Supreme Court Is Asked to Rule on Unconscionability in Arbitration
By Sasha Hill
There was another arbitration-matter certiorari petition filed at the U.S. Supreme Court in February that will soon be the subject of a conference that will decide whether the Court hears the case. The petitioner is Aviagames Inc., a mobile gaming company based in Mountain View, Calif.
Aviagames Inc. v. Pandolfi, No. 25-1008 (Supreme Court docket page available here) arises from a consumer suit. The plaintiffs allege that Aviagames engaged in deceptive practices and misleading skills-based gameplay.
But the consumer case facts mask significant arbitration questions. The district court denied the company’s motion to compel arbitration and invalidated the arbitration agreement after finding it “procedurally unconscionable” because it incorporated the American Arbitration Association’s rules – rules that are “subject to change.” The case also deals with the severability of contract terms pertaining to arbitration.
These are questions that the nation’s top Court has faced before, but not fully decided. See, e.g., Russ Bleemer, "Scotus’s Henry Schein No-Decision," CPR Speaks (Jan. 25, 2021) (available here). The video games company wants the Court to review a decision it lost in the Ninth U.S. Circuit Court of Appeals, Pandolfi, et al. v. Aviagames Inc., et al., No. 24-5817 (9th Cir. Aug. 27, 2025) (unpublished) (available at https://bit.ly/4sCMbYy).
Specifically, the trial court’s decision rested on the analysis of the so-called bellwether provision relating to mass arbitration in the agreement. The petition states:
When 25 or more “similar claims are asserted against Aviagames or [the consumer] by the same or coordinated counsel,” the arbitration agreement provides a “bellwether process,” in which cases proceed in tranches of 20 (with 10 cases selected by each side). The court found this provision insidious, reasoning that consumers might be deterred from bringing claims due to delays in the bellwether process. Thus, the court held, both the delegation clause and the bellwether provision were unconscionable. The court also found that the agreement’s provision for a one-year limitations period was unconscionably restrictive. [Citations omitted.]
The petitioner also calls into question California's arbitration-specific severance rules for arbitration agreements. These rules have courts consider whether severing unconscionable provisions from an arbitration agreement is in the “interests of justice.”
If a court finds that justice isn’t served by the agreement, it can invalidate the entire arbitration agreement—as in the current case, with the court characterizing the provisions as “designed to structurally and systematically make arbitration an inferior forum,” rather than simply severing the unconscionable provisions and leaving the remaining part of the agreement intact.
The Ninth Circuit affirmed a federal district court’s holdings, “reasoning that the inclusion of multiple unconscionable provisions indicated that Aviagames ‘engaged in a systematic effort to impose arbitration on the weaker party.’”
There are two questions presented in the petition. The first question concerns the changeable rules issue, and the second question explores the severability issue from California's arbitration view:
1. Whether the FAA’s equal-treatment requirement is violated by a rule deeming arbitration agreements procedurally unconscionable when they incorporate the AAA’s rules because those rules are “subject to change”— even though changeable procedural rules are routinely enforced in courts and non-arbitration contracts.
2. Whether California’s arbitration-specific severability doctrine—under which the Ninth Circuit refused to enforce the severance provision in the parties’ arbitration agreement—violates the FAA’s equal-treatment rule.
The petitioner claims that the Ninth Circuit’s holding as well as California’s arbitration-specific severability doctrine violate the Federal Arbitration Act’s “equal-treatment principle,” which dictates that arbitration agreements must be treated the same as any other contract--not better, and certainly not worse. Below is a breakdown of the main arguments in the Aviagames cert petition.
Additionally, respondents Andrew Pandolfi and Mandi Shawcroft, who bought and played the company's video games, filed a response brief in opposition of the petition earlier this month. The summary of that brief follows the petition highlights below.
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Aviagames’ Cert Petition
The petition’s opening argument is that the Ninth Circuit’s prohibition on the AAA’s arbitration rules unfairly singles out arbitration and violates the FAA’s equal-treatment principle, as shown by the fact that contracts outside of arbitration routinely incorporate changeable rules.
Citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (available here), which held that the FAA prohibits courts from disfavoring arbitration and backed mandatory arbitration clauses in consumer contracts, the brief asserts that the lower court’s decision to invalidate Aviagames’ arbitration agreement goes against Supreme Court precedent.
Furthermore, the brief asserts that contracts that incorporate “ever-changing third party rules,” as well as forum-selection or choice-of-law clauses, which can change, are created every day. Yet courts across the country, including in California, regularly enforce the provisions in non-arbitration agreements:
It is only in the arbitration context that a contract’s incorporation of rules that are “subject to change” supposedly makes the contract “unconscionable.” This decision to single out arbitration agreements for special unconscionability rules impermissibly discriminates against arbitration, in violation of the FAA and Concepcion.
