TRYING TO MAKE “FETCH” HAPPEN:
PREEMPTION OF CALIFORNIA’S
UNCONSCIONABILITY DOCTRINE AFTER
CONCEPCION
DAVID FRIEDMAN*
INTRODUCTION
The Federal Arbitration Act (“FAA” or “the Act”) represents a “liberal federal
policy favoring arbitration.”1 Since the Act’s enactment, however, many states have
resisted robust enforcement of arbitration agreements, despite Congress’s intent to place
“arbitration agreements . . . upon the same footing as other contracts, where it belongs.”2
Prior to the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, a number of
states declared waivers of consumers’ class arbitration rights in arbitration agreements
unconscionable. In practice, courts could either compel class arbitration, seemingly
against the intentions of a contracting party, or discriminate against arbitration altogether.
In either case, state courts stood in clear contradiction to the objectives Congress outlined
for the Federal Arbitration Act.
Over time, state and federal courts have offered contrasting interpretations to
waiver provisions. In state courts, the provisions were often held to be invalid. This both
encouraged and rewarded forum shopping, while undermining Congress’s “liberal
*J.D. Candidate, Class of 2017, Duke University School of Law.
1
Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983).
2
H.R.Rep. No. 96, 68th Cong., 1st Sess. 1 (1924).
policy” favoring arbitration. By passing the FAA, however, Congress made it abundantly
clear that it sought to create a significant way for parties to contract around litigation. For
the FAA to have any effect, enforcement of arbitration could not depend on the particular
forum in which a case was brought. Hence, the Supreme Court granted certiorari in
Conception to resolve the discrepancy between state and federal enforcement of
arbitration provisions.
In Conception, the Court decided that the Federal Arbitration Act preempted any
state laws that stood as obstacles to the Act’s objective of enforcing of arbitration
agreements by their terms.3 Due in part to the complexity of the Court’s analysis in
Concepcion, courts remain divided on how to interpret arbitration agreements that
specifically invoke state law that might otherwise be preempted by the Federal
Arbitration Act. This ambiguity was abundantly evident when the California Court of
Appeal and the Ninth Circuit handed down conflicting judgments, despite applying the
same body of law to the same class arbitration waiver. Such inconsistency was plainly
untenable, wherein the Supreme Court again chose to intervene.
In DIRECTV, Inc. v. Imburgia, the Court will decide whether the California Court
of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to
state law in an arbitration agreement governed by the Federal Arbitration Act requires
that the application of state law be preempted by the Federal Arbitration Act.4 Through
this case, the Court will be required to invoke much broader questions regarding the role,
if any, of state law in enforcing contracts subject to federal preemption.
3
4
AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).
DIRECTV, Inc. v. Imburgia, No. 14-462 (U.S. argued Oct. 6, 2015).
I. FACTS
Plaintiff-Respondents Amy Imburgia and Kathy Greiner (“Imburgia” or
“Respondents”) were customers of Defendant-Petitioner, DIRECTV, a cable network
provider.5 Respondents signed DIRECTV’s Customer Agreement (“Agreement”) and
were assessed Early Termination Fees upon cancelling their service contracts.6
On September 17, 2008, Imburgia filed a class action complaint in California
against DIRECTV, claiming the company charged improper Early Termination Fees.
Imburgia sought declaratory relief and damages for unjust enrichment, false advertising,
and violations of three California statutes, including the Consumer Legal Remedies Act
(“CLRA”).7 On March 16, 2009, Imburgia and Greiner jointly filed an amended
complaint and subsequently filed a multidistrict claim in federal court.8 The California
state court denied DIRECTV’s motion to stay the state’s proceeding pending resolution
of the federal dispute.9
DIRECTV’s Agreement included provisions that governed both the terms of its
service and the resolution of disputes between parties. Section 10 contained a choice of
law provision, specifying the contract would be “governed by the rules and regulations of
the Federal Communications Commission, other applicable federal laws, and the laws of
5
Imburgia v. DIRECTV, Inc., 225 Cal. App. 4th 338, 340 (Cal. Ct. App. 2014).
Id.
7
Id. Respondent alleged Petitioner violated the Consumers Legal Remedies Act
(CLRA) (Cal. Civ.Code § 1750 et seq.), the unfair competition law (UCL) (Cal. Bus. &
Prof. Code, § 17200 et seq.), and California Civil Code § 1671, subdivision (d).
