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RECORD NO. 08-15015

In The

UNITED STATES COURT OF APPEALS
For The Ninth Circuit

DAVID J. LEE, AND DANIEL R. LLOYD, Plaintiffs - Appellants, v. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., AMERICAN EXPRESS CENTURION BANK, AND AMERICAN EXPRESS BANK, FSB, Defendants - Appellees,

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA APPELLANTS OPENING BRIEF
Mr. Matthew S. Hale 45 Rivermont Drive P.O. Box 1951 Newport News, VA 23601 (757) 596-1143 Counsel for Appellants Ms. Julia B. Strickland Stroock & Stroock & Lavan, L.L.P. 2029 Century Park East Los Angeles, CA 90067-3086 (310) 556-5806 Counsel for Appellees

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CORPORATE DISCLOSURE STATEMENT None of the Appellants have any corporate affiliation whatsoever. Dated: June 9,2008 Matthew S. Hale Counselfor Appellants

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TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT ................................... i TABLE OF CONTENTS .............................................................ii TABLE OF AUTHORITIES ....................................................... iv I. II. III. IV. STATEMENT OF JURISDICTION ....................................... 1 ISSUES PRESENTED ...................................................... 1 STATEMENT OF THE CASE ............................................. 4 STATEMENT OF FACTS ................................................ 14 A. American Express Cards And Arbitration Provisions ............. 14 B. Facts Concerning Lee And Lloyd .................................... 19 C. Lee And Lloyd Have Arbitrable Claims ............................. 22 V. VI. SUMMARY OF ARGUMENT .......................................... 27 STANDARD OF APPELLATE REVIEW .............................. 35

VII. ARGUMENT ............................................................... 36 A. Principals of Standing And Dismissal And Their Application ... 36 B. Lee And Lloyd Have Suffered A Redressible Concrete Injury As A Result of American Express' Conduct That Is Sufficient to Sustain Standing On All Causes of Action ....... 40 C. The Arbitration Provision's Unconscionability And Resulting Unenforceability Create A Sufficient Threat Of Imminent Injury To Sustain Standing ............................ 46

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D. Lee's and Lloyd's Injury is Ripe: Arbitration Is Neither Required Nor A Necessary Element of Lee's And Lloyd's Standing ............................................. 47 E. The Violation Of Lee's And Lloyd's California Statutory Right To Not Have Unconscionable Terms Inserted In Their Contracts Provides An Independent Injury And Source of Standing ....................................... 54 VIII. CONCLUSION ............................................................. 57 CERTIFICATE OF COMPLIANCE WITH RULE 32(A) ................... 58 ADDENDUM 1. ATT&T wireless formally Cingular wireless cellular telephone customer contract; T-Mobile cellular telephone customer contract.

2.

CERTIFICATE OF SERVICE

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TABLE OF AUTHORITIES Page[s] Cases Abbott Laboratories v. Gardner, 387 U.S. 136 (1967) ................................. 49 Allen v. Wright, 468 U.S. 737 (1984) .......................................................... 43 Appliance Distributors, Inc. v. Mercury Electric Corp., 202 F.2d 651 (10th Cir. 1953)................................................................................................... 40 Armanderiz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) ........................................................................................................ 23 ATT Techs. Inc. v. Communication Workers of Am., 475 U.S. 643 (1991)45 Bagdasarian v. Gragnon, 31 Cal.2d 744 (1948) ............................................. 9 Baker v. Liberty Mut. Ins. Co., 143 F.3d 1260 (9th Cir. 1998)..................... 53 Benson v. Kwikset Corp., 152 Cal.App.4th 1254 (2007).............................. 41 Berry v. American Express Publishing Co., 147 Cal.App.4th 224 (2007).... 56 Berry v. American Express Publishing Co., O.C.S.C. Case No. 05CC00049 (2005) .................................................................................................. 21, 26 Bertero v. Superior Court, 216 Cal. App. 2d 213 (1963) ............................. 50 Bigge Crane & Rigging Co. v. Docutel Corp. 371 F.Supp. 240 (E.D.N.Y. 1973 ........................................................................................................... 45 Bragg v. Linden Research, Inc., 487 F.Supp.2d 593 (E.D.Pa. 2007)..... 23, 24 Brawley v. Crosby Research Foundation, Inc., 73 Cal.App.2d 103 (1966). 43
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Bronx Household of Faith v. Bd. of Educ., 492 F.3d 89 (2d Cir. 2007)...... 49 Brooklyn Legal Servs. Corp. v. Legal Servs. Corp., 462 F.3d 219 (2d Cir. 2006).......................................................................................................... 49 Broughton v. Cigna Healthplans, 21 Cal.4th 1066 (1999) ...................... 24, 34 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)......... passim C.W. Anderson Hosiery Co. v. Dixie Knitting Mills, 204 F.2d 503 (4th Cir. 1953).......................................................................................................... 40 California Grocer's Assn v. Bank of America, 22 Cal.App.4th 205 (1994) . 55 Cantrell v. City of Long Beach, 241 F.3d 674 (9th Cir. 2001)...................... 54 Central Delta Water Agency v. United States, 306 F.3d 938 (9th Cir. 2002) ............................................................................................................ passim Chamberlain v. Ford Motor Co., 369 F.Supp.2d 1138 (N.D.Cal. 2005)...... 41 Clark v. Mitchell, 425 F.3d 270 (9th Cir. 2005)............................................ 30 Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (2006) ........ 41 Comb v. PayPal, Inc., 218 F.Supp.2d 1165 (N.D.Cal. 2002)....................... 24 Cruz v. PacificCare Health Systems, Inc., 30 Cal.4th 303 (2003) ................ 24 Davis v. O'Melveny & Meyers, 485 F.3d 1066 (9th Cir. 2007) ............. 24, 35 Desert Outdoor Adver., Inc. v. City of Moreno Valley, 103 F.3d 814 (9th Cir. 1996)................................................................................................... 54 Dhaglian v. DeVry Univ., Inc., 461 F.Supp.2d 1121 (C.D. Cal. 2006) . 31, 41

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Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) ....................... 23, 24 Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83 (2d Cir. 2002) ............................................................................................ 49 Douglas v. U.S. District Court, 495 F.3d 1062 (9th Cir. 2007)..................... 23 Dunham v. Envtl. Chem. Corp. 2006 U.S.Dist.LEXIS 61068 (N.D.Cal. August 16, 2006) ....................................................................................... 24 Ecological Rights Foundation v. Pacific Lumber Co., 230 F.3d 1141 (9th Cir. 2000).................................................................................................... 27, 38 El Camino Community College Dist. v. Superior Court, 173 Cal.App.3d 606 (1985) ........................................................................................................ 16 Elder v. Holloway, 975 F.2d 1388 (9th Cir. 1991)........................................ 34 Equity Lifestyle Prop., Inc. v. County of San Luis Obispo, 505 F.3d 860 (9th Cir. 2007)................................................................................................... 36 Fair v. EPA, 795 F.2d 851 (9th Cir. 1986) ................................................... 43 Fairfield-Noble Corp. v. Pressman-Gutman Co., 475 F.Supp. 899 (S.D.N.Y. 1970).......................................................................................................... 16 Falk v. General Motors Corp., 496 F.Supp.2d 1088 (N.D.Cal. 2007) ......... 41 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) ................... 51 Fitz v. NCR Corp., 118 Cal.App.4th 702 (2004)........................................... 24 FMC Corp. v. Boesky, 852 F.2d 981 (7th Cir. 1988)................................... 55

