SUPREME COURT OF THE UNITED STATES
_________________
No. 14–462
_________________
DIRECTV, INC., PETITIONER
v. AMY
IMBURGIA, et al.
on writ of certiorari to the court of appeal
of california, second appellate district
[December 14, 2015]
Justice Ginsburg, with whom Justice Sotomayor
joins, dissenting.
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. The form contract in this case
contains a Delphic provision stating that “if the law of your
state” does not permit agreements barring class arbitration,
then the entire agreement to arbitrate becomes unenforceable,
freeing the aggrieved customer to commence class-based litigation
in court. This Court reads that provision in a manner most
protective of the drafting enterprise. I would read it, as the
California court did, to give the customer, not the drafter, the
benefit of the doubt. 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.
I
This case began as a putative class action in
state court claiming that DIRECTV, by imposing hefty
early-termination fees, violated California consumer-protective
legislation, including the Consumers Legal Remedies Act (CLRA),
Cal. Civ. Code Ann. §1750
et seq. (West
2015)
. App. 58. DIRECTV did not initially seek to stop the
lawsuit and compel bilateral arbitration. See
id., at
52–53. The reason for DIRECTV’s failure to oppose the
litigation is no mystery. The version of DIRECTV’s service
agreement applicable in this case (the 2007 version) requires
consumers to arbitrate all disputes and to forgo class arbitration.
Id., at 128–129. If the relevant provision stopped
there, the Court’s recent precedent, see
American Express
Co. v.
Italian Colors Restaurant, 570 U. S. ___
(2013);
AT&T Mobility LLC v.
Concepcion, 563
U. S. 333 (2011) , would control, and DIRECTV could have
resisted the lawsuit. But DIRECTV’s form contract
continued:The entire arbitration clause is unenforceable
“[i]f . . . the law of your state would find”
unenforceable the agreement’s class-arbitration prohibition.
App. 129. At the time plaintiff-respondents Imburgia and Greiner
commenced their court action, class-arbitration bars like the one
in DIRECTV’s agreement were
per se unenforceable
as unconscionable under the law of California. See
Discover
Bank v.
Superior Court, 36 Cal. 4th 148, 162–163,
113 P. 3d 1100, 1110 (2005).
Nearly three years into the litigation, this
Court held in
Concepcion, 563 U. S., at 338–351,
that the Federal Arbitration Act (FAA), 9 U. S. C.
§1
et seq., preempts state rules that render
class-arbitration bans unenforceable. DIRECTV then moved to halt
the long-pending lawsuit and compel bilateral arbitration. App. to
Pet. for Cert. 4a. The California Superior Court denied
DIRECTV’s motion, No. BC398295 (Super. Ct. Los Angeles Cty.,
Cal., Jan. 26, 2012), App. to Pet. for Cert. 17a–20a, and the
Califor-nia Court of Appeal affirmed. The Court of Appeal first
observed that, under the California law DIRECTV confronted when it
drafted the clause in question, provisions relinquishing the right
to proceed under the CLRA on behalf of a class would not be
enforced. 225 Cal. App. 4th 338, 342, 170 Cal. Rptr. 3d 190, 194
(2014). The question dispositive of DIRECTV’s motion, the
California court explained, trains on the meaning of the atypical
contractual phrase “the law of your state”: “does
it mean ‘the law of your state to the extent it is not
preempted by the FAA,’ or ‘the law of your state
without considering the preemptive effect, if any, of the
FAA’?”
Id., at 344, 170 Cal. Rptr. 3d, at
195.
In resolving this question, the California court
emphasized that DIRECTV drafted the service agreement, giving its
customers no say in the matter, and reserving to itself the right
to modify the agreement unilaterally at any time.
Id., at
345, 170 Cal. Rptr. 3d, at 196. See also Brief for Respondents
1–2. DIRECTV used the same take-it-or-leave-it contract
everywhere it did business.
Ibid. “[ T ]o
protect the party who did not choose the language from an
unintended or unfair result,” the California court applied
“the common-law rule of contract interpretation that a court
should construe ambiguous language against the interest of the
party that drafted it.” 225 Cal. App. 4th, at 345, 170 Cal.
Rptr. 3d, at 196 (quoting
Mastrobuono v.
