Supreme Court Rules DirecTV Customers Can't Avoid Arbitration Agreement

US Supreme Court Building - H 2012
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US Supreme Court Building - H 2012

On Monday, the U.S. Supreme Court delivered bad news to some DirecTV customers who attempted to bring a class action lawsuit over early termination fees alleged to be in violation of California law.

Writing for a 6-3 majority, Justice Stephen Breyer decided to throw weight to the supremacy of the Federal Arbitration Act, holding that plaintiffs' attempt to seize on a portion of their agreement for satellite television to sue in open court couldn't withstand federal law favoring arbitration.

In the last decade, consumer advocates have slammed the use of arbitration provisions in the fine print of contracts. In 2005, a California Supreme Court held that a waiver of class arbitration was "unconscionable" and shouldn't be enforced. But in 2011, the Supreme Court ruled in AT&T Mobility v. Concepcion that federal law preempted that state law. Sorry, California.

The latest case — DirecTV Inc. v. Imburgia — was a follow-up to Concepcion that focused on a lingering portion of DirecTV's contract with customers that provided for arbitration except if the "law of your state" made the waiver unenforceable. In other words, California's rule on "unconscionable" class arbitration waivers might have been preempted, but if the parties agree to the contrary, would the end result be no arbitration?

A California appeals court thought so, but Breyer today says not so fast.

He writes that California's rule became invalid as a result of the 2011 case, and so he reads the "law of your state" provision again and interprets it in a way that's favorable to DirecTV. According to the opinion, "Absent any indication in the contract that this language is meant to refer to invalid state law, it presumably takes its ordinary meaning: valid state law."

Breyer continues by knocking the suggestion that anyone would intend a contract to refer to invalid law, and rejects a California appeals court's reasoning why its invalid state law could still maintain legal force. In short, the provision to arbitrate reigns supreme and there're no ifs, ands or buts. Here's the full opinion.