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Ford v. Verisign, Inc., 252 Fed. Appx. 781(9th Cir. October 16, 2007) ....... 35 Freeman v. Mattress Gallery, 2007 Cal.App.Unpub.Lexis 9102 ................. 55 Friends of the Earth v. Gaston Copper Recycling Corp. 204 F.3d 149 (4th Cir. 2000)(en banc).................................................................................... 47 Friery v. L.A. Unified Sch. Dist., 448 F.3d 146 (9th Cir. 2006) ................... 53 Gantt v. Sentry Insurance, 1 Cal.4th 1083 (1992) ......................................... 53 Gentry v. Superior Court, 42 Cal.4th 443 (2007) .......................................... 24 Geoffrey v. Washington Mutual Bank, 484 F.Supp.2d 1115 (S.D.Cal. 2007) ............................................................................................................. 23, 24 Gonlugur v. Circuit City Stores, Inc., 2004 Cal.App.Unpub.LEXIS 8140. 23, 24 H.S.Crocker Co. v. McFaddin, 148 Cal.App.2d 639 (1957)........................ 31 Harlow v. Carleson, 16 Cal.3d 731 (1976)................................................... 31 Harper v. Ultimo, 113 Cal.App.4th 1402 (2003)........................................... 24 Hernandez v. Hilltop Financial Mortgage, Inc., 2007 U.S.Dist.LEXIS 80867 (N.D.Cal. October 27, 2007) ..................................................................... 56 Hiresch v. American Express Co., 2006 U.S. Dist. LEXIS 87785 (E.D. Tex. December 5, 2006) .................................................................................... 26 Hitz v. First Interstate Bank, 38 Cal.App.4th 274 (1995).............................. 56 Hobbs v. Bateman Eichler, Hill & Richards, 164 Cal.App.3d 174 (1985) .. 21

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Homa v. American Express Company, 496 F.Supp.2d 440 (D.N.J. 2007).. 26 Hood v. Bekins Van & Storage Co., 178 Cal. 150 (1918) ........................... 42 Hunter v. GMC, 2007 Cap.App.Unpub. 9252 (November 19, 2007) .......... 41 In re Merchant's Litigation, 2006 U.S.Dist.LEXIS 11742 (S.D.N.Y. March 16, 2006).................................................................................................... 26 Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2002)...... 23, 24, 34 Janda v. T-Mobile USA, Inc., 2008 U.S.App.LEXIS 4627 (9th Cir. April 15, 2008).................................................................................................... 29, 34 Jefferson v. Chase Home Finance LLC, 2007 U.S.Dist.LEXIS 36298 (N.D.Cal. May 3, 2007)............................................................................. 56 Kagan v. Gibraltar Savings & Loan Ass'n, 35 Cal.3d 582 (1984)............... 55 Kahn v. Lischner, 128 Cal.App.2d 480 (1954) ............................................ 42 Kaufman v. American Express Travel Related Services Co., Inc., 2008 U.S.Dist.LEXIS 18129 (N.D.Ill. March 7, 2008) ............................... 14, 26 Kreamer v. Earl, 91 Cal. 112 (1891) ............................................................ 53 Laster v. T-Mobile USA, Inc., 2007 U.S.App.LEXIS 25265 (9th Cir. October 16, 2007).............................................................................................. 29, 34 Law Enforcement Syst. v. American Express Co., 2006 U.S. Dist. LEXIS 48354 (S.D.N.Y. July 17, 2006)................................................................ 26

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Louisville Title Ins. Co. v. Surety Title & Guar. Co., 60 Cal.App.3d 781 (1976) ........................................................................................................ 43 Lowden v. T-Mobile USA, Inc., 512 F.3d 1213 (9th Cir. 2008)............. 29, 34 Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ............................ 36, 37 Lyddon v. Rocha-Albertsen, 2006 U.S.Dist.LEXIS 78957 (E.D. Cal. October 27, 2006)........................................................................................ 6 Magnolia Motor & Logging Co. v. United States, 264 F.2d 950 (9th Cir. 1959).......................................................................................................... 34 Miller v. U.S., 363 F.3d 999 (9th Cir. 2004) ................................................. 44 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) .......................................................................................................... 8 Morta v. Korea Ins. Co., 840 F.2d 1452 (9th Cir., 1989) .............................. 44 Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006) (en banc) ............................................................................................................ passim Nelson v. NAFA, 512 F.3d 1134 (9th Cir. 2008) .......................................... 49 Net Global Marketing, Inc. v. Dialtone, Inc., 217 Fed.Appx. 598 (9th Cir. 2007).................................................................................................... 23, 24 Newpark Shipbuilding-Pelican Island v. Rig Pan Producer, 21 F.Supp.2d 756 (S.D.Tex. 2003) .................................................................................. 45

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Pegasus Satellite Television, Inc. v. DirectTV, 318 F.Supp.2d 968 (C.D.Cal. 2004).......................................................................................................... 31 People v. McKale, 25 Cal.3d 626 (1979) ....................................................... 6 Pleasants v. American Express Co., 2007 U.S. Dist. LEXIS 60747 (E.D.Mo. August 17, 2007) ....................................................................................... 26 PowerAgent v. Electronic Data Systems, 358 F.3d 1187 (9th Cir. 2004)..... 52 Preston v. Ferrer, 128 S.Ct. 978 (2008).......................................................... 8 Reveles v. Toyota By The Bay, 57 Cal.App.4th 1139 (1997)....................... 41 Ross v. Bank of America, 524 F.3d 217, LEXSEE 2008 U.S. APP. LEXIS 8927 (2d Cir. April 21, 2008).................................................. 29, 48, 49, 50 Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007)........................................................................................ 23, 24, 29, 34 Sierra Club v. Morton, 405 U.S. 727 (1972) ................................................ 37 Simon v. Eastern Ky. Welfare Rights Organization, 426 U.S. 26 (1976).... 37 Smith v. State Farm Mutual Automobile Ins Co., 93 Cal.App.4th 700 (2001)6 Snow v. Ford Motor Co., 561 F.2d 787 (9th Cir. 1977)................................ 41 St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003) ........................................................................................................ 50 State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093 (1996) .......................................................................................................... 6

