SCOTUS Reminds CA Courts of the Strength of Preemption Under Concepcion

Matthew Peck
December 21, 2015

In a 6-3 opinion authored by Justice Breyer, the Supreme Court reversed a California court of appeal decision that refused to enforce a class-wide arbitration waiver on the grounds the waiver—although unenforceable under California state law at the time of contracting—was preempted by the Court’s holding in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).  DirecTV, Inc. v. Imburgia, 2015 WL 8546242 (Dec. 14, 2015) (“Imbrugia“). In Concepcion, the Court applied Federal Arbitration Act (“FAA”) preemption to strike down a California law that prohibited consumer class-arbitration waivers on unconscionability grounds.

At issue in Imbrugia was a provision in a DirecTV agreement that required binding arbitration to resolve any disputes but then voided the arbitration requirement “if the law of your state would find this agreement to dispense with class arbitration procedures unenforceable.” While the case was pending in the trial court, the Court issued its opinion in Concepcion. DirecTV then sought to compel arbitration because it could now avoid class-wide arbitration given that California’s prohibition on class-wide waivers was invalidated by Concepcion. Notwithstanding, the court of appeal affirmed the trial court’s denial of DirecTV’s motion to enforce the arbitration agreement reasoning that “law of your state” meant California law as it existed prior to Concepcion. The Ninth Circuit came to a conclusion directly opposite of that in Murphy v. DirecTV, Inc., 724 F.3d 1218 (9th Cir. 2013) on precisely the same issue involving a substantively identical arbitration agreement.

The Supreme Court granted certiorari to resolve the split. The Court noted that while contract interpretation is normally a matter left to state law, the key inquiry was whether the court of appeal’s interpretation left arbitration agreements “on equal footing with all other contracts.” The Court identified six reasons why it did not, the first of which rendered its decision a foregone conclusion: “[a]bsent any indication in the contract that this language is meant to refer to invalid state law, it presumably takes its ordinary meaning: valid state law.” In other words, applying preempted California state law to invalidate the class-wide arbitration waiver was an “arbitration-specific” means of analyzing the parties’ contractual intent, given the absence of case law in other contexts “interpret[ing] similar language to refer to state laws authoritatively held to be invalid.”

In a short dissent, Justice Thomas affirmed Concepcion but explicated his longstanding view that the FAA applies only to federal courts and should not be construed to require state courts to enforce arbitration agreements. In a separate, impassioned dissent, Justice Ginsburg, joined by Justice Sotomayor, acknowledged Concepcion, but refused to take “further step[s] to disarm consumers, leaving them without effective access to justice.”

While the Court’s decision does not expand ConcepcionImburgia nevertheless stands as a reminder of Concepcion’s strong statement of federal preemption of any state law that is applied to abridge a party’s right to enforce an agreement to arbitrate under the FAA.