                                                                           FILED
                            NOT FOR PUBLICATION                             NOV 30 2009

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS




                           FOR THE NINTH CIRCUIT



DOUGLAS DEES,                                    No. 08-16928

              Plaintiff - Appellant,             D.C. No. 3:02-CV-00303-HDM-
                                                 RAM
  v.

HELMUTH T. BILLY; et al.,                        MEMORANDUM *

              Defendants - Appellees.



                   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



        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
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


                                           -2-
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.


                                           -3-
      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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