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FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
*The Honorable Lyle E. Strom, Senior United States District Judge for
the District of Nebraska, sitting by designation.
5973
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COUNSEL
OPINION
BACKGROUND
Plaintiffs also allege that they are not required to follow the
three-step ADR process outlined in the Quixtar IBO Rules of
Conduct and mandated by the Agreement to Arbitrate and the
BSMAA because it is unconscionable and therefore unen-
forceable. That process is as follows:
Although any IBO may join the IBOAI for a small annual
fee, an IBOAI member may not participate in the election of
Board members unless it has achieved the “Platinum” level of
business generation that Plaintiffs maintain only the most
senior IBOs can achieve. Plaintiffs were not members of the
IBOAI, nor did they achieve the Platinum level.
I. Choice of Law
A. Procedural Unconscionability
[6] We agree with the district court that the Quixtar ADR
agreements are procedurally unconscionable. Defendants do
not dispute that Quixtar, a large corporation doing business
throughout the United States, occupied a superior bargaining
position to that of Plaintiffs. Defendants also do not dispute
that Plaintiffs did not individually participate in the negotia-
tion of the terms of the ADR agreements, or that the agree-
ments were presented to Plaintiffs on a take-it-or-leave-it
basis. This oppressive behavior is the quintessential character-
istic of a procedurally unconscionable agreement. See Szetela,
118 Cal. Rptr. 2d at 867. Moreover, Quixtar failed to attach
a copy of the Rules of Conduct, containing the full description
of the non-binding conciliation and binding arbitration pro-
cesses, to the registration forms containing the Agreement to
Arbitrate, or to the BSMAA. In addition, those rules were
subject to unilateral amendment by Quixtar at any time. Thus,
Plaintiffs were not even given a fair opportunity to review the
full nature and extent of the non-binding conciliation and
binding arbitration processes to which they would be bound
before they signed the registration agreements or the
BSMAA. These problems multiply the degree of procedural
unconscionability of the ADR agreements. See Harper, 7 Cal.
Rptr. 3d at 422-23 (concluding that an arbitration agreement
which merely incorporated by reference the applicable arbi-
tration rules, which were subject to change, was procedurally
unconscionable).
1. Non-Binding Conciliation
We agree with the district court and hold that the non-
binding conciliation portion of the Quixtar ADR agreements
is substantively unconscionable under California law. The
California Court of Appeal addressed the validity of a similar
ADR agreement in Nyulassy v. Lockheed Martin Corp., 16
Cal. Rptr. 3d 296 (Ct. App. 2004). In that case, the plaintiff-
employee signed an agreement under which he was required
to resolve any employment dispute with the defendant-
employer by first engaging in discussions with various levels
of management, and then submitting any remaining claims to
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[10] It was for this very reason that the Fifth Circuit held
that a similar ADR scheme in a prior version of the Rules of
Conduct promulgated by Quixtar’s predecessor Amway was
illusory and unenforceable under Texas law. See Morrison v.
Amway Corp., 517 F.3d 248, 254-57 (5th Cir. 2008). Thus, it
is clear that, unlike its IBOs, Quixtar is not bound to follow
the ADR process outlined in the Rules of Conduct. The dis-
trict court therefore properly concluded that the obligation to
engage in non-binding conciliation is not mutual.
2. Binding Arbitration
The district court also held that the binding arbitration por-
tion of the Quixtar ADR agreements is substantively uncon-
scionable. In support of this conclusion, the court cited to the
lack of mutuality in the requirement that IBOs engage in bind-
ing arbitration, the reduced statute of limitations imposed by
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C. Severability
[22] We agree with the district court that the Quixtar ADR
agreements are “simply too tainted to be saved through minor
adjustments,” and hold that the entire ADR process mandated
by those agreements is unconscionable and therefore unen-
forceable. The unconscionable portions of the Quixtar ADR
agreements include the unilateral requirement that IBOs sub-
mit their claims to Informal and Formal Conciliation, the pro-
hibition against modification of the Rules of Conduct by the
IBOAI Hearing Panel or Board during Formal Conciliation,
the right of Quixtar to reverse or modify the recommendations
of the IBOAI Hearing Panel and Board at the conclusion of
Formal Conciliation, the statute of limitations for submitting
a claim to binding arbitration, the unilateral requirement that
IBOs submit their claims to binding arbitration, the confiden-
tiality requirement, the arbitration selection process, and the
fee-shifting clause. As the district court noted, severing the
offending provisions of the Quixtar ADR agreements and
enforcing what remains “would have virtually no effect”
because the agreements are “permeated with unconscionable
provisions.” The district court therefore did not abuse its dis-
cretion when it refused to sever the unconscionable clauses
from the Quixtar ADR agreements and enforce the remaining
provisions. See Armendariz, 6 P.3d at 695.
CONCLUSION
AFFIRMED.