Click to view the latest January 2016 Business Law TODAY court to have concluded that the “law of your state” referred even to invalid law thus placed the parties’ arbitration clause on a different footing than other California contracts, and so was fatally inconsistent with the recognized principle that a state law may not discriminate against arbitration. And because the court was unable to find a California case interpreting the phrase “law of your state” to include an invalid law, the phrase was not ambiguous and thus “the antidrafter canon would not lead California courts to reach a similar conclusion in similar cases that do not involve arbitration.” There were two dissents in DIRECTV, one by Justice Thomas based on his longstanding view that the Federal Arbitration Act does not apply to state suits, and a second by Justice Ginsburg and joined by Justice Sotomayor. Justice Ginsburg’s dissent argued that the parties intended the phrase “law of your state” to mean California law “without considering the preemptive effect of federal law.” Otherwise, the dissent reasoned, DIRECTV simply “could have employed a clause directly conditioning enforceability of the arbitration agreement on the exclusion of class arbitration” without reference to state law. Because the clause referenced state law instead, the dissent believed that the provision was ambiguous and should be construed against the drafter and in favor of the consumer. Notably, despite these dissents, two of the four dissenters in Concepcion (Justices Breyer and Kagan), were in the majority in upholding the waiver, perhaps reflecting these justices’ commitment to stare decisis. Implications While DIRECTV arose in a somewhat unique context, the decision is important because it reflects the Supreme Court’s continued adherence to enforcing arbitration clauses as written. The court emphasized that the Federal Arbitration Act “is a law of the United States, and Concepcion is an authoritative interpretation of that Act. Consequently, the judges of every State must follow it.” And, having taken and decided the case on the merits, the decision reflects the court’s willingness to police attempts by lower courts and state courts to try and sidestep the force of prior proarbitration rulings. The court’s decision is a significant victory for arbitration advocates, for at least three reasons. First, it may put the final nail in the coffin of the Discover Bank rule (and any other similar case law or statutes that had invalidated class action waivers). Second, and relatedly, the decision removes doubt about the law in California. This is important not only given the state’s prominence, but also given its size; DIRECTV settles the question of the validity of arbitration waivers even where arbitration clauses (like the one at issue) dated to the pre-Concepcion period and had a choice of law clause picking California law, or where choice of law principles might point toward application of California law. Third, DIRECTV strengthens the Buckeye Check Cashing, Inc.

v. Cardegna rule, under which anti-arbitration precedents must fall if the decision “does not place arbitration contracts ‘on an equal footing with all other contracts’” (quoting 546 U.S. 440, 443 (2006)).

As noted above, citing Buckeye, the Supreme Court overturned the California appellate court’s analysis because it could find no precedent for that court’s conclusion and the analysis was at least potentially inconsistent with other California decisions outside of the context of arbitration. This part of the DIRECTV decision sets a high bar for advocates who might try to use state law to argue that a class action waiver is invalid. The court’s reasoning suggests that Buckeye requires a court to find affirmative precedent in state law invalidating contract terms under closely similar circumstances before such a court can invalidate an arbitration waiver of judicial protections. Levi W.

Swank, Thomas M. Hefferon, and Joseph F. Yenouskas are members of Goodwin Procter’s Consumer Financial Services Litigation Practice, all resident in Washington, DC. They specialize in the defense of financial institutions, and regularly litigate the enforceability of consumer arbitration clauses in response to putative class actions and impact cases filed in state and federal courts across the country. They also have advised clients on drafting and compliance issues related to arbitration ADDITIONAL RESOURCES For other materials related to this topic, please refer to the following. Business Law Today Keeping Current: Second Circuit Adopts Bright-Line Rule for Determining Customer Status for Mandatory FINRA Arbitration By Robert J.

Giuffra Jr., Brent J. McIntosh, Matthew A. Schwartz, and Jeffrey B. Wall Vol.

24, No. 1 September 2014 *  * * Business Law Section Program Library The CFPB’s Arbitration Study: Where Will the CFPB Go From Here? (PDF) (Audio) Presented by: Consumer Financial Services Location: 2015 Annual Meeting The Consumer Class Action Is Dead, Long Live the Consumer Class Action! (PDF) (Audio) Presented by: Business and Corporate Litigation, Consumer Financial Services Location: 2015 Annual Meeting Why the Fuss about Arbitration? Advantages, Disadvantages and Strategies for both Plaintiffs and Defendants (PDF) (Audio) Presented by: Consumer Financial Services Location: 2015 Committee Meeting Published in Business Law Today, January 2016. © 2016 by the American Bar Association.

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