8
Id. at 340–41.
9
Id. at 341.
6
the state and local area where Service is provided to you.”10 Respondents’ service was
supplied in California.11 The court thus used California law.
Section 9 of the Agreement (“Section 9”) further provided that parties would
resolve disputes “only by binding arbitration.”12 Arbitration would be “governed by the
Federal Arbitration Act” and parties waived rights to “arbitrate any claim as a
representative member of a class or in a private attorney general capacity.”13 Section
9(c)(ii) (hereafter “the poison pill clause”), however, stated that if “the law of your state
would find this agreement to dispense with class arbitration procedures unenforceable,
then this entire Section 9 is unenforceable.”14
At the time Respondents signed the Agreement, certain class action waivers were
“unconscionable under California law and should not be enforced.”15 Believing this to be
settled law, DIRECTV did not raise arbitration as one of its seventeen affirmative
defenses in its Answer.16 In 2010, however, the Supreme Court held in AT&T Mobility
LLC v. Concepcion that the FAA preempted California law by finding certain class action
waivers unconscionable.17 DIRECTV thereby moved in superior court to compel
arbitration, but was denied because the agreement specifically invoked state law.18 The
10
Id. at 341–42.
Id. at 341.
12
Id.
13
Id.
14
Id.
15
Discover Bank v. Superior Court, 36 Cal. 4th 148, 163 (Cal. 2005).
16
Respondents’ Brief on Appeal, supra note 5, at 6.
17
Concepcion, 131 S.Ct. at 1753.
18
Imburgia v. Directv Inc., No. BC398295, 2012 WL 7657788, at *2 (Cal.Super
Feb. 12, 2012).
11
California Court of Appeals affirmed DIRECTV’s interlocutory appeal 19 and the
California Supreme Court denied review.20 The Supreme Court then granted certiorari.21
II. LEGAL BACKGROUND
A. Federal Preemption and the Supremacy Clause
The doctrine of federal preemption is rooted in the Supremacy Clause of the
Constitution. The Supremacy Clause reads, “This Constitution, and the Laws of the
United States which shall be made in Pursuance thereof shall be the Supreme Law of the
land.”22 Congress may therefore “preempt, or invalidate, a state law through federal
legislation.”23
Preemption need not be expressly called for in a statute.24 Rather, it may be
implicit in federal regulation.25 Implicit preemption occurs as either field preemption,
when Congress “foreclose[s] any state regulation in the area,”26 or conflict preemption,
when “compliance with both state and federal law is impossible.”27 Conflict preemption
is also available when state law “stands as an obstacle to the accomplishment and
19
Imburgia, 225 Cal. App. 4th at 348.
Brief for the Respondents, supra note 5, at 5.
21
DIRECTV, Inc. v. Imburgia, 135 S.Ct. 1547 (2015).
22
U.S. CONST., Art. VI, cl. 2.
23
Oneok, Inc. v. Learjet, Inc., 135 S.Ct 1591, 1595 (2015).
24
Id.
25
Id.
26
Arizona v. United States, 132 S.Ct. 2492, 2502 (2012).
27
California v. ARC America Corp., 490 U.S. 93, 100 (1989).
20
execution of the full purposes and objectives of Congress.”28 Any state laws that
“interfere with, or are contrary to, federal law” may thus be invalidated.29
B. The Federal Arbitration Act and Concepcion
The Federal Arbitration Act (“FAA” or “the Act”) reflects the “fundamental
principle that arbitration is a matter of contract.”31 Recognizing the “costliness and delays
of litigation,” the FAA’s enactment was “motivated, first and foremost, by a
congressional desire to enforce agreements into which parties had entered.”32 Congress
intended that the Act would “foreclose state legislative attempts to undercut the
enforceability of arbitration agreements.”33 In light of this purpose, the Supreme Court
wrote in Moses H. Cone Memorial Hospital v. Mercury Construction Corporation that:
The Arbitration Act establishes that, as a matter of federal law, any doubts
concerning the scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to
arbitrability.34
28
29
Hines v. Davidowitz, 312 U.S. 52, 67 (1941)
Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 712
(1985).
31
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010).
