In DIRECTV, Inc. v. Imburgia, a decision released this week, the United States Supreme Court rejected the California Court of Appeal’s interpretation of a binding arbitration provision that would have rendered unenforceable a class arbitration waiver provision. In doing this, the Supreme Court once again affirmed the primacy of the Federal Arbitration Act (“FAA”) and the invalidity of attempts by state courts to limit the enforceability of class arbitration waiver provisions.
DIRECTV involved a claim by consumers that DIRECTV’s early termination fees violate California law. The service agreement at issue in the action provided that any claims would be resolved by binding arbitration. The agreement contained a class arbitration waiver but provided that if the “laws of your state” made the waiver unenforceable, then the entire arbitration provision “is unenforceable.” The lawsuit was filed in 2008, prior to the United States Supreme Court’s 2011 decision in AT&T Mobility, LLC v. Concepcion holding that the FAA preempted California case law deeming class arbitration waiver provisions unenforceable.
After the Supreme Court decided Concepcion, DIRECTV filed a motion seeking to send the case to arbitration. The Superior Court denied the request and the California Court of Appeal affirmed this decision. The Court of Appeal reasoned that Concepcion and the FAA’s preemption of California law rendering class arbitration waivers unenforceable did not change the fact that class arbitration waivers were unenforceable under California law. Based on this conclusion, the Court of Appeal held that the entire arbitration provision was unenforceable pursuant to the service agreement.
DIRECTV filed a petition seeking review by the United States Supreme Court and the Supreme Court reversed the Court of Appeal’s decision. The Supreme Court determined that, while parties are free to choose the law governing an arbitration provision (including California law as it would have been if not pre-empted by the FAA), the Court of Appeal’s decision was incorrect because it was inconsistent with the FAA and did not place arbitration contracts “on equal footing with all other contracts.”
While DIRECTV does not change the law, it still represents a major victory for employers who enter into class action waivers with their employees. The California courts and legislature have repeatedly demonstrated their opposition to arbitration and to class arbitration waivers. In addition, other states, including Oregon, have imposed limits or restrictions on arbitration provisions, including statutes requiring that employees receive notice of an arbitration requirement at least 72 hours prior to starting work or upon subsequent bona fide advancement, and requiring specific language of acknowledgement. DIRECTV, however, calls into question these statutes as it confirms that the Supreme Court will continue to protect the policy set forth in the FAA and will continue to reject any attempts to in any way limit or restrict that policy or to impose requirements on arbitration contracts which are not also imposed on other contracts.