New opinion declines to enforce arbitration clause: Imburgia v. DirecTV, Inc. (Updated)

In Imburgia v. DirecTV, Inc., ___ Cal.App.4th ___ (Apr. 7, 2014), the Court of Appeal (Second Appellate District, Division One) wrote as follows:

After briefing in this appeal was completed, the United States Court of Appeals for the Ninth Circuit decided a similar case concerning the enforceability of the arbitration provision and class action waiver in DIRECTV’s customer agreement under Concepcion.  (See Murphy v. DIRECTV, Inc. (9th Cir. 2013) 724 F.3d 1218 (Murphy).)  The court held that “the arbitration agreement is enforceable under Concepcion,” which preempts any state law to the contrary.  (Id. at p. 1228.)  The court reasoned that “the parties’ various contract interpretation arguments”—which included both the argument that the specific reference to state law controlled over the general reference to the FAA and the argument that ambiguities should be construed against the drafter—“are largely irrelevant to our analysis,” because under the Supremacy Clause of the United States Constitution, and the related doctrine of federal preemption, federal law is the law of every state.  (Ibid.; see also id. at p. 1226 [“Section 2 of the FAA, which under Concepcion requires the enforcement of arbitration agreements that ban class procedures, is the law of California and of every other state”]; see generally id. at pp. 1225-1228.)

We find the analysis in Murphy unpersuasive.  On the one hand, insofar as the court’s reasoning is a matter of contract interpretation, it means that when the parties used the phrase “the law of your state,” they meant “federal law plus (nonfederal) state law.”  Murphy provides no basis for concluding that the parties intended to use the phrase “the law of your state” in such a way, and we are aware of none.  On the contrary, a reasonable reader of the customer agreement would naturally interpret the phrase “the law of your state” as referring to (nonfederal) state law, and any ambiguity should be construed against the drafter. On the other hand, insofar as the court reasoned that contract interpretation is irrelevant because the parties are powerless to opt out of the FAA by contract, we are aware of no authority for the court’s position.  Rather, as we have already observed, if the customer agreement expressly provided that the enforceability of the class action waiver “shall be determined under the (nonfederal) law of your state without considering the preemptive effect, if any, of the FAA,” then that choice of law would be enforceable; Murphy cites no authority to the contrary.  Consequently, the dispositive issue is whether the parties intended to make that choice.  As a result, “the parties’ various contract interpretation arguments” are not “largely irrelevant.”  (Murphy, supra, 724 F.3d at p. 1228.)

To summarize:  Section 9 of the 2007 customer agreement provides 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.”  The class action waiver is unenforceable under California law, so the entire arbitration agreement is unenforceable.  The superior court therefore properly denied the motion to compel arbitration.

Slip op. at 9-10 (footnotes omitted).  (This was my original, brief, blog post on Murphy.)

Scott Leviant has a more detailed post on Imburgia over at The Complex Litigator.

UPDATE:  On March 23, 2015, the U.S. Supreme Court granted cert. in this case.  DIRECTV, Inc. v. Imburgia, Case No. 14-462.