Shearson Lehman
Hutton, Inc., 514 U. S. 52 –63 (1995)). That rule
was particularly appropriate in this case, the court reasoned, for,
“as a practical matter, it seems unlikely that plaintiffs
anticipated in 2007 that the Supreme Court would hold in 2011 that
the FAA preempts” state-law protection against compelled
class-arbitration waivers. 255 Cal. App. 4th, at 345, 170 Cal.
Rptr. 3d, at 196 (internal quotation marks omitted).
II
The Court today holds that the California
Court of Appeal interpreted the language in DIRECTV’s service
agreement so unreasonably as to suggest discrimination against
arbitration in violation of the FAA.
Ante, at 8. As I see
it, the California court’s interpretation of the “law
of your state” provision is not only reasonable, it is
entirely right.
Arbitration is a matter of “consent, not
coercion.”
Stolt-Nielsen S. A. v.
AnimalFeeds
Int’l Corp., 559 U. S. 662, 681 (2010) (internal
quotation marks omitted). The FAA “requires courts to enforce
privately negotiated agreements to arbitrate, like other contracts,
in accordance with their terms.”
Volt Information
Sciences, Inc. v.
Board of Trustees of Leland Stanford
Junior Univ., 489 U. S. 468, 478 (1989) . “[T]he
interpretation of private contracts is ordinarily a question of
state law, which this Court does not sit to review.”
Id., at 474. See also
First Options of Chicago, Inc.
v.
Kaplan, 514 U. S. 938, 944 (1995) (when interpreting
arbitration agreements, courts “should apply ordinary
state-law principles that govern the formation of
contracts”). Historically, this Court has respected
state-court interpretations of arbitration agreements. See
Mastrobuono, 514 U. S., at 60, n. 4;
Volt
Information Sciences, 489 U. S., at 484. Indeed, in the
more than 25 years between
Volt Information Sciences and
this case, not once has this Court reversed a state-court decision
on the ground that the state court misapplied state contract law
when it determined the meaning of a term in a particular
arbitration agreement. Today’s decision is a dangerous
first.
Beyond genuine debate, DIRECTV originally meant
the “law of your state” clause to refer to its
customer’s home state law untouched by federal preemption. As
DIRECTV explained in a state-court filing, the clause prevented
enforcement of the arbitration agreement in those States,
California among them, where the class-arbitration proscription was
unenforceable as a matter of state law, while requiring bilateral
arbitration in States that did not outlaw purported waivers of
class proceedings. App. 52 (“The Customer Agreement between
DIRECTV and its customers provides that the customer’s home
state laws will govern the relationship, and that any disputes will
be resolved in individual arbitration
if the
customer’s home state laws enforce the parties’
arbitration agreement.” (emphasis added)).
According to DIRECTV, because the
class-arbitration ban, post-
Concepcion, is enforceable in
all States, this case must now be resolved, if at all, in bilateral
arbitration. The Court agrees. After
Concepcion, the Court
maintains, it no longer matters whether DIRECTV meant
California’s “home state laws” when it drafted
the 2007 version of its service agreement. But
Concepcion
held only that a State cannot
compel a party to engage in
class arbitration when the controlling agreement unconditionally
prohibits class procedures. See 563 U. S., at 351
(“Arbitration is a matter of contract, and the FAA requires
courts to honor parties’ expectations,” so parties may
consent to class procedures even though such procedures “may
not be required by state law.”). Just as a contract itself
may provide for class arbitration, so the parties may
choose
to be bound by a particular state law, in this case, the CLRA, even
if the FAA would otherwise displace that state law.
Hall Street
Associates, L. L. C. v.
Mattel, Inc., 552 U. S.
576, 586 (2008) (“[T]he FAA lets parties tailor some, even
many, features of arbitration by contract, including
. . . procedure and choice of substantive
law.”).[
1] “In
principle,” the Court acknowledges, parties “might
choose to have portions of their contract governed by the law of
Tibet, [or] the law of pre-revolutionary Russia.”
Ante, at 6; see Brief for Petitioner 20 (observing that the
FAA would allow parties “to bind themselves by reference to
the rules of a board game”). Pre-revolutionary Russian law,
but not California’s “home state laws” operative
and unquestionably valid in 2007? Makes little sense to me.
