E-Alert Case Updates
SCOTUS Rejects Lower Courtís Attempt to Sidestep Arbitration Agreement
DirecTV, Inc. v. Amy Imburgia, et al.
At issue in DirecTV, Inc. v. Imburgia, et al., No. 14-462, was the enforceability of an arbitration agreement in DirecTV's customer agreement, which required that all disputes arising under the agreement be resolved through binding arbitration. The arbitration agreement expressly prohibited parties from joining or consolidating claims. In 2008, two DirecTV customers brought suit in California state court, seeking the return of early termination fees, which the customers alleged had been charged in violation of California law. Three (3) years prior to this California lawsuit, in 2005, the California Supreme Court held that a waiver of a class arbitration clause in a consumer contract was an unenforceable contract of adhesion. Discovery Bank v. Superior Court, 36 Cal. 4th 148 (2005). In 2011, however, the U.S. Supreme Court held that the rule in Discovery Bank was pre-empted by the Federal Arbitration Act (FAA). See AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
In light of the Supreme Court’s holding in Concepcion, DirecTV subsequently sought to compel arbitration on the grounds that the FAA preempted California law. The California trial court denied DirecTV’s motion and the California Court of Appeal affirmed in 2014. The California Court of Appeal determined that a clause in the arbitration agreement – rendering the agreement unenforceable if the “law of your state” voided the class arbitration provision – controlled the more general provision in the agreement, which required that the FAA control the agreement. The Supreme Court of California denied discretionary review and the U.S. Supreme Court granted certiorari. Justice Breyer authored the 6-3 majority opinion.
The court framed the issue before it as follows: does interpreting the words “law of your state” to include invalid state law (i.e., the Discovery Bank rule) discriminate against the arbitration in violation of the FAA? The Supreme Court held that such an interpretation did in fact violate the FAA, concluding, “California courts would not interpret contracts other than arbitration contracts in the same way.
First, the Supreme Court concluded that the phrase “law of your state” is not ambiguous and takes its ordinary meaning: valid state law. To further justify its conclusion, the Supreme Court noted, “the view that state law retains independent force even after it has been authoritatively invalidated by this Court is one courts are unlikely to accept as a general matter and to apply in other contexts.” Applying the California Court of Appeals’ interpretation in this case would not keep arbitration contracts on an “equal footing with all other contracts.” This is evident, the Supreme Court noted, in the language the California court used to frame the issue, which focused only on arbitration. Even in the canon of cases that applies ambiguous contract language against the drafting party, no case goes so far as to apply invalid state law. The Supreme Court noted that the lack of any similar case interpreting similar language to invalid laws indicated that the “anti-drafter” canon would not lead California courts to reach similar conclusions in non-arbitration cases.
Justice Thomas penned a solo dissent in which he emphasized his view that the FAA does not apply to proceedings in state courts. Justice Ginsburg, joined by Justice Sotomayor, also wrote a dissent in which she argued that the majority “disarm[ed] consumers” and left them “without effective access to justice.” Justice Ginsburg urged that the ambiguous class arbitration ban ought to have been construed against the drafter, DirecTV, not the consumer.
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