Lawyers litigating the enforceability of an arbitration clause often face the question of whether threshold issues, such as unconscionability and the scope of the agreement, should be decided by the court or are delegated to the arbitrator.  District Court cases from the same Circuit, decided within days of each other and interpreting the same Court of Appeals precedent, divide on a nuance of that issue involving consumer contracts

Delegation via Rule Incorporation

The court in which a party raises its right to compel arbitration decides whether the parties actually entered into a contract.  Likewise, it resolves other “threshold” or “gateway” issues, like unconscionability, unless the parties have “clearly and unmistakably” provided that those issues are resolved as part of the arbitration, see e.g. Patrick v. Running Warehouse, LLC, 94 F. 4^th 468 (9^th Cir. 2024).  The legal issue, therefore, is how does a court determine whether the parties have opted to delegate those often-crucial questions to the arbitrator.

One can start with the procedures adopted by the parties.  The rules of many, if not all, arbitral institutions provide that the arbitrator decides his or her own jurisdiction, see e.g. Commercial Rules, American Arbitration Association, Rule 7; JAMS Comprehensive Rules and Procedures, Rule 11.  Courts, including the Ninth Circuit in Brennan v. Opus Bank, 796 F. 3d 1125 (9^th Cir. 2015), have held that incorporation of such rules into the arbitration agreement – for example, by providing that the dispute will be resolved before the AAA – will generally move threshold questions to the arbitrator.

However –  what if one of the parties to the arbitration agreement is unfamiliar with contracts and legal process?  Has he or she, simply by entering into an agreement with a reference to rules which he or she may not understand, demonstrated the necessary intent to move an issue from judicial consideration.  Three cases from District Courts within the Ninth Circuit split on that question.

There Is No Delegation

In Jones v. Penney Opco, LLC, 2025 U.S. Dist. LEXIS 148484 (E.D. Cal. August 1, 2025), the plaintiff alleges that the defendant falsely claimed that it was selling products at a discount from normal retail prices. Defendant moved to compel arbitration based upon the terms and conditions allegedly incorporated into its website and through its rewards program.  Citing Patrick and Faucett v. Move, Inc., 2025 U.S. App. LEXIS 8850 (9^th Cir. April 15, 2025), the court opines that the Circuit has not resolved the issue.  Judge Drozd, however, holds that “incorporating the AAA rules into an agreement is not clear and unmistaken evidence to the intent to arbitrate arbitrability when one party is unsophisticated.” (Emphasis added, citations omitted).  The opinion does not have any real analysis as to how the court reaches this conclusion; Judge Drozd largely relies upon citations of his previous opinions, so it is important to read those cases if counsel wants to rely upon or challenge Jones.  However, the holding gives a broad scope to this exception to the general delegation rules and sets a very low bar for demonstrating unsophistication in a consumer case. Plaintiff filed a declaration that she is “an ordinary consumer” and “an unsophisticated layperson who is untrained in the law.” In the absence of a countering factual presentation from defendant, those blanket allegations were apparently enough to get the court over the hurdle of “sophistication.”

Schlueter-Beckner v. SimpliSafe, Inc., 2025 U.S. Dist. LEXIS 146568 (N.D. Cal. July 30, 2025)(Breyer, J.), joins Jones in rejecting the delegation of threshold issues. Like Jones, the plaintiff raised questions of false advertising. The terms and conditions allegedly incorporated into the defendant’s website invoked the AAA’s Consumer Rules. While citing to Brennan, Judge Breyer opines that the Court of Appeals “expressly limited that holding as ‘between sophisticated parties,’ leaving open the question of whether incorporation of the AAA rules is clear and unmistakable delegation to an unsophisticated party.” He recognizes that there is a split among opinions in the District, but finds that incorporating the AAA rules into “an already veiled length Terms of Service Agreement” does not rise to the clear and necessary intent to delegate this “’rather arcane’ arbitrability question.” To hold otherwise, the court would assume that plaintiff “navigated through eight webforms,” “clicked on the Terms of Service,” viewed a twenty-page agreement on his phone, “noticed the incorporation of the AAA rules,” located those rules, and found the delegation rule.  “Such a scenario is unreasonable for the average consumer with no legal experience.” The case is useful, not only as precedent for those challenging delegation, but as an important read for anyone faced with either side of the delegation issue.  Judge Breyer cites six decisions covering both sides of the question and, in a footnote, addresses the issue of whether excluding unsophisticated parties from the delegation rule would necessitate “impractical line-drawing.”

There Is Delegation

Ligeri v. Amazon.com Services, LLC, 2025 U.S. Dist. LEXIS 146352 (W.D. Wash. July 30, 2025)(Chun, J.), comes out on the other side of the question.  Plaintiff, who appeared pro se, sued Amazon for trademark infringement.[1]  The court assumes that plaintiff, although he signed a Business Services Agreement with Amazon, might not be sophisticated in contract terms. (Perhaps Ligeri’s citation to non-existent AI-generated case law influenced this conclusion). While recognizing that Brennan limited its holding to “the facts of the present case, which d[id] involve an arbitration agreement between sophisticated parties,” Judge Chun also cites to that portion of the appellate decision opining that its “holding does not foreclose the possibility that this rule could also apply to unsophisticated parties or to consumer contracts.” (brackets in Ligeri; citation omitted).  Citing to four cases in his District, Judge Chun holds that incorporation of the AAA’s rules is sufficient to delegate questions as to the scope of the arbitration clause, regardless of the parties’ legal knowledge.

To wrap up recent cases in the Ninth Circuit on delegation via rules incorporation, see Rubio v. Experian Information Solutions, Inc., 2025 U.S. Dist. LEXIS 147561 (E.D. Cal. July 30, 2025)(Sheriff, J.)(delegating arbitrability questions based on incorporation of the AAA rules).

In summary, the question of whether unsophisticated parties (whatever that term may mean) are bound by a rule-based delegation remains an open question.  But, let’s add to the complexity: assuming that a plaintiff’s knowledge of legal principles of delegation is relevant, should the court apply some objective standard or does there have to be a factual hearing as to each plaintiff’s subjective understanding?  And, if it is an individualized inquiry, what must plaintiff allege to get past the resolution of the question on a summary judgment-like basis?[2]  This one is an arbitration geek’s delight.

Enjoy the rest of the week.
David A. Reif, FCIArb
Reif ADR
Dreif@reifadr.com

[1] The case includes an analysis of the extent to which a decision in a prior arbitration precludes a party from subsequently relitigating the question elsewhere.  It is worth reading the case for that analysis alone.  Sorry to bury the lede, but I try to keep Highlights to three pages.

[2] For any law students looking for a topic for next year’s Note, consider the issue raised by these cases.  There is a good split of authority around the country, lots of opinions to consider, an interesting clash of policy questions, and a topic that would help the practicing bar.