirmative defense a condition precedent?

[00:11:10] Speaker 02:
Let's look at that language.

[00:11:11] Speaker 02:
Disputes over any applicable conditions precedent and if applicable, how the parties can meet the conditions precedent and how to proceed if they do not.

[00:11:23] Speaker 02:
So it talks about how the parties can meet

[00:11:26] Speaker 02:
the conditions precedent.

[00:11:27] Speaker 02:
How do you meet an unconscionability affirmative defense?

[00:11:31] Speaker 02:
How do you cure that unconscionability affirmative defense as a condition precedent?

[00:11:37] Speaker 03:
Your Honor, I see I'm almost out of time.

[00:11:38] Speaker 03:
May I have it?

[00:11:39] Speaker 02:
Oh, but I'd like an answer to the question.

[00:11:40] Speaker 04:
I haven't asked any questions yet, so.

[00:11:42] Speaker 03:
Yes, I will.

[00:11:43] Speaker 03:
The conditions, the process arbitrator's role in determining whether conditions precedent have been met in order to proceed, that's a fundamental issue of contract interpretation.

[00:11:52] Speaker 03:
The process arbitrator's ability to decide whether there have gateway issues of arbitrability, to decide those issues, that is under a separate rule, under the AAA's rules, besting the process arbitrator with that authority.

[00:12:08] Speaker 03:
I'll also point it out, this court recently held in Jones v. Stars that it is not the business of the federal courts to second-guess an independent arbitration provider's applications of its own rules, and finally,

[00:12:21] Speaker 03:
The process arbitrator's decisions are not unreviewable.

[00:12:24] Speaker 03:
Even within the AAA, they can be reviewed for abuse of discretion by the merits arbitrator.

[00:12:29] Speaker 03:
And even more fundamentally, in the first place, a party who wishes to avoid this entire process or arbitration altogether can opt out or pursue their claims in small claims court.

[00:12:39] Speaker 04:
So counsel, let me ask you this.

[00:12:40] Speaker 04:
That's one of the fundamental differences between a bail weather trial in MDL litigation.

[00:12:48] Speaker 04:
And here is that once we

[00:12:51] Speaker 04:
compel arbitration, the courts lose control of the process because we have very little ability to overturn an arbitrator's decision.

[00:13:03] Speaker 04:
And I think that's what went into the chilling effect part of the district court's decision.

[00:13:07] Speaker 04:
So this is not truly a bellwether process as it's contemplated in the MDL situation.

[00:13:17] Speaker 03:
Your Honor, of course not, because we're in arbitration and not federal court.

[00:13:20] Speaker 04:
Exactly.

[00:13:21] Speaker 04:
And part of the MDL process is that the courts are able to marshal the cases through and control the pace at which the cases are decided.

[00:13:32] Speaker 04:
And if it becomes a matter of delay, then the courts are able to deal with that.

[00:13:37] Speaker 04:
We don't have that same oversight if a bail weather process were

[00:13:46] Speaker 04:
decided to be implemented here.

[00:13:50] Speaker 04:
So I have a concern about that, whether or not it's actually the equivalent of a bellwether process.

[00:13:59] Speaker 03:
Your Honor, I see I'm almost out of time.

[00:14:00] Speaker 03:
May I have another minute to answer your question?

[00:14:01] Speaker 04:
Yeah, you may ask a question.

[00:14:03] Speaker 03:
Don't worry.

[00:14:03] Speaker 03:
We'll give you time for rebuttal.

[00:14:05] Speaker 03:
Thank you.

[00:14:06] Speaker 03:
Sure.

[00:14:07] Speaker 03:
The agreement that the parties have made here is to litigate an arbitration.

[00:14:12] Speaker 03:
And AAA has a due process protocol that

[00:14:16] Speaker 03:
that guards against delay.

[00:14:17] Speaker 03:
There are multiple backstops against delay.

[00:14:20] Speaker 03:
What I said is obvious.

[00:14:23] Speaker 03:
Bellwether provision, it borrows from MDL procedures.

[00:14:27] Speaker 03:
It's good for plaintiffs, and it's good for businesses, because it leads to fairer and faster, more efficient resolution.

[00:14:34] Speaker 04:
I don't see how the delay is actually

[00:14:38] Speaker 04:
accounted for how prevention of delay is built into the process.