Nothing in
Concepcion or the FAA
nullifies provisions of the CLRA. They hold sway when parties elect
judicial resolution of their disputes, and should similarly control
when parties choose that consumer-protective law to govern their
arbitration agreements. See
Volt Information Sciences, 489
U. S., at 475 (where parties had “incorporat[ed]
. . . California rules of arbitration into their
agreement,” they had “no FAA-guaranteed right to compel
arbitration” on terms inconsistent with those California
rules).[
2] Thus, even after
Concepcion, one could properly refer to the CLRA’s
class-waiver proscription as “California law.” To
repeat, the dispositive question in this case is whether the
parties intended the “law of your state” provision to
mean state law as preempted by federal law, as the Court today
reads the provision, or home state law as framed by the California
Legislature, without considering the preemptive effect of federal
law, as the California court read it.
The latter reading is the better one. DIRECTV
had no occasion to refer to “the law of [its
customer’s] state” had it meant to incorporate state
law as preempted by the FAA. That is, DIRECTV, like virtually every
other company with a similar service agreement, could have employed
a clause directly conditioning enforceability of the arbitration
agreement on the exclusion of class arbitration. Indeed, DIRECTV
has done just that in service agreements both before and after
2007. App. 121 (the 2004 version provides that “[a] Court may
sever any portion of [the arbitration agreement] that it finds to
be unenforce-able, except for the prohibition on class or
representative arbitration”); Brief for Respondents
35–36 (stating that the June 2015 version of DIRECTV’s
agreement provides that “[a] court may sever any portion of
[the arbitration agreement] that it finds to be unenforceable,
except for the prohibition on [class arbitration]” (internal
quotation marks omitted)). Had DIRECTV followed this pattern in its
2007 form contract, the arbitration agreement,
post-
Concepcion, unquestionably would have been enforceable
in all States. In the 2007 version, however, DIRECTV chose a
different formulation, one referring to the “law of [its
customer’s] state.” I would not translate that term to
be synonymous with “federal law.” If DIRECTV meant to
exclude the application of California legislation, it surely chose
a bizarre way to accomplish that result.
As earlier noted, see
supra, at 3, and as
the California court appreciated, courts generally construe
ambiguous contractual terms against the drafter. See
Mastrobuono, 514 U. S., at 63 (“Respondents
drafted an ambiguous document, and they cannot now claim the
benefit of the doubt.”). This “common-law rule of
contract interpretation,”
id., at 62, reflects the
principle that a party should not be permitted to write an
ambiguous term, lock another party into agreeing to that term, and
then reap the benefit of the ambiguity once a dispute emerges. The
rule has particular force where, as here, a court is interpreting a
“standardized contrac[t]” that was not the product of
bilateral bargaining. Restatement (Second) of Contracts §206,
Comment
a (1979).
Allowing DIRECTV to reap the benefit of an
ambiguity it could have avoided would ignore not just the hugely
unequal bargaining power of the parties, but also their reasonable
expectations at the time the contract was formed. See
Mastrobuono, 514 U. S., at 63 (it is particularly
appropriate to construe terms against the drafter where the other
party had no reason to anticipate or intend the drafter’s
preferred result). See also
Trans World Airlines, Inc. v.
Franklin Mint Corp., 466 U. S. 243, 262 (1984)
(“[C]ontract[s] . . . are to be read in the light
of the conditions and circumstances existing at the time they were
entered into, with a view to effecting the objects and purposes of
the [parties] thereby contracting.” (quoting
Rocca v.
Thompson, 223 U. S. 317 –332 (1912); ellipsis in
original)). At the time DIRECTV imposed this agreement on its
customers, it assumed that the arbitration clause would be
unenforceable in California. App. 52 (explaining in state-court
filing that, “[b]ecause California law would not enforce the
arbitration agreement . . . , DIRECTV has not sought
and will not seek to arbitrate disputes with California
customers”). Likewise, any California customer who read the
agreement would scarcely have understood that she had submitted to
bilateral arbitration of any and all disputes with DIRECTV. She
certainly would have had no reason to anticipate the Court’s
decision in
Concepcion, rendered four years later, or to
consider whether “law of your state” is a chameleon
term meaning California legislation when she received her service
contract, but preemptive federal law later on.
DIRECTV primarily responds that the FAA requires
construction of all terms in arbitration agreements in favor of
arbitrability. True, this Court has found in the FAA a
“federal policy favoring arbitration.”
