Douglas Dees v. Helmuth T. Billy;

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DOUGLAS DEES,
Plaintiff - Appellant,
v.
HELMUTH T. BILLY; et al.,
Defendants - Appellees.
No. 08-16928
D.C. No. 3:02-CV-00303-HDM-
RAM
MEMORANDUM *
Appeal from the United States District Court
for the District of Nevada
Howard D. McKibben, District Judge, Presiding
Argued and Submitted November 6, 2009
San Francisco, California
Before: HUG, RYMER and McKEOWN, Circuit Judges.
Douglas Dees appeals the district court’s order compelling arbitration and its
denial of his motion to vacate an arbitration award. We review the district court’s
decision to compel arbitration de novo. Chiron Corp. v. Ortho Diagnostic Sys.,
Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). We reverse the order compelling
FILED
NOV 30 2009
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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arbitration, vacate the arbitration award, and remand the matter for further
proceedings in district court.
I
The magistrate judge erred to the extent he used the choice-of-law
provisions within the arbitration agreement to determine the foundational question
of whether the arbitration agreement itself was enforceable, and by misapplying the
Nevada substantive relationship test to the question of enforceability. A federal
court sitting in diversity must apply the substantive law of the state in which it sits,
including that state’s choice-of-law rules. See Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941). Nevada has adopted the substantial relationship
test for resolving contract conflict-of-laws issues. See Williams v. United Servs.
Auto. Ass’n, 849 P.2d 265, 266 (Nev. 1993). Whether a substantial relationship
exists between the foreign jurisdiction and the transaction is determined by the
parties’ expectations at the time of contracting. Id.
Dees, a Nevada citizen and resident, signed the arbitration agreement in a
Nevada doctor’s office, which he was referred to by his own Nevada primary
physician. There was no evidence that Dees had any knowledge the doctor resided
or maintained offices in California or that Dees had any reason to believe he would

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be undergoing any type of treatment in California at the time he signed the
arbitration agreement. Therefore, Nevada law applies to the question whether the
arbitration agreement is enforceable.
II
Under Nevada law, a contract of adhesion is “a standardized contract form
offered to consumers . . . on a ‘take it or leave it’ basis, without affording the
consumer a realistic opportunity to bargain.” Obstetrics and Gynecologists v.
Pepper, 693 P.2d 1259, 1260 (Nev. 1985). “The distinctive feature of an adhesion
contract is that the weaker party has no choice as to its terms.” Id.
The arbitration agreement was a contract of adhesion because it was given to
Dees on a take it or leave it basis with no explanation or indication that he could
nevertheless obtain treatment from the clinic. Under Nevada law, a contract of
adhesion may still be enforceable if (1) there is “plain and clear notification of the
terms,” (2) there is an “understanding consent,” and (3) the clause “falls within the
reasonable expectations” of the weaker party. Burch v. Second Judicial Dist.
Court, 49 P.3d 647, 649 (Nev. 2002). The doctors have not satisfied their burden
of proving all of these elements existed at the time Dees signed the arbitration
agreement. See Pepper, 693 P.2d at 1260.

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Accordingly, arbitration under the agreement should not have been
compelled and the arbitration award must be vacated. We remand this matter to
the district court for further proceedings on the merits of Dees’ complaint.
REVERSED; VACATED; AND REMANDED.

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