December 14, 2015

Supreme Court Decides DIRECTV v. Imburgia

On December 14, 2015, the Supreme Court of the United States decided DIRECTV v. Imburgia, No. 14-462, holding that the Federal Arbitration Act (FAA) preempts a California court’s interpretation of a contract to require application of California law as it would have been absent federal preemption, an application that would have rendered the entire arbitration clause unenforceable.

DIRECTV, Inc.’s service agreement with its customers included a binding arbitration provision with a class-arbitration waiver, and provided that (1) the FAA governed the arbitration clause, and (2) the entire arbitration provision was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. At the time the agreements were made, California law made class-arbitration waivers unenforceable. The Supreme Court later ruled in AT&T Mobility LLC v. Concepcion, 563 U. S. 333, that the FAA preempted that California law.

When customers sued DIRECTV, the trial court denied DIRECTV’s request to order the matter to arbitration. The California Court of Appeal affirmed, holding that because California law would render class-arbitration waivers unenforceable, the contract language made the entire arbitration provision unenforceable. The FAA’s preemption of that California law did not change the result, the court said, because the court concluded that the parties intended to refer in the contract to California law as it would have been without federal preemption.

The Supreme Court reversed and remanded, holding that the FAA preempted an interpretation of the contract that required application of California law as it would have been absent federal preemption, and that the state court must enforce the arbitration agreement. The Court emphasized that it was not determining whether the California court had correctly interpreted California law, but whether that interpretation was consistent with the FAA. The Court concluded that the FAA preempted the California court’s interpretation because that interpretation did not place arbitration agreements “on equal footing” with other contracts. Parsing the California court’s analysis, the Court concluded that California courts would not interpret other contracts in the same way they had interpreted the arbitration provision here. The contract term the “law of your state” was unambiguous and referred to valid state law. The Supreme Court concluded that neither California precedent, nor the court’s analysis or use of construction canons, nor the court’s framing of the issue suggests that the court would apply the same reasoning in any other area of law. Instead, the decision appeared directed to the subject matter of the dispute — arbitration — rather than to a general principle of law with broader application.

Justice Breyer delivered the decision of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, Alito, and Kagan joined. Justice Thomas filed a dissenting opinion, and Justice Ginsburg filed a dissenting opinion in which Justice Sotomayor joined.

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