Supreme Court Enforces DirecTV Binding Arbitration Provision and Finds California State Law Invalid

Legal Update by Peter N. Brewer, Esq.

In a recent Supreme Court decision analyzing a California class action, the Court favored DirecTV’s binding arbitration provision and dismissed the class.  DirecTV’s service agreement had a binding arbitration provision against each individual subscriber.  That meant that any subscriber who had a problem with DirecTV would have to undergo binding arbitration with DirecTV rather than litigate their grievances in their home state.  This is a very convenient provision for megacorp DirecTV, but not so convenient for the average consumer and subscriber of DirecTV’s services.

Under California state law until recently, class action waiver was unenforceable.  In 2011, that changed after the Supreme Court’s ruling in AT&T Mobility v. Concepcion et ux[1]. In Concepcion, the Supreme Court expressly overturned California’s rule that class arbitration clauses were unconscionable and unenforceable, finding instead that the Federal Arbitration Act overrode state law with regard to arbitration provisions.

This week, the Supreme Court again upheld the principle of Concepcion in DirecTV, Inc. v Imburgia[2]. Where does that leave us?

In the world of real estate law, we tend to see both mandatory mediation provisions and optional arbitration provisions in the published forms most commonly used here in the San Francisco Bay Area (C.A.R., PRDS and SFAR).

A brief review:

What is the Difference Between Mediation and Arbitration? And Should I Initial the Arbitration Provision?

Because real estate law in California is still governed by California law, those remain unaffected that this recent holding.

Also, in the world of loans secured by real estate, arbitration provisions are already expressly prohibited.  The Truth in Lending Act was amended in 2013 and as of June 1, 2013, “terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction” in any agreement for a loan secured by a dwelling were banned.  However, for loans originated (applications received before June 1, 2013) prior to that amendment going into effect, borrowers with older loans may still be bound by arbitration provisions and subject to the Federal Arbitration Act.

[1] AT&T Mobility v. Concepcion, 563 U.S. 333 (2011)

[2] DirecTV, Inc. v. Imburgia, 135 S.Ct. 1547 (2015)

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