The United States Supreme Court granted certiorari to DirecTV in DirecTV v. Imburgia, No. 14-462, 2015 WL 1280237 (U.S. Mar. 23, 2015), a case regarding arbitration clauses in customers’ contracts. The plaintiffs allege that DirecTV did not disclose early termination fees to customers when entering into the contract.1 DirecTV has an arbitration clause in the contract, mandating, according to DirecTV, that consumer disputes be settled by a private arbitrator rather than in a court of law. Plaintiffs brought an action against DirecTV as a class action, and a California appellate court ruled to allow the class action suit to proceed, a decision that DirecTV appealed to the Supreme Court.2
The California appellate court relied on the state’s Consumers Legal Remedies Act (“CLRA”), which bars class action waivers in companies’ contracts with consumers regardless of the existence of an arbitration clause, to allow the class action to proceed.3 DirecTV disagreed and alluded to several cases when making its argument for certiorari. First, it argued that in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held that AT&T could enforce its clause requiring arbitration to resolve disputes. DirecTV argued that the Court held in Concepcion that the Federal Arbitration Act (“FAA”) pre-empts state laws such as the CLRA that arguably bar consumers from giving up their rights to bring a class action suit. Secondly, DirecTV argued that the Ninth Circuit Court of Appeals had applied the Concepcion rule in Murphy v. DirecTV, (724 F.3d 1218 (2013) to the same DirecTV contract at issue here, and came to the conclusion that the FAA pre-empted the CLRA and that DirecTV’s arbitration clause was enforceable.4
In its brief in opposition to certiorari, the plaintiffs argued that this case is not about the FAA’s pre-emption of state law. Rather, they asserted that this is a state-law contract interpretation case, for which the Supreme Court generally does not, and should not, grant certiorari. Specifically, the plaintiffs argued that DirecTV’s contract states that customers’ class action rights are waived “only if it does not violate ‘the law of your state’ and in California, the CLRA entitles consumers to bring actions for unfair business practices.”5 The plaintiffs argued that the California Appellate Court had already interpreted the contract properly and that the Supreme Court should not hear the case.
Arbitration clauses in consumer contracts have been a hot topic recently and despite the plaintiffs’ arguments, it appears to be an issue the Court wants to revisit. Recently, the Consumer Financial Protection Bureau issued a report criticizing financial companies’ use of arbitration, and that report could be an impetus in changing how consumers are treated in disputing companies’ contract provisions. Plaintiff groups have continued to fight the use of arbitration in resolving disputes because arbitration “occurs behind closed doors” and “is stacked in favor of companies.”6 Not surprisingly, companies disagree and claim that arbitration is cheaper for both sides than litigation and that they can better handle disputes individually. It will be interesting to hear the Supreme Court weigh in on an issue that affects many consumers and many companies. The Court will begin hearing arguments for the case this fall.7
The legal team at SFMS has significant experience litigating class action matters. If you have any questions regarding this subject or this posting, please contact Valerie Chang (firstname.lastname@example.org) or Michael Ols (email@example.com). We can also be reached toll-free at (866) 540-5505.
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