H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924).
33
Southland Corp. v. Keating, 465 U.S. 1, 16 (1984).
34
460 U.S. 1, 24 (1983).
32
Despite “recent developments,” including in class arbitration scenarios, that the Act’s
drafters likely did not envision, the Supreme Court has consistently interpreted the FAA
as favoring the enforcement of arbitration.35
The FAA requires enforcement of privately negotiated agreements to arbitrate,
like other contracts, “in accordance with the terms of the agreement.”36 Section 2 of the
Act (“§ 2”) is the “primary substantive provision”38 and states that an arbitration
agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.”39 The final clause of § 2, known as
the “savings clause,” limits the type of defenses that may make arbitration agreements
unenforceable.
The savings clause allows a party to invalidate an arbitration agreement based on
grounds applicable to “any contract.”40 The clause thus provides for only “generally
applicable contract defenses, such as fraud, duress, or unconscionability.”41 Defenses that
do not apply to “any contract” are barred.42 This includes “defenses that apply only to
35
See, e.g., Granite Rock Co. v. International Broth. of Teamsters, 561 U.S. 287,
288 (2010); see also Preston v. Ferrer, 552 U.S. 346, 353 (2008); compare Volt Info.
Sciences v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475–76 (1989).
The Volt court said that a contract invoking state rules to stay arbitration was permissible
because the FAA compelled enforcement of arbitration agreements by their terms. The
Court in Preston, however, later distinguished Volt, noting that it was primarily
concerned with avoiding the “possibility of conflicting rulings” in cases where litigation
and arbitration was simultaneous.
36
9 U.S.C. § 4. See also Volt, 489 U.S. at 479.
38
Moses, 460 U.S. at 24.
39
9 U.S.C. § 2.
40
Id.
41
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
42
See U.S. v. Gonzales, 520 U.S. 1, 5 (1997) (noting that “the word ‘any’ has an
expansive meaning, that is, ‘one or some indiscriminately of whatever kind’”).
arbitration,”43 because Congress prohibited the courts from “singling out arbitration
provisions for suspect status.”44 Although generally applicable contract defenses may
make an arbitration agreement unenforceable, such grounds must exist “at law or in
equity”45 and not “interfere with . . . federal law.”46
In AT&T Mobility LLC. v. Concepcion, the Court considered whether the FAA
preempted California’s unconscionability doctrine for class arbitration waivers in
adhesion contracts.47 In that case, an arbitration agreement required parties to file
disputes in their “individual capacity, and not as a plaintiff or class member in any
purported class or representative proceeding.”48 Concepcion, however, opposed
arbitration, stating the California Supreme Court’s decision in Discover Bank v. Superior
Court had held class arbitration waivers in adhesion contracts unconscionable as a matter
of law.49 Therefore, provisions containing class arbitration waivers were invalid. As
43
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974); see also Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440 (stating that Courts must place arbitration
agreements on an equal footing with other contracts.).
45
9 U.S.C. § 2.
46
Hillsborough, 471 U.S. at 712.
47
“Adhesion contracts” are defined as a “standard-form contract prepared by one
party, to be signed by another party in a weaker position, usu. a consumer, who adheres
to the contract with little choice about the terms.” Black’s Law Dictionary 390 (2014).
48
Concepcion, 131 S.Ct. at 1744.
49
Discover Bank, 36 Cal. 4th at 163. The court in Discover Bank wrote that when a
class action waiver “is found in a consumer contract of adhesion in a setting in which
disputes between the contracting parties predictably involve small amounts of damages,
and when it is alleged that the party with the superior bargaining power has carried out a
scheme to deliberately cheat large numbers of consumers out of individually small sums
of money, then ... the waiver becomes in practice the exemption of the party ‘from
responsibility for [its] own fraud, or willful injury to the person or property of another.”
44
Justice Scalia noted in Concepcion, California courts applied the Discover Bank rule
“frequently” to find arbitration agreements unenforceable.50
The Concepcion Court disagreed with Discover Bank, stating that the FAA
preempted the issue. Although the savings clause permitted courts to find arbitration
agreements unenforceable based on generally applicable contract defenses, “the act
[could not] be held to destroy itself.”51 An otherwise permissible doctrine might still be
preempted if it interfered with the Act’s implementation.52 Under such circumstances, the
FAA's preemptive effect “[extended] even to grounds traditionally thought to exist ‘at
law or in equity for the revocation of any contract.’”53 Writing for the majority, Justice
Scalia concluded that “[r]equiring the availability of classwide arbitration interferes with
fundamental attributes of arbitration and thus creates a scheme inconsistent with the
50
Concepcion, 131 S.Ct. at 1746.