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Steel Co. v. Citizens For A Better Environment, 523 U.S. 83 (1998) ......... 39 Supak & Sons Mfg. v. Pervel Industries, Inc., 593 F.2d 135 (4th Cir. 1979) ................................................................................................................... 16 Szetela v. Discover Bank, 97 Cal.App.4th 1094 (2002).................................. 9 Taniguchi v. Schultz, 303 F.3d 950 (9th Cir. 2002) ...................................... 53 Tennant v. Wilde, 98 Cal.App. 437 (1929) .................................................. 42 Ting v. AT&T, 182 F.Supp.2d 902, (N.D. Cal. 2002) ................................... 6 Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003).................................... 6, 24, 34 Triple G Landfills, Inc. v. Board of Commissioners, 977 F.2d 287 (7th Cir. 1992).......................................................................................................... 54 United States v. Realty Company, 163 U.S. 427 (1896) ................................ 9 Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354 (9th Cir. 1947) ................................................................................................................... 42 Vallens v. Tillman, 103 Cal. 187 (1894) ...................................................... 40 Valley Forge Christian College v. Americans United for Separation of Church & State, 454 U.S. 464 (1982) ....................................................... 36 Victoria v. Superior Court, 40 Cal.3d 734 (1985) ........................................ 44 Vogel v. Bankers Bldg. Corp., 112 Cal.App.2d 160 1952).......................... 43 Warrant Bros. Co. v. Cardi Corp., 471 F.2d 1304 (1st Cir. 1971) ................ 45 Warth v. Seldin, 422 U.S. 490 (1975) .................................................... 38, 45

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Whitmore v. Arkansas, 495 U.S. 149 (1990) ......................................... 37, 45 Willingham v. Hooven, Owens, Rentschler & Co., 74 Ga. 233 (1894)....... 41 Yahoo!, Inc. v. Le Ligue Contre Le Racisme, 433 F.3d 1199 (9th Cir. 2006) ................................................................................................................... 49 Statutes 12 U.S.C. §§ 1462 et seq. (2008).................................................................. 12 28 U.S.C. § 1291 (2008) ................................................................................. 1 9 U.S.C. § 1 et seq. (2008).............................................................................. 8 9 U.S.C. § 10 (2008) ..................................................................................... 53 9 U.S.C. § 2 (2008) ....................................................................................... 12 Cal. Bus. & Prof. Code §§ 17200 et seq. (2008) ................................... passim Cal. Civ. Code § 1670.5 (2008) ............................................................ 3, 5, 54 Cal. Civ. Code § 1670.5 (a) (2008) ................................................................ 5 Cal. Civ. Code § 1770(a)(19) (2008).................................................... 3, 5, 54 Cal. Civ. Code § 3513 (2008) ......................................................................... 5 Cal. Civ. Code §§ 1750 et seq. (2008)................................................... passim Cal. Civ. Code §1668 (2008) .......................................................................... 5 Cal. Civ. Proc. § 12194(a) (2008)................................................................. 21

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Other Authorities Article III, United States' Constitution .................................................. passim U.C.C. § 2-207 (1970) .................................................................................. 16 Rules Fed.R.Civ.P. 9(b)(2008) ............................................................................... 13 Fed.R.Civ.P.12(b)(6) (2008).................................................................. passim Treatises 1 Witkin, Summary of California Law, "Contract" § 420 p. 461 (10th ed.). 53 3A Wright, Miller & Kane, Fed. Prac. & Proc. Civ. 3d § 3531.2 (2005) .... 48 6 Williston on Contracts (4th ed. 1995) § 12.5.............................................. 33 7AA Wright, Miller & Kane, Fed. Prac. & Proc. Civ. 3d § 1785.1 (2005) . 38 Regulations 12 C.F.R. § 560.2(b)(9)(2008)...................................................................... 13

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I.

STATEMENT OF JURISDICTION This appeal is from an order and judgment granting a motion to

dismiss for lack of standing pursuant to Fed.R.Civ.P.12(b)(6) (2008). Such orders are immediately appealable pursuant to 28 U.S.C. § 1291 (2008). The Order granting Defendants' Motion to Dismiss was entered on December 6, 2007. (E.R., Tab No. 2, Page 004) The Notice of Appeal was timely filed on December 31, 2007. (E.R., Tab 1, Page 001) II. 1. ISSUES PRESENTED Must an American Express cardholder, who has a claim that the

American Express Arbitration Provision (but not the entire card agreement)("Arbitration Provision") is unconscionable and unenforceable, first arbitrate that claim in order to sustain a ripened injury sufficient to support standing under Art. III, California's Consumer Legal Remedies Act ("CLRA") and Unfair Competition Law ("UCL"), respectively, for causes of action alleging that the Arbitration Provision violates the UCL and CLRA? 2. Does payment of the required annual fee or purchase price as

consideration required under the American Express card agreement ("card agreement") serve, in whole or part, as consideration for the various terms and services contained therein, including the Arbitration Provision?

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3.

Does the contract right to a dispute resolution service by mandatory

arbitration contained in the card agreement have pecuniary value so that its loss, due to the Arbitration Provision's unconscionability and

unenforceability, affects an injury sufficient to sustain standing under Art. III, the CLRA, and the UCL? 4. Does receiving unconscionable terms in the card agreement (e.g.,

American Express having a unilateral right to non-waiver and to change the terms of the agreement at any time) affect an injury sufficient to sustain standing under Art. III, the CLRA and/or the UCL for the cardholder who has paid the annual fee or purchase price for the American Express card? 5. As a matter of law and public policy, may a cardholder who has an

otherwise arbitrable claim against American Express seek arbitration by enforcing/invoking an unconscionable and unenforceable Arbitration Provision? 6. Does a cardholder alleging that the Arbitration Provision is

unconscionable waive his claims concerning that unconscionability when he invokes that Arbitration Provision or participates in a mandatory arbitration under it? 7. Is it futile for a cardholder challenging the unconscionability of the

Arbitration Provision (but not the entire card agreement) to invoke

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mandatory arbitration or arbitrate that issue under that Arbitration Provision? 8. In order to suffer an injury sufficient to sustain standing under Art.

