Antitrust Law Daily Wrap Up, TOP STORY: High Court to review arbitration dispute in consumer class action, (Mar 23, 2015)

By Jody Coultas, J.D.

The U.S. Supreme Court today agreed to consider whether a California appellate court erred in holding that DIRECTV’s arbitration agreement and class action waiver in customer contracts were unenforceable in a consumer class action, alleging violation of the California false advertising and consumer protection laws (DIRECTV v. Imburgia, Dkt. 14-462). The petition for certiorari, filed by DIRECTV, asks the Court to determine whether the lower court’s ruling created a conflict with the Ninth Circuit and ran contrary to the Court’s holding in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

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 High Court will review a California court of appeal ruling that DIRECTV’s class action waivers and arbitration agreement were unenforceable under California law. The customer contract 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.” Although the agreement states 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.”

The court of appeal’s holding created a conflict with the Ninth Circuit by applying preempted state law to invalidate an FAA-governed arbitration agreement, according to the petition. In Murphy v. DIRECTV, Inc., 724 F.3d 1218 (9th Cir. 2013), the Ninth Circuit interpreted the same language in the same arbitration agreement, but reached the opposite conclusion as the court of appeal. The Ninth Circuit characterized the reasoning adopted by the court of appeal in Murphy as “nonsensical.” However, the court of appeal dismissed the Ninth Circuit’s analysis as “unpersuasive.”

Because court of appeal rulings are binding on all state trial courts, the court in this case created a situation where the enforceability of federally-protected arbitration rights in California depended on whether the case was brought in state or federal court, according to DIRECTV. Many arbitration agreements include references to state law. If such references are held to refer to state law preempted by the FAA, the FAA’s preemptive effect would be nullified.

DIRECTV argued in its petition that the lower court’s finding that the agreement’s reference to “the law of your state” meant hypothetical state law immune from the preemptive force of federal law, rather than acutal state law subject to the preemptive force of federal law. There is no state law that is immune from federal preemption. Also, the FAA, which requires the enfocement of arbitration agreements that ban class actions, is the law of California and every other state. Thus, the refusal to enforce the arbitration agreement based on California law was “peverse,” DIRECTV argued.

Attorneys: Christopher Landau (Kirkland & Ellis LLP) for DIRECTV, Inc. Paul D. Stevens (Milstein Adelman, LLP) and Freda Edith Mermelstein for Amy Imburgia.

Companies: DIRECTV, Inc.

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