Murphy v. Directv, Inc.

• Decision Date: 30 July 2013
• Docket Number: No. 11–57163.,11–57163.
• Parties: John MURPHY; Greg Masters; Roberta Weiss, on behalf of themselves and all others similarly situated, Plaintiffs–Appellants, v. DIRECTV, INC.; DirecTV Merchandising, Inc.; DirecTV Enterprises, LLC; DirecTV Holdings LLC; The DirecTV Group, Inc.; Best Buy Stores, L.P., Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

724 F.3d 1218

John MURPHY; Greg Masters; Roberta Weiss, on behalf of themselves and all others similarly situated, Plaintiffs–Appellants,

v.DIRECTV, INC.; DirecTV Merchandising, Inc.; DirecTV Enterprises, LLC; DirecTV Holdings LLC; The DirecTV Group, Inc.; Best Buy Stores, L.P., Defendants–Appellees.

No. 11–57163.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted May 6, 2013.

Filed July 30, 2013.

F. Paul Bland, Jr. (argued), Public Justice, P.C., Washington, D.C.; Leslie A. Bailey, Public Justice, P.C., Oakland, CA; Robert S. Green, Green & Noblin, P.C., San Francisco, CA; and Michael R. Reese, Reese Richman LLP, New York, NY, for Plaintiffs–Appellants.

Melissa D. Ingalls (argued), Robyn E. Bladow, and Shaun Paisley, Kirkland & Ellis LLP, Los Angeles, CA, for Defendants–Appellees DirecTV, Inc., DirecTV Merchandising, Inc., DirecTV Enterprises, LLC, DirecTV Holdings LLC, and The DirecTV Group, Inc.

Roman M. Silberfeld (argued), Michael A. Geibelson, and Rebecka M. Biejo, Robins, Kaplan, Miller & Ciresi LLP, Los Angeles, CA, for Defendant–Appellee Best Buy Stores, L.P.

Appeal from the United States District Court for the Central District of California, Jacqueline H. Nguyen, District Judge, Presiding. D.C. No. 2:07–cv–06465–JHN–VBK.

Before JOHN T. NOONAN, KIM McLANE WARDLAW, and MARY H. MURGUIA, Circuit Judges.

OPINION

WARDLAW, Circuit Judge:

In AT & T Mobility v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), the Supreme Court held that Section 2 of the Federal Arbitration Act (“FAA”) preempts the State of California's rule rendering unenforceable—as unconscionable—arbitration provisions in consumer contracts that waive collective or class action proceedings, see Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005) (the “Discover Bank rule”), reasoning that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Concepcion, 131 S.Ct. at 1748. This putative consumer class action, filed before Concepcion was decided, but pending in the district court when Concepcion issued, charges satellite television provider DirecTV and electronic retailer Best Buy with violations of California's Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”). We must decide whether Concepcion applies to the unique arbitration clause in the customer service agreement between DirecTV and individuals who believed they purchased DirecTV equipment from Best Buy stores and, if so, whether Best Buy, which is not a party to that agreement, is entitled to the benefit of the arbitration clause. The district court compelled arbitration of all claims against DirecTV and Best Buy. We affirm as to DirecTV, but reverse as to Best Buy.¹

I.

A summary of the alleged scheme to deceive consumers is necessary to understand the relationship between Best Buy and DirecTV and the claims against them. Plaintiffs allege that Defendants present certain DirecTV service equipment, such as receivers and digital video recorders, as though they were for sale at Best Buy stores when in fact the Defendants consider the transaction to be a lease rather than an outright purchase. Plaintiffs claim that even after the Defendants began offering the equipment in question only for lease, customers continued to receive receipts at Best Buy stores that suggested the equipment had been purchased—most notably because the word “SALE” was printed in bold, capitalized letters at the top of the receipts. Even after language on the receipt was changed to include references to a “lease,” Plaintiffs allege that the new language was “buried” in fine print that most consumers would not notice or understand.² Plaintiffs claim that the Defendantscrafted oppressive and unfair lease terms, including unexpected and unreasonable fees.

