Opinion analysis: Justices rebuke California courts (again) for refusal to enforce arbitration agreement
on Dec 14, 2015 at 2:08 pm
With its last opinion of 2015, the Justices added DIRECTV v. Imburgia to the ever-growing line of decisions reversing state court refusals to enforce arbitration agreements. The particular topic here is classwide arbitration. Three years ago, after California courts refused to enforce provisions in arbitration agreements that barred class arbitration (on the ground that the provisions were unconscionable), a closely divided court in AT&T Mobility v. Concepcion disagreed, holding that the Federal Arbitration Agreement preempted the California doctrine invalidating those waivers.
For several years before the Court’s decision in Concepcion, the California courts were invalidating waivers of classwide arbitration as unconscionable. During that time, DIRECTV included a clause in its agreement indicating that the entire arbitration clause should be invalidated if the waiver was “unenforceable” under the “law of your state.” It should have surprised nobody when the California courts concluded that, because those waivers remain unenforceable under California law (albeit preempted California law), they should toss the entire arbitration agreement. Nor should it surprise anybody that the Supreme Court decided to review and reverse that decision.
Justice Stephen Breyer mused at argument that, despite his dissent from Concepcion, this case seemed to follow so closely upon it that a contrary ruling amounted to little more than evasion of the earlier case. Presumably that line of thinking is what motivated Chief Justice John Roberts to assign the opinion to Justice Breyer, and it certainly pervades the opinion’s analysis. Indeed, the discussion starts with a paean to the importance of lower courts following the Supreme Court’s opinions (even those “from which four Justices dissented”), closing with a quotation of the Supremacy Clause.
The Court acknowledges that the California courts are the final authority on questions of California contract law, and that the lower court’s reading of the contract was correct so long as it rested on a ground that would justify “revocation of any contract.” Thus, the opinion explains, the key question was whether the decision leaves arbitration agreements “on equal footing with all other contracts.” The Court then provides a straight and linear opinion: a list of what the Court characterizes as six distinct reasons (usefully labeled “First” through “Sixth”) why the California decision did not leave arbitration contracts on an “equal footing,” followed by a brief conclusion that the decision is invalid for failing to give “due regard . . . to the federal policy favoring arbitration.”
For simplicity of description, though, it is fair to group the reasons into three categories. First, the Court concludes that the contract unambiguously refers to valid state law, not to the doctrine preempted by the Court’s decision in Concepcion. At that point, of course, the decision becomes more or less a foregone conclusion, because the reader knows that the Court is not going to locate a principle of general application that calls for ignoring the unambiguous language of the contract.
Not surprisingly, that is the point at which Justice Ruth Bader Ginsburg (joined by Justice Sonia Sotomayor) attacked the majority opinion – offering a dissent almost twice as long as the majority’s opinion, contending that the “Delphic” clause in the contract was anything but unambiguous. In her view, construing the contract against its drafter, the lower court’s reading was “not only reasonable, [but] entirely right.”
If the argument that the contract is “unambiguous” is so easily debatable, perhaps some of the Justices ultimately were persuaded by the second group of reasons, which pressed the idea that the admittedly meager evidence suggests that courts ordinarily would conclude that references to the “law” of a state refer to “valid law,” rather than “the law as it would be in the absence of federal preemption.” The Court points both to California cases interpreting contracts to refer to statutes as subsequently amended and to the oddity of the lower court’s “view that state law retains independent force even after it has been authoritatively invalidated by this Court.” The reader can sense the Justices’ bristling sensitivity to the lower court’s casual rejection of the Concepcion opinion as a pronouncement that didn’t really change anything on the ground out in California.
The tone of a court facing off against a contumacious underling leads directly into the Court’s final group of reasons, which emphasize a variety of indications in the California court’s opinion that the decision in fact did depend on the language being in an arbitration clause, coupled with the absence of any other canon that might justify the reading that the Court found so odd. Breyer’s comments at the argument suggest that those points well might be what swayed him to this side of the case. The absence of any real non-arbitration justification for the ruling makes it difficult to doubt that the California court in fact decided this case with the specific intention of limiting the effect of Concepcion.
Reaching the end of the list, the Court clearly felt it had said enough, because it concluded the opinion with a single summarizing paragraph holding that “these considerations together” required reversal of the state court decision and enforcement of the arbitration agreement. If the summary suggests that the Court’s opinion is rather harsh, especially coming from Breyer, that is probably correct. But there is a bright side for the California courts: the decision wasn’t unanimous, and it didn’t include the pointed rebuke for repetitive intransigence the Court gave the Sixth Circuit a half-hour earlier on Monday in White v. Wheeler.
PLAIN LANGUAGE: The Court held that Amy Imburgia’s contract with DIRECTV required her arbitrate any disputes with DIRECTV, which means that Imburgia lost the right to sue DIRECTV in a court. The case reached the Supreme Court because the contract had a clause that said the arbitration provision was unenforceable if anything in state “law” would require DIRECTV to tolerate “class” arbitration. “Class” arbitration is a process in which groups of consumers band their arbitration proceedings together, and companies don’t like it much better than they do class actions in court, so they usually require consumers to waive it in their arbitration agreements.
Until a few years ago, California courts invalidated those waivers, but then the Supreme Court rejected that rule. The Court in this case held that the state’s “law” described in the contract is the law as the Supreme Court understands it, not as it would be if the Supreme Court had not invalidated it.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the respondents in this case. The author of this post, however, is not affiliated with the law firm.]