                   FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ELLEN CHALK; PAUL STEWART,               
husband and wife, and all others
similarly situated,
                Plaintiffs-Appellants,        No. 06-35909
                  v.
                                               D.C. No.
                                             CV-06-00158-BR
T-MOBILE USA, INC., a Delaware
corporation; SONY ERICSSON                      OPINION
MOBILE COMMUNICATIONS USA,
INC., a Delaware corporation,
             Defendants-Appellees.
                                         
        Appeal from the United States District Court
                 for the District of Oregon
         Anna J. Brown, District Judge, Presiding

                   Argued and Submitted
              July 10, 2008—Portland, Oregon

                     Filed March 27, 2009

      Before: Alfred T. Goodwin, Harry Pregerson, and
             Stephen Reinhardt, Circuit Judges.

                 Opinion by Judge Reinhardt




                              3731
3734              CHALK v. T-MOBILE USA




                        COUNSEL

Karen E. Read, Lake Oswego, Oregon, for the plaintiffs-
appellants.

Scott Ferrell, John O’Malley, and Ward Lott, Call, Jensen &
Ferrell, Newport Beach, California, Nancy Erfle, Christopher
Dorr, and Michael T. Garone, Schwabe, Williamson, &
Wyatt, Portland, Oregon, for the defendants-appellees.
                   CHALK v. T-MOBILE USA                   3735
                          OPINION

REINHARDT, Circuit Judge:

   In this case, we consider whether the district court properly
dismissed a consumer class action pursuant to an arbitration
agreement between T-Mobile and its customers. We hold that
the agreement’s class action waiver is substantively uncon-
scionable and therefore unenforceable under Oregon law. We
also note that under the agreement the waiver is not severable.
We reverse the district court’s order dismissing the case pend-
ing arbitration.

         I.   Procedural and Factual Background

   Plaintiffs-Appellants Paul Stewart and Ellen Chalk bought
a GC79 GPRS/Wireless LAN PC card (“card”), a device man-
ufactured by Defendant-Appellee Sony Ericsson Mobile
Communications (USA), Inc. (“Sony”) that enables comput-
ers to connect wirelessly to the Internet, from Defendant-
Appellee T-Mobile USA, Inc. (“T-Mobile”). Plaintiffs also
signed a one-year service agreement with T-Mobile. The Ser-
vice Agreement provided:

    BY SIGNING THIS FORM OR ACTIVATING OR
    USING T-MOBILE SERVICE I ACKNOWLEDGE
    AND AGREE THAT:

    •   THIS IS MY CONTRACT WITH T-MOBILE
        USA, INC. FOR WIRELESS SERVICES. MY
        CONTRACT IS CALLED A “SERVICE
        AGREEMENT” AND IT INCLUDES THIS
        DOCUMENT, THE SEPARATE T-MOBILE
        TERMS AND CONDITIONS, AND MY RATE
        PLAN INFORMATION. THE T-MOBILE
        TERMS AND CONDITIONS ARE IN MY
        WELCOME GUIDE OR WERE OTHERWISE
        PROVIDED TO ME AT THE TIME OF SALE.
3736               CHALK v. T-MOBILE USA
        . . . BY SIGNING, I ACKNOWLEDGE THAT
        I HAVE RECEIVED AND READ THIS DOCU-
        MENT, THE T-MOBILE TERMS AND CON-
        DITIONS,     AND     MY  RATE   PLAN
        INFORMATION. . . .

    •   I UNDERSTAND THAT THE SERVICE
        AGREEMENT AFFECTS MY AND T-
        MOBILE’S LEGAL RIGHTS. AMONG OTHER
        THINGS, IT:

         •   REQUIRES MANDATORY ARBI-
             TRATION OF DISPUTES;

         •   REQUIRES MANDATORY WAI-
             VER OF THE RIGHT TO JURY
             TRIAL AND WAIVER OF ANY
             ABILITY TO PARTICIPATE IN A
             CLASS ACTION;

  The box containing the card and Welcome Guide was
sealed with a label that stated:

    IMPORTANT

    Read the enclosed T-Mobile Terms & Conditions.
    By using T-Mobile service, you agree to be bound
    by the Terms & Conditions, including the mandatory
    arbitration and early termination fee provisions.

