DirecTV Supreme Court Case Highlights Arbitration Concerns
The Supreme Court case pitting DirecTV against ex-customers over its arbitration policy points up what critics contend are problems with forced arbitration, while backers say it's a cost-effective way of settling disputes over small sums. During oral argument Tuesday, at issue will be language in customers' contracts requiring arbitration for disputes unless applicable state law forbids it, and whether the arbitration agreement is unenforceable. That is according to briefs in the case and comments from participants.
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Whether the arbitration agreement is unenforceable -- as it would be under the California Consumer Legal Remedies Act, which bars such class-action waivers -- or it's legitimate since the Federal Arbitration Act allows such waivers, are issues in DirecTV v. Amy Imburgia. She is one of a class of customers who prevailed in California courts over the DBS company, which has since been bought by AT&T.
"For the people involved, there's lots at stake," said Imre Szalai, a law professor at Loyola University New Orleans, who wrote an amicus brief in support of the former DirecTV subscribers. But he told us it was probably a mistake for the Supreme Court to take the case: "I don't think it'll have much impact on future cases. It involves an unusual, limited clause -- it's such a unique, poorly drafted contract."
The case stems from 2008 class-action complaints against DirecTV, alleging it improperly charged early termination fees on customers. At the time, DirecTV didn't seek to arbitrate the claims, according to court paperwork. But a month after the Supreme Court's AT&T Mobility v. Concepcion decision in 2011 -- in which the court decided the Federal Arbitration Act pre-empted a lower court ruling that in some circumstances class-action waivers in consumer contracts are unenforceable -- DirecTV moved to have the complaints dismissed, the class decertified and for the complainants to be forced to pursue their claims individually through arbitration. Under the company's customer agreement, any legal claims that can't be resolved informally go to binding arbitration, claims can't be consolidated and if applicable state laws don't allow dispensing of class arbitration, then none of the terms on adjudicating claims is enforceable. A California Superior Court denied DirecTV's motion, and the company appealed it unsuccessfully to the California Court of Appeal, which said since the class-action waiver isn't enforceable under California law, the entire arbitration agreement is unenforceable. The California Supreme Court denied review.
Backing DirecTV are the U.S. Chamber of Commerce and the Equal Employment Advisory Council. The chamber, in an amicus brief filed in June with the National Association of Manufacturers and the Retail Litigation Center, said all the benefits of arbitration agreements "are threatened when courts impose or enforce state law rules that do not apply uniformly to all contracts or are inconsistent with the strong federal presumption in favor of arbitrability." The California Court of Appeal ruling is "so tortured a reading of clear contract language" that it can only reflect "impermissible discrimination against arbitration," the groups said.
Backing the former DirecTV customers are parties ranging from Public Citizen to a variety of law professors specializing in arbitration and contracts. DirecTV and its amici supporters "strain to transform the contractual issue posed by the case into one of federal preemption by suggesting that, as a matter of constitutional law under the Supremacy Clause, the parties’ contract cannot be construed to refer to a preempted state law," Public Citizen said. To argue it's pointless to refer to a pre-empted law and thus act as if it doesn't exist is wrong because the contract itself refers to "law of the state," and not any federal law that might pre-empt it, its filing said. A federal law that "renders a conflicting state law ineffective does not change the fact that the preempted law is a state law," Public Citizen said.
The case "presents the U.S. Supreme Court another opportunity to affirm the strong federal policy favoring arbitration agreements that efficiently allow consumers and businesses to resolve disputes without further burdening our overloaded courts," DirecTV said in a statement Friday. "Resolving disputes through arbitration is an effective way for customers to receive fair and timely compensation. In contrast, class action lawsuits often take years to resolve and result in resources going to litigation rather than the parties involved." The company wouldn't comment on any settlement discussions with the complainants, saying only "this case was filed quite a while ago and most of the case has focused on the enforceability of the arbitration clause."