Concepcion, 131 S.Ct. at 1748 (quoting American Telephone & Telegraph Co. v.
Central Office Telephone, Inc., 524 U.S. 214, 227–228 (1998))
52
See Preston, 552 U.S. at 357–358 (stating the FAA preempted otherwise
permissible state laws governing arbitration that “frustrated” the Act’s objective to
promote “streamlined proceedings and expeditious results.”)
53
Concepcion, 131 S.Ct. at 1747 (quoting Perry v. Thomas, 482 U.S. 483, 492
(1987)).
51
FAA.”54 The FAA thus preempted Discover Bank’s holding that arbitration waivers in
adhesion contracts were unconscionable as a matter of law.55
C. California’s Consumer Legal Remedies Act
California’s Consumer Legal Remedies Act prohibits “unfair methods of
competition and unfair or deceptive acts or practices.”56 As a consumer protection statute,
the CLRA states that any individual entitled to bring any action under the CLRA may
also bring their claims as a class action suit.57 Section § 1751 of the CLRA is an
“antiwaiver provision” that reads: “Any waiver by a consumer of the provisions of [the
CLRA] is contrary to public policy and shall be unenforceable and void.”58 Like the
holding in Discover Bank, the CLRA’s antiwaiver provision makes waivers of class
arbitration unenforceable.59
In Fisher v. DCH Temecula Imports LLC, the California Court of Appeal
addressed whether the FAA preempted § 1751 insofar as it applied to arbitration
54
Id. at 1748. The Court relied on predominantly practical concerns in discussing
why class arbitration was “inconsistent” with the FAA. Justice Scalia wrote: “[T]he
‘changes brought about by the shift from bilateral arbitration to class-action arbitration’
are ‘fundamental.’ This is obvious as a structural matter: Classwide arbitration includes
absent parties, necessitating additional and different procedures and involving higher
stakes. Confidentiality becomes more difficult. And while it is theoretically possible to
select an arbitrator with some expertise relevant to the class-certification question,
arbitrators are not generally knowledgeable in the often-dominant procedural aspects of
certification, such as the protection of absent parties. The conclusion follows that class
arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is
inconsistent with the FAA.”
55
Id. at 1744.
56
Cal. Civ.Code § 1770.
57
§ 1781.
58
§ 1751.
59
See Flores v. West Covina Auto Group, 151 Cal.Rptr.3d 481, 492 (Cal. Ct. App.
2013) (arguing “no meaningful distinction exists between the CLRA's prohibition against
class action waivers and the Discover Bank rule.”).
agreements. The court held that the waiver of statutory rights deemed unwaivable by the
CLRA constituted a “ground that exists at law or in equity for the revocation of any
contract” under the FAA’s savings clause.60 Thus, unconscionability was a generally
applicable contract defense not preempted by the FAA.61 After Concepcion, however, the
Court of Appeal was required to reconsider the analysis in Fisher. As a result, in Flores
v. West Covina Auto Group, the court held that the CLRA’s unconscionability defense to
class arbitration waivers had been preempted. The California Supreme Court granted
review but deferred consideration pending resolution of a similar issue in Iskanian v. CLS
Transportation of Los Angeles.62 In Iskanian, the California Supreme Court held that the
FAA “preempt[ed] California law holding class action waivers as to employees'
unwaivable rights,” seemingly in agreement with the Court of Appeal’s previous analysis
in Flores.
III. HOLDING
In Imburgia v. DIRECTV, Inc., the California Court of Appeal affirmed the
judgment below and held that the Agreement did not require arbitration.63 The court
reasoned that the FAA did not coerce arbitration but merely compelled enforcement of
contracts “in accordance with [their] terms.”64 Because the parties had freely contracted
to resolve disputes under “the law of [the customer’s] state”65 and California law
60
61
187 Cal.App.4th 601, 613 (2010).
Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601, 617 (Cal. Ct. App.
