DIRECTV, Inc. v. Imburgia

Background

A national TV service company used a standard customer contract that required disputes to be settled by binding arbitration and barred class arbitration. The contract said that if the law of a customer’s state made that class-arbitration ban unenforceable, the whole arbitration clause would be void. When two California customers sued over fees, a California appeals court read the contract to mean California law (as it would have been without federal override) and refused to send the case to arbitration.

Reasoning

The Supreme Court asked whether that California reading conflicts with the Federal Arbitration Act, the federal law that enforces arbitration agreements. The Court majority held that the appeals court’s interpretation treats arbitration agreements differently than other contracts and relies on state rules that have been authoritatively invalidated. The majority said the contract phrase “law of your state” ordinarily refers to valid state law, and the California court’s special reading for arbitration was preempted by federal law. The Court therefore reversed and ordered enforcement of the arbitration clause.

Real world impact

The decision makes the company’s arbitration clause enforceable here, so the customers must pursue individual arbitration rather than a class lawsuit. Because this ruling resolves the enforceability question, it sends the case back to lower court for proceedings consistent with enforcing the arbitration clause. The ruling applies the Supreme Court’s prior arbitration decisions to limit state-court readings that would preserve class litigation instead of arbitration.

Dissents or concurrances

Two Justices would not have reached this result: one argued the federal arbitration law should not bind state courts, and another urged reading the contract in favor of consumers and class access.