In its second argument, the petition argues that the Ninth Circuit’s decision conflicts with the decisions from other courts, which have upheld contracts that use changeable arbitration rules against unconscionability challenges. For example, it cites Goff v. Nationwide Mut. Ins. Co., 825 F. App’x 298 (6th Cir. 2020) (available here), which held that a clause giving an employer unilateral authority to change arbitration proceedings’ rules and procedures was not procedurally unconscionable.
Indeed, the petition cites another California case, Uptown Drug Co. Inc. v. CVS Caremark Corp., 962 F. Supp. 2d 1172 (available here), where the court rejects an argument that an arbitration clause is unconscionable because it reserved the right for the drafting party to unilaterally modify it. Additionally, the brief cites many other cases from the Fifth, Sixth, Seventh, Eighth and Eleventh Circuits, where courts enforced arbitration agreements where one party retains the right to unilaterally change the rules. The petition points out, however, that courts consistently held them as valid.
Next, the petition asserts that the Ninth Circuit’s decision would invalidate “huge swaths of arbitration agreements,” because the majority incorporate arbitration provider rules, or consent to a specific arbitration provider. Hence, the petition argues that the Ninth Circuit’s unconscionability rule inappropriately and disproportionately impacts arbitration:
The fact that consent to an arbitration provider is consent to the provider’s rules underscores how preposterous the Ninth Circuit’s unconscionability holding is. When AAA arbitrators conduct arbitrations, they (like judges) normally apply their current procedural rules. … But under the Ninth Circuit’s decision, that practice is unconscionable, rendering provisions consenting to arbitration providers at risk. [Emphasis in the brief.]
Next, the petition argues that California’s arbitration-specific severability doctrine conflicts with other courts and violates the Federal Arbitration Act because it uniquely targets and burdens arbitration agreements. The petition points out the fact that California law demonstrates a preference for severing offending parts of an agreement and retaining the remaining portions.
Yet with arbitration agreements, there has been an added step to this process that allows courts to assess the whether the unconscionability should be cured—for example, allowing the courts to invalidate the entire agreement if severance would “condone an illegal scheme” or where the provisions demonstrate “the stronger party engaged in a systematic effort to impose arbitration on the weaker party”. Ramirez v. Charter Comm’ns, Inc., 551 P.3d 520, 516-17 (Cal. 2024) (available here).
In other words, California law allows the courts to invalidate an arbitration agreement if it finds that doing so in the interests of justice would protect the weaker party. But the petition argues that the fact that this standard exists for arbitration agreements, but not other contracts, constitutes discrimination against arbitration as a whole. The petition notes,
In its decision adopting the rule, the California Supreme Court … doubled down on this judicial hostility to arbitration by directing that courts “consider the deterrent effect” of non-severability. Ramirez, 551 P.3d at 547. So even where an arbitration agreement “can be cured,” courts may still refuse severance in order to punish the drafting party for seeking to enforce a “one-sided arbitration agreement.” Id. [Emphasis in the brief.]
The brief also argues that other jurisdictions correctly rejected these arbitration-specific severability rules. Citing the Seventh Circuit’s refusal to apply a new rule to arbitration in Oblix Inc. v. Winiecki, 374 F.3d 488, 492 (7th Cir. 2004) (available here), the petition notes that the circuit specifically found that any new rules proposed by the state are preempted by FAA Sec. 2, on validity, irrevocability, and enforcement of arbitration agreements.
In Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 675 (6th Cir. 2003) (available here), the Sixth Circuit also refused to find that state law imposed special severance rules on arbitration agreements. And in Bodine v. Cook’s Pest Control Inc., No. 15-13233 (11th Cir. 2016) (available here), the Eleventh Circuit ruled similarly, reasoning that if state law allows severability of an arbitration agreement, the courts should not treat arbitration agreements less favorably than other contracts.
The petition goes on to assert that the Aviagames case illustrates the pitfalls of California’s approach to arbitration agreements, arguing that if the Ninth Circuit decision is left standing, routine arbitration agreements will be invalidated en masse. It explained that Aviagames has had to grapple with the rise of mass arbitration, where tens of thousands of arbitration claims result in the company paying “ruinous and nonrecoverable” fees and costs to defendants, which can put the company out of business and leaves it susceptible to “blackmail settlements.”
