WASHINGTON (Legal Newsline) - In enforcing a clause that requires the arbitration of disputes rather than creating class action lawsuits, the U.S. Supreme Court has helped consumers, a free enterprise advocate says.
The U.S. Supreme Court, in December's DirecTV, Inc. v. Imburgia, upheld an arbitration provision in a consumer contract that came into dispute in California.
A lower court had said that the arbitration provision in the contract between the plaintiff and DirecTV was unenforceable under a California law. However, the U.S. Supreme Court justices decided that the Federal Arbitration Act pre-empted that California law.
Therefore, the Supreme Court rejected the lower court’s reasoning, which hinged on the principle that the FAA did not apply because it is phrased such that a consumer contract would be invalidated if the “law of your state” made class arbitration waivers unenforceable.
“Businesses and consumers both benefit from this certainty in the law, the ability to freely contract for arbitration of disputes,” said attorney Deborah La Fetra, head of the Pacific Legal Foundation's Free Enterprise Project.
“In cases like this, simply upholding the arbitration contract ensures that aggrieved consumers have an informal, inexpensive means to pursue their claims against the company, without the added expense and delays that occur with courts and lawyers.
“Multiple studies have shown that consumers recover as well or better in arbitration than they do in court.”
The 6-3 majority opinion written by Justice Stephen Breyer stated that lower courts must follow the rulings laid out in earlier cases, specifically AT&T Mobility LLC v. Concepcion, citing the Supremacy Clause, which forbids state courts from refusing to enforce federal law because they disagree with it.
"The Supreme Court reaffirmed that arbitration contracts must be treated on equal footing of as all other contracts,” La Fetra said.
The opinion cited multiple reasons why the California court’s decision did not treat the contracts in question equally with other types of contracts. These included that there are no contract cases where state law is interpreted to include invalid state law and that California never considers preempted laws to retain validity, among other reasons.
The dissenting opinion, drafted by Justice Ruth Bader Ginsburg and joined by Justice Sonia Sotomayor, stated that the language of the contract was ambiguous and that the California court’s interpretation of the law was reasonable and right.
“The specific issue in this case turned on some unique language in unique circumstances that is not likely to be repeated – so in that sense the issue itself is not that significant,” La Fetra said.
“The significance lies in the Supreme Court’s willingness to decide this case notwithstanding the unique issue for the purpose of rebuking the California courts, once again, for failure to abide by federal law.”
The opinion recognized that, rather than breaking new ground, as Supreme Court cases usually do, the decision was within the confines of “present well-established law.”
Presently, the federal Consumer Financial Protection Bureau is considering a ban on clauses that send class action claims to arbitration rather than civil court.