The Supreme Court Reaffirms Enforceability Of Class Arbitration Waivers, This Time Through The Supremacy Clause Of The U.S. Constitution

In DIRECTV v. Imburgia, the Supreme Court reversed the California Court of Appeal, which held that a contractual class arbitration waiver was unenforceable under California law, even though the arbitration provision at issue was stated to be governed by the Federal Arbitration Act (FAA). In a 6-3 decision authored by Justice Breyer, the Supreme Court reminded all that the FAA is a law of the United States; that in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the Supreme Court held that the FAA permits class-arbitration waivers; and that, "[c]onsequently, the judges of every State must follow it" and cannot "dissociate themselves from federal law because of disagreement with its content or a refusal to recognize the superior authority of its source." That Justice Breyer dissented in Concepcion,1 but authored the Imburgia decision and described during oral argument2 California Court of Appeal's reasoning as "flying in the face" of the Supreme Court, underscores the federal policy favoring arbitration and the supremacy of the FAA, if chosen by the parties.3

The facts of the Imburgia case are pretty straightforward and are commonplace in the consumer service industry setting. DIRECTV's standard service agreement with its customers contained a binding arbitration clause governed by the FAA with a class-arbitration waiver. However, the service agreement also stated that the entire arbitration provision was unenforceable if the "law of your state" made class-arbitration waivers unenforceable. In 2007, when this service agreement was drafted, California prohibited class-arbitration waivers in consumer contracts as unconscionable. In 2008, two customers, Kathy Greiner and Amy Imburgia, sued DIRECTV in California state court, seeking damages for early termination fees they contended violated California law. In the midst of the litigation, the Supreme Court issued the Concepcion opinion, and DIRECTV asked the California trial court to send the matter to arbitration. The trial court refused, and DIRECTV appealed.

The California Court of Appeal affirmed the trial court on California contract law grounds. Specifically, the state appellate court interpreted the phrase "law of your state" to mean "the law of your state without considering the preemptive effect, if any, of the FAA."4 The California Court of Appeal used two rules of contract interpretation to come to its conclusion: (1) the importance of a specific contract provision over a general one...