U.S. Supreme Court Forces DIRECTV Customers Out Of Court, Into Private Arbitration Over Illegal $480 Early Cancellation Fees

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In the latest of a series of decisions closing the courthouse doors on consumers, the U.S. Supreme Court ruled this morning, 6 to 3, that DIRECTV customers in California who were illegally charged “cancellation fees” of up to $480 – often taken directly out of a consumer’s bank account or charged to a credit card without the customer’s permission – cannot join together to sue the company in court. Instead, the high court ordered, each consumer must have their complaint adjudicated through a private arbitration system established by DIRECTV (now owned by AT&T). The case is DirecTV, Inc. v. Imburgia, et al.  The opinion is available at: http://www.consumerwatchdog.org/resources/supremecourtdecisiondtvvimburgia.pdf

The Court acknowledged that the arbitration clause drafted by DIRECTV said it would not apply if California state law barred such clauses. But the Court held that the California the California Court of Appeal’s decision applying California law appeared to discriminate against arbitration. This is the first time the U.S. Supreme Court has reversed a state court decision on arbitration on the ground that the state court misapplied state contract law.

Justice Breyer authored the opinion, in which he was joined by Chief Justice Roberts and Justices Scalia, Kennedy, Alito and Kagan. Justices Ginsburg and Sotomayor dissented, as did Justice Thomas.

“This is another troubling day for American consumers who are ripped off by corporate greed and malfeasance, whether it’s a satellite TV system that doesn’t work, unlawful credit card fees, or a defective vehicle,” said Harvey Rosenfield, founder of Consumer Watchdog, and one of the lawyers who represented consumers in the litigation. “The Supreme Court has taken away Americans’ only right to obtain justice: their day in court. The more the U.S. Supreme Court allows big corporations to evade accountability, the less confidence Americans have in the judicial branch and the rule of law.”

The ruling surprised the lawyers who brought the litigation because DIRECTV’s contract left it to “the law of your state” to decide whether the arbitration clause applied, and the California Court of Appeal had ruled in this case that DIRECTV’s arbitration clause was illegal and therefore unenforceable under California contract law.

Indeed, DIRECTV initially acknowledged in the California court that its arbitration clause did not apply to the lawsuit – but later changed its mind after the U.S. Supreme Court issued a 2011 ruling, Concepcion v AT&T, that requires American courts to honor virtually all arbitration clauses that corporations INSERT IGNORE INTO the fine print of lengthy contracts most consumers never read.

Consumer Fight Began in 2008

DirecTV, now part of AT&T, is the largest satellite TV provider in the U.S. with over 16 million customers.

The Imburgia, case comprises two consolidated class action cases filed in state courts in California in 2008.

According to the class action complaint:

•    DirecTV imposes a mandatory service term of eighteen to twenty four months; few customers are aware of this condition prior to signing up. The company routinely extends this “contractual obligation,” often without notice, by another year or two if malfunctioning equipment needs to be replaced, or the customer decides to make a change to programming or other services.

•    Customers who terminate service are charged an “early cancellation fee” of up to $480, regardless of the reason, plus a “deactivation fee.” Customers are forced to pay these penalties even if their equipment could not be installed, they moved and DirecTV service isn’t available in the new location, or the equipment simply stopped working.

•    DirecTV often charges these cancellation fees directly to their customers’ credit cards, or even takes the funds out of their checking accounts, without the knowledge or approval of the customer. Many customers who were victimized by this practice incurred substantial additional bank fees as a result. Many others could not afford the fee and were locked into poor or no service for years as a result.

Similar suits were filed in federal courts throughout the country. But the federal cases were dismissed in December 2013 after the Ninth Circuit Court of Appeal ordered that plaintiffs in those cases had to comply with DIRECTV’s arbitration clause.