[00:14:44] Speaker 04:
I don't see that part.

[00:14:45] Speaker 03:
Okay, let me try it another way.

[00:14:48] Speaker 03:
The rules under the AAA's mass filings rules that allows plaintiffs to consolidate their filings to receive coordinated discovery from Avia and the Bellwether cases.

[00:14:59] Speaker 03:
The Bellwether cases proceed first

[00:15:02] Speaker 04:
And they're a limited number.

[00:15:04] Speaker 03:
They're a limited number.

[00:15:05] Speaker 03:
They're a limited number.

[00:15:06] Speaker 03:
Yes, Your Honor.

[00:15:07] Speaker 03:
But the Bellwether cases proceed first.

[00:15:09] Speaker 03:
120 days into this proceeding, there is a mediation, a global mediation.

[00:15:15] Speaker 03:
And just like an MDL, the MDL is there to make things more efficient for the parties and minimize burdens on the courts.

[00:15:24] Speaker 03:
But once the cases that are centralized before the MDL court are done with pretrial discovery, they are often remanded in waves or batches back to the originating courts for bellwether trials.

[00:15:38] Speaker 03:
And that often results in global settlements of all the cases that have been centralized.

[00:15:43] Speaker 03:
In fact, as the Chamber of Commerce helpfully pointed out in its amicus brief, 97% of cases that are centralized before MDL courts

[00:15:51] Speaker 03:
are never returned to the originating courts.

[00:15:54] Speaker 03:
72% of those cases settle.

[00:15:56] Speaker 03:
The idea here is similar.

[00:15:57] Speaker 03:
And that is exactly what we've seen happen in practice with the kind law arbitration that proceeded in parallel with this class action.

[00:16:05] Speaker 03:
That is nearly over.

[00:16:06] Speaker 03:
The parties are in the process of resolving it through a coordinated settlement.

[00:16:12] Speaker 03:
And that's exactly how we expect the Bellwether to work here.

[00:16:17] Speaker 04:
I see, I'm on red.

[00:16:20] Speaker 04:
There are no additional questions, it appears.

[00:16:23] Speaker 04:
But we'll give you... Actually, I've got a couple questions, if I could.

[00:16:27] Speaker 00:
First of all, under California law, should we assume that the ICDR and the process arbitrator will attempt to move the process along and address delay?

[00:16:37] Speaker 03:
Absolutely, Your Honor.

[00:16:39] Speaker 03:
Yes, yes, absolutely.

[00:16:41] Speaker 00:
And number two, if you win on

[00:16:45] Speaker 00:
substantive unconscionability on the delegation clause.

[00:16:49] Speaker 00:
Does that end really every other issue, because then everything else is decided by the arbitrator?

[00:16:55] Speaker 03:
Yes, Your Honor.

[00:16:56] Speaker 03:
The delegation clause is not unconscionable, and that should be enforced.

[00:16:59] Speaker 03:
And I would like, I can do this in rebuttal, I would like the opportunity to address severability.

[00:17:04] Speaker 03:
But yes.

[00:17:05] Speaker 04:
But Counsel, okay, you said that the prevention of delay would be assured, but what if that doesn't happen?

[00:17:12] Speaker 04:
What is the redress?

[00:17:14] Speaker 04:
for the plaintiffs if the delay actually happens and the cases are delayed and the statute of limitations is running.

[00:17:23] Speaker 04:
Can you waive the statute of limitations for them?

[00:17:27] Speaker 03:
The statute of limitations is told for plaintiffs that are not in the Bellwether State.

[00:17:30] Speaker 03:
Who says?

[00:17:31] Speaker 03:
Obvious terms of service say that.

[00:17:33] Speaker 03:
But does the court have to accept that?

[00:17:36] Speaker 03:
It's a matter of contract.

[00:17:37] Speaker 03:
That is the contract that the parties have agreed to.

[00:17:39] Speaker 03:
Yes, Your Honor.

[00:17:40] Speaker 04:
But the court does not...

[00:17:42] Speaker 04:
If the statute of limitations has run, does the court have to accept the contract provision that says it hasn't run?

[00:17:50] Speaker 04:
As a matter of law, would the court have to accept that?