   The first paragraph of the Terms and Conditions instructs
purchasers to read the terms carefully and advises those who
do not agree to refrain from using the service or the unit. Sec-
tion Three of the Terms and Conditions contains a mandatory
arbitration clause, which provides that the parties will arbi-
trate all claims, and, in doing so, will follow the American
Arbitration Association’s published wireless industry arbitra-
tion rules. The clause states that each party agrees to pay its
                   CHALK v. T-MOBILE USA                    3737
“own other fees, costs and expenses including those for coun-
sel, experts, and witnesses.”

  That section also contains a class action waiver and a sever-
ability clause:

    Neither you nor we may be representative of other
    potential claimants or a class of potential claimants
    in any dispute . . . YOU AND WE ACKNOWL-
    EDGE AND AGREE THAT THIS SEC. 3 WAIVES
    ANY RIGHT TO A JURY TRIAL OR PARTICI-
    PATION AS A PLAINTIFF IN A CLASS ACTION.
    IF A COURT OR ARBITRATOR DETERMINES
    THAT YOUR WAIVER OF YOUR ABILITY TO
    PURSUE CLASS OR REPRESENTATIVE
    CLAIMS IS UNENFORCEABLE, THE ARBITRA-
    TION AGREEMENT WILL NOT APPLY AND
    OUR DISPUTE WILL BE RESOLVED BY A
    COURT OF APPROPRIATE JURISDICTION. . . .
    SHOULD ANY OTHER PROVISION OF THIS
    ARBITRATION AGREEMENT BE DEEMED
    UNENFORCEABLE, THAT PROVISION SHALL
    BE REMOVED, AND THE AGREEMENT SHALL
    OTHERWISE REMAIN BINDING.

   For approximately three weeks after the purchase of the
card, Plaintiffs were able to insert it into their IBM ThinkPad
laptop computer (“ThinkPad”) and connect to the internet
without any difficulty. They then did not attempt to use the
card again for a few months, at which time they were unable
to insert the card into their ThinkPad. They contacted T-
Mobile technical support several times and received refur-
bished cards on three separate occasions. They could not,
however, insert any of the refurbished cards into the Think-
Pad. After they were unable to insert the third card, staff from
T-Mobile technical support informed Plaintiffs that they
would have to pursue the issue at the T-Mobile store where
they purchased the original card. At the store, a Sony repre-
3738                  CHALK v. T-MOBILE USA
sentative attempted to insert the card and he failed to succeed
in this task as well. He then promised to contact Plaintiffs
about how to solve the problem. Plaintiffs never heard back
from him, despite multiple email inquiries.

   Ultimately, Plaintiffs filed a class action lawsuit in federal
district court against T-Mobile and Sony. Plaintiffs alleged
violations of various federal and state laws, including Ore-
gon’s Unlawful Trade Practices Act (“UTPA”), OR. REV.
STAT. § 646.605, the federal Magnuson-Moss Warranty Act,
15 U.S.C. § 2301, and the federal Lanham Act, 15 U.S.C.
§ 1125(a). Plaintiffs also raised a number of common law the-
ories of liability, including negligence, unjust enrichment,
fraud by concealment, negligent misrepresentation, breach of
implied warranties, breach of express warranty, breach of
implied warranty of merchantability, and breach of implied
warranty of fitness. The complaint alleged that defendants
knew or should have known that the card “was not compatible
and/or did not fit into the IBM ThinkPad laptop” computers,
and that Defendants allowed customers to purchase cards and
enter into long-term service contracts from which consumers
would receive no benefit without a compatible card.

