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The Supreme Court Takes Up Preemption and the Federal Arbitration Act

By Katherine Tracy

On Monday, the Supreme Court agreed to hear a case out of California regarding preemption and the Federal Arbitration Act. The issue in the case is whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.

According to DIRECTV, the California Court of Appeal’s decision “applies state law to invalidate an arbitration agreement solely because that agreement includes a class-action waiver”, a decision DIRECTV argues conflicts with a decision of the U.S. Supreme Court (AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011)). The Ninth Circuit (in Murphy v. DIRECTV, Inc., 724 F.3d 1218, 1226 (9th Cir. 2013)) previously considered – and rejected as “nonsensical” – the same argument that the Court of Appeal relied on to invalidate the agreement in this case. According to DIRECTV, the Court of Appeal dismissed the Ninth Circuit’s decision – considering the same provision – as “unpersuasive.”

The plaintiffs, on the other hand, argue that the Court of Appeal’s decision does not conflict with U.S. Supreme Court or the Ninth Circuit decisions but rather it “enforced the private arbitration agreement according to its terms which, unlike the agreement in Concepcion, the agreement here contains a more specific and unique class-waiver provision, stating that the customer may not sue as part of a class, but that the arbitration provision in its entirety is invalid if the class-waiver provision violates ‘the law of your state.’ The agreement in Concepcion did not include ‘the law of your state’ language.” The plaintiffs hold the position that review of the Court of Appeal’s decision will embroil the U.S. Supreme Court in a decision relating to whether California state court erred in applying California state contract law – an issue inappropriate for U.S. Supreme Court review.

The U.S. Supreme Court agreed to hear the case. And, its decision could have a broad impact regarding the enforceability of arbitration agreements in state courts across the country.

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Posted in Arbitration, General

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