SCOTUS Benchslaps Cali…Again

By John Alan Doran

This morning, the U.S. Supreme Court struck down a California Court of Appeals decision invalidating class action arbitration waivers. DIRECTV, Inc. v. Imburgia, (No. 14-462 December 14, 2015).

DIRECTV’s customer service contract contained a mandatory arbitration clause.  That clause also waived the customer’s right to pursue a class action in arbitration.  The clause also stated that, if the class action waiver was void under the “law of your state”, the entire arbitration agreement was void. Two California plaintiffs sued DIRECTV under their customer service contracts.  They claimed they had no duty to arbitrate because (a) California law invalidated class action arbitration waivers under its “Discover Bank” rule at the time plaintiffs entered these contracts in 2008.  The problem is that the U.S. Supreme Court struck down California’s Discover Bank rule in its Concepcion decision in 2011. Plaintiffs argued, and the California Court of Appeals ruled, that the Concepcion decision had no bearing on this issue because DIRECTV and the plaintiffs were free to enter into a contract that incorporated even invalid California laws, such as the Discover Bank rule.  What, what, what?!

The Supreme Court made short shrift of this argument.  In a 6-3 decision, the Court held that the California court’s interpretation of the arbitration clause violated the  Federal Arbitration Act and its strong policy favoring arbitration.  Although this case involves mass consumer contracts, the Court’s repeated references to federal labor laws should make clear that the opinion applies with equal force to labor and employment cases.  This is good news for employers who rely on mandatory arbitration/class arbitration waivers to limit their litigation exposure.