   Three months after Plaintiffs filed their lawsuit, Defendants
filed a motion to dismiss the case or stay proceedings and
compel arbitration under the Federal Arbitration Act, 9 U.S.C.
§ 1 et seq. (“FAA”). Plaintiffs opposed the motion, contend-
ing that the arbitration clause was unconscionable and there-
fore unenforceable. The district court granted Defendants’
motion and dismissed the case. The court agreed with Plain-
tiffs that the provision requiring each party to bear its own
attorney fees was unconscionable because Oregon’s UTPA
provides for prevailing party attorney fees, and severed that
provision from the agreement.1 The court rejected Plaintiffs’
remaining arguments, however, including the argument that
the prohibition against class actions was unconscionable, and
  1
   Neither Plaintiffs nor Defendants challenge this ruling on appeal.
                        CHALK v. T-MOBILE USA                           3739
concluded that Plaintiffs were required to arbitrate their
claims under the agreement.2 Plaintiffs filed a timely notice of
appeal.3

        II.   Standard of Review and Applicable Law

   We review the district court’s ruling on the validity and
scope of an arbitration clause de novo. Shroyer v. New Cingu-
lar Wireless Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007).

   The Federal Arbitration Act provides that arbitration agree-
ments “shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of
any contract.” 9 U.S.C. § 2. Plaintiffs allege that T-Mobile’s
arbitration agreement is unconscionable. As we have repeat-
edly recognized, unconscionability is a generally applicable
contract defense that may render an agreement to arbitrate
unenforceable. Shroyer, 498 F.3d at 981; see also Nagrampa
v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (en
banc).

  Both parties recognize that unconscionability is governed
by state law—in this case, by Oregon law. We must “approxi-
mate state law as closely as possible” and are bound by the
  2
     The court determined that Plaintiffs’ claims against Sony were subject
to arbitration under the provision providing that “this agreement to arbi-
trate extends to claims that you assert against other parties, including . . .
equipment manufacturers and dealers, if you also assert claims against [T-
Mobile] in the same proceeding.” Plaintiffs do not challenge this ruling on
appeal.
   3
     The district court had jurisdiction pursuant to 28 U.S.C. § 1331, 15
U.S.C. § 2310, and 15 U.S.C. § 1125(a). See The Anaconda v. Am. Sugar
Refining Co., 322 U.S. 42, 44 (1944) (noting that the FAA “obviously
envisages action in a court on a cause of action and does not oust the
court’s jurisdiction of the action, though the parties have agreed to arbi-
trate”). We have jurisdiction over the district court’s order dismissing
Plaintiffs’ claims pending arbitration pursuant to 9 U.S.C. § 16(a)(3) and
28 U.S.C. § 1291. Sanford v. Memberworks, Inc., 483 F.3d 956, 961-62
(9th Cir. 2007).
3740                  CHALK v. T-MOBILE USA
pronouncements of the state’s highest court. Ticknor v.
Choice Hotels Int’l, Inc., 265 F.3d 931, 939 (9th Cir. 2001)
(quoting Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir.
1980)). Where the state supreme court has not yet decided an
issue but “there is relevant precedent from the state’s interme-
diate appellate court, the federal court must follow the state
intermediate appellate court decision unless the federal court
finds convincing evidence that the state’s supreme court likely
would not follow it.” Ryman v. Sears, Roebuck and Co., 505
F.3d 993, 994 (9th Cir. 2007) (emphasis omitted).

                         III.   Analysis

                 A.     Burden of Production

   We begin by addressing Defendants’ assertion that Plain-
tiffs have not met their burden of producing evidence to sup-
port their claims of unconscionability. Defendants claim that
“[g]overning law required [Plaintiffs] to prove both that juris-
diction existed and that the arbitration agreement was uncon-
scionable — a burden Plaintiffs failed to meet by failing to
submit any competent evidence regarding any of the facts and
circumstances in existence at the time the binding arbitration
agreement was made.” Defendants-Appellees’ Brief at 13.

