WASHINGTON – The Supreme Court ruled Monday that satellite provider DirecTV can avoid a class action lawsuit in California over early termination fees and force customers into private arbitration hearings instead.
In a 6-3 opinion, the justices said that DirecTV’s contracts can specifically prohibit customers from banding together to sue the company, even though California state law would allow such class action lawsuits to go forward.
It’s the latest in a series of high court rulings that favour the ability of businesses to limit their litigation costs by including mandatory arbitration in standard customer contracts. Consumer advocates say such agreements rob customers of any meaningful power to challenge corporate misconduct.
Writing for the court, Justice Stephen Breyer said California law is pre-empted by the Federal Arbitration Act, which lets companies require customer disputes to be settled one by one in arbitration.
A California state appeals court had ruled against DirecTV last year, saying that state law forbids agreements that waive customer’s rights to bring a class action. The state’s highest court affirmed.
The case began in 2008 when Amy Imburgia and Kathy Greiner filed class action lawsuits claiming that DirecTV wrongly charged them cancellation fees. At issue was language in the customer agreement that said contract disputes would be settled through arbitration unless “the law of your state” prevents it.
But Breyer said the high court had ruled in another case in 2011 that California’s law was invalid because it conflicted with federal arbitration law. He said language in the contract referring to state law means “valid state law.” Just because the state law was valid at the time the contract was made did not matter if it became invalid later, he said.
Justice Clarence Thomas dissented, saying he does not believe federal arbitration law applies to proceedings in state courts.
Justice Ruth Bader Ginsburg issued a separate dissent, joined by Justice Sonia Sotomayor, saying that parties to a contract can choose to be bound by a particular state law, even if it is superseded by federal law.
Ginsburg said the majority opinion and previous ruling in favour of arbitration clauses “have predictably resulted in the deprivation of consumers’ rights to seek redress for losses.” As a result, she said powerful companies can impose contracts banning class action lawsuits “on people with little or no bargaining position.”
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