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Court Finds Mass Arbitration Bellwether and Delegation Provisions Unconscionable

September 20, 2024

The district court for the Northern District of California recently denied a defendant’s motion to compel arbitration and, in so ruling, found that a bellwether provision related to mass arbitrations was unconscionable. Avia involved various statutory claims challenging an online gaming company’s representations regarding gameplay. In response, the gaming company moved to compel arbitration. The plaintiff argued, among other things, that the arbitration agreement, and specifically, the bellwether provision, were unconscionable. The district court ultimately agreed and denied the gaming company’s motion to compel arbitration.

Delegation Clause in Mass Arbitration

The court first found that the delegation clause, combined with the bellwether provision, contained “some degree” of procedural unconscionability, noting that there was an element of “unfair surprise” because the delegation clause was in the middle of the arbitration agreement and “barely readable.” The court then turned to whether the combination of a delegation and bellwether clause made the agreement substantively unconscionable as well.

Unconscionability of the Bellwether Provision

The court held that it did, in large part based upon various assumptions, noting:

“If the policy applies across-the-board to all players, then a player who arbitrates her claim will likely be subject to the bellwether provision because: (1) there will be other players who have the same kind of claims and, thus, (2) as discussed infra, there will likely be coordination of all arbitrating players’ claims in arbitration, regardless of who the players’ lawyers are.”

Impact of Delay in Resolving Arbitrability Due to Mass Arbitration

Based upon that hypothetical, the court found that the combination of delegating arbitrability issues, combined with the bellwether provision, “would likely be delay in resolution of the [plaintiff’s] claims.” The court ultimately held that “[t]his would include a delay just to obtain a resolution of the gateway issue of whether a claim is arbitrable in the first instance. That prospect of delay – on the limited gateway issue alone – likely has a chilling effect on players, deterring them from vindicating their rights.”

Court Refuses to Sever Unconscionable Bellwether Provisions from Arbitration Agreement

Not only did the court find that the combination of a delegation clause and bellwether provision to be unconscionable, but it also refused to sever the offending provisions from the arbitration agreement as a whole, finding that the defendant is “not entitled to rely on severance as a fix when they profited from inclusion of the bellwether provision in the first instance….”