III, the CLRA and/or the UCL for a challenge to the unconscionability of the Arbitration Provision and resulting violation of the CLRA and UCL must a cardholder first either have American Express invoke/enforce the Arbitration Provision against him or himself do so and/or engage in mandatory arbitration pursuant to it even when the Arbitration Provision specifically states that claims concerning "the validity, enforceability or scope of this Arbitration Provision" are not subject to arbitration? 9. Does the violation of the statutory rights given by the CLRA to not

have unconscionable terms inserted in contracts pursuant to California Civ. Code § 1770(a)(19) (2008), and Cal. Civ. Code § 1670.5 (2008) to that same effect, respectively, provide Lee and Lloyd with standing to maintain a CLRA cause of action? 10. Does an unconscionable and unenforceable Arbitration Provision

pose a sufficient threat of injury to a cardholder who has otherwise arbitrable claims to sustain standing under Art. III, the UCL and/or CLRA? 11. Does a threat of injury sufficient to sustain standing under Art. III, the

CLRA and/or the UCL exist when a cardholder challenging the

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unconscionability of the Arbitration Provision would, by operation of law, waive his claims and objections by requesting or participating in an arbitration pursuant to an unenforceable Arbitration Provision? 12. Do Lee and Lloyd otherwise allege an injury sufficient to sustain

standing under Art. III, the CLRA and/or the UCL to challenge the unconscionability of the Arbitration Provision and other terms of the card agreement and their concomitant statutory violations as well as fraud in the inducement? III. STATEMENT OF THE CASE Plaintiffs David J. Lee and Daniel R. Lloyd ("Lee" and "Lloyd") brought suit against Defendants American Express Travel Related Services Company , Inc., American Express Centurion Bank, and American Express Bank, FSB ("American Express"). The crux of their action is a global assault on the unconscionability of the Arbitration Provision contained in the adhesive standardized card agreements accompanying the issuance of various charge, credit, Dining, and Gift cards to them for which an annual or purchase fee is paid: e.g., a class action waiver, a consolidation of terms waiver, and a broad-based injunction waiver. (E.R., Tab 9, Pages 037, 069 [¶¶ 3, 71]) They also challenge certain non-arbitration terms of the card agreement: e.g., that American Express has a unilateral right to alter, amend,

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or add new terms to the agreement at their option, and also has a unilateral non-waiver right. (E.R., Tab 9, Page 086 [¶ 105]) In no instance do they seek the rescission of that agreement. The Complaint alleges that the insertion of these respective terms violates the CLRA, Cal. Civ. Code § 1770(a)(19)(which makes it an unlawful, unfair, deceptive practice to "insert[] an unconscionable provision to the contract"), and California's UCL, Cal. Bus. & Prof. Code §§ 17200 et seq. (which makes it an unfair and unlawful practice to violate Cal. Civ. Code §§ 1670.5, 1 1668, 2 3513, 3 1770(a)(19), and the common law. 4 Of the

1

Cal. Civ. Code § 1670.5 (a) (2008) provides, in relevant part: "If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable ... the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause ..."

2

Cal. Civ. Code § 1668 (2008) provides, in relevant part, "All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law."

3

Cal. Civ. Code § 3513 (2008) provides, in relevant part, "Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement."

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twenty alleged causes of action, ten deal with the unconscionability and illegality of the Arbitration Provision, nine deal with the unconscionability and illegality of non-arbitration terms of the card agreement (including one cause of action for a declaratory judgment that the challenged terms are unconscionable). The remaining cause of action alleges that insertion of unconscionable terms (excluding the arbitration provision) into the card agreement constitutes fraud in the inducement. Only injunctive and restitutionary relief are sought, except that punitive damages are requested for the fraud and CLRA causes of action. The common Art. III, UCL, and CLRA injury alleged by Lee and Lloyd is that they have been economically injured by American Express' actions: i.e., they paid for an enforceable contractual right to a dispute resolution service by mandatory arbitration of bona fide claims

An unconscionable contract or contract provision or term is, as a matter of law, an unfair practice under the UCL. See People v. McKale, 25 Cal.3d 626, 634-35 (1979); Smith v. State Farm Mutual Automobile Ins Co., 93 Cal.App.4th 700, 719 (2001); State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093, 1104 (1996); Lyddon v. RochaAlbertsen, 2006 U.S.Dist.LEXIS 78957 at *101-102 (E.D. Cal. October 27, 2006); Ting v. AT&T, 182 F.Supp.2d 902, 921-22, (N.D. Cal. 2002) aff'd in part, rev'd on other grounds in part, 319 F.3d 1126, 1150 (9th Cir. 2003).

4

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they have against American Express in paying the annual fee or purchase price for their respective cards but they did not receive the full value of the contract because they, instead, received only a defective and unenforceable Arbitration Provision because American Express chose to make the terms thereof (and the arbitration provision itself) unconscionable and unenforceable as a matter of law and legal fact (and with regard to the fraud claim, American Express included unconscionable non-arbitration terms). In other words, their injury is that they cannot arbitrate otherwise arbitrable claims they have against American Express, and their financial loss is the loss in value that, as a matter of law and fact, attaches to the unenforceable dispute resolution service by mandatory arbitration for which they paid. Although the existence of this injury is informed by the law, its recognition labors under a possible perceptual difficulty since it arises in a context different than those with which the courts usually deal: e.g., cases in which the consumer, after having filed suit, is faced with a motion to compel arbitration under an unconscionable arbitration provision. In this situation, the question is not whether the consumer wants to arbitrate his claims but, rather, whether he is to forgo fair play by being forced to arbitrate them on

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terms that are one-sided due to the arbitration provision's quintessential unconscionability (no class action, no consolidation of claims, no broadbased injunctive relief). Tacit in this Court's rulings finding such arbitration provisions to be unenforceable is that arbitration on a level playing field is a good thing: i.e., it is faster and less expensive than litigation, and has many features that benefit the consumer. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985)("It is often a judgment that streamlined proceedings and expeditious result will best serve the needs that causes parties to agree to arbitrate their disputes"). Arbitration, in fact, conforms to the sanctity of contract when the consumer agrees to arbitrate based on this purpose and use. Indeed, the Courts have enforced the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (2008), on that basis for decades. See Preston v. Ferrer, 128 S.Ct. 978, 986 (2008). However, credit card issuers like American Express, cell telephone providers like Cingular or T-Mobile, and employers like Circuit City, relying on the not-unreasonable assumption that consumers (or employees) either do not actually read the agreements or, if they do, lack the legal knowledge to assess the unconscionability and enforceability of those their terms, have egregiously tilted the playing field. They have done so by framing arbitration provisions based on their recognition that they could be

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used as a shield to thwart litigation as well as actual arbitrations against them when "poison pill" terms like class action waivers are made their primary features. 5 Quite simply, the question of whether a given term is unconscionable (and whether that renders the provision unenforceable) rests on a sophisticated legal judgment which the consumer cannot be presumed to have. 6 Until this Court, and then the California Supreme Court, stepped up in order to protect the consumer from adhesive unconscionable terms, the

See Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1101 (2002)(those terms push "boundaries of good business practices" with the knowledge that relatively few, if any, customers will seek legal remedies" pertaining "to that single customer without collateral estoppel effect.") United States v. Realty Company, 163 U.S. 427, 438 (1896), provides an apt description of why the presumption of knowledge of the law is inapplicable here: "There are occasions when the presumption that every man knows the law must be enforced for the safety of society itself. An individual on trial for a violation of the criminal law will not be heard to allege as a defense that he did not know the action of which he was guilty was criminal. But in such a case as this [when a statute is being challenged as unconstitutional], knowledge of the invalidity of the law in advance of any authoritative declaration to that effect will not be imputed to those who are acting under its provisions, and receiving the benefits provided by its terms." California law is in accord. Cf Bagdasarian v. Gragnon, 31 Cal.2d 744, 748 (1948) ("An independent investigation ... does not preclude reliance on representations where ... the party relying thereon is not competent to judge the facts without expert assistance.")
6

