On June 5th, the NAM filed a joint amicus brief with the Chamber of Commerce of the U.S. and the Retail Litigation Center in the Supreme Court in DIRECTV, Inc. v. Imburgia. The issue is whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act (FAA) requires the application of a state law preempted by the FAA.
This is a class action suit against DIRECTV under the Consumers Legal Remedies Act (CLRA) in California. The trial court and Court of Appeal refused to compel arbitration by applying state law. The agreement prohibits arbitration on a classwide basis and provides that the entire section on arbitration will be void if state law nullifies such a prohibition. The CLRA expressly prevents waiver of the right to bring a CLRA class action. The FAA requires that state law must not discriminate against arbitration or be applied in a manner that disfavors arbitration agreements. States are not allowed to single out arbitration agreements for suspect status. Additionally, the FAA mandates, and the Supreme Court has routinely held, that any ambiguity in the terms of an arbitration agreement must be resolved in favor of arbitration. Under the Court of Appeal’s reading, the arbitration agreement in this case actually favors class action litigation over arbitration.
The NAM brief argued that the California Court of Appeal’s decision impermissibly discriminates against arbitration and that the decision violates the rule of deciding ambiguities in arbitration provisions in favor of arbitration. The court found that the provision could be interpreted two different ways, yet it decided the alleged ambiguity in a way that disfavored arbitration by applying common law contract principles rather than the explicit direction of the FAA. The NAM asked the Court to reverse the California Court of Appeal’s decision.
The U.S. Supreme Court ruled on December 14, 2015 that an arbitration clause containing a class action waiver was valid even when the contract incorporated state law standards that might have voided the waiver. The decision reflects the Court’s continued adherence to enforcing arbitration clauses. It’s also a significant victory for arbitration advocates and shows the Court’s willingness to police attempts by lower courts to try to sidestep the force of its prior pro-arbitration rulings.