Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App. Ct.: DIRECTV’s class action waivers, arbitration agreements were unenforceable, (Apr 8, 2014)

By Jody Coultas, J.D.

DIRECTV’s class action waiver and arbitration agreement in its customer contract were unenforceable, a California appellate court has held (Imburgia v. DIRECTV, Inc., April 7, 2014, Rothchild, F.). Thus, a class action, alleging that DIRECTV improperly charged customers early termination fees, was allowed to proceed.

The subscribers claimed that DIRECTV was liable for unjust enrichment, false advertising, and violations of the California Consumer Legal Remedies Act and the Unfair Competition Law. DIRECTV moved to stay or dismiss the claims, decertify the class, and compel arbitration. The company explained that it had not moved to compel arbitration earlier because, in an unrelated case several years before plaintiffs filed this litigation, a court of appeals had held that the arbitration provision in the customer agreement was unenforceable. Until the U.S. Supreme Court ruled in in AT&T Mobility LLC v. Concepcion, (2011) 563 U.S. __, DIRECTV believed that a motion to compel arbitration would be futile. Concepcion overturned a previous rule that, under certain circumstances, class action waivers in consumer contracts are unconscionable and unenforceable.

DIRECTV’s motion to stay or dismiss the claims and to compel arbitration was denied by the court. The Federal Arbitration Act (FAA) “requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” The customer agreement stated that the parties waived their rights to bring class claims, and 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.” The subscribers argued, and the court agreed, that the provision meant that “the law of your state without considering the preemptive effect, if any, of the FAA.”

When a general and a particular provision of a contract are inconsistent, the particular and specific provision is paramount to the general provision. Although the agreement states, in general, that section 9 is governed by the FAA, section 9 itself states that the specific issue of the enforceability of the class action waiver shall be governed by “the law of your state.” Courts construe ambiguous contract language against the interest of the party that drafted it. Therefore, the class action waiver was unenforceable under California law, as was the entire arbitration agreement.

The case is No. B239361.

Attorneys: Paul D. Stevens (Milstein Adelman LLP) Melissa D. Ingalls (Kirkland & Ellis LLP) for DIRECTV, Inc.

Companies: DIRECTV, Inc.

Cases: StateUnfairTradePractices CaliforniaNews