5

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corporation's got away with their scheme. However, the resulting jurisprudence neither means that the consumer doesn't want to arbitrate his claims nor that the intentional denial of that right to him ­ after presenting him with terms about which the consumer is unable to make the legal judgment that his right to arbitration is unenforceable ­ is anything other than an injury to the consumer. Rather, it means that an injury does occur and that such an injury gives the consumer standing to challenge the unconscionability of the arbitration provision and its violation of California's consumer protection statutes. Lee's and Lloyd's loss and injury is as palpable now as would be if they had paid for certain good or services and received only non-conforming or defective ones in return. It is not the "use" of those goods or services that triggers their injury, but, rather, it is their receipt of them. Lee and Lloyd currently have claims but cannot, as a matter of law and public policy, arbitrate them under the unenforceable Arbitration Provision. That injury is neither affected by the fact that American Express has not enforced the Arbitration Provision against Lee and Lloyd nor that they have not themselves invoked it or engaged in any arbitration. Indeed, whether or not arbitration has occurred or been invoked is nothing more than a red herring designed to keep the focus on "process" rather than on the injury. Even

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assuming otherwise, the absence of arbitration has no effect on their standing since it is not, as a matter of contract and law, either required or available to Lee and Lloyd since: (1) the Arbitration Provision itself specifically excludes claims concerning "the validity, enforceability or scope of this Arbitration Provision" from claims that are subject to arbitration; (2) no enforceable Arbitration Provision exists under which any arbitration can take place, (3) arbitration would be futile, (4) Lee and Lloyd's invocation or involvement in any arbitration would waive their right to make objections concerning the unconscionability of the Arbitration Provision (which would necessarily cascade into waiving their causes of action in that regard under the CLRA and UCL), and, most importantly, (5) the issue of the unconscionability of the Arbitration Provision is, as a matter of law, one for the Courts to decide rather than an arbitrator under controlling Supreme Court and Ninth Circuit precedent.

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After all, Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006)("Buckeye"), holds that Lee's and Lloyd's challenge to the unconscionability of the Arbitration Provision is one that is never subject to arbitration: "unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance." So too does Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1263-64 (9th Cir. 2006) (en banc)("Nagrampa"), hold: "When the crux of the complaint is not the invalidity of the contract as a whole, but rather the arbitration provision itself, then the federal courts must decide whether the arbitration provision is invalid and unenforceable under 9 U.S.C. § 2 of the FAA." In spite of this controlling law and in derogation of the Arbitration Provision stating that claims regarding the "validity, enforceability and scope of this Arbitration Provision" are excluded from the definition of claims subject to mandatory arbitration, American Express moved to dismiss the Complaint pursuant to Fed.R.Civ.P.12(b)(6) on the grounds that Lee and Lloyd lacked standing in that the Arbitration Provision had not been enforced against them and/or they had not themselves invoked it and engaged in arbitration of all their claims. 7 Following briefing and oral

Other grounds for dismissal raised by American Express were that all causes of action were preempted by the Home Owners Loan Act (12 U.S.C. §§ 1462 et seq. (2008)) and its implementing regulations (specifically 12
12

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argument, the District Court issued a Memorandum Order on December 6, 2007 granting American Express' motion on the grounds that Lee and Lloyd lacked standing. Missing from the Memorandum Order was any reference to Buckeye's or Nagrampa's holding. Apparently assuming, although even American Express could not forward the argument, that a contractual right to a dispute resolution service by mandatory arbitration has no value (which is, of course, contrary to controlling California law), the District Court held that no injury had occurred: "At bottom, plaintiffs' argument is that they were damaged by the mere existence of the allegedly unconscionable terms in their card agreements. The challenged terms have not, for instance, been invoked against plaintiffs and they have not prohibited plaintiffs from asserting their rights." (E.R., Tab No. 2, Page 011) The District Court did not rule on the other proffered grounds. Lee and Lloyd filed this appeal on December 31, 2007. (E.R., Tab 1, Page 001).

C.F.R. § 560.2(b)(9)(2008), Lloyd's claims were time-barred, the fraud cause of action was pled with insufficient specificity pursuant to Fed.R.Civ.P. 9(b)(2008), and the CLRA's coverage does not extend to credit cards.

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IV.

STATEMENT OF FACTS A. American Express Cards And Arbitration Provisions

American Express issues various cards: charge cards, 8 credit cards, 9 and Dining and Gift cards. 10 It currently has approximately 40,000,000 charge card and credit card accounts in the United States, at least ten (10) per cent of which are issued to California residents. (E.R., Tab 9, Page 050

American Express' "charge cards" now include its Centurion (Black), Gold, Platinum and Green cards, respectively, which charge an annual fee, have no credit or revolving credit feature (but do have a late charge assessment, usually $35 or 2.99% of the unpaid balance), and require all charges be paid when the monthly statement is received. The annual fees for the personal charge cards are $95.00 (Green), $125.00 (Gold), $150 (Rewards Plus Gold) $450.00 (Platinum). (E.R., Tab 9, Pages 050-051 [¶ 24]) American Express' "credit cards" charge an annual fee, and are revolving credit instruments that do not need to be paid off in full at the end of the monthly billing cycle. The annual fees for the personal credit cards range from $35.00 to $135.00. (E.R., Tab 9, Page 053-055 [¶¶ 25-26]) The "corporate/business" credit card annual fees range from $ 125.00 to $350.00 to some other negotiated amount depending upon the number of cards issued. Ibid. The American Express Gift Card and Dining Card are prepaid payment devices that are not credit cards, charge cards or debit cards. (E.R., Tab 9, Page 047 [¶ 16]) The purchase fee for the Dining and Gift cards is the face amount of the card plus $3.95 (plus shipping and handling) and a $2.00 monthly service charge. (E.R., Tab No. 9, Pages 055 [¶ 27]) See Kaufman v. American Express Travel Related Services Co., Inc., 2008 U.S.Dist.LEXIS 18129 (N.D.Ill. March 7, 2008). Although American Express does issue other credit cards for which no annual fee is paid, this action involves only cards for which an annual or purchase fee is paid due to the economic loss element of standing.
14
10 9

