As Art posted yesterday, the Supreme Court once again held that the Federal Arbitration Act preempts a conflicting state law. The DRLE listserv already has featured some interesting commentary about the case and the Justices’ tone in both the majority and dissent. I am posting today to provide a few more details of the case and to add my two cents about some troubling aspects of the decision.
DIRECTV v. Imburgia involved an arbitration clause with a class action waiver in the satellite television service provider’s customer agreement. The clause at issue provided that the entire arbitration provision would not be enforceable if the “law of your state” makes the class action waiver unenforceable. Since California’s Discover Bank rule deemed unconscionable class action waivers in adhesive consumer services agreements with pre-dispute arbitration clauses, the California court ruled that the “law of your state” — i.e., California law — included the Discover Bank doctrine, and thus the arbitration clause was unenforceable. Even though the Supreme Court had previously held in AT&T Mobility v. Concepcion that the FAA preempted the Discover Bank rule, the California Court of Appeal interpreted the phrase “law of your state” to mean the state’s law whether preempted or not by the FAA.
The Supreme Court reversed, ruling that the California Court of Appeal’s interpretation of the phrase “the law of your state” to render the arbitration clause unenforceable did “not place arbitration contracts on equal footing with all other contracts” and thus did not give “due regard … to the federal policy favoring arbitration.” The Imburgia Court declared that the state court should have interpreted the phrase “law of your state” to mean only “valid” state law — defined to be state law as preempted. Because the Discover Bank rule was preempted in a previous case, it was “invalid” and should not have been applied.
I am troubled by the Court’s view that a state law is rendered “invalid” for all purposes if it is preempted in a particular context. While I agree that the phrase “law of your state” should not be interpreted to incorporate “invalid” law, is it true that a “preempted” law is an “invalid” law? My understanding of conflict preemption is that the federal law doesn’t invalidate outright a conflicting state law, it just supersedes it in the particular setting at issue in a particular case. Or is this just semantics and I am being overly technical?
I welcome readers’ thoughts about this.
I think you have put your finger on something that is not 100% clear. I know that several state legislatures have repealed state statutes held to conflict with the FAA, which would support the position that the Court is taking on this issue. Certainly Discover Bank remains preempted as to Imburgia, because the arbitration clause contained a class waiver that has to be enforced under FAA section 2. If there were a case without a class waiver, but Discover Bank was somehow relevant in a different way, Discover Bank would control because it would not then be in conflict with the enforcement mandate in section 2.
The Discover Bank rule cannot be completely invalidated or preempted for all purposes. What if the contract or transaction does not involve interstate commerce? From time to time, I’ll still see courts refuse to apply the FAA because there is no evidence of interstate commerce in connection with a dispute or contract. So, in connection with a purely intra-state transaction, the Discover Bank rule, as well as the consumer protection statute at issue in Imburgia, should still be valid. Also, if the parties explicitly agree to and incorporate the Discover Bank rule or the Iskanian rule in their arbitration clause, I would have a serious problem with the Court saying that the FAA would override the parties’ agreement, as the Court in Imburgia suggests.