2010).
62
Flores v. West Covina Auto Group, 297 P.3d 884 (2013).
Imburgia, 225 Cal.App.4th at 348.
64
Id. at 342 (quoting Volt, 489 U.S. at 478).
65
Imburgia, 225 Cal.App.4th at 341.
63
triggered the poison pill clause, not compelling arbitration was “fully consistent” with the
FAA.66 The court deemed this permissible because the FAA allowed parties to “opt-out”
of its default rules,67 even if “state rules would yield a different result from . . . the
FAA.”68 Thus, parties could specifically contract to use California law regardless of the
FAA’s preemptive effect.69
Enforcing the Agreement by its terms, Section 9 was unenforceable because the
poison pill clause was exempted from the Agreement’s general adoption of the FAA.70
Under well settled principles of contract interpretation, when a specific and a general
term conflict, the specific term controls the general term and defines its meaning.71
Because the poison pill clause expressly stated it was governed by “the law of your
state,” the issue of enforcing class arbitration waivers was to be considered under
California law.72 California’s Consumer Legal Remedies Act held waivers of class
arbitration unconscionable, but federal law would have permitted such a provision.73 The
general and specific terms thus conflicted, but the parties had opted to resolve the issue
66
Id. at 343.
Id.
68
Id. The court’s analysis relied heavily on Volt to reach its decision. In Volt, Chief
Justice Rehnquist wrote while the FAA was designed to facilitate arbitration, the
“principal purpose [was] to ensure that private arbitration agreements are enforced
according to their terms.” Parties therefore did not undermine the Act by “[structuring]
their arbitration agreements as they [saw] fit.” Volt, 489 U.S. at 478–79.
69
Imburgia, 225 Cal.App.4th at 344.
70
Id. See Part I, supra, discussing the Agreement’s invocation of the FAA under
Section 10, which subjected the parties to “applicable federal laws.”
71
Id.
72
Id.
73
Id.
67
under state law.74 This invoked the poison pill clause, thereby making Section 9’s
arbitration agreement unenforceable.75
The court found further support for denying DIRECTV’s motion because
ambiguities are customarily construed against the drafter–in this case, DIRECTV.76 The
Agreement was unclear insofar as it could be interpreted to demand FAA preemption
despite a freely negotiated and explicit choice of law provision to the contrary.77 As the
non-drafting party, Imburgia was entitled to her reasonable interpretation. Section 9(b)(ii)
thus remained in effect and DIRECTV could not compel arbitration.78
The Imburgia court was unpersuaded by the Ninth Circuit’s opinion in Murphy v.
DIRECTV, Inc., which reached an opposite conclusion after reviewing the same
provision.79 In that case, the Ninth Circuit granted DIRECTV’s motion to compel
arbitration, considering arguments of contract interpretation “largely irrelevant.”80 The
Murphy court stated that California’s ban on class arbitration waivers had been
preempted by Concepcion, wherein federal law became the law of the states.81 Thus,
there could be no conflict between them, and the poison pill clause was to be viewed
under § 2 of the FAA.82 Unmoved, the Court of Appeal refused to adopt this
interpretation, considering it untenable that the parties had drafted “the law of your state”
74
Id.
Imburgia, 225 Cal.App.4th at 344.
76
Id. at 345.
77
Id.
78
Id.
79
Id. at 346.
80
Murphy v. DIRECTV, Inc.,724 F.3d 1218 (9th Cir. 2013).
81
Id. at 1228.
82
Id.
75
to comprise federal law unambiguously.84 Thus, the decision unavoidably rested on
interpreting the poison pill clause’s choice of law provision.86
The Court of Appeal ruled that the parties had excepted the poison pill clause
from the FAA and thus, by the terms of the contract, DIRECTV could not compel
arbitration.87
Recognizing a clear conflict between state and federal law, the Supreme Court
granted review of the California Court of Appeal’s decision.
