## Facts

- Catherine Ingle applied for employment at a Circuit City store in San Diego County, California.
- Circuit City required applicants to sign a preprinted arbitration agreement as a condition of being considered for employment.
- The agreement required arbitration of employment-related legal claims and contained terms favoring Circuit City, including limits on procedures, costs, remedies, and Circuit City’s ability to change the agreement.
- Ingle later sued in federal court alleging sexual harassment and sex and disability discrimination under California’s FEHA, and sex discrimination and retaliation under Title VII.
- Circuit City moved to compel arbitration under the Federal Arbitration Act (FAA); the district court denied the motion, and Circuit City appealed.

## Issues

1. Whether the arbitration agreement was procedurally unconscionable under California law due to its adhesive, take-it-or-leave-it presentation as a condition of employment consideration.
2. Whether the agreement was substantively unconscionable because its terms were overly one-sided (including asymmetrical arbitration duties, shortened limitations, class/consolidation restrictions, cost provisions, limits on relief, and unilateral modification).
3. Whether any unconscionable terms could be severed such that the remainder of the arbitration agreement could be enforced.

## Decision

- The Ninth Circuit affirmed the order denying Circuit City’s motion to compel arbitration.
- The court held the agreement was procedurally unconscionable because it was imposed through unequal bargaining power on a nonnegotiable basis as a condition of employment consideration.
- The court held the agreement was substantively unconscionable because multiple provisions cumulatively imposed an employer-favoring dispute system, including:
  - requiring employees (but not Circuit City) to arbitrate key claims;
  - imposing a one-year limitations period on employees’ claims;
  - barring class or consolidated proceedings;
  - requiring employee-paid fees and sharing or shifting of arbitration costs;
  - restricting available remedies; and
  - permitting unilateral modification or termination by Circuit City.
- The court declined to sever the offending provisions, concluding unconscionability permeated the agreement and rendered it unenforceable in full.

## Legal Principles

- The FAA permits arbitration agreements to be invalidated by generally applicable contract defenses, including unconscionability, so long as arbitration clauses are not singled out for disfavored treatment.
- Under California law, unconscionability has procedural and substantive components; both must be present, though the required degree of each may vary.
- Procedural unconscionability may be shown by oppression or surprise arising from an adhesion contract imposed through superior bargaining power, particularly in the employment setting.
- Substantive unconscionability may be shown by overly harsh or one-sided terms, including lack of mutuality, shortened limitations periods that impair statutory claims, cost provisions that deter enforcement, restrictions on aggregate proceedings, limits on relief, and unilateral employer control over the arbitration program.
- When unconscionable provisions are numerous and central to the agreement’s operation, a court may refuse severance and hold the entire arbitration agreement unenforceable.

## Conclusion

The Ninth Circuit held that Circuit City’s mandatory employment arbitration agreement was procedurally and substantively unconscionable under California contract law and therefore unenforceable under the FAA, leaving Ingle’s FEHA and Title VII claims to proceed in court.


Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003)