   [1] Under the Oregon law of unconscionability, Defen-
dants’ argument is meritless. First, although “[t]he party
asserting unconscionability bears the burden of demonstrating
that the arbitration clause in question is, in fact, unconsciona-
ble,” Motsinger v. Lithia Rose-FT, Inc., 156 P.3d 156, 159-60
(Or. Ct. App. 2007), Oregon’s courts consider the contract
itself to be evidence of unconscionability where the terms of
the contract are unconscionable on their face. In Motsinger,
for example, the Oregon Court of Appeals considered whether
a contract provision requiring the plaintiff to submit all poten-
tial claims to arbitration without similarly binding the plain-
tiff’s employer was unconscionable. Id. at 166. The court
based its decision entirely on the terms of the provision. Id.
                   CHALK v. T-MOBILE USA                   3741
Under Defendants’ approach, however, this analysis would
have been improper because it was not supported by “evi-
dence” other than the contract terms at issue. Likewise, in
Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940 (Or.
Ct. App. 2007), the Oregon Court of Appeals considered the
unconscionability of two different contract provisions by
looking exclusively to the contract terms, without considering
any other evidence. See id. at 950-51 (class action waiver); id.
at 952-53 (confidentiality provision). Because the terms of T-
Mobile’s arbitration agreement are properly before this court
and provide evidence of unconscionability, Plaintiffs have
met their burden of production.

   Defendants’s reliance on Motsinger is misplaced. Mots-
inger involved an arbitration agreement that was silent as to
how costs would be apportioned between the parties and no
evidence was introduced as to what those costs were likely to
be. Motsinger, 156 P.3d at 161. While the likely effect of a
class action waiver, a confidentiality provision, or a non-
mutual agreement to arbitrate can be evaluated by reference
to the terms of the contract alone, see Motsinger, 156 P.3d at
166; Vasquez-Lopez, 152 P.3d at 950-53, a contract’s silence
regarding a particular issue provides little evidence as to the
likely effect of that omission upon the plaintiff; the contract
simply presents a risk of unconscionability. In Motsinger, the
Oregon Court of Appeals found that the mere possibility that
the failure to apportion costs would result in hardship for the
plaintiff was, in the absence of evidence suggesting that the
plaintiff would in fact face a serious adverse consequence,
insufficient to render the contract unconscionable. 156 P.3d at
162.

   Here, Plaintiffs’ allegations of unconscionability do not
depend upon mere possibilities in the operation of the agree-
ment: It is undisputed that the arbitration agreement, among
other provisions, waives the customer’s ability to participate
in class actions, prohibits an award of attorney fees to a pre-
vailing customer, and requires that all arbitrations be con-
3742                CHALK v. T-MOBILE USA
ducted according to the American Arbitration Association’s
Wireless Industry Arbitration Rules. The likely effect of those
provisions can be evaluated by looking to their terms alone.
See id. at 166; Vasquez-Lopez, 152 P.3d at 950-53. Accord-
ingly, Motsinger’s requirement of additional evidence is irrel-
evant here, and Plaintiffs have met their burden of production.

                   B.    Unconscionability

   [2] In assessing a claim of unconscionability, Oregon
courts consider both procedural and substantive unconsciona-
bility. See Vasquez-Lopez, 152 P.3d at 948. Although both
forms of unconscionability “are relevant, . . . only substantive
unconscionability is absolutely necessary.” Id.

             1.   Procedural Unconscionability

  [3] Procedural unconscionability focuses on two factors in
contract formation: oppression and surprise. Motsinger, 156
P.3d at 160.

    Oppression arises when there is inequality in bar-
    gaining power between the parties to a contract,
    resulting in no real opportunity to negotiate the terms
    of the contract and the absence of meaningful
    choice. Surprise involves the extent to which the
    supposedly agreed terms were hidden from the party
    seeking to avoid enforcement of the agreement.

Id. (internal citations omitted).

