Corporate

U.S. Supreme Court Hears Arguments on Enforceability of Arbitration Agreement

 WASHINGTON, D.C. — (Mealey’s) A California appellate panel erred when it refused to enforce an arbitration clause contained in a cable provider’s customer agreement, the attorney for the cable provider argued Oct. 6 before the U.S. Supreme Court (DIRECTV, Inc. v. Amy Imburgia, et al., No. 14-462, U.S. Sup.). 

“The agreement provides for individual arbitration and expressly precludes class arbitration. And just to underscore that point, it specifies that if state law would force the parties into class arbitration, then the entire arbitration agreement would be unenforceable. The court below interpreted the reference to state law to mean inoperative state law preempted by the FAA [Federal Arbitration Act]. But neither respondents nor the court below identified a single case in the history of California or American law adopting that interpretation for any contract,” Christopher Landau of Kirkland & Ellis in Washington argued for DIRECTV Inc.

Class Complaint

Amy Imburgia filed a class complaint against DIRECTV on Sept. 17, 2008, in the Los Angeles County Superior Court. She brought claims for unjust enrichment, declaratory relief, false advertising and violation of the Consumer Legal Remedies Act (CLRA), California Business and Professions Code Section 17200, et seq., and California Civil Code Section 1671(d). Imburgia’s claims were based on allegations that DIRECTV improperly charged early termination fess to its customers. Kathy Greiner filed a similar class action complaint one day after Imburgia, and Imburgia and Greiner jointly filed a first amended complaint on March 16, 2009. That lawsuit proceeded at the same time as a multidistrict litigation proceeding in federal court involving similar claims.

DIRECTV moved to stay Greiner and Imburgia’s state court action pending the outcome of the multidistrict litigation, but the Superior Court denied the motion. The plaintiffs subsequently moved for class certification. The Superior Court granted the motion in part on April 20, 2011, certifying a class as to one of the plaintiffs’ theories but denying certification as to other.

Concepcion Decided

On April 27, 2011, the U.S. Supreme Court decided AT&T Mobility LLC v. Concepcion (563 U.S. __, 131 S. Ct. 1740 (2011)) [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], which held that the FAA preempts the rule of Discover Bank v. Superior Court (36 Cal.4th 148 (2005)) [lexis.com | Lexis Advance]. Discover Bank held that under certain circumstances, class action waivers in consumer contracts are unconscionable and hence unenforceable.

On May 17, 2011, less than one month after the high court decided Concepcion, DIRECTV moved to stay or dismiss Greiner and Imburgia’s lawsuit, decertify the class and compel arbitration of the plaintiffs’ claims. DIRECTV explained that it had not moved to compel arbitration earlier because the Court of Appeal held, in an unrelated case, that the arbitration provision in DIRECTV’s customer agreement was unenforceable under Discover Bank.

The Superior Court denied the motion, and DIRECTV appealed.

The Second District Court of Appeal on April 7, 2014, affirmed.

DIRECTV petitioned the U.S. Supreme Court on Oct. 21, 2014. The petition was granted on March 23, 2015. The question presented was:  “Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.”

Federal Law Question

When questioned by Justice Samuel Anthony Alito Jr. about when there is a question of federal law, Landau responded that DIRECTV is not arguing that the FAA federalizes the entire area. “We are kind of saying the opposite, that it generally is a matter of state law, but there is a federal toll. So you always have a federal question to be a check on the state court’s application of law for cases like this when it is perfectly clear what is going on,” Landau argued.

And when Justice Stephen G. Breyer suggested asking the California Supreme Court to decide the matter, Landau responded that was not possible “because ultimately this is a federal law question.”

He went on to argue that “[e]ven if this case came from the California Supreme Court, and the California Supreme Court said we — again, it has never done that, and that’s one of the odd things about this case. But even if the California Supreme Court were to say, we as a matter of California law say that this — a reference to state law means preempted or repealed or otherwise inoperative state law — again, I think that’s hard to imagine, but let’s say they said that, you as a Supreme Court of the United States would still have a responsibility to make sure that that comports with the federal policy of arbitration.”