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[¶ 23)]) Each of these respective cards provide a convenience service arising from their distinct advantages over cash, checks, and other means of payment that is unrelated to "credit": e.g., the convenience use they provide minimizes the need to carry cash, allows the cardholder to defer payment for a short time (at least until receipt of the monthly billing statement), establishes a favorable payment record that is important in financial evaluations, and provides a built-in dispute resolution service. (E.R., Tab 9, Page 048 [¶¶ 17-19]) The issuance of American Express' various cards is accompanied by a standardized card agreement containing the various terms that the cardholder must accept. In the late 1990's an Arbitration Provision was added to its agreements which was not applicable to California cardholders "unless and until you use the Card after we notify you in writing that it is applicable in California." (E.R., Tab 9, Pages 059 [¶ 39], 235) That writing came in December, 2003 when, by bill-stuffer, California cardholders were notified that American Express was unilaterally modifying the agreement so that "Cardmembers having California billing addresses will no longer be excluded from the coverage of the section called Arbitration." (E.R., Tab 9, Pages 060 [¶ 40], 242) A dispute resolution service by mandatory arbitration

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thus became a primary and material feature of the card. 11 As a result of the 2003 notification, American Express' Arbitration Provision imposed the following term on California cardholders: "As used in this Arbitration Provision, the term `Claim' means any claim, dispute or controversy between you and us arising from or relating to ...this Agreement ... For purposes of this Arbitration Provision, `you' and `us' also includes any corporate parent, or wholly or majority owned subsidiaries, affiliates, any licensees, predecessors, successors, assigns, ... all agents, employees, directors and representatives of any of the foregoing... `Claim' includes claims of every kind and nature, including but not limited to, initial claims, counterclaims, cross-claims and third-party claims and claims based upon contract, tort, fraud and other intentional torts, statutes, regulations, common law and equity. ... The term `Claim' is to be given the broadest possible meaning that will be enforced ... Initiation of Arbitration Proceeding/Selection of Administrator. Any claim shall be resolved, upon the election of you or us, by arbitration pursuant to this Arbitration Provision and the code of procedures of the national arbitration organizations to which the Claim is referred in effect at the time the claim is filed, except to the extent the Code conflicts with this Agreement. .... "Significance of Arbitration. IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR WE WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OUR HAVE A JURY TRIAL ON THAT CLAIM. FURTHER, YOU AND WE WILL NOT As a matter of law, the Arbitration Provision is a "material" term of the card agreement. See, El Camino Community College Dist. v. Superior Court, 173 Cal.App.3d 606, 617 (1985); Fairfield-Noble Corp. v. PressmanGutman Co., 475 F.Supp.899 (S.D.N.Y. 1970)(using U.C.C. § 2-207 (1970)); Supak & Sons Mfg. v. Pervel Industries, Inc., 593 F.2d 135, 136 (4th Cir. 1979).
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HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION. EXCEPT AS SET FORTH BELOW, THE ARBITRATOR'S DECISION WILL BE FINAL AND BINDING. NOTE THAT OTHER RIGHTS THAT YOU OR WE WOULD HAVE IF WE WENT TO COURT ALSO MAY NOT BE AVAILABLE IN ARBITRATION. Restrictions on Arbitration. If either party elects to resolve a Claim by arbitration, that Claim shall be arbitrated on an individual basis. There shall be no right or authority for any Claims to be arbitrated on a class action basis or on bases involving Claims brought in a purported representative capacity on behalf of the general public, other Cardmembers or other persons similarly situated. The arbitrator's authority to resolve Claims is limited to Claims between you and us alone, and the arbitrator's authority to make awards is limited to awards to you and us alone. Furthermore, Claims brought by you against us, or by us against you, may not be joined or consolidated in arbitration with Claims brought by or against someone other than you, unless agreed to in writing by all parties. No arbitrator's award or decision will have any preclusive effect as to issues or claims in any dispute with anyone who is not a named party to the arbitration. " (Italics and capitalization in original) (E.R., Tab 9, Page 235)(Italics and capitalization in original, emphasis added)) The 2003 Arbitration Provision required that all claims be taken to arbitration: "As used in this Arbitration Provision, the term `Claim' means any claim, dispute or controversy between you and us arising from or relating to ... this Agreement ..., including the

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validity, enforceability or scope of this Arbitration Provision or the Agreements." (E.R., Tab 9, Pages 067 [¶ 63], 235)(emphasis supplied) That requirement remains extant in the Gift and Dining card's Arbitration Provision. (E.R., Tab 9, Page 067 [¶ 64]) However, with regard to credit and charge cards, an amendment was unilaterally made by American Express in 2005 which excluded from arbitration all claims dealing with the unconscionability of the Arbitration Provision: "As used in this Arbitration Provision, the term `Claim' means any claim, dispute or controversy between you and us arising from or relating to ... this Agreement ..., except for the validity, enforceability or scope of this Arbitration Provision or the Agreements." (E.R., Tab 9, Pages 065 [¶ 62], 177)(emphasis added) As relevant here, all other terms of the 2003 agreement remain the same, except that the following language was also added as the ultimate sentence to the "Restrictions on Arbitration" paragraph following the language waiving class actions, consolidations, and broad-based injunctive relief: "Notwithstanding any other provision in the Agreement (including but not limited to the `Continuation' provision below and without waiving either party's right to appeal such decision, should any portion of the "Restrictions on Arbitration' provision be deemed invalid or unenforceable, then the entire Arbitration Provision (with the exception of this sentence) will not apply. ... " (Italics and capitalization in original)

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Ibid. In addition to the Arbitration Provision, the card member agreements also contain the following terms as pertinent here: "Changing this Agreement/Assignment of this Agreement. We may change the terms or add new terms to this Agreement at any time, in accordance with applicable law. We may apply any changed or new terms to any then-existing balances on your Account as well as to future balances." "Our failure to exercise any of our rights under this Agreement, our delay in enforcing any of our rights, or our waiver of our rights on any occasion, shall not constitute a waiver of such rights on any other occasion." "This Agreement and your Account [or, relative to the Gift Card and the Dining Card, `These terms and conditions and your ... Card] and all questions about their legality, enforceability and interpretation, are governed by the laws of the State of Utah [or, relative to the Gift Card and Dining Card, "the State of New York USA] (without regard to internal principles of conflicts and laws), and by applicable federal law [the last phrase being omitted from the Gift Card and Dining Card agreement]." (E.R., Tab 9, Pages 067 [¶ 65], 160-169, 170-175, 176-185, 222-227, 228233, 234-241). B. Facts Concerning Lee And Lloyd

