Law360, Chicago (April 08, 2014, 3:22 PM ET) — A California appeals court on Monday refused to send to arbitration a consumer class action accusing DirecTV Inc. of failing to disclose early termination fees, finding that a waiver of class claims in the company’s arbitration agreement with customers was unenforceable under state law.
A three-judge panel agreed with a lower court that the language of the arbitration agreement included in DirecTV’s service contracts deferred to state law, including the California Consumer Legal Remedies Act, which bars waiving the right to bring class claims, according to an opinion penned by Justice Frances Rothschild.
“The class action waiver is unenforceable under California law, so the entire arbitration agreement is unenforceable,” the opinion said. “The superior court therefore properly denied the motion to compel arbitration.”
The ruling ensures that five-year-old allegations that DirecTV ripped off California consumers will move forward in state court as a class action, rather than being decided on a case-by-case basis by arbitrators.
Amy Imburgia and Marlene Mecca sued DirecTV in September 2008, claiming the satellite provider entered into contracts with its customers over the phone or in-person after satellite installation but did not disclose the stiff termination fees associated with canceling the service before the end of the contract.
In upholding the lower court’s decision on Monday, the panel rejected DirecTV’s argument that the arbitration agreement passed muster under the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, a ruling that cleared the way for companies to insert class action waivers in consumer arbitration agreements.
During oral arguments last month, the company relied on the Ninth Circuit’s 2013 ruling in Murphy v. DirecTV Inc., which held that a similar arbitration agreement was enforceable under Concepcion because the high court’s decision preempted any state law to the contrary.
But the panel found the Ninth Circuit’s analysis in Murphy “unpersuasive,” rejecting the federal appeals court’s finding that the parties' contract interpretation arguments were “largely irrelevant” because the Federal Arbitration Act preempts state law.
“[I]nsofar 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,” Justice Rothschild wrote.
“Rather… 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,” the judge added, quoting from the arbitration agreement.
Counsel for the parties did not immediately respond to calls seeking comment on Tuesday.
Los Angeles Superior Court Judge Emilie H. Elias certified a class in the case in April 2011. A month later, after the Concepcion decision was handed down, DirecTV moved to decertify the class and either dismiss or stay the case so it could be sent to arbitration. But Judge Elias denied that motion, ruling that Concepcion did not apply, prompting DirecTV's instant appeal.
The plaintiffs are represented by Paul D. Stevens, Mayo L. Makarczyk and Shireen Mohsenzadegan of Milstein Adelman LLP.
DirecTV is represented by Melissa D. Ingalls, Robyn E. Bladow and Shaun Paisley of Kirkland & Ellis LLP.
The case is Imburgia et al. v. DirectTV Inc., case number B239361, in the California Court of Appeal, Second Appellate District.
–Additional reporting by Daniel Siegal. Editing by John Quinn.