Court of Appeal (Cal.) Finds California Law Would Not Enforce Class Action Waiver in Arbitration Clause

In Imburgia v. DIRECTV, Inc.-— Cal.Rptr.3d —-, 2014 WL 1347748 (Cal.App. 2 Dist. 2014), the Court of Appeal found that an arbitration clause that determined enforceability of a class action waiver by reference to state law was not inconsistent with Concepcion, and found the class action waiver prohibited by the CLRA.

In addition to stating that the parties waive their rights to bring class claims, section 9 of the 2007 customer agreement states that if “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” Plaintiffs argue that the law of California would find the class action waiver unenforceable because, for example, the CLRA expressly precludes waiver of the right to bring a class action under the CLRA. (Civ.Code, §§ 1751, 1781, subd. (a).) Plaintiffs conclude that the parties’ entire arbitration agreement is unenforceable, pursuant to the agreement’s express terms, because the law of plaintiffs’ state would find the class action waiver unenforceable. We agree. . . . Section 9 of the 2007 customer agreement is not, however, as explicit as either of those hypothetical examples. The question before us, then, is how to interpret section 9’s choice of law concerning enforceability of the class action waiver. Where section 9 requires us to consider whether “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable,” 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”? Plaintiffs argue that it means the latter, and we agree. . . . DIRECTV’s sole response to that argument is that “the contract interpretation principle [p]laintiffs invoke applies only where ‘the provisions in question are truly inconsistent,’ ” but “there is no inconsistency” here because “both federal and state law have a role.” (Internal quotation marks omitted.) We are not persuaded. If we apply state law alone (for example, the antiwaiver provision of the CLRA) to the class action waiver, then the waiver is unenforceable. If we apply federal law, then the class action waiver is enforceable and any state law to the contrary is preempted. That is a sufficient inconsistency to make plaintiffs’ principle of contract interpretation applicable. Indeed, the entire preemption analysis of Concepcion is based on a conflict or inconsistency between the Discover Bank rule and the FAA. (See Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1751] [“class arbitration, to the extent it is manufactured by Discover Bank … is inconsistent with the FAA”]; id. at pp. 1749–1750 [“the FAA was designed to promote arbitration,” and “California’s Discover Bank rule … interferes with arbitration”]; id. at p. 1753 [“California’s Discover Bank rule is preempted by the FAA” because it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” (internal quotation marks omitted) ].) . . . Finally, DIRECTV cites three cases as having “rejected” plaintiffs’ argument. Two of the cases are readily distinguishable because, unlike the instant case, neither of them involves an arbitration agreement that specifically provides that the enforceability of the class action waiver is to be decided under state law. (See Litman v. Cellco Partnership (3d Cir.2011) 655 F.3d 225, 231, fn. 8 [the agreement provided that state law applied “[e]xcept to the extent we’ve agreed otherwise in the provision[ ] on … arbitration,” the arbitration provision stated that it was governed by the FAA, and the class action waiver stated that “if for some reason the prohibition on class arbitrations … is deemed unenforceable, then the agreement to arbitrate will not apply”]; Meyer v. T–Mobile USA, Inc. (N.D.Cal.2011) 836 F.Supp.2d 994, 1001 [the agreement’s only choice of law provision stated: “This Agreement is governed by the Federal Arbitration Act, applicable federal law, and the laws of the state in which your billing address in our records is located”].) . . . To summarize: Section 9 of the 2007 customer agreement provides that “if … the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” The class action waiver is unenforceable under California law, so the entire arbitration agreement is unenforceable. The superior court therefore properly denied the motion to compel arbitration.