[00:17:54] Speaker 03:
Your Honor, we're talking about in arbitration, the AAA has accepted that or will accept that.

[00:18:00] Speaker 03:
Right.

[00:18:01] Speaker 04:
Yeah, so AAA will accept it and then a court wouldn't have to be involved.

[00:18:05] Speaker 04:
That's what you're saying.

[00:18:06] Speaker 04:
Correct.

[00:18:07] Speaker 04:
So what would be the redress if the delay is inordinate in a plaintiff's view?

[00:18:15] Speaker 04:
What would their avenue of relief be?

[00:18:19] Speaker 03:
So there are a number of safeguards against delay.

[00:18:22] Speaker 03:
One is the due process protocol.

[00:18:25] Speaker 04:
If all of those safeguards fail,

[00:18:27] Speaker 03:
Okay.

[00:18:28] Speaker 03:
What is the redress?

[00:18:29] Speaker 03:
The redress is that the arbitrator, the delegation clause and obvious contract authorizes the arbitrator to grant any remedy or relief that would otherwise be available to the court.

[00:18:41] Speaker 03:
And that necessarily includes severing the bellwether provision if delay is actually happening.

[00:18:48] Speaker 03:
The arbitrator has that authority just like the court has that authority here.

[00:18:51] Speaker 03:
And that would

[00:18:52] Speaker 03:
allowed the litigant to proceed outside the Bellwether process entirely.

[00:18:56] Speaker 04:
Has this process been endorsed by any court previously?

[00:19:03] Speaker 03:
It has not been endorsed, Your Honor.

[00:19:06] Speaker 03:
This is a relatively, I mean, the Bellwether process.

[00:19:08] Speaker 04:
OK, so has this matter been litigated?

[00:19:11] Speaker 04:
This provision, has it been litigated anywhere else?

[00:19:15] Speaker 04:
Not to my knowledge, Your Honor.

[00:19:16] Speaker 04:
All right.

[00:19:19] Speaker 04:
Go ahead, Judge.

[00:19:19] Speaker 04:
Any other questions, Judge?

[00:19:20] Speaker 04:
No, thank you.

[00:19:21] Speaker 04:
All right.

[00:19:21] Speaker 04:
Thank you, counsel.

[00:19:22] Speaker 04:
We'll give you two minutes for a rebuttal.

[00:19:24] Speaker 04:
Thank you.

[00:19:44] Speaker 04:
Good morning, counsel.

[00:19:45] Speaker 01:
Good morning.

[00:19:46] Speaker 01:
May it please the court.

[00:19:47] Speaker 01:
My name is Spencer Cox on behalf of Appalize, Andrew Pendolfi, and Mandy Shalcroft.

[00:19:52] Speaker 01:
This case, which was alluded to, but we haven't talked about, is about the standard of review.

[00:19:58] Speaker 01:
The decision to deny the motion reviewed de novo, but the factual findings are reviewed for clear error, and the decision to sever is reviewed for abuse of discretion, excuse me, of discretion, in terms of Lin, Ramirez, Ronderos, a number of other cases.

[00:20:14] Speaker 01:
that standard controls here, because this is about the level of deference that should be afforded to the district court, who reviewing the facts and circumstances in the record here, and by the way, that record doesn't include anything about what has or hasn't happened in the Kine law arbitration, and it doesn't include anything about how, whether or not the district court's ruling here affected or didn't affect that arbitration, which is going on right now.

[00:20:41] Speaker 01:
It's about how this court reviewed that record,

[00:20:44] Speaker 01:
found that the delay provision, which meters out and batches claims in groups of 20, sequentially, which is important.

[00:20:54] Speaker 02:
Do you have any cases considering prior chilling effects in the context of undue delay or this kind of batching bellwether?

[00:21:03] Speaker 01:
In the context of undue delay, yes, Your Honor.

[00:21:06] Speaker 01:
For batching, one case would be McClellan from the same court in the

[00:21:10] Speaker 01:
But in just in terms of delay, generally, there's Swain, there's Psyca, there's Parada, there's Binion.

[00:21:17] Speaker 01:
Those are all, well, Psyca in particular and Swain talk about delay.

[00:21:25] Speaker 01:
If you have to do a trial de novo or a second appeal.

