Supreme Court Rebukes Another California Anti-Arbitration Ruling
Today the U.S. Supreme Court issued its opinion in DirectTV v. Imburgia, reversing a California Court of Appeal’s refusal to enforce a consumer arbitration agreement containing a class action waiver. The case involves a service agreement between DirectTV and its consumers, stating that any dispute between DirectTV and the consumer will be resolved by binding, individual arbitration and that the consumer waives the right to pursue any claim on a class basis. However, the agreement further provided that if the class waiver is unenforceable under “the law of your state” (the state where the consumer resides), then the entire arbitration provision will be deemed unenforceable. A few years back, California of course had a rule (the Discover Bank rule) invalidating class action waivers in consumer arbitration agreements. That rule was since overturned by the U.S. Supreme Court in AT&T Mobility v. Concepcion, where the high Court ruled that the Federal Arbitration Act preempted California law and that class action waivers in arbitration agreements are enforceable. Well, in the DirectTV case, a California court of appeal held that because the class action waiver provision in the service contract referred to enforceability under state law rather than under the FAA, this meant that California law applied, not the FAA. Because California’s Discover Bank rule was in effect at the time this service agreement was entered into and the class action waiver would be invalid under the Discover Bank rule, the California court held that this law governed and that it rendered the arbitration provision unenforceable in its entirety. The California Supreme Court denied review, but the U.S. Supreme Court granted review and reversed the California ruling in a 6-3 decision.
The high Court chastised the California court for not following clearly applicable U.S. Supreme Court precedent (Concepcion), stating that while lower courts are free to disagree with the Supreme Court’s rulings, they are still bound by them and are not free to disregard them. The Court explained that even if the California court correctly interpreted the contract to be governed by California law, this did not mean “invalid” California law. Because the California law making class action waivers unlawful was rendered invalid by Concepcion, that invalid law could not be relied upon to refuse to enforce the arbitration provision, including the class action waiver, in DirectTV’s service agreement.
The DirectTV case is yet another favorable Supreme Court case supporting the enforceability of arbitration agreements and class action waivers, and another shot across the bow to California courts that continue trying to find ways to refuse to enforce these agreements on their terms.