Ante, at
10 (quoting
Volt Information Sciences, 489 U. S., at
476). But the Court has also cautioned that an arbitration-favoring
presumption applies “only where it reflects, and derives its
legitimacy from, a judicial conclusion that arbitration of a
particular dispute is what the parties intended because their
express agreement to arbitrate was validly formed[, is] legally
enforceable[,] and [is] best construed to encompass the
dispute.”
Granite Rock Co. v.
Teamsters, 561
U. S. 287, 303 (2010) . DIRECTV acknowledges that
“[t]his case . . . involves a threshold dispute
over the enforceability of the parties’ arbitration
agreement” in its entirety. Reply Brief 7. Like the
California court, I would resolve that dispute by employing
traditional rules of contract interpretation
sans any
arbitration-favoring presumption, including the rule that ambiguous
language should be construed against the drafter. See
supra,
at 3, 7.
III
Today’s decision steps beyond
Concepcion and
Italian Colors. There, as here, the
Court misread the FAA to deprive consumers of effective relief
against powerful economic entities that write no-class-action
arbitration clauses into their form contracts. In
Concepcion, 563 U. S., at 336, customers brought a
class action claiming that AT&T Mobility had improperly charged
$30.22 in sales tax while advertising cellular telephones as free.
AT&T Mobility’s form consumer contract contained a
mandatory arbitration clause and a class-arbitration proscription.
Because consumers lacked input into the contractual terms, and
because few rational consumers would go through the hassle of
pursuing a $30.22 claim in bilateral arbitration, the California
courts deemed the arbitration agreement unenforceable as
unconscionable. See
id., at 365 (Breyer, J., dissenting)
(“ ‘[T]he maximum gain to a customer for the
hassle of arbitrating a $30.22 dispute is still just
$30.22.’ ” (quoting
Laster v.
AT&T
Mobility LLC, 584 F. 3d 849, 856 (CA9 2009)));
Carnegie v.
Household Int’l, Inc., 376
F. 3d 656, 661 (CA7 2004) (“The
realistic
alternative to a class action is not 17 million individual suits,
but zero individual suits, as only a lunatic or a fanatic sues for
$30.”), cert. denied, 543 U. S. 1051 (2005) .
Nonetheless, the Court held that the FAA mandated enforcement of
the entire arbitration agreement, including the class-arbitration
ban.
Concepcion, 563 U. S., at 343. Two years later, in
Italian Colors, 570 U. S., at ___ (slip op., at 5), the
Court reaffirmed that class-arbitration prohibitions are
enforceable even where claimants “have no economic incentive
to pursue their . . . claims individually in
arbitration.” Today, the Court holds that consumers lack not
only protection against unambiguous class-arbitration bans in
adhesion contracts. They lack even the benefit of the doubt when
anomalous terms in such contracts reasonably could be construed to
protect their rights.[
3]
These decisions have predictably resulted in the
deprivation of consumers’ rights to seek redress for losses,
and, turning the coin, they have insulated powerful economic
interests from liability for violations of consumer-protection
laws. See N. Y. Times, Nov. 1, 2015, p. A1, col. 5 (“By
inserting individual arbitration clauses into a soaring number of
consumer and employment contracts, companies [have] devised a way
to circumvent the courts and bar people from joining together in
class-action lawsuits, realistically the only tool citizens have to
fight illegalor deceitful business practices.”). Studies
confirm that hardly any consumers take advantage of bilateral
arbitration to pursue small-dollar claims. Resnik, Diffusing
Disputes: The Public in the Private of Arbitration, the Private in
Courts, and the Erasure of Rights, 124 Yale L. J. 2804,
2900–2910 (2015) (Resnik, Diffusing Disputes). Because
consumers lack bargaining power to change the terms of consumer
adhesion contracts
ex ante, “[t]he providers
[have] won the power to impose a mandatory, no-opt-out system in
their own private ‘courts’ designed to preclude
aggregate litigation.” Resnik, Fairness in Numbers: A Comment
on
AT&T v.
Concepcion,
Wal-Mart v.
Dukes, and
Turner v.
Rogers, 125 Harv.
L. Rev. 78, 133 (2011). See also Miller, Simplified Pleading,
Meaningful Days in Court, and Trials on the Merits: Reflections on
the Deformation of Federal Procedure, 88 N. Y. U. L. Rev.