When a consumer becomes a DirecTV customer, he or she receives a “Customer Agreement” that governs the relationship between DirecTV and its subscribers. Section 9 of the Customer Agreement, entitled “Resolving Disputes,” provides that all disputes between DirecTV and its customers “will be resolved only by binding arbitration.” Subsection 9(c)(ii) of the Customer Agreement provides: “Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity.” However, the Customer Agreement also sets forth a so-called “jettison clause”: “If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” The subsequent section, Section 10 (“Miscellaneous”), contains a subsection (b), which reads:

The interpretation and enforcement of this Agreement shall be governed by the rules and regulations of the Federal Communications Commission, other applicable federal laws, and the laws of the state and local area where Service is provided to you. This Agreement is subject to modification if required by such laws. Notwithstanding the foregoing, Section 9 shall be governed by the Federal Arbitration Act.

DirecTV has long maintained that the Customer Agreement means that Plaintiffs' claims must be resolved through arbitration. In March 2008, it moved the district court to compel arbitration. DirecTV argued that the law of named plaintiffs John Murphy and Greg Masters's residences (Georgia and Montana, respectively) applies and permits enforcement of the class arbitration ban. ³ Plaintiffs contended that California law, which at the time included the Discover Bank rule, governed the enforceability of the Customer Agreement's class waiver. Concluding that California law applied, the district court declined to compel arbitration. We affirmed the district court's choice of law ruling. See Masters v. DirecTV, Inc., ––– Fed.Appx. ––––, ––––, Nos. 08–55825, 08–55830, 2009 WL 4885132, at *1 (9th Cir. Nov. 19, 2009) (unpublished).

Because the Discover Bank rule rendered DirecTV's class arbitration ban unenforceable, Section 9's jettison clause was triggered, permitting litigation in the district court to continue for almost a year and a half. Then, the United States Supreme Court decided Concepcion, prompting DirecTV to successfully move the district court to reconsider its prior order. Piggybacking on DirecTV's Customer Agreement, Best Buy also successfully moved to compel arbitration. Plaintiffs timely appealed. We review the orders compelling arbitration de novo. Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir.2013); Bushley v. Credit Suisse First Bos., 360 F.3d 1149, 1152 (9th Cir.2004) (“The district court's decision to grant or deny a motion to compel arbitration is reviewed de novo.”).

II.

“With limited exceptions, the Federal Arbitration Act (FAA) governs the enforceability of arbitration agreements in contracts involving interstate commerce.” Kramer, 705 F.3d at 1126. Under the FAA:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. As the Supreme Court has noted, FAA § 2 “is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); accord Concepcion, 131 S.Ct. at 1745. However, fundamentally an arbitration agreement is contractual in nature. Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 130 S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010) (observing that the “FAA reflects the fundamental principle that arbitration is a matter of contract”). Thus, the FAA “places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms.” Id. (internal citation omitted).

A. DirecTV

“Applying Concepcion retroactively to the arbitration provision,” the district court held that “the class action waiver is not unconscionable, and therefore, the arbitration provision is enforceable.” We agree.⁴

Plaintiffs argue that Section 9 of DirecTV's Customer Agreement, which requires binding arbitration, is unenforceable due to the jettison clause set forth in subsection 9(c). They maintain that as of April 24, 2007 and April 24, 2010, the effective dates of the Customer Agreements to which Plaintiffs are parties, “the law of [California] would [have found] this agreement to dispense with class arbitration procedures unenforceable,” rendering the “entire Section 9 unenforceable.” Before 2011, the Discover Bank rule had not yet been overruled by the Supreme Court, so Plaintiffs cling to the notion that the rule still governs the interpretation of their arbitration agreement today. This argument misapprehends the doctrine of preemption and the rationale of the Supreme Court's ruling in Concepcion.

Importantly, the FAA meant what the Court in Concepcion says it means—that the Customer Agreement's class waiver is enforceable—even prior to 2011 when the Discover Bank rule was nominally in effect. That is because the Supreme Court's “construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.” Rivers v. Roadway Express, Inc., 511 U.S. 298, 312–13, 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994); ...