In an attempt to guard against this phenomenon, Aviagames created a batching and bellwether process to facilitate the resolution of mass arbitrations—a process that no appellate court had found to be problematic, at the time of its application, the cert petition states. Aviagames argue that the demonization of this process by the Ninth Circuit’s decision is unfair:
Yet rather than recognize that these provisions are increasingly common, are grounded in accepted federal and state practice, and are necessary to cope with a new and existential problem, the courts below simply presumed that Avia had imposed batching and bellwether provisions to “structurally and systematically make arbitration an inferior forum” and to “chill” suits, and then punished Avia by refusing to enforce its contractually-provided severance rights. [Citations omitted; emphasis in the petition.]
In closing, the petition argues that this case is “exceptionally important” for Scotus review for several reasons. First, it’s important for courts to understand and follow the correct FAA interpretation—especially in the Ninth Circuit, which is large and influential, encompassing one-fifth of the U.S. population and a larger portion of the U.S. economy.
Next, the petition contends that the bias against arbitration in this case is evident in California’s creation of arbitration-only rules, which the FAA expressly prohibits in its equal-treatment principle:
In the span of just five pages, the opinion below defies the FAA twice. . . . [It] declares a huge swath of arbitration agreements procedurally unconscionable merely because they incorporate standard “then-current” procedural rules. . . . Second, the opinion embraces an overtly anti-arbitration and arbitration-specific severability rule. Here too, the implications are breathtaking. Severability is implicated every time any provision within an arbitration agreement is found unconscionable (an extremely common occurrence under California law that will be even more common given the Ninth Circuit’s ban on “then-current” AAA and JAMS rules). [Citations omitted; emphasis in the petition.]
The petition goes on to claim that the Ninth Circuit’s assumption that Aviagames’ intentions in creating the bellwether provision was part of a scheme to chill customers from filing suit against them, is unfair and incorrect. Furthermore, the reasoning in the Ninth Circuit’s decision could apply to any case, whenever a court decides any provision is unconscionable—which would encourage the California courts “to reflexively disregard severance provisions and invalidate arbitration agreements wholesale. The petition concludes,
Just as this Court has not hesitated to intervene in other cases where the Ninth Circuit has openly defied the FAA, it should not hesitate here. The errors in the opinion below are obvious, serious, and will have sweeping consequences throughout the nation’s largest circuit if not corrected.
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Respondents’ Opposition Brief
Respondents Andrew Pandolfi and Mandi Shawcroft opposition brief to the petition for certiorari opens by arguing that the first question presented does not merit review because the Ninth Circuit has no prohibition against the incorporation of AAA rules in arbitration agreements. Indeed, the brief notes that California courts have recently and consistently enforced arbitration agreements that incorporate third-party procedural rules by reference.
The brief goes on to assert that there were several reasons for the Ninth Circuit’s unconscionability ruling in the present case—namely that the arbitration agreement had too many hidden surprises for the average contract party:
The panel’s memorandum outlined several factors giving rise to its conclusion, namely that the delegation clause was “hidden in the Terms of Service” and that “a layperson would be surprised to find that the delegation clause is subject to the batching provision.” And the District Court, whose reasoning the panel adopted, identified several additional factors, including the “unfair surprise” engendered by hiding “significant” changes to the Terms of Service behind “pop-up boxes in the game apps,” . . the font and text-size of the arbitration agreement, the failure to use “bolding or underlining to call out any terms” or newly-added provisions…and the overall length and prolixity of the arbitration agreement. [Citations omitted.]
The brief argues that the Ninth Circuit did not create a broad legal rule to find all arbitration agreements that include a third-party’s rules to be unconscionable, as Aviagames asserted in its petition. Instead, the Ninth Circuit found that this particular agreement has multiple unfair features which, when considered together in the totality of the circumstances, justified invalidation of the entire agreement.
In support of the first argument, the brief argues that there is no circuit split in question—there is simply a mischaracterization of the Ninth Circuit’s holding as creating a new categorical rule against incorporating third-party rules in arbitration agreements. On the contrary, the brief claims that the Ninth Circuit decision is fully consistent with the cases that Aviagames cites in its petition, and blasts the sweeping points made by the petitioner.
To drive this point home, the respondent-consumers cite Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017) (available here), which rejected the argument that it is procedurally unconscionable under California law for an arbitration agreement to incorporate third-party rules—even without attaching the rules to the agreement.
The brief contends that the Ninth Circuit could not have been applying a rule against this practice when its own jurisdiction’s case law supports the practice; what the Ninth Circuit was actually doing was applying a fact-intensive analysis of the specific circumstances in this case, surrounding assent, with a focus on unfair surprise and oppression.