[00:21:28] Speaker 02:
And then say, those are all fee allocation provision cases.

[00:21:32] Speaker 02:
I think the defendants say that those are... In employment arbitrations.

[00:21:35] Speaker 02:
Do you agree with that, what they say?

[00:21:36] Speaker 01:
I don't agree.

[00:21:37] Speaker 01:
I agree that that's what they say.

[00:21:38] Speaker 01:
I don't agree that that is correct.

[00:21:40] Speaker 02:
Why?

[00:21:41] Speaker 01:
Well, for instance, Swain is a consumer contract.

[00:21:45] Speaker 01:
Syka is a doctor-patient contract.

[00:21:47] Speaker 01:
Parada is an investment contract.

[00:21:49] Speaker 01:
Nagrapa was a form selection clause in a franchisee-franchisor contract.

[00:21:54] Speaker 01:
Chilling effects are widely considered all over the law.

[00:21:57] Speaker 01:
As the district court noted, they're in First Amendment law.

[00:22:00] Speaker 01:
They're considered when discovery requests regarding immigration status under Rule 54D for allocation of cost.

[00:22:07] Speaker 01:
They are everywhere in the law, leading to the maximum, of course, that justice delayed is justice denied.

[00:22:12] Speaker 01:
They are certainly not limited to employment context or cost shifting or cost splitting provisions, whether you look at California law only or the law generally.

[00:22:25] Speaker 02:
You think the district court should have considered the opt-out clause and the small claims court carve out in thinking about chilling?

[00:22:33] Speaker 01:
In thinking about chilling?

[00:22:35] Speaker 01:
No.

[00:22:35] Speaker 01:
The district court did consider the opt-out clause in finding that the contract was not adhesive.

[00:22:42] Speaker 01:
Opt-out clauses under California precedent go to adhesiveness and oppression, period.

[00:22:48] Speaker 01:
The district court did not comment on the small claims because that was not an argument that was raised more than in passing in any of the numerous briefs.

[00:22:57] Speaker 01:
It would not have made a difference.

[00:22:59] Speaker 01:
Small claims courts have carve-outs.

[00:23:01] Speaker 01:
They don't allow you to bring claims over a certain size.

[00:23:03] Speaker 01:
In many small claims courts, you can't have counsel.

[00:23:06] Speaker 01:
You may or may not get discovery.

[00:23:08] Speaker 01:
In many states, you can't get injunctive briefs.

[00:23:10] Speaker 01:
There are a number of features and facets of small claims courts that make them an unacceptable substitute, and to the extent that it's either

[00:23:18] Speaker 01:
except this delay, which quite literally, with no hyperbole, can cost you 100 years to have your claim heard.

[00:23:26] Speaker 04:
Well, counsel, what's your response to opposing counsel's, excuse me, representation that there are safeguards to prevent that from happening?

[00:23:35] Speaker 01:
There aren't safeguards to prevent that from happening.

[00:23:37] Speaker 01:
That is my response.

[00:23:39] Speaker 01:
Parata, Fisher, others stand for the California courts analyzing California state law, stand for the proposition that the arbitration

[00:23:48] Speaker 01:
tribunal has the authority to act reasonably when it's within their discretion.

[00:23:53] Speaker 01:
But these terms don't give them that discretion.

[00:23:56] Speaker 01:
These terms require 20 at a time.

[00:23:59] Speaker 01:
There is a global mediation, but it runs concurrently.

[00:24:02] Speaker 01:
And if it doesn't work, there is no redress.

[00:24:05] Speaker 01:
There is no backstop.

[00:24:06] Speaker 01:
There is nothing that a claimant can do to get to the front of the line or to get heard.

[00:24:14] Speaker 01:
It is no excuse to say that a provision

[00:24:18] Speaker 01:
is not unconscionable on the basis that it may not be enforced.

[00:24:25] Speaker 01:
Under Parata, the clause is enforced as written.

[00:24:29] Speaker 01:
The drafter is saddled with the provision that it drafted, which is why... How would the process arbitrator address any delay?

[00:24:39] Speaker 01:
I don't know, Your Honor.

[00:24:41] Speaker 01:
The terms expressly require that only 20 can be heard at a time.

[00:24:46] Speaker 01:
They must each have an individual arbitrator.