Lloyd obtained his Platinum American Express charge card in 2003 and has, since that time, paid his annual fee therefor. (E.R., Tab 9, Page 059 [¶ 39]) His card was accompanied by the 2003 unamended version of the card member agreement. Ibid. He received the various bill-stuffers that
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amended that Arbitration Provision and agreement in 2003 and 2005, respectively. (E.R., Tab 9, Page 060 [¶ 40]) Lee has two American Express cards and has also purchased the Gift card and Dining card. He obtained an American Express Starwood Preferred Guest credit card in April 2006. (E.R., Tab 9, Page 056 [¶ 28]) While no annual fee was paid for the first year (it having been waived by American Express as an application inducement), he has paid the annual fee for his card during subsequent years. (E.R., Tab 9, Page 056 [¶ 29]) After receiving his Starwood card, Lee became concerned that terms of that agreement, including the Arbitration Provision, might be unconscionable under California and Ninth Circuit law. He thus wrote to Kenneth Chenault (President/CEO of American Express Travel Related Services) as well as Mr. Poulsen (President/CEO of Centurion Bank) and Mr. Short (President/CEO of American Express Bank FSB), requesting information concerning that matter and that they change the terms so that they would not be unconscionable. Ibid. Only Mr. Chenault responded, stating only that "Although the credit card laws of California are changing, American Express cards are governed by the laws of the State of Utah" and thus averring that the arbitration agreement and card agreement were both legal and conscionable. (E.R., Tab 9, Pages 057 [¶ 30], 192). That occurred

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after the California Superior Court for Orange County had ruled in Berry v. American Express Publishing Co., O.C.S.C. Case No. 05CC00049 (2005) (from which no appeal was taken) 12 , that the agreements were governed by California law and that the arbitration provision was unconscionable and unenforceable. (E.R., Tab 9, Page 057 [¶ 31]) Lee thereafter paid the annual fee for his card and purchased the Gift and Dining Card, respectively. (E.R., Tab 9, Page 059 [¶ 36]) He also obtained a "Green" charge card in June 2007. (E.R., Tab 9, Page 059 [¶ 37]) He did so in reliance on having been advised by American Express that its card agreements and arbitration provisions were conscionable, enforceable, and governed by other than California law. 13 (E.R., Tab 9, Pages 058 [¶ 34], 059 [¶ 36]) He, like Lloyd, uses the cards for personal and household purposes. Under California law the denial of a motion to compel arbitration is an immediately appealable final order. The failure by American Express to file an appeal that Order rendered it "final" for collateral estoppel purposes. See Code Civ. Proc. § 12194(a) (2008); Hobbs v. Bateman Eichler, Hill & Richards, 164 Cal.App.3d 174, 191 (1985). (E.R., Tab 9, Page 058 [¶ 32]) After purchasing the Gift and Dining cards and obtaining the Green card, Lee again wrote to Messrs. Chenault, Short, and Poulsen requesting that they either delete or amend what he again identified to be unconscionable terms in the card agreement. (E.R., Tab 9, Pages 083-84 [¶¶ 82-83]) Lloyd did the same in 2007. (E.R., Tab 9, Page 79 [¶ 83]). No response to these respective letters was received. (E.R., Tab 9, Page 79 [¶¶ 82, 83]) These letters fulfill the jurisdictional requirements of California Civ. Code § 1782.
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C.

Lee And Lloyd Have Arbitrable Claims

Lee and Lloyd are authorized by the Arbitration Provision to make claims against American Express based on, among other things, any "claim, dispute or controversy ... arising from or relating to your Account, this Agreement..." The Arbitration Provision does not require that claims dealing with these matters be accompanied by or predicated upon any other "claim" relating to such things as unwarranted late fees, unwarranted charges, or any other matters. After receiving the amended 2005 card agreements and paying the requisite consideration, Lee and Lloyd identified five separate arbitration claims they have against American Express which involve "dispute[s] or controvers[ies] ... relating to [the terms of the] Agreement." As pled in the Complaint (and in which these claims appear as causes of action), these arbitration claims are: Claim One: Certain terms of the card agreement (excluding the arbitration clause) are unconscionable: i.e., American Express "may change the terms or add new terms to this Agreement at any time, in accordance with applicable law..."; American Express' "failure to exercise any of [its] rights under this Agreement, [its] delay in enforcing any of [its] rights, or our waiver of [its] rights on any occasion, shall not constitute a waiver of such rights on any other occasion"; and that the agreement is "governed by the laws of the State of Utah [or, relative to the Gift Card and Dining Card, "the State of New York] (without regard to internal principles of conflicts and laws)." (E.R., Tab 9, Pages 084 [¶ 105], 088 [¶108], 151-156), 228-233).
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Claim Two: These unconscionable terms in the card agreement (excluding the arbitration provision) violate the UCL and CLRA. They are procedurally unconscionable since they were imposed on all cardholders on a "take it or leave it" basis and are contained in an adhesive form agreement prepared by American Express and concerning which American Express was in a much stronger bargaining position than the cardholder (see Discover Bank v. Superior Court, 36 Cal.4th 148, 159-160 (2005)("Discover Bank"); Armanderiz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 113-114 (2000); Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007)("Shroyer"). They are also substantively unconscionable since they provide American Express with a "right" to make any unilateral modification, including adding new terms to the agreement but provide no such right to the cardholder (see Net Global Marketing, Inc. v. Dialtone, Inc., 217 Fed.Appx. 598 (9th Cir. 2007); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2002)("Ingle"); Geoffrey v. Washington Mutual Bank, 484 F.Supp.2d 1115, 1123 (S.D.Cal. 2007); Bragg v. Linden Research, Inc., 487 F.Supp.2d 593, 609 (E.D.Pa. 2007) (applying California law); Gonlugur v. Circuit City Stores, Inc., 2004 Cal.App.Unpub.LEXIS 8140 at *13-14), provide American Express (but not the cardholder) with the ability to take any action without waiving any rights that it might have under the agreement or under the law; and, are inconsistent with Douglas v. U.S. District Court, 495 F.3d 1062 (9th Cir. 2007)(holding California law is the choice of law on issues of unconscionability of arbitration provision) since they require that New York or Utah law (depending on the card) be the controlling law on class action waivers. (E.R., Tab 9, Pages 086 [¶ 105], 088 [¶ 108]) Claim Three: These unconscionable provisions are also misrepresentations which constitute fraud in the inducement. (E.R., Tab 9, Page 084-087 [¶¶ 88-104]) Claim Four: The Arbitration Provision is procedurally unconscionable for the same reasons stated above, and is
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substantively unconscionable due to its class action waiver, 14 consolidation of claims waiver, 15 broad-based injunction waiver, 16 failure to provide copies of the relevant arbitral rules with presentation of the agreement or specifying which specific code applies, 17 requiring that all statutory injunction requests be arbitrated even though injunction requests under the CLRA and UCL are never arbitrable, 18 providing no way for the cardholder to know at the time he/she initially agreed to arbitrate what the rules would be at the time of the arbitration as well as what inconsistencies existed between the agreement and the Code because American Express has given itself the unilateral right to amend the arbitration provision at any time (including before, during, or after any arbitration) and the arbitration provision otherwise makes the applicable arbitration rules those in effect when the arbitration is filed,19 and assorted other terms.
14

