On April 7, 2014, a California appellate court sweepingly rejected DIRECTV’s appeal from a lower court decision finding unenforceable the arbitration clause in DIRECTV’s consumer contracts, which contained a class action waiver provision. This decision will allow the plaintiffs to proceed as a class in California state court rather than require them to seek individual relief in arbitration, signaling that the battle over the viability of mandatory class waivers in consumer arbitration clauses may not have ended with the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion.
The decision stems from a consumer class action, filed in 2008, in which plaintiffs alleged that DIRECTV failed to adequately disclose to consumers the fees associated with the early termination of their service contracts.
In affirming the lower court’s decision, the Court rejected DIRECTV’s arguments that both Concepcion and the Ninth Circuit’s decision in Murphy v. DIRECTV, Inc. compelled a different result. Instead, the court made its finding exclusively on principles of contract interpretation and its determination that contracting parties can choose to “opt-out” of the FAA in the contract’s choice of law provisions. Central to the Court’s decision was the specific wording of Section 9 of the arbitration agreement, which stated (in pertinent part): “If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” Applying two general principles of contract interpretation — (1) when a general and a specific provision are inconsistent, the specific provision will trump the general; and (2) ambiguous contract language should be construed against the drafting party, to avoid unfair results – the Court read Section 9 to have created a “narrow and specific exception to the general provision that the arbitration agreement will be governed by the FAA.”
In rejecting DIRECTV’s argument that Concepcion requires a different result, the Court noted that even under Concepcion parties remain free to agree that their arbitration agreement will be governed by state law, rather than the FAA. The Court also rejected DIRECTV’s reliance on the Ninth Circuit’s decision in Murphy, calling it “unpersuasive” and noting that there was “no authority for the court’s position” that “parties are powerless to opt out of the FAA by contract.”
According to a recent Law360 article, DIRECTV intends to appeal the decision. In the meantime, companies that rely on class waiver clauses such as the one at issue in Imburgia may want to review their arbitration agreements with an eye towards ensuring they do not contain any similar “narrow and specific” exceptions such as the one identified by the Court.
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