A Tortured Interpretation: California Continues to Obstruct Arbitration Agreements
This case arises from a consumer class action against DIRECTV, Inc., a provider of satellite television services in California and elsewhere, brought by customers who reside in California on behalf of themselves and a class of all other DIRECTV customers in California. Plaintiffs allege that DIRECTV engages in a policy and practice of enforcing an alleged contractual obligation against its customers to purchase DIRECTV’s services for a specified period of time, typically 18 or 24 months, by imposing an early cancellation penalty on customers who discontinue receiving DIRECTV’s services before the expiration of the term of the Customer Agreement. Plaintiffs further allege that DIRECTV withdraws the early cancellation penalties and other amounts due directly from customers’ bank accounts or credit cards, using account information provided by the customers when they first ordered DIRECTV.
The Customer Agreement contains an arbitration provision which forbids either party from entering into a class action suit. The Arbitration provision in Section 9 further provides that “If, however, the law of your state would find this agreement to dispense with class action procedures unenforceable, then this entire Section 9 is unenforceable.” Section 10 of the agreement provides that the arbitration agreement be governed under the Federal Arbitration Act.
Shortly after this Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753 (2011), DIRECTV moved to stay or dismiss plaintiffs’ state court action, decertify the class, and compel arbitration of plaintiffs’ claims. The California Superior Court denied that motion. The California Court of Appeal affirmed, relying on the proviso in the Agreement that stipulates that if the law of the state in which the customer resides would find unenforceable the agreement to dispense with class arbitration procedures, then the entire arbitration agreement will be unenforceable. The California appellate court held that the proviso reflects the parties’ intent to rely on state law to nullify the arbitration agreement. The California Supreme Court summarily denied review.
DIRECTTV, Inc., v. Imburgia, No. 14-462 (Supreme Court) (petition stage)
Read the Amicus Brief:
Whether the California Court of Appeal erred by holding that a reference to state law in an arbitration agreement requires the application of state law preempted by the Federal Arbitration Act when another provision of the agreement specifically provides that the arbitration is governed by the Federal Arbitration Act.
In the Customer Agreement, the parties agreed to resolve their disputes through arbitration, as opposed to litigation, and the parties agreed not to arbitrate on a classwide basis. The parties specifically agreed that “[i]f, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 [the dispute resolution provision, including arbitration] shall be unenforceable.” Customer Agreement § 9(c), JA128-29.
ALF’s Amicus Brief:
In an amicus brief ALF argues that the California Court of Appeal erroneously failed to give effect to the parties’ agreement that the FAA governs the arbitration provision. The state court also failed to properly give preemptive effect to the FAA as interpreted by this Court in the context of waivers of class arbitration. Numerous precedents of this Court favor the validity and enforceability of arbitration agreements, and federal preemption. ALF asks this Court to reverse the judgment below and not allow California to continue to frustrate the overarching purposes of the FAA.
On December 14, 2015, a 6-3 majority of the Supreme Court issued a favorable opinion holding that “the California court’s interpretation does not place arbitration contracts “on equal footing with all other contracts,” Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 443, because California courts would not interpret contracts other than arbitration contracts the same way. DIRECTV, Inc. v. Imburgia, 577 U.S. 47 (2015).