Tuesday, February 28, 2023

California Court of Appeal, Gostev v. Skillz Platform, Inc., Docket No. A164407


Contracts of Adhesion

 

Terms and Conditions

 

Arbitration

 

Who Decides Arbitrability?

 

Statute of Limitations

 

Contractually Shortened Limitations Periods

 

Unconscionability

 

Consumer Law

 

Contract Drafting

 

California Law

 

 

 

 

Defendant Skillz Platform, Inc. (Skillz) appeals from an order denying its petition to compel arbitration. Skillz contends the trial court erred, first, by not referring questions of arbitrability to arbitration and, second, by finding the arbitration agreement unconscionable. We affirm.

 

 

Skillz provides a mobile platform that hosts games in which players can pay to compete against each other for cash prizes. To play games on its platform, a user must establish a player account, and to participate in paid-entry competitions, a user must save the player account. To save a player account, a user must provide an email address and verify age by entering the user’s date of birth; after entering a date of birth, the user must tap a box with the word “Next” on it. Below the “Next” box is the advisory statement, “By tapping ‘Next,’ I agree to the Terms of Service and the Privacy Policy.” The underlined text is a hyperlink, which, if tapped, takes the user to the Skillz’ terms of service.

 

 

The Agreement to Arbitrate in the Terms of Service

The 15-page Terms of Service has 15 sections. The first section begins: “1. GENERAL TERMS “1.1. Arbitration. TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, ANY CLAIM, DISPUTE OR CONTROVERSY OF WHATEVER NATURE (‘CLAIM’) ARISING OUT OF OR RELATING TO THESE TERMS AND/OR OUR SOFTWARE OR SERVICES MUST BE RESOLVED BY FINAL AND BINDING ARBITRATION IN ACCORDANCE WITH THE PROCESS DESCRIBED IN SECTION 14 BELOW. PLEASE READ SECTION 14 CAREFULLY. To the maximum extent permitted under applicable law, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury.”

 

 

Subsection 14.1 requires written notice of a dispute and “informal negotiation” after which either party may commence arbitration. Alternatively, the parties may bring claims that qualify for its jurisdiction in small claims court. Subsection 14.2 provides, “If you and we do not resolve any Dispute by informal negotiation or in small claims court, any other effort to resolve the Dispute will be conducted exclusively by binding arbitration as described in this Section.” Subsection 14.3 includes waivers of the rights to bring class actions and representative actions.

 

 

G. brought claims of violation of the Unfair Competition Law (Bus. & Prof. Code, §17200 et seq.; UCL), violation of the Consumers Legal Remedies Act (Civ. Code, §1750 et seq.; CLRA), and unjust enrichment, and he sought declaratory, injunctive, and equitable relief, including restitution.

 

 

B. Who Decides the Threshold Question of Enforceability?

 

The usual presumption is that a court, not an arbitrator, will decide in the first instance whether a dispute is arbitrable. (Ajamian, supra, 203 Cal.App.4th at p.781; Dennison v. Rosland Capital LLC (2020) 47 Cal.App.5th 204, 209 (Dennison).) The parties may agree to delegate authority to the arbitrator to decide arbitrability, but given the contrary presumption, evidence that the parties intended such a delegation must be “‘clear and unmistakable’” before a court will enforce a delegation provision. (Ajamian, supra, at p. 781; Dennison, supra, at p. 209.)

 

 

(Ajamian, supra, 203 Cal.App.4th at p. 790.) The Ajamian court continued: “We must be mindful of what the United States Supreme Court has emphasized unflinchingly for decades: notwithstanding the public policy favoring arbitration, arbitration can be imposed only as to issues the parties agreed to arbitrate; given the slim likelihood that the parties actually contemplated who would determine threshold enforceability issues, as well as the default presumption that such issues would be determined by the court, those threshold issues must be decided by the court absent clear and unmistakable proof to the contrary. This is a ‘heightened standard,’ higher than the evidentiary standard applicable to other matters of interpreting an arbitration agreement. (Rent–A–Center, [West, Inc. v. Jackson (2010) 561 U.S. 63, 69], fn. 1; First Options of Chicago, Inc. v. Kaplan (1995)] 514 U.S. 938, 944 [contrasting ‘ordinary state-law principles that govern the formation of contracts’ with the clear and unmistakable rule].) As the court cogently explained in Gilbert Street Developers, LLC v. La Quinta Homes, LLC (2009) 174 Cal.App.4th 1185,1191–1192: ‘It is not enough that ordinary rules of contract interpretation simply yield the result that arbitrators have power to decide their own jurisdiction. Rather, the result must be clear and unmistakable, because the law is solicitous of the parties actually focusing on the issue. Hence silence or ambiguity is not enough.’” (Ajamian, supra, 203 Cal.App.4th at pp. 790–791.)

 

 

We also agree with the reasoning of Ajamian, Beco, and Eiess and therefore conclude the incorporation by reference of AAA Commercial Arbitration Rules does not provide clear and unmistakable evidence the parties intended to delegate to the arbitrator the question of unconscionability in this case.

 

 

In Brennan, the Ninth Circuit Court of Appeals held “that incorporation of the AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability” on the facts of the case (796 F.3d at p 1130), but the court expressly did not decide “‘the effect if any of incorporating AAA arbitration rules into consumer contracts’ or into contracts of any nature between ‘unsophisticated’ parties” (id. at p. 1131).

 

 

 

c. Shortened Limitations Periods 

 

By statute, the limitations period for a CLRA claim is three years (Civ. Code, §1783), and the limitations period for a UCL claim is four years (Bus. & Prof. Code, §17208), but the arbitration provision in this case limits all claims to a one-year statute of limitations. Parties may contract to a shortened limitations period so long as the limitation is reasonable. (Ellis v. U.S. Security Associates (2014) 224 Cal.App.4th 1213, 1222–1223.) However, contractually shortened limitations periods have not been “‘recognized outside the context of straightforward transactions in which the triggering event for either a breach of a contract or for the accrual of a right is immediate and obvious.’” (Id. at p. 1223, quoting Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1430.) In Fisher v. MoneyGram International, Inc. (2021) 66 Cal.App.5th 1084, 1105 (Fisher), the Court of Appeal found substantively unconscionable an arbitration provision’s one-year limitations period, which was “considerably shorter than the otherwise applicable four-year limitations period for the plaintiff’s UCL claim and was inherently one-sided against complaining consumers.” And, in Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277 (Magno), the court observed, “An arbitral limitations period that is shorter than the otherwise applicable period is one factor that supports a finding of substantive unconscionability.” (Id. at p. 291 [arbitration provision was substantively unconscionable where, among other things, it required all claims to be filed within a year of accrual].)

 

 

(…) (See Magno, supra, 1 Cal.App.5th at pp. 288–289 [requiring college-aged students to travel from San Diego to Indiana to arbitrate claims against a company that solicited their business in California was substantively unconscionable]; Lhotka, supra, 181 Cal.App.4th 816, 825 [requiring residents of Colorado to mediate and arbitrate in San Francisco contributed to the substantive unconscionability of the arbitration clause].)

 

 

 

 

(California Court of Appeal, Feb. 28, 2023, Gostev v. Skillz Platform, Inc., Docket No. A164407, Certified for Publication)

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