United States: High Court Again Finds A California Court Failed To Place Arbitration Agreements On Equal Footing With Other Contracts

On December 14, 2015, in DirecTV, Inc. v. Imburgia, the U.S. Supreme Court reversed a California State Court of Appeal decision that had invalidated an arbitration provision based on language from the agreement rendering the entire arbitration provision unenforceable if the "law of your state" makes class-arbitration waivers unenforceable.  The Supreme Court found that the California court's interpretation of the phrase "law of your state" was unique to arbitration contracts and violated the requirement of the Federal Arbitration Act (FAA) that arbitration contracts be placed on equal footing with other contracts.  As a result, the California Court of Appeal's interpretation was preempted by the FAA.  While not arising from an employment law case, this shows that the Supreme Court will not necessarily accept a state court's claim that generally applicable principles of contract law preclude enforcement of an agreement governed by the FAA.  Instead, the High Court will scrutinize the state court's rationale to see whether arbitration agreements are disproportionately affected by the application of the state rule.

Facts and Procedural History 

DIRECTV, Inc. ("DIRECTV"), entered into service agreements with its customers that contained a mutual agreement to arbitrate claims.  The mandatory arbitration provision, expressly governed by the FAA, contains a class arbitration waiver, but also provides "[i]f . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration provision] is unenforceable."  Despite the arbitration provision, two customers brought suit in California state court seeking damages for early termination fees they claimed violated California state law.  DIRECTV sought to enforce the arbitration provision, but the trial court denied the request and DIRECTV appealed.       

The California Court of Appeal analyzed whether the law of California makes the class-arbitration waiver unenforceable and therefore renders the entire arbitration provision unenforceable.  Although the Court of Appeal acknowledged that the California Discover Bank1 rule – which rendered class-arbitration waivers in consumer contracts unenforceable – was preempted by the FAA in AT&T Mobility LLC v. Concepcion ("Concepcion"), 563 U.S. 333, 352 (2011), it nevertheless found the class-arbitration waiver was unenforceable under California state law.  The Court of Appeal reasoned that by using the phrase "law of your state," the parties were referring to California law without regard to preemption by the FAA.  This was because: (1) "the law of your state" provision was paramount to the more general provision invoking the FAA; and (2) because the company had drafted the language, any ambiguity should be construed against the drafter.  The California Supreme Court denied discretionary review, and the U.S. Supreme Court granted DIRECTV's petition for writ of certiorari.  

The U.S. Supreme Court's Analysis

Justice Breyer, who wrote the majority opinion,2 recognized the Court's analysis must focus on whether the California Court of Appeal's decision placed arbitration contracts on equal footing with other contracts and, more specifically, whether the decision was based on "grounds as exist at law or in equity for the revocation of any contract" – the standard required by Section 2 of the FAA.  The majority found the California Court of Appeal's interpretation would not apply to contracts other than arbitration agreements and was therefore not a valid ground to refuse to enforce the provision.

In concluding that the Court of Appeal's interpretation was unique to arbitration contracts and did not place arbitration contracts on equal footing with other contracts, the Supreme Court found the contract was not ambiguous.  Rather, the Court determined that the phrase "the law of your state" could only mean "valid state law" and neither party, nor the dissent, cited any case from California or elsewhere interpreting similar language to apply to an invalid state law.  Next, although at the time the parties entered into the contracts at issue the Discover Bank rule was still valid, the Court noted that, under California's general contract principles, references to "California law" should incorporate changes in the law retroactively.  As a result, the Supreme Court concluded that the "law of your state" language should be interpreted in light of the Discover Bank rule's subsequent invalidation by Concepcion.

The Supreme Court further pointed out that nothing in the Court of Appeal's decision suggests that a California court would interpret the "law of your state" language the same way in any other context, other than in regards to an arbitration agreement, or that a California court would interpret the language to include state laws preempted by federal law.  Instead, the Court of Appeal's opinion focused only on arbitration.

The Court also disagreed with the Court of Appeal's conclusion that the Discover Bank rule maintained legal force, despite being invalidated by Concepcion. As Justice Breyer wrote, "[t]he view that state law retains independent force even after it has been authoritatively invalidated by [the U.S. Supreme Court] is one courts are unlikely to accept as a general matter and to apply in other contexts." 

Lastly, the Court found that the Court of Appeal's argument that the "law of your state" language was paramount to the more general provision adopting the FAA, simply begs the question how to interpret the words "the law of your state."

The Supreme Court therefore concluded the California court's analysis did not place arbitration contracts on equal footing with all other contracts, and thus failed to give "due regard ... to the federal policy favoring arbitration."  Accordingly, the Court of Appeal's interpretation was preempted by the FAA and reversed.


This latest pro-arbitration decision from the U.S. Supreme Court is significant for several reasons.  As an initial matter, it is interesting that the majority opinion – which interprets "the law of your state" language in light of Concepcion – is authored by Justice Breyer and joined by Justice Kagan, both of whom dissented in Concepcion.  The Court is more unified in its position here in relation to the FAA's preemptive effect over state law contract defenses that purport to apply to contracts generally. 

Second, it is evident by the decision that the Court will heavily scrutinize opinions that purport to rely upon the FAA's "Savings Clause"3 to invalidate arbitration agreements.  Lower courts may not simply pay lip-service to treating arbitration agreements like any other contracts.  To the contrary, a court must engage in a sincere analysis establishing that it is placing arbitration contracts on equal footing with other contracts.   

Finally, it appears from the Court's opinion that parties seeking to invalidate arbitration agreements under the Savings Clause, and overcome the federal policy favoring arbitration agreements, must be prepared to show that the grounds for nullifying an arbitration contract would apply the same way in other contexts.


1. See Discover Bank v. Superior Court, 36 Cal. 4th 148, 162 (Cal. 2005).

2.  Justices Roberts, Scalia, Kennedy, Alito, and Kagan joined in the majority opinion. Justice Thomas filed a dissenting opinion. Justice Ginsburg filed a dissenting opinion, in which Justice Sotomayor joined.

3. Section 2 of the FAA states, in part, that agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.