   In Motsinger, the Oregon Court of Appeals explained that
a contract of adhesion—an agreement presented on a take-it-
or-leave-it basis—reflects unequal bargaining power, but the
adhesive nature of a contract standing alone is insufficient to
render an agreement procedurally unconscionable. Id. at 160-
61. The court declined to find procedural unconscionability
where an arbitration clause was not hidden or disguised and
                   CHALK v. T-MOBILE USA                   3743
where the plaintiff was given time to read the documents
before assenting to their terms. Id. at 161 (“A party is pre-
sumed to be familiar with the contents of any document that
bears the person’s signature.”) (internal quotations and cita-
tion omitted).

   [4] Under the circumstances of the present case, the district
court properly concluded that T-Mobile’s arbitration agree-
ment is not procedurally unconscionable. The take-it-or-
leave-it nature of T-Mobile’s agreement is insufficient to ren-
der it unenforceable. Stewart’s signature appears on the Ser-
vice Agreement below the arbitration clause and class action
waiver—both of which are featured in boldface and uppercase
text. Although Plaintiffs are correct that the Welcome Guide
contained additional terms, the box containing the device and
Welcome Guide was sealed with a label that brought the
Terms and Conditions to the buyer’s attention. To access the
equipment, Plaintiffs were required to break the seal of the
label. Under these circumstances, there is insufficient evi-
dence of oppression or surprise to render the agreement pro-
cedurally unconscionable under Oregon law.

             2.   Substantive Unconscionability

   [5] The arbitration agreement, while not procedurally
unconscionable, was adhesive and therefore reflected an
underlying inequality in the parties’ ability to bargain. See,
e.g., Best v. U.S. Nat’l Bank of Oregon, 739 P.2d 554, 556
(Or. 1987); see also Vasquez-Lopez, 152 P.3d at 948. Because
Oregon law does not require that a contract exhibit procedural
unconscionability in order to be invalid, see Vasquez-Lopez,
152 P.3d at 948 (“[O]nly substantive unconscionability is
absolutely necessary.”), we must still determine whether the
terms of T-Mobile’s arbitration agreement are unfairly one-
sided. To determine whether the district court properly dis-
missed Plaintiffs’ claims pending arbitration, “we must con-
sider whether the arbitration clause is rendered
unconscionable when the disparity in bargaining power”
3744                   CHALK v. T-MOBILE USA
reflected in the clause’s adhesive nature “is combined with
terms that are unreasonably favorable to the party with the
greater power.” Motsinger, 156 P.3d at 161 (internal quota-
tions and citation omitted); see also Carey v. Lincoln Loan
Co., 125 P.3d 814, 830 (Or. Ct. App. 2005) (“Although there
is no evidence of trickery or deceit, as there often is in uncon-
scionability cases, the gross inequality in knowledge and bar-
gaining power is sufficient to require us to consider the
substance of the challenged provisions.”).4 Thus, if the terms
of the agreement are unreasonably favorable to T-Mobile, the
agreement may be unenforceable despite its lack of proce-
dural unconscionability.

   Plaintiffs allege that numerous provisions of the arbitration
agreement are substantively unconscionable, but we need
address only one to resolve the present dispute. In an opinion
issued after the district court’s order in this case, the Oregon
Court of Appeals held that a class action waiver in an arbitra-
tion provision may be substantively unconscionable. Vasquez-
Lopez, 152 P.3d at 949-50. Applying Vasquez-Lopez, we con-
clude that the class action waiver in the present case is sub-
stantively unconscionable and unenforceable under Oregon
law.

  The Vasquez-Lopez court explained that a class action
waiver in a consumer contract is unreasonably favorable to a
company like T-Mobile for two distinct reasons. First, such a
waiver is inherently one-sided when contained in a consumer
contract. Id. Even if the waiver on its face applies equally to
  4
    California courts take a similar approach, and have explained that they
evaluate unconscionability on a sliding scale. The more substantively
unconscionable a provision, the less procedural unconscionability is
required. Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th
83, 114 (Cal. Ct. App. 2000) (“ ‘Essentially a sliding scale is invoked
which disregards the regularity of the procedural process of the contract
formation, that creates the terms, in proportion to the greater harshness or
unreasonableness of the substantive terms themselves.’ ”) (quoting 15 Wil-
liston on Contracts (3d ed. 1972) § 1763A, pp. 226-27).
                     CHALK v. T-MOBILE USA                      3745
both parties, it is entirely unilateral in effect. Wryly noting the
well-known literary passage that “ ‘the majestic equality of
the laws . . . forbid[s] rich and poor alike to sleep under the
bridges, to beg in the streets, and to steal their bread,’ ” the
Oregon Court of Appeals observed, “Although the arbitration
rider with majestic equality forbids lenders as well as borrow-
ers from bringing class actions, the likelihood of the lender
seeking to do so against its own customers is as likely as the
rich seeking to sleep under bridges.” Id. (quoting Anatole
France, The Red Lily 95 (Winifred Stephens trans., Frederic
Chapman ed., 1894)).