See Gentry v. Superior Court, 42 Cal.4th 443 (2007); Discover Bank, supra; Schroyer, supra; Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir. 2003); Ingle v. Circuit City Stores, Inc., 328 F.3d at 1176; Nagrampa, supra. See Ingle, supra; Discover Bank 36 Cal. 4th at 153; Comb v. PayPal, Inc., 218 F.Supp.2d 1165, 1175 (N.D.Cal. 2002). See Broughton v. Cigna Healthplans, 21 Cal.4th 1066 (1999); Cruz v. PacificCare Health Systems, Inc., 30 Cal.4th 303 (2003); Davis v. O'Melveny & Meyers, 485 F.3d 1066, 1080 (9th Cir. 2007); Nagrampa, 469 F.3d at 1289-1293).
17 16 15

See Harper v. Ultimo, 113 Cal.App.4th 1402 (2003); Fitz v. NCR Corp., 118 Cal.App.4th 702, 721 (2004); Dunham v. Envtl. Chem. Corp. 2006 U.S.Dist.LEXIS 61068 (N.D.Cal. August 16, 2006).
18

Broughton v. Cigna Healthplans, supra.; Cruz v. PacificCare Health Systems, Inc., supra.
19

See Net Global Marketing, Inc. v. Dialtone, Inc., supra; Ingle, 328 F.3d at 1179; Geoffrey v. Washington Mutual Bank, 484 F.Supp.2d at 1123; Bragg v. Linden Research, Inc., 487 F.Supp.2d at 609; Gonlugur v. Circuit City Stores, Inc., 2004 Cal.App.Unpub.LEXIS 8140 at *13-14.
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(E.R., Tab 9, Page 069 [¶ 71) Claim Five: The unconscionable and unenforceable terms of the Arbitration Provision violate the UCL and CLRA, respectively, for the reasons stated above. Of these five claims, numbers 1-3 deal solely with the card agreement (excluding the Arbitration Provision) and are clearly subject to arbitration under the explicit terms of the Arbitration Provision and controlling law. See Buckeye, 546 U.S. at 445-46; Nagrampa, 469 F.3d at 1263-64. Lee and Lloyd "are and have been willing to immediately invoke the American Express Arbitration Provision" so that these claims could be arbitrated under the Arbitration Provision. (E.R., Tab 9, Page 063 [¶ 57]) That is so since arbitration "is a speedy and inexpensive means of dispute resolution," [(E.R., Tab No. 9, Page 061 [¶ 45])], and they paid for the right to arbitrate their claims. (E.R., Tab 9, Page 061 [¶ 48]) The stand-alone fourth claim (unconscionability of the Arbitration Provision) is not, however arbitrable under Buckeye and Nagrampa as well as the explicit terms of the Arbitration Provision that excludes such claims from the definition of what is subject to arbitration. The fifth claim is necessarily also not arbitrable due to the arbitrator's legal inability to decide the predicate question of the Arbitration Provision's unconscionability.

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American Express, although it is its practice in other jurisdictions, did not seek to enforce the Arbitration Provision against Lee and Lloyd (an act that is collaterally estopped by Berry and which, in any event, it surely knows would be a waste of time, effort, and money). 20 Reflecting the reality of its unconscionability and unenforceability, neither Lee nor Lloyd sought to enforce or invoke the Arbitration Provision either because, as specifically alleged in the Complaint, it was legally and factually impossible for them do so due to: (1) the arbitrator's inability as a matter of law to determine the issue of the Provision's unconscionability, (2) the Arbitration Provision's patent unenforceability, (3) the patent futility of seeking arbitration of issues that the arbitrator could not consider or decide (and which would not otherwise provide any resolution of facts necessary for judicial determination of the issue), and (4) waiver of their objections to its unconscionability if they did invoke the arbitration provision. See, e.g., E.R.,

See, e.g., Kaufman v. American Express Travel Related Serv., 2008 U.S. Dist. LEXIS 18129; Pleasants v. American Express Co., 2007 U.S. Dist. LEXIS 60747 (E.D.Mo. August 17, 2007); Homa v. American Express Company, 496 F.Supp.2d 440 (D.N.J. 2007); Hiresch v. American Express Co., 2006 U.S. Dist. LEXIS 87785 (E.D. Tex. December 5, 2006); Law Enforcement Syst. v. American Express Co., 2006 U.S. Dist. LEXIS 48354 (S.D.N.Y. July 17, 2006); In re Merchant's Litigation, 2006 U.S.Dist.LEXIS 11742 (S.D.N.Y. March 16, 2006).

20

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Tab 9, Pages 063, 064 [¶¶ 57, 59-60]). Instead, Lee and Lloyd filed this lawsuit on September 19, 2007. V. SUMMARY OF ARGUMENT Even if the threshold for establishing standing was not very low, 21 the Complaint sufficiently alleges that Lee and Lloyd have sustained or are sufficiently threatened by sustaining an injury-in-fact that falls squarely within the universe of injuries defined by paying for, but not receiving, the full value of their contract with American Express and, hence, that they have standing under Art. III, the CLRA, and the UCL, respectively. The particular "value" they did not receive was the enforceable dispute resolution service by mandatory arbitration, a service for which they gave monetary consideration, as a matter of California law, when they paid the annual fee or purchase price required by the card agreements. This Court has not yet explicitly applied that genre of injury to a situation where the "thing" paid for but not received is an enforceable contractual right to a dispute resolution service by mandatory arbitration. Lee and Lloyd recognize a perceptual difficulty may exist that, at least a first glance, has caused the lower courts to form a less-than-complete appreciation of their injury. This is due to their injury not being presented in Ecological Rights Foundation v. Pacific Lumber Co., 230 F.3d 1141, 1147 (9th Cir. 2000).
27
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the contexts with which the Courts have usually dealt: e.g., a motion to compel arbitration after suit (concerning some claim such as an unwarranted charge, unwarranted late fee, or change in terms) that is opposed by the consumer on the ground that the arbitration provision is unconscionable and unenforceable. Rather, Lee and Lloyd's injury arises from the fact, consistent with the card agreement's terms, they want to arbitrate their arbitrable claims against American Express but the only way they can do so is under an enforceable arbitration provision (which most assuredly does not exist here). In this context, recognizing the existence of their injury is consistent with and a natural extension of this Court's recent precedents. There is no legally cognizable difference between receiving a nonconforming, or inferior quality, or defective good or service (all of which are paradigmatically "injuries" sufficient for standing) and receiving a right to mandatory arbitration that is unenforceable (and, hence, "non-conforming" and "of inferior quality" and "defective") due to American Express' inclusion of unconscionable terms in it. Recognition of that injury actually compliments this Court's evolution of the law relating to the unconscionability of arbitration provisions in adhesive contracts. Indeed, its recognition gives teeth to this Court's prior precedents: it will force those entities ­ such as American Express which have not changed their

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agreements to conform with this Court's precedents ­ to no longer thumb their noses at this Court. 22 Even though no arbitration has been sought or occurred, Lee's and Lloyd's injury is sufficiently ripe