[00:24:48] Speaker 01:
And only once every one of those 20 has been heard and resolved, do we then go on and select a batch of another 20.

[00:24:56] Speaker 01:
And that repeats, and it repeats, and it repeats.

[00:24:59] Speaker 04:
Opposing counsel says that the arbitrators have inherent discretion to rectify any undue delay.

[00:25:08] Speaker 04:
What would that mechanism be based on your understanding of the arbitration clause, delegation clause?

[00:25:16] Speaker 01:
I don't have an understanding that they would have any ability to rectify the delay, Your Honor.

[00:25:21] Speaker 02:
They couldn't undo the contract that the users entered into with these terms of service, correct?

[00:25:26] Speaker 01:
That's right.

[00:25:26] Speaker 01:
The terms of service specify the terms that must be effectuated by the arbitral tribunal.

[00:25:31] Speaker 02:
Now, let me ask you a question.

[00:25:34] Speaker 02:
When I asked counsel what 6MA-6C issue triggered

[00:25:44] Speaker 02:
the authority to appoint a process arbitrator, Aviate Games Council cited only 6C2, the conditions precedent, and 6D, the power to rule on their own jurisdiction, did not raise 6C11, but I want you to address 6C11.

[00:26:03] Speaker 02:
It says any other non-merits issues affecting case administration

[00:26:09] Speaker 02:
arising out of the nature of the mass arbitration that the process arbitrator determines is appropriate for determination.

[00:26:17] Speaker 02:
I want you to break that down for me.

[00:26:18] Speaker 02:
Non merits affecting case administration arising out of the nature of the mass arbitration.

[00:26:26] Speaker 01:
Sure.

[00:26:27] Speaker 02:
Do any of those apply here?

[00:26:28] Speaker 02:
No, they do not.

[00:26:29] Speaker 02:
To this unconscionability issue?

[00:26:31] Speaker 01:
They do not.

[00:26:32] Speaker 02:
Why?

[00:26:32] Speaker 01:
Unconscionability is a merits defense.

[00:26:35] Speaker 01:
It is an affirmative defense.

[00:26:36] Speaker 01:
It is certainly not a non merits issue.

[00:26:39] Speaker 01:
It is not, an affirmative defense is also not an administrative issue for a court or an arbitrator.

[00:26:45] Speaker 01:
I think we're familiar with what administration issues are, case schedules, what not.

[00:26:49] Speaker 01:
They are not the determination of whether an affirmative defense like limitations or unconscionability applies.

[00:26:55] Speaker 01:
And then the last one you wanted me to address, Your Honor.

[00:26:58] Speaker 02:
Arising out of the nature of the mass arbitration.

[00:27:01] Speaker 01:
Sure, unconscionability arises out of the nature of the contract and the circumstances and context surrounding that with which it was entered into.

[00:27:09] Speaker 01:
unconscionability exists whether there is a mass arbitration or not it does not arise simply because Claims have been coordinated for a mass procedure and a statute of limitations wouldn't arise From the nature of the mass arbitration correct.

[00:27:24] Speaker 01:
That's correct.

[00:27:24] Speaker 01:
That's completely independent from that from administration.

[00:27:27] Speaker 02:
It is also a non merits issue now Let me ask

[00:27:38] Speaker 02:
I think council raises good points that Heckman is distinguishable.

[00:27:44] Speaker 02:
I mean, here the plans were given notice through the pop-up boxes in the apps that the terms of service had been updated.

[00:27:51] Speaker 02:
There were two boxes, one click to read, one to agree.

[00:27:54] Speaker 02:
And that is not the case in Heckman where, you know, Ticketmaster was saying, oh, if you browse the web, you don't even buy any tickets.

[00:28:01] Speaker 02:
You're agreeing to our changing terms of service.

[00:28:06] Speaker 02:
So why should we follow Heckman here?

[00:28:09] Speaker 01:
I would disagree with that a little bit, Your Honor, in that one of the features of Heckman was that it purportedly bounds you if you simply use the website.

[00:28:18] Speaker 01:
These terms also do that.

[00:28:20] Speaker 01:
You can click through the sign-in wrap and whatnot, but they also say by accessing or agreeing to use the site in any way or use the services, you agree.

