Monday, December 14, 2015

SCOTUS Decision in DIRECTV v. Imburgia: Federal Arbitration Act Overrides State Contract Law (Again)

Today the Supreme Court issued its decision in DIRECTV, Inc. v. Imburgia. The vote was 6-3, with Justice Breyer writing the majority opinion. Justice Thomas writes a dissenting opinion, and Justice Ginsburg writes a dissenting opinion joined by Justice Sotomayor.

As covered earlier here and here, Imburgia is another case involving the Federal Arbitration Act (FAA). The particular issue is whether the FAA allows California to construe an arbitration provision referring to California state law (the “law of your state”) to mean state law as it existed prior to the U.S. Supreme Court invalidating certain aspects of California contract law in its 2011 decision in AT&T Mobility LLC v. Concepcion. That was how the California Court of Appeal construed the arbitration agreement in Imburgia, but Justice Breyer’s majority opinion disagrees, concluding instead that such a construction itself violates the FAA by failing to “place arbitration contracts on equal footing with all other contracts.”

Here are some excerpts from the majority opinion (citations omitted):

As the Court of Appeal noted, the Federal Arbitration Act allows parties to an arbitration contract considerable latitude to choose what law governs some or all of its provisions, including the law governing enforceability of a class-arbitration waiver. In principle, they might choose to have portions of their contract governed by the law of Tibet, the law of prerevolutionary Russia, or (as is relevant here) the law of California including the Discover Bank rule and irrespective of that rule’s invalidation in Concepcion. The Court of Appeal decided that, as a matter of contract law, the parties did mean the phrase “law of your state” to refer to this last possibility. Since the interpretation of a contract is ordinarily a matter of state law to which we defer, we must decide not whether its decision is a correct statement of California law but whether (assuming it is) that state law is consistent with the Federal Arbitration Act. ***

Although we may doubt that the Court of Appeal has correctly interpreted California law, we recognize that California courts are the ultimate authority on that law. While recognizing this, we must decide whether the decision of the California court places arbitration contracts on equal footing with all other contracts.***

We recognize, as the dissent points out, that when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable. But that does not answer the legal question before us. That is because this Court subsequently held in Concepcion that the Discover Bank rule was invalid. Thus the underlying question of contract law at the time the Court of Appeal made its decision was whether the “law of your state” included invalid California law. We must now decide whether answering that question in the affirmative is consistent with the Federal Arbitration Act. After examining the grounds upon which the Court of Appeal rested its decision, we conclude that California courts would not interpret contracts other than arbitration contracts the same way. ***

Justice Thomas dissents based on his view that the FAA “does not apply to proceedings in state courts” and “[t]hus, the FAA does not require state courts to order arbitration.” Justice Ginsburg’s dissenting opinion, joined by Justice Sotomayor, begins:

It has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses. The form contract in this case contains a Delphic provision stating that “if the law of your state” does not permit agreements barring class arbitration, then the entire agreement to arbitrate becomes unenforceable, freeing the aggrieved customer to commence class-based litigation in court. This Court reads that provision in a manner most protective of the drafting enterprise. I would read it, as the California court did, to give the customer, not the drafter, the benefit of the doubt. Acknowledging the precedent so far set by the Court, I would take no further step to disarm consumers, leaving them without effective access to justice.***

Justice Ginsburg finds that “the California court’s interpretation of the ‘law of your state’ provision is not only reasonable, it is entirely right,” and observes that the majority’s decision “steps beyond Concepcion and Italian Colors.”

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Given the Court's continued and repeated hostility to class action litigation in all manner of contexts, it is a wonder that the Court doesn't simply just repeal FRCP 23 in its entirety.

Posted by: ohwilleke | Dec 14, 2015 12:57:05 PM

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