IV. ARGUMENTS
A. DIRECTV’s Arguments
DIRECTV argues that the FAA preempts and invalidates state laws that force
class arbitration.88 In creating a body of substantive federal law of arbitrability, Congress
precluded states from refusing to enforce arbitration agreements.89 Based on this policy,
ambiguities as to the scope of the arbitration clause are resolved in favor of arbitration.90
This includes ambiguities concerning the applicability of “inconsistent” state law.91
Although DIRECTV acknowledges that the interpretation of arbitration agreements is
generally a matter of state law,92 the FAA provides an exception to this principle when
state law is inconsistent with federal arbitration law. In such cases, courts are required to
84
Imburgia, 225 Cal.App.4th at 346–47.
Id.
87
Id. at 347–48.
88
Brief for Petitioner, supra note 5, at 10.
89
Id. at 12.
90
Id. at 12.
91
Id. at 10.
92
Id. at 13.
86
rigorously enforce arbitration agreements according to their terms.93 The FAA’s
substantive federal arbitration law thus “serves as an important check on the application
of state law, safeguarding the parties' federal arbitration rights.”94
DIRECTV thus contends that the Court of Appeal erred in holding that DIRECTV
could not compel arbitration solely because California’s law did not permit class
arbitration waivers. Because no state law is “immune from the ordinary preemptive force
of federal law,” the Court of Appeal wrongly based its decision on “a legal nullity.”95
When the court identified that the poison pill clause’s choice of law provision was subject
to multiple interpretations, it impermissibly chose to interpret the provision in a way that
disfavored arbitration.96 This stood in clear contravention of the FAA and prior
precedent.97 It further “manifestly fail[ed] to enforce the parties' arbitration agreement
‘according to [its] terms.’”98
Furthermore, the FAA permits enforcement of arbitration agreements according to
their terms. DIRECTV argues the contract represented a clear intent to arbitrate except
when the relevant state law would force class arbitration.99 The parties explicitly adopted
the FAA as the governing authority under § 10(b), providing that the Agreement “shall be
governed by the Federal Arbitration Act.”100 Therefore, the parties reasonably expected
the contract to be interpreted under the FAA.101 Because state law cannot be immune
93
Id. at 13.
Id. at 14.
95
Id. at 10.
96
Id. at 16.
97
Id. at 17.
98
Id. at 17. (quoting Stolt-Nielsen, 559 U.S. at 682).
99
Brief for Petitioner, supra note 5, at 10.
100
Id. at 14–15.
101
Id. at 18.
94
from federal preemption, in this case the CLRA’s antiwaiver provision carried the force
of law that had been repealed.102 Although the FAA does not prevent parties from
contracting to abide by nullified law, no such term is found at present.103 Thus, as a
matter of private contract, the court should have interpreted the Agreement by its terms as
compelling arbitration under the FAA.
Finally, DIRECTV contends that the Court of Appeal erred in its application of
well settled rules of contract interpretation. First, the court recognized a conflict between
the Act’s general adoption of the FAA and the poison pill clause’s specific reference to
“the law of your state.” Insofar as “the law of your state” is separate, it is never immune
from the ordinary preemptive effect of federal law.104 Therefore, the Court of Appeal
interpreted a conflict when, in fact, the provisions were completely harmonized.105
Second, the court construed ambiguities in contract interpretation in favor of the nondrafting party.106 To the extent that such a construction could apply, it conflicts in the
case at bar with the requirement that ambiguities be resolved in favor of arbitration.107
For the foregoing reasons, DIRECTV argues that the Court should reverse the
judgment below.108
102
Id. at 19–20.
Id. at 20.
104
Id. at 21.
105
Id. at 22.
106
Id. at 22.
107
Id. at 22–23.
108
Id. at 24.
103
B. Imburgia’s Arguments
Imburgia argues that interpreting the FAA as barring enforcement of applicable
state law is “unprecedented.”109 The FAA requires courts to enforce contracts according
to their terms, which was precisely what the Court of Appeal did in Imburgia v.
DIRECTV, Inc. Because the explicit terms of the contract made the arbitration agreement
unenforceable according to principles of state law, the Court of Appeal made no error.
