Antitrust Law Daily Wrap Up, TOP STORY—9th Cir.: DirecTV subscribers required to arbitrate claims under Concepcion, (Jul 31, 2013)

By Jody Coultas, J.D.

DirecTV subscribers were required to arbitrate state law claims against DirecTV, Inc. for allegedly misrepresenting its service equipment as though it was for sale at Best Buy Stores, L.P. when in fact the transactions were a lease rather than an outright purchase, the U.S. Court of Appeals in San Francisco has held (Murphy v. DirecTV, Inc., July 30, 2013, Wardlaw, K.). The subscribers were not required to arbitrate claims against Best Buy because Best Buy was not a party to the arbitration agreement.

The subscribers alleged that DirecTV and Best Buy presented its receivers and digital video recorders as though they were for sale at Best Buy stores when the transactions were actually leases. Even after the companies began offering the equipment only for lease, customers continued to receive receipts at Best Buy stores that suggested the equipment had been purchased. DirecTV customers received an agreement that provided that all disputes between DirecTV and its customers would be resolved by arbitration.

Subscribers were required to arbitrate claims against DirecTV, according to the court. The Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) held that Section 2 of the Federal Arbitration Act preempted a California rule rendering arbitration provisions in consumer contracts that waive collective or class action proceedings unenforceable. The subscribers maintained that because the effective dates of the agreements were before Concepcion, the law of California at the time would have held the agreement unenforceable. However, the Supreme Court’s “construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.” The previous California law was nullified and could not apply to the subscribers’ claims. Because the arbitration agreement was enforceable under Concepcion, the subscribers were required to arbitrate their claims against DirecTV.

The court held that subscribers were not required to arbitrate claims against Best Buy and overturned a district court’s finding to the contrary. The district court held that because the subscribers alleged concerted action on the part of DirecTV and Best Buy, the suit against Best Buy was inseparable from the suit against DirecTV. Best Buy argued that arbitration was required under equitable estoppel, agency, and third-party beneficiary.

The doctrine of equitable estoppel did not apply to the subscribers’ claims against Best Buy, according to the court. Litigants who are not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement. A party not otherwise subject to an arbitration agreement will be equitably estopped from avoiding arbitration only when a signatory relies on the terms of the written agreement and when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory. The claims against Best Buy did not rely on, and were not intertwined with, the substance of the DirecTV customer agreement. The subscribers were not seeking to invoke the duties and obligations of the agreement, while seeking to avoid arbitration with Best Buy. The claims did not bear the requisite relationship to the agreement to warrant application of equitable estoppel.

Best Buy was not entitled to enforce the arbitration agreement as a third-party beneficiary, according to the court. Best Buy argued that it was a third-party beneficiary of the customer agreements, and was entitled to arbitration. However, the terms of the agreement did not demonstrate that DirecTV intended to benefit Best Buy through the contract, let alone that its customers did.

The case is No. 11-57163.

Attorneys: F. Paul Bland, Jr. (Public Justice, P.C.) for John Murphy. Melissa D. Ingalls (Kirkland & Ellis LLP) for DirecTV, Inc.

Companies: DirecTV, Inc.; Best Buy Stores, L.P.

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