SAN FRANCISCO – The arbitration clause included
in a contract with a California biotechnology company was upheld by the appeals
The United States Court
of Appeals for the 9th Circuit declared the arbitration provisions in the terms
of service agreements sent out by 23andMe Inc. to its clients are valid. The court
ruled that despite a clause stating that the losing party would shoulder the
attorney fees and expenses incurred during the proceedings, the conditions
remain binding under the California laws.
“We hold that none of
the challenged portions of the arbitration provision, alone or in concert,
render the arbitration provision unconscionable under current California law,” wrote
Circuit Judge Sandra Segal Ikuta of the 9th Circuit. The panel that heard
the case also included Circuit Judges Stephen S. Trott and Paul J. Watford.
The issue started in November
2013 when the Food and Drug Administration (FDA) ordered 23andMe to cease with the
marketing of their health services until it got approval from the government.
In compliance with this, the company discontinued with their health-related
customers who bought DNA test kits from 23andMe filed a lawsuit against the
company. The allegations included unfair business practices, breach of
warranty and misrepresentations about the health benefits. In response, the
company filed a motion to require the complainants to arbitrate their claims.
Prior to the court of
appeals decision, U.S. District Judge Lucy Koh of the Northern District of
California declared in 2014 that the fee shifting clause in the 23andMe
agreements is "substantively unconscionable.” According to Koh, the
company takes advantage of this kind of arrangement as it appears to force the
consumers into assenting with the terms. The district judge further took cue
from the previous rulings on the matter by appellate courts in which the fee
shifting practice is struck down. Ikuta disagreed.
According to Ikuta, the arrangement from 23andMe differs from the ones other companies
sought to be implemented. The courts were aggressive in shutting down
agreements that required a unilateral fee shifting system; that is, only the
petitioners would shoulder the expenses if they lost the case. The 9th
Circuit panel noted that this is not the same as the situation with 23andMe.
"By contrast, the
plaintiffs have not identified any case where a state appellate court held that
a bilateral clause awarding attorney fees and costs to the prevailing party was
unconscionable, whether in an arbitration or non-arbitration context," explained
Ikuta in the ruling.
Meanwhile, Jeremy Robinson
of Casey Gerry Schenk Francavilla Blatt & Penfield in San Diego shared his
disappointment over the ruling of the appellate court. He stated via The
Recorder that the opinion issued by Ikuta "runs against a lot of
California decisions that have held just the opposite." He viewed the
order as “a significant expansion of defendants' ability to force consumers to
arbitrate claims where there are attorney fee-shifting clauses in them.”
is the lawyer who argued for the plaintiffs.