Wendel Rosen's Intellectual Property Blog

Supreme Court’s DirecTV Decision Makes Odd Bedfellows

SNAP QUIZ-Which type of lawsuit would divide the Supreme Court Justices along the following lines?

Justices Breyer, Roberts, Scalia, Kennedy, Alito and Kagan vs. Justice Thomas, Ginsburg and Sotomayor?

If you guessed federal arbitration preemption you are a winner.

Yesterday, the Supreme Court smacked down another rogue California Court for allowing consumers to circumvent DirecTV’s service agreement.  The agreement included a black hole of an arbitration provision, specifically drafted to suck all life from any court litigation claim that ever was, is, or could be.

In DirecTV v. Imburgia the consumers’ service contract provided that “any Claim either of us asserts will be resolved only by binding arbitration” and “neither of us [most specifically you-Mr. or Ms. Consumer] shall be entitled to join or consolidate claims in arbitration.”  However, the contract provided that “if the law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.”  But, and it’s a really big but, “the arbitration provision shall be governed by the Federal Arbitration Act.”

The consumers filed a putative class action in California state court, DirecTV sought to enforce the arbitration provision, the trial court refused, DirecTV appealed and the Court of Appeal affirmed, mis-remembering that, while in olden times [pre 2011] California law forbade class-action waivers like the one at issue, the US Supreme Court gutted that law in AT&T v. Concepcion, holding that the Federal Arbitration Act preempts and invalidates such laws.

The California Court of Appeal decided that by including the “if the law of your state” provision, DirecTV and the consumers [really just DirecTV, the consumers had nothing to do with drafting the contract] intended the specific language to trump the general provision, i.e. “the arbitration provision shall be governed by the Federal Arbitration Act. Following the canons of contract interpretation, the Court also found an ambiguity and interpreted it against the drafter, DirecTV.

Justice Breyer, writing for the majority, basically wrote what part of ‘NO’ don’t you understand?: “The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”

In a bit of snark, Justice Breyer wrote that the parties to the contract could have decided to “have portions of their contract governed by the law of Tibet, the law of pre-revolutionary Russia or (as is relevant here) the law of California including the [prior anti-class action waiver law]….”  But the contract’s reference to “the law of your state” can only mean the valid law of your state and not the law of your state before the US Supreme Court trumped California’s quaint and antiquated laws that allowed consumers to band together in class-actions.

Justice Thomas dissented that the Federal Arbitration Act does not apply to state court proceedings. Justice Ginsburg, joined by Justice Sotomayor dissented, attempting to give the “customer, not the drafter [DirecTV], the benefit of the doubt.”  She noted that the DirecTV litigation was three years old when the US Supreme Court issued the Concepcion decision, and thus when the contract was formed “the law of your state,” at least in California, rendered DirecTV’s arbitration provision unenforceable.  Calling DirecTV’s service contract a “take-it-or-leave-it contract,” Justice Ginsburg bemoaned the societal costs of decisions like Concepcion which, she noted, “predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

 

 

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