   Second, a consumer class action waiver frequently prevents
individuals from vindicating their rights. A ban on class
action denies plaintiffs a crucial opportunity “without which
many meritorious claims would simply not be filed” because
the cost of pursuing each claim individually outweighs the
potential relief. Id. at 950. “ ‘The policy at the very core of the
class action mechanism is to overcome the problem that small
recoveries do not provide the incentive for any individual to
bring a solo action prosecuting his or her rights.’ ” Id. (quot-
ing Amchem Products Inc. v. Windsor, 521 U.S. 591, 617
(1997)). As Vasquez-Lopez explained, by preventing consum-
ers from pursuing small but meritorious claims a class action
waiver “gives defendant[s] a virtual license to commit, with
impunity, millions of dollars’ worth of small-scale fraud.” Id.
at 951.

   [6] Like the Supreme Courts of California and Washington,
see Discover Bank v. Superior Court, 113 P.3d 1100, 1116
(Cal. 2005); Scott v. Cingular Wireless, 161 P.3d 1000, 1006
(Wash. 2007), the Vasquez-Lopez court declared that a class
action waiver in a contract where individual damages are
likely to be small is substantively unconscionable as a matter
of state contract law. Because Defendants have presented no
convincing evidence that Oregon’s Supreme Court would dis-
agree with Vasquez-Lopez,5 we must follow Vasquez-Lopez in
  5
   Notably, Defendants do not cite any Oregon state court decisions to
support their argument that the Oregon Supreme Court would uphold the
class action waiver at issue here.
3746                   CHALK v. T-MOBILE USA
determining whether T-Mobile’s waiver is substantively
unconscionable. Ryman, 505 F.3d at 994.6

   [7] The class action waiver in T-Mobile’s Service Agree-
ment presents the same problems that led the Vasquez-Lopez
court to find substantive unconscionability in that case. First,
like the class action waiver in Vasquez-Lopez, T-Mobile’s
waiver is unilateral in effect: It can hardly be imagined that
T-Mobile or its suppliers would ever want or need to bring a
class action against T-Mobile’s customers.

