[author: Matthew Burrows - Law Clerk]
On December 14, 2015, the U.S. Supreme Court applied its landmark Concepcion decision and reversed a California appellate court’s ruling that an arbitration clause containing a class arbitration waiver was unenforceable under state law. We previously provided an in-depth preview of this case after the Supreme Court had granted certiorari.
The case involved claims by two DirecTV customers who sought damages in California state court after being charged early termination fees following cancellation of their DirecTV service. DirecTV’s service agreements contained an arbitration provision that included a class arbitration waiver. The class arbitration waiver included a non-severability article, which nullified the entire arbitration provision in the event that the waiver is deemed unenforceable by the “law of your state.” At the time that the customers entered into their respective service agreements, California law made class-arbitration waivers unenforceable. In Concepcion, however, the U.S. Supreme Court subsequently ruled that the California law was preempted and rendered invalid by the FAA. Notwithstanding Concepcion, the California trial court here denied DirecTV’s motion to compel arbitration, applying the law of California that would exist without preemption by the FAA. A California appellate court then affirmed the decision.
Faced with the question of whether the “law of your state” should incorporate Concepcion, the U.S. Supreme Court has decided in the affirmative, ruling that California’s “interpretation of this arbitration contract is unique, restricted to that field” and is therefore preempted by the FAA as established in Concepcion. The Court found that the non-severability article was not ambiguous and did not provide for the application of “invalid state law.” The Supreme Court also reasoned that California law permits the Legislature to change law retroactively, which supports its determination that Concepcion had such retroactive effect here. The Court also found that “nothing in the Court of Appeal’s reasoning suggests that a California court would reach the same interpretation of ‘law of your state’ in any context other than arbitration,” which further supports FAA preemption here. The key to the Supreme Court’s analysis was a finding that California courts interpreted the language at issue in the manner here only in the context of arbitration agreements, which disadvantages arbitration interests only. For these and other reasons, the Supreme Court reversed and remanded the California appellate court’s decision.
The Supreme Court’s ruling here furthers its record of enforcing arbitration provisions. This trend may continue, as the Court recently granted certiorari in another case in which the full question presented may be summarized as “whether California’s arbitration-only severability rule is preempted by the FAA,” which appears to present another “arbitration-only” interpretation of a contractual provision which disadvantages arbitration interests only. DIRECTV, Inc. v. Imburgia, Case No. 14-462 (Dec. 14, 2015).