DIRECTV’s arbitration clause stated that it was “unenforceable” if “the law of your state” forbids customers from joining together in a class action even in arbitration. In California state court, DIRECTV acknowledged that its arbitration clause was not enforceable in California, and the state Superior Court certified the case as a class action in May, 2011. DIRECTV then asked the court to dismiss the case and force consumers to resolve their complaints individually through a private arbitration, relying on the Concepcion decision. The Los Angeles Superior Court denied DIRECTV’s request and the company appealed. The Second District California Court of Appeal rejected DIRECTV’s contentions in April 2014. The company then petitioned the U.S. Supreme Court, which held oral argument on the case October 6, 2015.

Court Decision Replaces Day in Court with Private Arbitration

The Court’s ruling in Imburgia is the latest in a series of highly controversial decisions that began with Concepcion, in which the court has given corporations virtually carte blanche to require consumers to give up their right to their day in court to challenge corporate wrongdoing.

The arbitration systems created by big corporations bear little resemblance to the traditional American system of justice. An arbitrator takes on the role of the judge, jury, and court of appeals.  An arbitrator makes final decisions that are nearly impossible to challenge, even if they are obviously wrong and unfair.  Companies have the right to choose arbitrators that they think will unfairly favor the company.  Companies have the right to refuse to hire an arbitrator if they think the arbitrator will be fair to consumers.

As Justice Ginsburg explains in her dissent to today’s decision, “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.… Acknowledging the precedent so far set by the Court, I would take no further step to disarm consumers, leaving them without effective access to justice.”

To this day, DirecTV continues to employ the illegal practices. Its arbitration clause no longer contains an exception based on state law.

About the Legal Team

Consumer Watchdog is a non-profit, non-partisan public interest organization established in California in 1985. The organization fights to protect consumer rights in the courts, in the legislature, and through public education. It has offices in Los Angeles and Washington, D.C. More information: (310) 392-0522 or http://www.consumerwatchdog.org

Evans Law Firm, Inc. is a San Francisco-based plaintiff’s firm that has a special interest and focus in litigating class action and consumer fraud lawsuits, as well as elder abuse (financial and physical), and Qui Tam/false claims actions. Founding Attorney Ingrid M. Evans has successfully represented thousands of fraud victims in class actions against large corporations and has been named as a finalist for CA Consumer Attorney of the Year in 2009, 2012, and 2015.  Ms. Evans commented, “This decision represents another denial of justice by the recent pro-business US Supreme Court.  It will hurt consumers and will allow corporations to continue overcharging and imposing illegal and undisclosed penalties and charges upon its customers, while evading liability and accountability.”

More information: call (415) 441-8669, or visit: http://www.evanslaw.com

FEM Law Group (formerly the Law Offices of F. Edie Mermelstein), based in Southern California, is a boutique firm focusing on consumer fraud, financial elder abuse, civil litigation, and appellate law. Ms. Mermelstein has built a reputation as a tenacious advocate representing the vulnerable and under-served in an effort to level the playing field in pursuit of justice.  The firm is led by F. Edie Mermelstein, who said, “Class actions have gotten a lot of bad press. Most people do not understand that the class action vehicle is a way to level the playing field for the little guy when big businesses such as DIRECTV hatch schemes to make hundreds of millions of dollars a few bucks at a time with little or no fear of being stopped. That’s what happened in this case — the legalization of theft.”   More information; call (213) 986-4300, or visit: http://www.femlawgroup.com

Milstein Adelman LLP, Los Angeles, CA, is a Los Angeles-based law firm specializing in complex civil litigation.  Paul Stevens, a partner at the firm and now of Stevens, LC, argued the case at the California trial court and California Court of Appeal. He has served as lead counsel on behalf of consumers in more than 50 certified class action cases. More information: (310) 597-5107 or www.stevenslc.com

More information about the litigation, and links to the legal briefs in the case, can be found at: http://www.consumerwatchdog.org/case/fighting-unfair-directv-cancellation-policies-imburgia-and-greiner-v-directv

Harvey Rosenfield
Harvey Rosenfield
As Consumer Watchdog's founder, Harvey Rosenfield is one of the nation's foremost consumer advocates. Trained as a public interest lawyer, Rosenfield authored Proposition 103 and organized the campaign that led to its passage by California voters in 1988 despite over $80 million spent in opposition (still a record).

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