Supreme Preemption

I woke up this morning to a US Supreme Court decision that rewrote the traditional balance of power between California courts and federal power.  

Until today, California courts had been the final word on the “laws of your state,”  in other words what California law said on matters of contracts and contract interpretation specifically citing California law.  

In siding with DIRECTV against Consumer Watchdog and our legal team, SCOTUS threw that standard out the window.  It overturned the judgment of the California Court of Appeal and California Supreme Court that, under the golden state’s laws, ripped off consumers could pursue a class action against the company.  DIRECTV had, after all, initially waived its right to arbitration, and subjected itself to state courts, until it changed its mind after the case was well under way.

What SCOTUS essentially said today is whenever “arbitration” is mentioned by a corporation -- whether it defies state jurisprudence, fundamental fairness, or what the state's courts rule -- the Federal Arbitration Act will shield them. 

As Justice Breyer, writing for the majority, ruled, “Although we may doubt that the Court of Appeal has correctly interpreted California law, we recognize that California courts are the ultimate authority on that law. While recognizing this, we must decide whether the decision of the California court places arbitration contracts ‘on equal footing with all other contracts.’” In other words, California courts are the final arbiters of California contract law unless we say they’re not because we think they aren’t giving corporations the right to arbitrate that they want. Never mind any laws when it comes to corporate arbitration, which is now a power above all other rules decided over the last two centuries in America.

It’s a good thing the California constitution didn’t use the word “arbitration” or every other word in it could be subject to federal preemption under the twisted standard of today’s ruling.

The odd federal power grab was reflected in the strange bedfellows of the 6 - 3 opinion; Justice Thomas joining Justices Ginsburg and Sotomayor in dissent and to make a stand for state rights.

As Justice Ginsburg acknowledges in her dissent, “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….. 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.”

The sad result is 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).  It’s simply not feasible economically.  

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.

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.

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

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