   [8] Second, the class action waiver here creates the same
disincentive to litigate recognized in Vasquez-Lopez. The
actual damages alleged by Plaintiffs do not exceed $693.63,
which includes the monthly service fee over the one-year con-
tract duration and the cost of the card. Cf. Shroyer, 498 F.3d
at 984 (noting that individual damages of less than $1,000
qualify as small amounts for the purpose of determining
whether class action waivers are enforceable under California
law). Moreover, many of the customer claims covered by the
class action waiver will be much smaller than Plaintiffs’
claim, because they will involve something less than a total
hardware failure resulting in a complete loss of service. We
must evaluate unconscionability “under the circumstances
existing at the time of the making of the contract,” W.L. May
Co., Inc., 543 P.2d 283, 286 (Or. 1975), and it is impossible
to know at the time of formation whether a customer’s future
claims against T-Mobile will involve a total failure or some-
  6
    Nothing in Vasquez-Lopez can be construed to establish a rule that is
specific to arbitration agreements. Rather, Vasquez-Lopez “is simply a
refinement of the unconscionability analysis applicable to contracts gener-
ally in [Oregon].” Shroyer, 498 F.3d at 987. Thus, the FAA does not pre-
empt application of the Vasquez-Lopez rule to T-Mobile’s arbitration
agreement. See id. at 987-88. Likewise, because 9 U.S.C. § 2 explicitly
requires us to apply “such grounds as exist at law or in equity for the revo-
cation of any contract” in order to determine whether the class action
waiver at issue here is enforceable, Oregon law, and not the policy behind
the FAA, governs our analysis.
                       CHALK v. T-MOBILE USA                          3747
thing far less costly. These latter potential claims are as rele-
vant to our analysis of the waiver’s unconscionability as
Plaintiffs’ actual claim. Compare Vasquez-Lopez, 152 P.3d at
951 (“[W]e are simply unconvinced that any significant num-
ber of plaintiffs with claims under, say $50, would be suffi-
ciently motivated to spend the time and risk the expense
necessary to take the claim to arbitration.”); with id. at 944
(noting that the jury had awarded $26,639.73 in economic
damages to the plaintiffs). Given the small size of the individ-
ual claims covered by the arbitration agreement, the class
action waiver here, like the waiver in Vasquez-Lopez, is likely
to prevent T-Mobile’s customers from vindicating their rights
because the time and expense of prosecuting such claims
makes it impracticable “to embark on litigation in which the
optimum result might be more than consumed by the cost.”
Id. at 950 (quoting Deposit Guar. Nat. Bank v. Roper, 445
U.S. 326, 338 (1980)).7

   [9] Because T-Mobile’s class action waiver is identical in
effect to the class action waiver in Vasquez-Lopez, it is sub-
stantively unconscionable as a matter of Oregon law. We rec-
ognize that, under Oregon law, “every case [involving an
allegedly unconscionable contract] is decided on its own
facts,” id. at 948, and, as in Shroyer, “[w]e do not hold that
all class action waivers are necessarily unconscionable.” 498
   7
     We note that the substantive unconscionability of T-Mobile’s class
action waiver is magnified by its requirement that each party bear its own
costs. We agree with the district court’s decision that this provision is
unconscionable as well, as it discourages individuals from litigating by
precluding an award of otherwise available attorney fees to a prevailing
plaintiff under the Oregon UTPA. OR. REV. STAT. § 646.638(3). Vasquez-
Lopez held that, even when an award of attorney fees is available, individ-
uals may not “sufficiently be motivated to spend the time and risk the
expense necessary to take [their] claim[s] to arbitration.” 152 P.3d at 951.
Where the possibility of an award of attorney fees is eliminated, the costs
of individual action become even more onerous and the likelihood that the
class action waiver provides T-Mobile with a “license to commit, with
impunity, millions of dollars’ worth of small-scale fraud,” id., is even
greater.
3748                CHALK v. T-MOBILE USA
F.3d at 983. Instead, our decision simply applies the holding
of Vasquez-Lopez—that a class action waiver in a consumer
contract involving small claims is substantively
unconscionable—to the virtually identical class action waiver
in T-Mobile’s arbitration agreement.

   Defendants attempt to distinguish Vasquez-Lopez from the
present case by pointing to the procedural unconscionability
of the contract in Vasquez-Lopez and to the hardships result-
ing from that contract’s cost-sharing provisions. Although
these issues were relevant to the Vasquez-Lopez court’s deter-
mination that the contract as a whole was unenforceable, nei-
ther bears any relevance to the court’s holding that the class
action waiver in that contract was substantively unconsciona-
ble. That analysis was based entirely on the unilateral nature
of the waiver and the disincentive to litigate it created, both
of which are present here.

