Supreme Court Enforces Mandatory Arbitration Provision in California

The Consumer Financial Protection Bureau (CFPB) and many consumer advocates may not be big fans of arbitration provisions in consumer contracts, but yesterday the United States Supreme Court issued an opinion in favor of DirecTV Inc., backing the satellite television provider’s efforts to enforce arbitration agreements signed by its customers in California.

In a 6-3 vote, the Supreme Court overturned a state appeals court decision in California that had previously found consumers were not bound by a provision in DirecTV’s customer agreement preventing disputes from being resolved on a class-wide basis.

The case, Directv, Inc. v. Imburgia, 2015 U.S. LEXIS 7999, has been ongoing for seven years. In 2008, the two respondents brought this lawsuit against DirecTV in a California state court. They sought damages for early termination fees that they believe violated California law.

Imburgia and Grenier had entered into a service agreement with DirecTV that included a binding arbitration provision with a class- arbitration waiver. It specified that the entire arbitration provision was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. The agreement also declared that the arbitration clause was governed by the Federal Arbitration Act. After various proceedings, DirecTV, pointing to the arbitration provision, asked the court to send the matter to arbitration. The state trial court denied that request, and DirecTV appealed.

The California Court of Appeal subsequently affirmed the trial court’s denial of DirecTV’s motion to enforce the arbitration provision.

The California Supreme Court denied discretionary review. DirecTV then filed a petition for a writ of certiorari to the United States Supreme Court, noting that the Ninth Circuit had reached the opposite conclusion on precisely the same interpretive question decided by the California Court of Appeal. Murphy v. DirecTV, Inc., 724 F. 3d 1218, 1226-1228 (2013). The United States Supreme Court granted the petition.

At the Supreme Court, the majority opinion held that because the California Court of Appeal’s interpretation is pre-empted by the Federal Arbitration Act, that court must enforce the arbitration agreement.

Justice Stephen Breyer authored the opinion on behalf of the majority. He said, “Federal arbitration law trumped state law that stated arbitration could not be required.” The dissenters were Justices Clarence Thomas, Ruth Bader Ginsburg, and Sonia Sotomayor.

insideARM Perspective

The issue of arbitration clauses in consumer contracts is highly contentious.  The CFPB has made it very clear that they have arbitration provisions in the rifle scope during upcoming rulemaking activity.

On October 8, 2015 insidARM wrote about the Arbitration Field Hearing held by the CFPB to discuss arbitration.

On October 9, 2015, insideARM republished an excellent article by Andy Pincus, a partner at the Mayer, Brown & Platt law firm in Washington, D.C.  That article outlined the CFPB position and their proposal to ban the use of arbitration to resolve consumer disputes.

It will be interesting to see if and how the CFPB and Supreme Court positions on arbitration provisions can be synchronized.