Imburgia contends that the FAA requires the result reached by the Court of
Appeal. First, the FAA compels enforcement of agreements by their terms.110 Second, the
Act does not prevent parties’ contract choice be bound by state law.111 Therefore, the
FAA does not express a federal policy that necessarily compels construction of any
ambiguity in favor of arbitration. Rather, arbitration agreements are enforced “like other
contracts” according to their terms and the intentions of the parties.112 Underscoring their
argument, Imburgia states that contracts should not be enforced in contravention of the
parties’ intention.113 Thus, AT&T Mobility LLC v. Concepcion preempted California law
only because it “overrode the parties' own agreement with respect to a central element of
the arbitral proceedings.”114 The Court did not invalidate the Discover Bank v. Superior
Court rule because it was an obstacle to a federal policy favoring arbitration, but because
it required class arbitration contrary to the parties’ intentions. The Discover Bank rule
109
Brief for the Respondents, supra note 5, at 11.
Id. at 11-12.
111
Id. at 12.
112
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995).
113
See Brief for the Respondents, supra note 5, at 15–16 (recognizing the role that
parties intentions have played in interpretation of contract agreements, notably where the
result does not favor arbitration.)
114
Id. at 16.
110
therefore conflicted with enforcing the contract by its terms, as required by the FAA, and
was subject to preemption.
Imburgia also contends that the Court of Appeal’s judgment should stand because
it correctly interpreted the terms of the contract as invoking California law. Even if the
court interpreted “the law of your state” to include the preemptive effect of federal law,
the FAA preempts only “requirements imposed by positive state law that would override
the parties’ own agreement.”115 Therefore, the Act may invalidate a conflicting state law
but does not limit parties’ from a choice to incorporate California’s antiwaiver provision.
Rather, the FAA seeks to enforce contracts according to the terms as intended.116
According to Imburgia, DIRECTV’s argument that the FAA preempts any waiver
of class arbitration is invalid and the Agreement ought to be enforced under state law
because both parties intended to be governed by state law. The Court rejected that
contention in Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford
Junior University when it allowed parties to contract using state law. Furthermore, the
Agreement included the poison pill clause so that it could be used nationwide for all
customers.117 The poison pill clause inherently recognized “certain provisions [would]
apply in some states but not others,” showing that state law had been explicitly
incorporated.118 Because the FAA did not preempt the parties’ choice to invoke state law,
the Agreement was appropriately enforced under the law of California.
Finally, Imburgia contends that Concepcion is distinguishable from the present
case because the parties never agreed to incorporate California law in their arbitration
115
Id. at 17.
See id. at 21 (quoting Granite Rock, 561 U.S. at 303).
117
Id. at 23.
118
Id. at 23.
116
agreement. Instead, one party merely challenged the enforceability of the arbitration
clause. The Supreme Court correctly held that California’s law was preempted because
the parties had not agreed to be bound by it. Concepcion had merely raised California’s
unconscionability doctrine as a defense to enforcement of the arbitration agreement.
Therefore, the Court did not establish a substantive ban on class arbitration waivers
because Concepcion dealt with a different situation altogether.
For the foregoing reasons, Imburgia requests that the Court affirm the judgment
below.
V. ANALYSIS
In AT&T Mobility LLC v. Concepcion the Court ruled that unconscionability was
not a defense to class arbitration waivers because the savings clause did not “preserve
state-law rules that stand as an obstacle to the accomplishment of the FAA's
objectives.”119 This is evident in Congress’s intent to prevent states from discriminating
against arbitration and place such agreements “upon the same footing as other contracts,
where it belongs.”120 Accordingly, although unconscionability remained a generally
applicable contract defense, the rule announced in Concepcion stated that it no longer
“exist[ed] at law or in equity” for class arbitration waiver provisions.
Imburgia principally contends that the FAA compels enforcement of contracts by
their terms and allows parties to “opt-out” of default rules. The inquiry in Concepcion,
however, occurs before ever reaching the question of enforcing contracts by their terms.
Concepcion held that California’s unconscionability doctrine against class arbitration
119
120
Concepcion, 131 S.Ct. at 1748.
H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924).
waivers unavoidably “frustrated” the objectives of the FAA. No further steps need be
taken to determine whether the specific terms of a class arbitration waiver comport with
state law. Concepcion stated in its simplest sense that the FAA preempts all such
obstacles, regardless whether a defense is generally applicable. It neither claimed nor
trespassed upon the broad role of state law in contract interpretation insofar as it did not
contradict the FAA. Thus, the only analysis for the Court to undertake is whether the
Agreement was enforceable without regard to the CLRA’s antiwaiver provision or related
doctrine. Under the FAA, it plainly was.
