The United States Supreme Court, in a 6-3 decision favoring DirecTV over its customers, has once again affirmed its long standing support for the enforcement of arbitration agreements.
In the latest case, decided on December 14, the Supreme Court reversed California state courts’ interpretation of its own state laws, finding that the Federal Arbitration Act pre-empts those laws and court decisions, and renders them unenforceable. At issue in the dispute were the DirecTV contract’s early termination penalty fees.
The effect of the Supreme Court decision was to validate a contract provision in DirectTV’s standard contract with its subscribers stating that in any dispute the customer can only assert a claim on an individual basis, and not with other customers in a collective class action.
The Federal Arbitration Act (FAA) states that a “written provision” in a contract providing for “settle[ment] by arbitration” of “a controversy . . . arising out of ” that “contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” Justice Stephen G. Breyer stated in the majority opinion, quoting from Section 2 of Article 9 of the United States Code.
So-called “class action waivers” contained in many arbitration agreements – including in employment contracts and employee handbooks — have been the subject of a great deal of litigation in recent years, especially in California, which has had a strong state policy against them, based on a belief that they are damaging to consumer rights.
The DirecTV contract, which two of its customers, Amy Imburgia and Kathy Greiner, challenged in a California state court in 2008, included a waiver of class arbitration, stating that “[n]either you nor we shall be entitled to join or consolidate claims in arbitration.” The Supreme Court ruled that the waiver is valid and legally enforceable.
The Supreme Court reminded California’s and other lower courts throughout the country that they are required to follow its prior decision in the 2001 case of AT&T v. Concepcion, in which the Court had affirmed the strong federal policy favoring the enforcement of arbitration agreements.
The Supremacy Clause of the United States Constitution forbids state courts to dissociate themselves from federal law because of disagreement with its content or a refusal to recognize the superior authority of its source, Justice Breyer noted.
Justices Clarence Thomas, Ruth Bader Ginsburg, and Sonia Sotomayor dissented from the majority opinion.
“It has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no class-action arbitration clauses.” Justice Ginsburg wrote. “The form contract in this case contains a Delphic provision stating that ‘if the law of your state’ does not permit agreements barring class arbitration, then the entire agreement to arbitrate becomes unenforceable, freeing the aggrieved customer to commence class-based litigation in court.”
“This Court,” Justice Ginsburg continued, “reads that provision in a manner most protective of the drafting enterprise. I would read it, as the California court did, to give the customer, not the drafter, the benefit of the doubt. … I would take no further step to disarm consumers, leaving them without effective access to justice.”