[00:28:28] Speaker 01:
That's the same purportedness to be bound that was found in Heckman.

[00:28:32] Speaker 01:
Heckman is also similar in that in both cases,

[00:28:35] Speaker 01:
the terms incorporated these rules that are ever-changing and extremely difficult to sort out and figure out which one applies to you.

[00:28:41] Speaker 01:
Just like I think was discussed, these mass-arb rules that are used to defend the provision and give the so-called escape patches or redress, they didn't even exist when the case was filed, much less when the contract was entered into.

[00:28:59] Speaker 02:
2022 or 2023 version of these mass arbitration supplemented rules aren't in the record.

[00:29:05] Speaker 02:
It's only this April 1, 2024.

[00:29:12] Speaker 01:
Your Honor, I don't have a good answer for that.

[00:29:14] Speaker 02:
Those were the rules that... So Avia Games never relied on the mass arbitration supplemental rules that existed at the time that these two named plaintiffs agreed to the terms of service?

[00:29:26] Speaker 02:
They never relied on those versions?

[00:29:28] Speaker 01:
In the briefing, no, Your Honor.

[00:29:29] Speaker 01:
Not that I'm aware of and certainly not that I recall.

[00:29:32] Speaker 01:
The rules that preceded those had a different name.

[00:29:34] Speaker 01:
They were the supplementary rules for multiple case filings.

[00:29:39] Speaker 02:
Well, I mean, I think that is this, well, anyway.

[00:29:42] Speaker 02:
Well, what about the argument that you have to assume that any time any AAA rule is incorporated, it's a then-current version?

[00:29:54] Speaker 01:
I think that whichever way you come out on that argument, it still goes to the procedural unconscionability of incorporating rules that change and that are difficult to follow.

[00:30:04] Speaker 01:
It's difficult for us.

[00:30:05] Speaker 01:
You can only imagine how hard it would be for a consumer or a layperson

[00:30:08] Speaker 01:
trying to understand exactly what it is that they're agreeing to.

[00:30:12] Speaker 01:
And that adds to the procedural unconscionability, which is what HECMA stands for and how it's like this case.

[00:30:19] Speaker 02:
Did the previous versions, well, they're not in the record, so I won't ask.

[00:30:26] Speaker 02:
But let me ask you another question.

[00:30:35] Speaker 02:
Do you think these 24 mass arbitration supplementary rules apply to a 2022 or 2023 terms of service agreement?

[00:30:48] Speaker 01:
I do not.

[00:30:48] Speaker 01:
I think under Parata, the California, which is an intermediate appellate court decision, I will note, I think that under Parata, that the drafter is bound by the terms as they existed when they were written.

[00:31:06] Speaker 01:
And I will add that even if they did apply, I would disagree with the obvious position that a process arbitrator is empowered to decide arbitrability, not just for the reasons we discussed, but also because these terms themselves state that a single arbitrator cannot, and I'll quote, preside over any proceeding involving more than one individual.

[00:31:26] Speaker 01:
So either the process arbitrator is going to decide arbitrability and violate that, which they don't have the power to do,

[00:31:34] Speaker 01:
Or if a process arbitrator is going to do it, now we have one arbitrator making one decision sequentially for every claimant.

[00:31:41] Speaker 01:
And that only worsens the delay here.

[00:31:43] Speaker 01:
So to point the finger and say a process arbitrator will solve this for us is not the right answer.

[00:31:48] Speaker 02:
How can the arbitration agreement be procedurally unconscionable when the second sentence in the very first paragraph says, if you do not agree to these terms, including the mandatory arbitration provision and class action waiver in section 15, do not access or use our products or services?

[00:32:07] Speaker 02:
That's the second sentence.

[00:32:08] Speaker 02:
It's in all caps.

[00:32:09] Speaker 02:
It's in the very first paragraph under the date.

[00:32:12] Speaker 01:
That's right.

[00:32:13] Speaker 01:
No one thing is as positive when we look at surprise.

[00:32:18] Speaker 01:
factual determination considering the context in all of the circumstances of the presentation.

[00:32:22] Speaker 01:
So these terms were presented behind pop-ups.

[00:32:27] Speaker 01:
You had to go through them.

