Injection of Federal Courts Into State Contract Disputes Could Be Key in DirecTV Supreme Court Case
The fate of a DirecTV legal fight with former customers likely will rest on the issue of how involved the Supreme Court believes the federal government should be in contractual disputes, based on the item the justices kept returning to during oral argument Tuesday in DirecTV v. Amy Imburgia. "It generally is a matter of state law," Justice Samuel Alito said, challenging Christopher Landau of Kirkland & Ellis, representing DirecTV, to define the border where the federal government should and should not involve itself in such contractual disputes.
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The case stems from 2008 class-action complaints against DirecTV on customers' early termination fees and language in the customer agreements indicating arbitration is required for disputes unless applicable state law forbids it, as it did in California at one time, and the subsequent Federal Arbitration Act (FAA) that prohibits such state bans on arbitration (see 1509280016). At question is a California Court of Appeal ruling that state law applies to the DirecTV arbitration agreement with customers, even though that law was preempted by the FAA. The California Supreme Court declined to hear the case before it was picked up by the U.S. Supreme Court.
While contract interpretation is ordinarily a state issue, the federal court has a role when a state court creates doubt, Landau said. "The key word is 'ordinarily,' " he said. " 'Ordinarily' doesn't mean exclusively." DirecTV has argued that under the act, the Supreme Court must determine whether the California court's interpretation of the arbitration contract was valid.
Justice Stephen Breyer in particular seemed to lean toward the idea of deferring to the California court's interpretation of the law. "Once we start with this case ... suddenly we've federalized a huge area of state contract law," Breyer said. Even if the applicable state law were unconstitutional, Breyer said, "I don't know we have grounds." At the same time, he said later, the state court decision seems to fly in the face of Supreme Court precedent: "You can't run around our decisions." Justice Sonia Sotomayor also questioned DirecTV's not having tried to decertify the class in the class-action suits brought in 2008 by ex-customers until just days after the 2011 Supreme Court ruling in AT&T Mobility v. Concepcion, which said the FAA preempted previous legal precedents that class-action waivers are legally invalid. DirecTV "decided they would take the words as they stood," Sotomayor said.
While it's relatively clear what the contract language intended, Justice Elena Kagan said, the contractual language was problematic "in fairness to the state court." The Supreme Court generally doesn't fix "bad mistakes" when state courts interpret state laws, Kagan said. While the state court "got the answer wrong ... wrongness is not what we do here," she said. DirecTV's customer contracts now don't include the state law reference, Landau said.
Meanwhile, the justices challenged Thomas Goldstein of Goldstein & Russell, representing Imburgia, on assertions that the California court ruling was correct because the rationale used arguably showed hostility toward forced arbitration agreements. "There's no doubt here there was an agreement," Justice Antonin Scalia said. "The only issue is the interpretation of the agreement." The DirecTV case reprises the unanimous 2013 decision in Oxford Health Plans v. Sutter, which also dealt with arbitration issues and the authorization of class-action procedures, Goldstein said. He also urged the court not to rule at all. "Not everything is a federal case," Goldstein said.