On Monday December 14, 2015 the U.S. Supreme Court (SCOTUS) denied review of the California Supreme Court’s Iskanian decision (holding unenforceable predispute mandatory arbitration agreement provisions precluding Private Attorney General Actions (PAGA)) and on the same date in DirecTV v. Imburgia (577 U.S. ___) shot down the decision of the California Court of Appeal which had held unenforceable the arbitration agreement which provided that the entire arbitration agreement was unenforceable if “the law of your state” made class arbitration waivers unenforceable, thereby allowing a class action regarding early termination fees to proceed. In fact, at the time the arbitration agreement was drafted, California law made unlawful class arbitration waivers.
Nevertheless, SCOTUS declared that the California court ruling, which deemed the term “law of your state” ambiguous, hence, consistent with California caselaw, construed such provision against the drafter of the language, was erroneous. The majority decision, which Chief Justice Roberts tasked Justice Breyer to write, acknowledged the judicial controversy in this area of law by admonishing all lower courts that “the fact that Concepcion [which struck down California’s so-called “Discover Bank” rule rendering class-arbitration waivers unenforceable] was a closely divided case…has no bearing on [courts’] undisputed obligation” to follow such precedent. SCOTUS expressed its disagreement that the term “law of your state” was ambiguous and further commented that “the reach of the canon construing contract language against the drafter must have limits” and held that “law of your state” cannot mean state law deemed invalid as a matter of federal preemption. SCOTUS held that the California court’s utilization of the ambiguity argument comprised an action not placing arbitration contracts “on equal footing with other contracts,” hence, was an invalid exercise of law which must be reversed and the arbitration agreement enforced.
Justice Ginsburg, joined by Justice Sotomayor, issued a resounding dissent, prefaced by the remark that “it has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses” and expressed her resistance to taking yet a further step ”to disarm consumers, leaving them without effective access to justice.” Reviewing the California court of appeal’s analysis, she concludes that the California court’s interpretation of the “law of your state” provision “is not only reasonable, it is entirely right.”
Ginsburg once again reviews the history of the passing of the Federal Arbitration Act (FAA) in 1925, noting that Congress passed the FAA “as a response to the reluctance of some judges to enforce commercial arbitration agreements between merchants with relatively equal bargaining power” and “could not have anticipated that the Court would apply the FAA to render consumer adhesion contracts invulnerable to attack by parties who never meaningfully agreed to arbitration in the first place.”
Ginsburg then underscores Justice O’Connor’s previous observation that “the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case-by-case, an edifice of its own creation.” Interestingly, Ginsburg closes her opinion by noting that the European Union, in contrast, prohibits binding consumers to unfair contractual terms and has interpreted this directive to bar enforcement of one-part dictated mandatory consumer arbitration agreements.
Ginsburg charges that the majority has “demeaned” the California court’s decision through “harsh judgment,” thereby again expanding the scope of the FAA, “further degrading the rights of consumers and further insulating already powerful economic entities from liability for unlawful acts.”
BTW, an interesting holiday coffee table publication: The Notorious RBG, The Life and Times of Ruth Bader Ginsburg. “Notorious RBG” coffee mugs and T-shirts also available.