This is the Ninth Circuit’s procedure in analyzing Aviagames, and is fully aligned with circuit’s case law, as well as other circuits throughout the country, the respondent-consumers maintain.
Focusing on unfair surprise as a key component to procedural unconscionability, the brief argues that the case law that Aviagames cites does not conflict with this notion. But the brief also argues that the circuit decisions cited by Aviagames do not answer the federal question of whether the FAA preempts a state-law contract doctrine, like California's, that allows the incorporation of changeable third-party rules to factor into the unconscionability of a contract—seemingly alluding to the idea that courts will assess the unconscionability of an arbitration agreement by considering multiple factors in its totality.
Also citing Goff, the brief contends that the case clarified that the ability to make unilateral changes to rules is another factor that can be considered when assessing an agreement for unconscionability, because of the potential changes that could happen in the future, without notice. It states:
Like the court here, the Sixth Circuit observed that “no single factor alone determines whether a contract is procedurally unconscionable; a court must consider the totality of the circumstances.” Unlike in this case, however, the plaintiff in Goff failed to demonstrate that the circumstances in his “individualized” case supported a finding of procedural unconscionability. Goff does not hold that the presence of changeable rules guarantees or forecloses a finding of procedural unconscionability. If anything, the Sixth Circuit agrees with the Ninth Circuit here that changing terms can contribute to procedural unconscionability.
Similarly, the brief covers the Uptown case, as well as Paduano v. Express Scripts Inc., 55 F. Supp. 3d 400 (E.D.N.Y. 2014), which Aviagames also discussed in its cert petition, noting that those holdings do not conflict with the Ninth Circuit decision. The respondents argue that neither case answers the question about whether the FAA preempts state law unconscionability principles; and that in both cases, unilaterally modified terms were accompanied by adequate notice. Thus, the brief contends there is no split authority for the Supreme Court to address.
The next argument made in the brief is that the Ninth Circuit’s decision applies state contract principles that are not preempted by the FAA, and is consistent with its equal-treatment principle. The brief argues that the lower court’s decision was unpublished and did not announce any rule or binding precedent.
Citing Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687 (1996) (available here), the brief argues that the Ninth Circuit followed the approach to unconscionability that California courts apply to all contracts, whether they are arbitration agreements or not. Moreover, the respondents assert that the lower courts weighed the procedural and substantive concerns in applying California’s “sliding scale” unconscionability analysis—within which the “oppression” and “surprise” present in a contract are considered key factors for unconscionability. Citing A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473 (1982) (available here), the brief points out that it was a non-arbitration case that demonstrated this approach and analysis.
The brief directly challenges the petitioner’s claim that the Ninth Circuit’s decision violated AT&T Mobility v. Concepcion, and instead asserts that not only did the decision not violate this case, but it also left intact the emphasis in assessing the “oppression” and “surprise” elements of unconscionability in a case—again, driving home the point that these two elements were present in the Ninth Circuit Aviagames decision.
The next major argument made in the response brief is that the second question presented, on severability, does not merit review for three reasons. The first reason is that Aviagames never previously argued that the FAA preempts California’s severability law in the U.S. District Court or the Ninth Circuit.
The response brief cites McGoldrick v. Compagnie Generale Transatlantique, 309 U.S. 430, 434 (1940) (available here), which held that it is only in exceptional cases the Supreme Court will consider questions that were not pressed upon in the courts below, therefore making it an inappropriate question for review now. The respondents note,
A routine decision applying severability doctrines that California has recognized for nearly 50 years is not an exceptional circumstance. Neither the District Court nor any judge in the Ninth Circuit has asked, let alone answered, if California’s unconscionability doctrine as applied to this case conflicts with federal authority. This Court should not do so from a blank slate.
The second reason the respondents argue that question does not warrant review by the Court is that California’s severability is not preempted by the FAA and applies evenly to all contracts—not just arbitration agreements, as the petitioners argue. Courts review cases holistically and allow invalidation of the entire agreement if severance of unconscionable terms would not serve the “interests of justice.”
And the case also does not warrant review, in the brief’s view, because California’s law is consistent with other states and the Ninth Circuit’s affirmance of the district court’s decision is consistent with other circuits.
Finally, the brief ends with the argument that this case is a poor vehicle for review because it's an unpublished decision, so it's neither binding nor comprehensive; and the questions presented were not brought up in the lower courts:
There is no reason for this Court to grant review of ancillary, case-specific conclusions of state law reached by lower courts in memorandum decisions.
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The author is the CPR Institute’s 2025-2026 academic year intern from the Howard University School of Law ADR Program in Washington, D.C., where she is a second-year student.
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