The U.S. Supreme Court,
on December 14, 2015, ruled, 6 to 3, that DIRECTV customers in California who
were allegedly illegally charged hefty “early termination fees” of up to around
$500 can neither file their individual claim with a court nor join together to
sue the company in court. The Supreme Court ordered that each consumer must
have their respective complaint adjudicated through a private arbitration
system established by DIRECTV (now owned by AT&T). See DirecTV, Inc. v.
Imburgia, et al, available at: http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf .
The majority refused to give the customer the benefit of the doubt when DIRECTV itself drafted and provided the ambiguous contractual languages in its 2007 version of the form service contract in dispute. Section 9 of this 2007 form agreement provides that (1) any claims raised by DIRECTV or consumers will be resolved only by binding arbitration; (2) no class-based arbitration is permitted; (3) the entire arbitration provision (i.e., arbitration only and no class-based claims) is unenforceable if “the law of your state” makes the class arbitration waiver unenforceable. Section 10 states that Section 9 shall be governed by the Federal Arbitration Act (FAA). The majority deferred to California Court of Appeal’s interpretation and concluded “the law of your state” refers to “the law of California.” The only issue in this case, thus, was whether California state law made the class arbitration waiver unenforceable so as to make the entire arbitration provision unenforceable.
The majority held that current
California state law could not make DIRECTV’s clause of class arbitration waiver unenforceable
even though in 2007—when DIRECTV drafted the form agreement—California’s
Supreme Court, in Discover Bank v.
Superior Court, 36 Cal. 4th 148, 162-163 (2005), had held class arbitration
waiver clauses under such circumstances unconscionable and unenforceable. In other words, when DIRECTV imposed
this 2009 service agreement, both parties (DIRECTV and California customers who
read and understood the agreement) would have had to assume if they knew
California law that the class arbitration waiver would be unenforceable in
California, which would have made the entire arbitration provision
unenforceable under the terms of the agreement. The majority acknowledged that
such assumption was likely to exist.
The majority, however, held
“the law of your state” should be presumed to be the current “valid state law.”
Given the Supreme Court, in 2011, held that Discover
Bank was pre-empted by the FAA (in AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011)), Discover Bank is not “valid state law.” The majority held that California
courts discriminated against arbitration—violating the FAA’s policy that favors
arbitration. Therefore, the majority concluded California Court of Appeal’s
decision interpreting DIRECTV’s 2009 form service agreement was pre-empted by
the FAA and individual arbitration is required.
Justices Ginsburg and
Sotomayor dissented, as did Justice Thomas. Justice
Thomas (surprisingly) opined that the FAA does not require state courts to
order arbitration, stating that it does not apply to proceedings in state
courts.
Justice Ginsburg articulated at least four errors in the majority’s
opinion.
First, the majority misread the FAA (enacted in 1925 to resolve disputes between
merchants with equal bargaining powers), depriving consumers of effective
relief against powerful economic entities, which have created their contracts
with consumers and employees containing no-class arbitration clauses. Consumers
and most employees, unlike merchants with equal bargaining powers, lack the
ability to change the terms of consumer adhesion contracts or employment
agreements so that their effective access to justice would be safeguarded.
Second, the majority unreasonably expanded the FAA’s
pre-emption scope. The FAA preempts state laws only to the extent that state
laws conflict with “the contracting parties’ intent.” For example, the
contracting parties in 2009 expected Discover
Bank to be valid – their 2009 intent should not be gauged in light of the
2011 Concepcion decision.
Third, Section 1751 of California’s Consumer Legal Remedies
Act (CLRA), which the Plaintiffs relied upon to prosecute DIRECTV’s alleged
violations, also renders class action waivers invalid, and Section 1751 remains
“valid California state law.” Therefore, the majority erred in ignoring it.
Fourth, the majority’s
decision contravenes international standards making arbitration clauses in
adhesion contracts unenforceable. For example, Justice Ginsberg points out that
the European Union bars enforcement of one-party-dictated mandatory consumer
arbitration agreements because consumers cannot agree to arbitration that would
effectively deprive them of the ability to enforce their rights.
Bryan Schwartz Law has
had extensive experience fighting for employees who have no other choices but
to accept a mandatory arbitration clause to get a job. We agree with the Ginsburg
dissent that “arbitration is a matter of consent, not coercion” and believe
the majority’s decision empowers the powerful economic enterprises but deprives
the powerless, like workers and consumers, of their ability to protect their
rights effectively.
Contact Bryan SchwartzLaw to learn how an arbitration agreement may affect your rights.