[00:32:28] Speaker 01:
It's not a scroll wrap, not a click wrap, it's a sign-in wrap.

[00:32:31] Speaker 01:
If you go there, you do see that on the first paragraph.

[00:32:34] Speaker 02:
But you're not saying all of these terms were required to be in the pop-up, are you?

[00:32:39] Speaker 01:
No, absolutely not.

[00:32:40] Speaker 02:
But isn't that what the district court sort of held, that these changes should have been more clearly in the pop-up?

[00:32:47] Speaker 01:
No, Your Honor, absolutely not.

[00:32:49] Speaker 01:
What the district court said is, if you're going to put an arbitration agreement at the very end of an eight-point font, multi-page, extremely long terms of service, then we get into the range of, hey, this is in a long prolix form.

[00:33:04] Speaker 01:
We start to analyze, surprise, is there any other thing that was done to highlight or bring your attention to it?

[00:33:11] Speaker 01:
Of the many things they could have done but did not,

[00:33:13] Speaker 01:
It could have been noted in the pop-up that what the changes were, the significant changes at least.

[00:33:19] Speaker 01:
It doesn't have to, but that's one way they could have addressed the surprise.

[00:33:24] Speaker 01:
It could have had your attention called to.

[00:33:25] Speaker 01:
They didn't have to put it in the terms of service at all.

[00:33:28] Speaker 01:
It could be a separate agreement.

[00:33:29] Speaker 01:
As the District Court found at hearing, there's a number of ways you can reduce the surprise inherent in our Pollock's form.

[00:33:37] Speaker 01:
None of them were effectuated here.

[00:33:44] Speaker 00:
If we rule for a via on the delegation clause and hold that it's not substantively unconscionable, does that end every other issue and that's really for the arbitrator?

[00:33:57] Speaker 01:
Yes, Your Honor.

[00:33:58] Speaker 01:
I would agree with that because that was the only substantively unconscionable clause the District Court relied on in finding the delegation clause itself unconscionable.

[00:34:07] Speaker 00:
All right.

[00:34:08] Speaker 00:
You started with standard of review.

[00:34:09] Speaker 00:
That's the very first question I ask opposing counsel, because I'm trying to get an understanding of whether there are factual findings that we have to say are clearly erroneous.

[00:34:20] Speaker 00:
Is it your view that the findings regarding chilling are factual findings that do not get reversed unless they're clearly erroneous?

[00:34:29] Speaker 01:
I think I have to back up to walk through that, Your Honor.

[00:34:34] Speaker 01:
The factual findings

[00:34:35] Speaker 01:
are the circumstances.

[00:34:37] Speaker 01:
Avia has millions of users.

[00:34:39] Speaker 01:
The record establishes that thousands have already brought claims.

[00:34:43] Speaker 01:
The district court applying the expressed terms to those facts finds that there is likely to be substantial extreme delay that is unreasonably favorable to Avia.

[00:34:54] Speaker 01:
Based on that delay, I think it is a reasonable inference that the district court is allowed to make from those factual findings.

[00:35:01] Speaker 01:
that delay chills claimants, potential claimants, and that's as established in other cases.

[00:35:12] Speaker 01:
With your permission, may I have another minute or two?

[00:35:16] Speaker 04:
You've exceeded your time.

[00:35:17] Speaker 04:
Are there any questions?

[00:35:19] Speaker 04:
No, thank you.

[00:35:19] Speaker 04:
I think we understand your argument, Counsel.

[00:35:21] Speaker 01:
Thank you, Your Honor.

[00:35:31] Speaker 03:
Thank you, Your Honor.

[00:35:31] Speaker 03:
One thing I don't want to get lost here is that obvious adoption of the AAA mass arbitration rules and the Bellwether provision, those were done in response to a real world problem that this court recognized recently in Jones v. Stars.

[00:35:46] Speaker 03:
And that's the problem of abusive tactics with mass arbitrations.

[00:35:51] Speaker 03:
This court recognized those tactics.

[00:35:53] Speaker 02:
Can I ask you, is statute of limitations a merits issue?

[00:35:57] Speaker 03:
I don't believe so, Your Honor.

[00:35:58] Speaker 02:
You think it's a procedural issue?

[00:36:00] Speaker 02:
What authority do you have for that, that that's not a merits issue?