286, 323 (2013) (“[P]owerful economic entities can impose
no-class-action-arbitration clauses on people with little or no
bargaining position—through adhesion contracts involving
securities accounts, credit cards, mobile phones, car rentals, and
many other social amenities and necessities.”).[
4] The proliferation of take-it-or-leave-it
agreements mandating arbitration and banning class procedures, and
this Court’s readiness to enforce such one-sided agreements,
have disabled consumers from “shop[ping] to avoid arbitration
mandates.” Resnik, Diffusing Disputes 2839. See also
id., at 2872 (“[T]he numbers of clauses mandating
arbitration are soaring across many sectors.”).
The Court has suggested that these anticonsumer
outcomes flow inexorably from the text and purpose of the FAA. But
Congress passed the FAA in 1925 as a response to the reluctance of
some judges to enforce commercial arbitration agreements between
merchants with relatively equal bargaining power. Moses,
Arbitration Law: Who’s in Charge? 40 Seton Hall L. Rev.
147, 170–171 (2010). See also
id., at 170 (contract
disputes between merchants have been a proper subject of
arbitration since the 1600’s). The FAA’s purpose was to
“make the contracting party live up to his agreement.”
H. R. Rep. No. 68–96, at 1 (1924). See also Moses,
supra, at 147 (Congress sought to “provide federal
courts with procedural law that would permit the enforcement of
arbitration agreements between merchants in diversity
cases.”). Congress in 1925 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. See Resnik, Diffusing Disputes 2860
(“The merchants and lawyers who forged the public law of
arbitration in the United States sought federal legislation to
enforce
consensual agreements.” (emphasis added)).
Nor does the text of the FAA compel this result.
Section 2, on which the Court relied in
Concepcion,
Italian Colors, and this case, prescribes simply that
arbitration provisions are to be treated the same as other
contractual terms: “[a] written provision in . . .
a contract evidencing a transaction involving commerce to settle by
arbitration a controversy . . . shall be valid,
irrevocable, and enforce-able, save upon such grounds as exist at
law or in equity for the revocation of any contract.” 9
U. S. C. §2. As Justice O’Connor observed when
the Court was just beginning to transform the FAA into what it has
become, “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.”
Allied-Bruce Terminix Cos. v.
Dobson, 513 U. S. 265, 283 (1995) (concurring opinion).
See also Miller,
supra, at 324 (“[O]ver the years the
Act has been transformed by the Supreme Court through constant
expansion into an expression of a ‘federal policy’
favoring arbitration, whether it involves a bilateral business
dispute or not.”).
The Court’s ever-larger expansion of the
FAA’s scope contrasts sharply with how other countries treat
manda-tory arbitration clauses in consumer contracts of adhesion. A
1993 European Union Directive forbids binding consumers to unfair
contractual terms, defined as those “not . . .
individually negotiated” that “caus[e] a significant
imbalance in the parties’ rights and obligations
. . . to the detriment of the consumer.” Coun.
Directive 93/13, Art. 3, 1993 O. J. (L. 95) 31. A subsequent EU
Recommendation interpreted this Directive to bar enforcement of
one-party-dictated mandatory consumer arbitration agreements.
Comm’n Recommendation 98/257, 1998 O. J. (L. 115) 34
(“The consumer’s recourse to the out-of-court procedure
may not be the result of a commitment prior to the materialisation
of the dispute, where such commitment has the effect of depriving
the consumer of his right to bring an action before the courts for
the settlement of the dispute.”). As a result of this
Directive and Recommendation, disputes between providers and
consumers in the EU are arbitrated only when the parties mutually
agree to arbitration on a “post-dispute basis.”
Sternlight, Is the U. S. Out on a Limb? Comparing the
U. S. Approach to Mandatory Consumer and Employment
Arbitration to That of the Rest of the World, 56 U. Miami
L. Rev. 831, 847–848 (2002) (emphasis deleted); see
id., at 852 (enforcement of mandatory arbitration clauses in
consumer contracts of adhesion “is quite rare, if not
nonexistent,” outside the United States).
* * *
The California Court of Appeal appropriately
applied traditional tools of state contract law to interpret
DIRECTV’s reference to the home state laws of its customers.
Demeaning that court’s judgment through harsh construction,
this Court has again expanded the scope of the FAA, further
degrading the rights of consumers and further insulating already
powerful economic entities from liability for unlawful acts. I
resist the Court’s bent, and would affirm the judgment of the
California Court of Appeal.