Imburgia’s argument is further based on an erroneous reading of Volt Information
Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior University.121 In Volt
the Court held that the FAA did not preempt a California law that permitted courts to
stay arbitration pending resolution of related litigation. The Court’s ruling was limited to
cases involving third parties not bound by arbitration agreement, where parties contracted
to abide by state law. Imburgia’s view that the FAA did not bar application of state law
contract principles fundamentally mischaracterizes the premise of Volt and disregards
relevant precedent. When the same argument was raised in Preston, the Court made clear
that Volt sought to “avoid the ‘possibility of conflicting rulings on a common issue of law
or fact,’ [wherein] the statute [gave] the Superior Court authority, inter alia, to stay the
court proceeding ‘pending the outcome of the arbitration’ or to stay the arbitration
‘pending the outcome of the court action.’”124 This was permissible because the dominant
arc of the decision still resolved the parties’ dispute in favor of arbitration. Volt merely
said that California could apply a state procedural rule in the interim to stay arbitration
121
124
See Brief for the Respondents, supra note 5, at 12.
Preston, 552 U.S. at 360 (quoting Volt, 489 U.S. at 471).
and avoid conflicting outcomes. Unlike the case at bar, it did not deem the arbitration
clause unenforceable or undermine the objectives of the FAA.
The California Court of Appeal therefore erred in Imburgia because it relied on a
defense that had been explicitly invalidated under the FAA. The majority conducted its
analysis using a “legal nullity”125 that did not “exist at law” to affirm the lower court
ruling. Rather, the court in Imburgia should have recognized that Concepcion foreclosed
any interpretation of the Agreement that might frustrate implementation of the FAA or
stand as an obstacle to the enforcement of arbitration agreements. The Murphy court was
thus correct that issues of contract interpretation were “largely irrelevant.”
The Imburgia court, however, was also correct to be skeptical of the analysis in
Murphy that interpreted “the law of your state” as unambiguously encompassing federal
law. Such a construction, if tenable, would be undermined by that the FAA compels
enforcement of contracts “according to [their] terms,”126 and neither party in Imburgia
likely intended “the law of your state” to hold such meaning. The Murphy court therefore
went beyond the scope of Concepcion in arguing that the choice of law provision
implicitly recognized the FAA. Such a substantial proposition would render a class of
choice of law provisions useless and dramatically alter the common sense intended
results of contracting parties. Congress, however, does not “hide elephants in
mouseholes.”127 Although the Constitution maintains the primacy of federal law, it does
not prohibit parties from choosing to contract under valid state law. The Court should
also not adopt a view that would displace lawfully-enacted federal policy explicitly
125
Brief for Petitioner, supra note 5, at 10.
9 U.S.C. § 4.
127
Whitman v. American Trucking Ass’ns, 531 U.S. 457, 468 (2001).
126
authorizing private choice-of-law agreements. The issue was wholly absent from
Concepcion and the Murphy court only needed to find the CLRA’s antiwaiver provision
invalid because it frustrated the FAA. Having no other grounds to not compel arbitration,
it could then reach the same result.
The Court should therefore find that California’s unconscionability doctrine is
preempted by the FAA because it frustrates its implementation and purpose.
VI. CONCLUSION
The decision in DIRECTV v. Imburgia largely comes down to competing
interpretations of the role of the FAA. DIRECTV argues that the Act preempts and
invalidates any state law that frustrates the enforcement of arbitration agreements.
Imburgia contends that the Act compels consideration of arbitration agreements under
state law when those contracts have explicitly and intentionally adopted state law as the
governing authority. To the extent that both interpretations are plausible, Imburgia’s
position would effectively sanction states’ discrimination against arbitration agreements
so long as those states found that the parties invoked hostile state law principles. This
construction plainly frustrates the implementation of § 2 and thus cannot be reconciled.
In contrast, DIRECTV’s claim that state courts may not from the onset apply state
laws that contradict overarching federal policy accommodates the Court’s ruling in
Concepcion and avoids a continued conflict between federal and state law. The Court
should therefore reverse the California Court of Appeal and, in furtherance of Congress’s
objectives at the time of the FAA’s enactment, hold that states are fully preempted from
enforcing agreements under state doctrines that would disfavor arbitration.