[00:36:04] Speaker 03:
Your Honor, I don't have that at my fingertips.

[00:36:06] Speaker 02:
Okay, but your position is as a legal matter, statute of limitations is just procedure.

[00:36:11] Speaker 02:
It's not, and it's just process, it's not merits.

[00:36:14] Speaker 03:
Your Honor, I'm not sure I understand the direction of your question here.

[00:36:18] Speaker 03:
As I said before, the statute of limitations is told for non-Bellwether litigants in obvious Bellwether provision.

[00:36:23] Speaker 03:
But more importantly, I'd say the parties here, the intent was to contract for a more efficient arrangement

[00:36:28] Speaker 03:
This is not the case of an employer sticking.

[00:36:30] Speaker 02:
But what about arbitrability, unconscionability?

[00:36:33] Speaker 02:
Are those merits issues?

[00:36:34] Speaker 03:
Those are merits issues, Your Honor.

[00:36:35] Speaker 02:
OK.

[00:36:35] Speaker 02:
So you are not relying on MAS MA 6 C 11.

[00:36:43] Speaker 02:
You're not relying on that for the authority for the process arbitrator

[00:36:50] Speaker 02:
to decide unconscionability.

[00:36:53] Speaker 02:
Because when I asked you what you're relying on, you said 6C2 and D, the jurisdiction and the condition precedent, you didn't rely on this non-merits issue affecting case administration.

[00:37:04] Speaker 02:
You don't think that's the basis for the process arbitrators authority here, do you?

[00:37:08] Speaker 03:
I think that the fundamental basis is subsection D and the court's decision in Oracle v. Myriad and others following it.

[00:37:16] Speaker 03:
Okay, so you're not relying on 6C11, correct?

[00:37:20] Speaker 03:
I think 6C11 offers additional support for that.

[00:37:23] Speaker 02:
Okay, but you just said it's only non-merits issues affecting case administration arising out of the nature of the mass arbitration.

[00:37:34] Speaker 02:
So you're telling me that unconscionability, arbitrability, statute of limitations, one year versus three versus four, that's non-merits?

[00:37:44] Speaker 03:
I think unconscionability, arbitrability, squarely fall under subsection D. This court has interpreted that exact same language to hold- Right.

[00:37:53] Speaker 02:
I'm asking about 11.

[00:37:54] Speaker 02:
I just want to see if you're using 11 as the basis for process arbitrators.

[00:37:58] Speaker 02:
It doesn't sound like it, but when I asked you the question earlier, you didn't cite to this provision.

[00:38:02] Speaker 03:
I think that offers an additional basis, but that's not where I would say unconscionability and gateway issues of arbitrability come in, Your Honor.

[00:38:09] Speaker 03:
squarely under the purview of Section D. It's not under 11, correct?

[00:38:14] Speaker 03:
Correct.

[00:38:14] Speaker 03:
Okay, thank you.

[00:38:16] Speaker 03:
Your Honor, I want to just make the distinction here.

[00:38:19] Speaker 03:
This is not the case of an employer sticking an obviously illegal term in a contract in order to chill the exercise of rights.

[00:38:26] Speaker 03:
Avia proposed the Bellwether provision in good faith to respond to a real-world commercial need.

[00:38:33] Speaker 03:
Mass arbitration abusive tactics threaten not just the nation's business community as the Chamber's brief

[00:38:39] Speaker 03:
amicus brief helpfully pointed out, but also to the continued viability of individual arbitration, which has historically been fair, fast, and less expensive for plaintiffs and litigants.

[00:38:49] Speaker 03:
So even if this court disagrees that Avia's bellwether process is the right one, it cannot and should not conclude on this record that the proposal was in bad faith and of a piece with Heckman.

[00:39:02] Speaker 03:
If Avia got it wrong, the provision should be severed under Ramirez, and the court has the authority to do that.

[00:39:07] Speaker 04:
All right.

[00:39:07] Speaker 04:
Thank you, counsel.

[00:39:08] Speaker 04:
Thank you.

[00:39:09] Speaker 04:
Thank you to both counsel for your helpful arguments.

[00:39:11] Speaker 04:
The case just argued is submitted for decision by the court that completes our calendar for the day and for the week we are adjourned.