The Ninth Circuit Court of Appeals in Tompkins v. 23andMe, Inc. (August 23, 2016) upheld an arbitration provision in a consumer action that provided that the losing party would bear the costs of the arbitration and pay the prevailing parties’ attorneys’ fees. The Plaintiffs in the class action claimed 23andMe, Inc., a company that markets a home DNA test that can be purchased online, misrepresented the health advantages of the DNA test. To purchase the test consumers clicked through an arbitration provision and
Terms of Service that contained various provisions that required the losing party in any arbitration to pay the costs of the arbitration and the prevailing parties’ attorneys’ fees. The Plaintiffs claimed these provisions were unconscionable and, therefore, unenforceable. The Ninth Circuit concluded that the provisions were not substantively or procedurally unconscionable under California law and upheld the arbitration fee shifting provisions. Several California Appellate Courts had held that similar provisions were unconscionable.
However, the Ninth Circuit distinguished those cases on the basis that the feeshifting was unilateral and oppressive to one side of the agreement. It determined that the provisions in the 23andMe, Inc. agreements were bilateral and did not oppress either side. As a result, it found that the provisions did not place an unaffordable burden on the losing party.
In a final blow to Plaintiffs, the Ninth Circuit also concluded that a contractually shortened statute of limitations in the agreement was also enforceable and thereby required Plaintiffs to bring their action again 23andMe, Inc. within one year. The Ninth Circuit determined that the shortened statute of limitations also did not render the agreement unconscionable.
If you recall, prior California law had drawn into question whether a company could bind consumers to mandatory arbitration, shift costs and attorneys’ fees to the losing party and shorten the statute of limitations. The Ninth Circuit has now been heard on these issues. If your business deals directly to consumer products and services it is time to evaluate your contract provisions. A properly drafted arbitration provision can now keep you out of Court and permit you to recover the costs and attorneys’ fees expended to defend the action should your company prevail in arbitration. Bring your consumer contracts to your attorney and take advantage of this holding which will certainly substantially deter questionable consumer litigation against you and your company.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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