Business Law

U.S. Supreme Court Upholds Enforceability of Class Waivers in Arbitration Agreements

On December 14, 2015, the U.S. Supreme Court once again upheld the enforceability of class waivers in arbitration agreements. In DIRECTV, Inc. v. Imburgia, the Supreme Court reversed a California Court of Appeal’s refusal to enforce an arbitration agreement waiving the right to bring class arbitration claims. 

The arbitration agreement at issue included a class arbitration waiver specifying that the entire arbitration agreement was unenforceable if the “law of your state” made class arbitration waivers unenforceable. The agreement also declared that the Federal Arbitration Act governed the arbitration provision. At the time of the agreement between DIRECTV and the consumer, California law made class-arbitration waivers unenforceable as a result of the decision in Discover Bank v. Boehr. Thereafter, the U.S. Supreme Court held in AT&T Mobility LLC v. Concepcionthat the Federal Arbitration Act preempted California’s Discover Bank rule.

The trial court denied DIRECTV’s request to order the matter to arbitration, and the California Court of Appeal affirmed. The state appellate court thought that California law would render class arbitration waivers unenforceable, so it held the entire arbitration provision was unenforceable. The fact that the FAA preempted that California law did not change the result, the court stated, because the parties were free to refer in the contract to California law as it would have been absent federal preemption. The court reasoned that the phrase “law of your state” was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the court found, the parties had in fact included California law as it would have been without federal preemption.

The Supreme Court ruled that because the Federal Arbitration Act preempted the California Court of Appeal’s interpretation, that court must enforce the arbitration agreement.  For a copy of the U.S. Supreme Court’s decision, click here Decision

For more information, please contact Alicia Tortarolo, Hudson Cook, LLP at (714) 263-0425 or atortarolo@hudco.com.

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications 
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

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