   Defendants also attempt to distinguish Vasquez-Lopez by
noting that Plaintiffs claim damages of more than $696.63,
while Vasquez-Lopez discussed “claims of under, say,
$50.00.” Vasquez-Lopez, 152 P.3d at 951. Like Defendants’
other efforts to distinguish Vasquez-Lopez, this argument is
meritless. Vasquez-Lopez mentioned claims of less than $50
only in response to the defendant’s argument that the avail-
ability of attorney fees under that contract provided a suffi-
cient incentive to litigate. The court in no way limited its prior
elaboration of the reasons why a class action waiver in a con-
sumer contract involving small claims is substantively uncon-
scionable. By noting that claims of under $50 were likely to
be covered by the contract at issue in Vasquez-Lopez, the Ore-
gon Court of Appeals simply demonstrated that the question
under Oregon law, as under California law, is whether the
contract “occurred ‘in a setting in which disputes between the
contracting parties predictably involve small amounts of dam-
ages.’ ” Shroyer, 498 F.3d at 984 (quoting Discover Bank,
113 P.3d at 1110). For reasons already discussed, the T-
Mobile class action waiver, like the waiver in Vasquez-Lopez,
                   CHALK v. T-MOBILE USA                  3749
is likely to cover “claims of less than, say, $50.00.” 152 P.3d
at 951; see also Shroyer, 498 F.3d at 984 (finding “individual
damages in the hundreds of dollars” to be “an objectively
small amount” and “a small enough sum to satisfy” the
requirement that the arbitration agreement occur in a setting
in which disputes will predictably involve small amounts of
damages). Accordingly, Vasquez-Lopez cannot be distin-
guished on the basis of the size of the claims at issue in this
case.

   In view of the above, it is plain that, under Vasquez-Lopez,
T-Mobile’s class action waiver is substantively unconsciona-
ble under Oregon law.

           3.    Enforceability and Severability

   [10] The substantively unconscionable class action waiver
here was contained in a contract of adhesion reflecting the
parties’ unequal bargaining power. To be certain, Plaintiffs
did not experience the oppression and surprise evident in
Vasquez-Lopez. See 152 P.3d at 943 (noting that plaintiffs
could not read the contract they signed and were misled as to
the contract’s provisions). Nonetheless, the contract here was
adhesive, and Plaintiffs were unable to negotiate with T-
Mobile over its terms. Under Vasquez-Lopez, this combina-
tion of unequal bargaining power and clearly demonstrated
substantive unconscionability—the only absolute necessity
for a finding of unenforceability—is sufficient to render the
class action waiver unenforceable as a matter of Oregon law.

   [11] In the usual case, we would be required to determine
whether the unenforceable class action waiver should be sev-
ered from the arbitration agreement as a whole. See OR. REV.
STAT. § 72.3020 (“If the court as a matter of law finds the
contract or any clause of the contract to have been unconscio-
nable at the time it was made the court may refuse to enforce
the contract, or it may enforce the remainder of the contract
without the unconscionable clause, or it may so limit the
3750                  CHALK v. T-MOBILE USA
application of any unconscionable clause as to avoid any
unconscionable result.”); Vasquez-Lopez, 152 P.3d at 953
(after a finding of unconscionability, “the trial court could
have severed the unconscionable provisions or declared the
entire [arbitration] rider to be unenforcable”). However, in the
present case the arbitration agreement itself includes a provi-
sion prohibiting severance of the class action waiver. There-
fore, in accordance with its severability clause, the arbitration
agreement as a whole is unenforceable. See Shroyer, 498 F.3d
at 986-87.8

                          IV.   Conclusion

   Under Oregon law, “only substantive unconscionability is
absolutely necessary” to find that an agreement is unenforce-
able. Vasquez-Lopez, 152 P.3d at 948. Because Oregon courts
have declared that class action waivers in consumer contracts
where individual damages are likely to be small are substan-
tively unconscionable and the waiver here was contained in a
contract of adhesion, the class action waiver in T-Mobile’s
arbitration agreement is not enforceable. Id. at 950. Because
the arbitration agreement prohibits severance of the waiver,
the agreement as a whole is unenforceable. We therefore
reverse the district court’s decision to dismiss the case pend-
ing arbitration.

  REVERSED and REMANDED.




  8
   Because the class action waiver, standing alone, renders the agreement
unenforceable, we need not address the alleged unconscionability of the
arbitration agreement’s limits on discovery.
