Antitrust Law Daily Wrap Up, ADVERTISING NEWS: Supreme Court hears arbitration arguments in DIRECTV class action, (Oct 6, 2015)

By Greg Hammond, J.D.

The Supreme Court heard oral arguments today in DIRECTV, Inc. v. Imburgia on whether the California Court of Appeals in Los Angeles erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act (FAA) requires the application of state law preempted by the FAA (DIRECTV, Inc. v. Imburgia, Dkt. 14-462).

DIRECTV subscribers claimed that DIRECTV, Inc. was liable for unjust enrichment, false advertising, and violations of the California Consumer Legal Remedies Act and Unfair Competition Law, stemming from allegations that DIRECTV improperly charged customers early termination fees. Section 9 of the 2007 customer agreement stated that “if…the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.”

However, in April 2011, the U.S. Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held the FAA preempts the rule of a California state court decision that held, under certain circumstances, class action waivers in consumer contracts are unconscionable and unenforceable.

One month after the Concepcion decision, DIRECTV moved to stay or dismiss the state law claims, decertify the class, and compel arbitration. The appellate court, however, determined that because the class action waiver was unenforceable under California law, the entire arbitration agreement was unenforceable, and the superior court properly denied DIRECTV’s motion to compel arbitration.

Arguing before the Supreme Court, Christopher Landau, counsel for DIRECTV, contended that the appellate court “violated the Federal Arbitration Act by refusing to enforce the parties’ arbitration agreement on grounds the Ninth Circuit characterized as ‘nonsensical.’” Further, he asserted, “The court below interpreted the reference to State law to mean inoperative State law preempted by the FAA. But neither respondents nor the court below identified a single case in the history of California or American law adopting that interpretation for any Contract.”

Essentially, DIRECTV argued that an arbitration is not solely a question of state law. In applying the Supreme Court’s decision in Volt Information Sciences, Inc. v. Board of Trustees of Lelan Stanford Junior Univ., 489 U.S. 468 (1989), “due regard must be given to the Federal policy favoring arbitration and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.”

Justices Scalia and Sotomayor challenged this argument, however, noting that the Court cannot reinterpret every state interpretation of state law that ends up invalidating an arbitration agreement. “So what’s the test?” Justice Scalia asked.

DIRECTV noted that it was not requesting that the Court make any new law, but just to reinforce what it said in Volt—that it consider the interpretation given by the state court and decide whether it thinks the lower court’s decision is consistent with the Federal policy acts in the FAA.

Thomas C. Goldstein, counsel for Imburgia, reiterated Justice Scalia’s and Sotomayor’s concern, stating that, “if we say we’re going to reverse this decision, then every time there’s going to be a Federal question about whether this is really what the parties intended.” In addition, Imburgia claimed that DIRECTV is seeking a different legal rule—that you must construe ambiguities in favor of arbitration.

Chief Justice Roberts challenged this argument, however, stating “it’s a very simple question of what the rule is. The rule is does it demonstrate hostility to arbitration contracts?”

Justice Breyer articulated the court’s dilemma in this case, noting that it has, “on the one hand, the risks that we’ll get into too many State law cases if we take [DIRECTV’s] side. On the other hand, there is the risk that [state courts] will run around our decisions.”

Attorneys: Christopher Landau (Kirkland & Ellis LLP) for DIRECTV, Inc. Thomas C. Goldstein (Goldstein & Russell, P.C.) for Amy Imburgia.

Companies: DIRECTV, Inc.

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