In its last opinion of 2015, the Supreme Court confirmed on the strong federal policy favoring arbitration, and that class action waivers subject to the Federal Arbitration Act (FAA) cannot be invalidated by state law. In DirectTV, Inc. v. Imburgia, __ U.S. __, Docket No. 14-462, the Court reversed the California Court of Appeal’s refusal to follow its prior 2011 decision in Concepcion, which held that the FAA preempted California law making arbitration class action waivers unconscionable.
The Court provided a stinging rebuke to the California Court of Appeal, stating that lower courts may note their disagreement with a decision of the Court, but that the “Supremacy Claus forbids state courts to dissociate themselves from federal law because of disagreement with its content or a refusal to recognize the superior authority of its source… The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act. Consequently, the judges of every State must follow it.”
Imburgia involved a challenge to DirectTV’s early termination fees. The contract required binding arbitration of all consumer disputes and prohibited class actions in arbitration, but also provided that if the “law of your state” makes class action waivers unenforceable, then the entire arbitration provision is unenforceable. The agreement also expressly incorporated the FAA.
The California Court of Appeal interpreted the “law of your state” provision to refer to California’s law prior to Concepcion when, under the Discover Bank rule, class-arbitration waivers were deemed unconscionable and unenforceable. The Supreme Court, in reversing, finding that the California Court of Appeals had applied state law that had been invalidated by Concepcion. The Court reaffirmed that the FAA permits parties to an arbitration agreement “considerable latitude” to choose what law governs the enforceability of class-arbitration waivers, but that the California law had been “authoritatively invalidated by [the Supreme Court]” in Concepcion. The Court reiterated the supremacy of the FAA and Concepcion as an authoritative interpretation of that Act.
The question remains open as to whether the Consumer Financial Protection Bureau’s CFPB will continue its effort to derail class action waivers in arbitration in light of this clear pronouncement from the Court that consumer arbitration with class action waivers are here to stay.