State Law

Thomas C. Goldstein of Goldstein & Russell in Bethesda, Md., arguing on behalf of the respondents, told the high court:  “This case is a reprise of Oxford Health [Plans LLC v. Sutter (133 S. Ct. 2064 (2013)) lexis.com | Lexis Advance]. The argument of the party that wanted arbitration in oxytocin, the arbitrator got it wrong in Stolt-Nielsen [S.A. v. AnimalFeeds Int’l Corp. (559 U.S. 662 (2010)) lexis.com | Lexis Advance]. And this Court may well have had sympathy for that, but the Court realized it was going to have to write an opinion about the courts in later cases. And the difficulty is that if you interject federal law here, you are going to have just wealth of DIRECTV challenges, because in every instance in which the state court announces, here’s how we understand this language which is state law language in our contract, it will be open to the party proposing arbitration to say no actually. If there is an ambiguity in the . . . contract, then you are obliged to apply a presumption in favor of arbitration, and this is always a federal question.”

Goldstein went on to plead with the high court to carefully consider its decision. “I think what you have to do is compare two prospects, Justice Breyer. One is the concern. And we recognize the concern that if you write an opinion that says, nah, we’re not going to take too hard a look, that the state courts will run wild. All I can tell you is that there really isn’t evidence of that happening at all. And the court has doctrines like discrimination against arbitration that can handle it.

“The second is a reality. We know for a fact that if you announce an opinion that says, this interpretation of state law — because we know what California law is here. The California Court of Appeals has told us. This interpretation of state law is just too bad. And invalidated by arbitration agreement, that’s now a question of federal law, and we are going to relitigate what state law means. That is a boundless rule that is going to be invoked in every single arbitration case. And so you just have to choose between those two prospects. One is you know what will happen, you will be going against the very first principle of federal arbitration law which is what we look to state law in determining whether an arbitration agreement is formed, or you have the hypothetical prospect — and what I can say to Your Honor is we have a legislature that is there in the event that the hypothetical comes to pass. We have doctrines to deal with this. I am just terribly worried about how it is you write an opinion that says this is not just wrong, it’s really really wrong, and explain why in the fact of other things of this contract, the contrast of other of contracts that I have given you are out there. You do retain the possibility, of course, of not deciding the case at all in the wake of Sanchez [v. Valencia Holding Co. LLC (61 Ca1.4th 899 [2015])], why it is that we need to have an opinion about this given that this is a contract that doesn’t exist anymore, and the California Court of Appeals has resolved it is a question that is very difficult to answer. But if you are going to write an opinion in the case, please do not do it in a way that just invites litigation upon litigation upon litigation because you as in Oxford Health are concerned that this court got it wrong, just like you were concerned that the arbitrator got it wrong. It is an unfortunate cost of the federal system that Congress decided this is the job of federal courts. Not everything is a federal case,” Goldstein argued.

Counsel

In addition to Goldstein, the respondents are also represented by Freda E. Mermelstein of Huntington Beach, Calif., and Paul D. Stevens of Milstein Adelman in Santa Monica, Calif.

Cory L. Andrews of Washington Legal Foundation in Washington filed an amicus brief on behalf of Washington Legal Foundation. David M. Axelrad of Horvitz & Levy in Encino, Calif., filed an amicus brief on behalf of DRI – The Voice of the Defense Bar. Francis J. Balint Jr. of Bonnett, Fairbourn, Friedman & Balint in Phoenix filed an amicus brief on behalf of arbitration and contracts scholars.

Kristen M. Fritz of San Diego filed an amicus brief on behalf of law professors. Martin S. Kaufman of Atlantic Legal Foundation in Larchmont, N.Y., filed an amicus brief on behalf of Atlantic Legal Foundation and the International Association of Defense Counsel. Deborah J. La Fetra of Pacific Legal Foundation in Sacramento, Calif., filed an amicus brief on behalf of Pacific Legal Foundation. Peter Linzer of University of Houston Law Center filed an amicus brief on behalf of himself.

Holly M. Mosier of Sanders Phillips Grossman in Irvine, Calif., filed an amicus brief on behalf of California law professors. Scott L. Nelson of Public Citizen Litigation Group in Washington filed an amicus brief on behalf of Public Citizen Inc. Andrew J. Pincus of Mayer Brown in Washington filed an amicus brief on behalf of the Chamber of Commerce of the United States of America, National Association of Manufacturers and Retail Litigation Center Inc.

Benjamin G. Robbins of New England Legal Foundation in Boston filed an amicus brief on behalf of New England Legal Foundation. Imre S. Szalai of Loyola University New Orleans College of Law in New Orleans filed an amicus brief on behalf of law professors. Michael R. Vachon of the Law Office of Michael R. Vachon in San Diego filed an amicus brief on behalf of himself.

Rae T. Vann of Norris, Tysee, Lampley & Lakis in Washington filed an amicus brief on behalf of the Equal Employment Advisory Council. William R. Weinstein of the Law Offices of William R. Weinstein in White Plains, N.Y., filed an amicus brief on behalf of himself.

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