Tuesday, December 22, 2015

DirecTV v. Imburgia

By Professor Hiro Aragaki
Originally published on Indisputably

On Monday, the Court handed down DirectTV v. Imburgia, which now succeeds AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) as the latest substantive decision from the Court on Federal Arbitration Act (FAA) preemption. The case is interesting for a number of reasons, not least of which is that it makes it increasingly clear that the core logic of FAA preemption is one of antidiscrimination.

DirecTV held that the California Court of Appeal’s construction of a condition precedent in the parties’ arbitration agreement was preempted by the FAA. Writing for the majority, Justice Breyer clearly believed that the California appellate court had gotten its own state’s law of contract construction wrong. But he conceded—as he had to—that a federal court cannot sit in judgment of a state court decision on state law. So it was not enough simply to say that the decision was irrational and just plain wrong (which it was in my opinion as a contracts professor). There had to be a reason why the decision conflicted with the FAA.

That reason was the following: The California appellate court’s decision implicitly discriminated against arbitration. That is, no court would have interpreted the parties’ arbitration clause in the contorted and, frankly, inexplicable way the court below did unless it was harboring an unjustified “hostility” toward arbitration. The reason why it is plausible to make this inferential leap from irrationality to hostility is that, according to the Court, there has been a long legacy of judicial jealousy and disparagement toward alternative dispute resolution forums such as arbitration. And in the Court’s view, the FAA’s very purpose was to reverse this “ancient judicial hostility” that American courts inherited from their English counterparts. The logic of DirecTV is therefore of a piece with the logic of antidiscrimination cases from the employment or constitutional law context. In those cases, it is not uncommon for courts to claim to “flush out” pretextual discrimination using proxies such as an unusual sequence of events or a departure from normal procedures or substantive rules. The basis of the Court’s reversal in DirecTV was therefore not that the California Court of Appeal got California contract law wrong, but that it got that law so wrong as to suggest pretextual discrimination against arbitration. The FAA prohibits such discrimination (aka “hostility”) toward arbitration; ergo, the California appellate court’s decision stands as an obstacle to the objectives of the FAA and federal supremacy dictates that it must be reversed.

DirecTV, like Concepcion and many other cases from the Court before it, makes it increasingly clear that the underlying logic of FAA preemption is one of antidiscrimination. Justice Ginsburg essentially conceded as much in her dissent, as did Justice Breyer himself in his earlier dissent in Concepcion. So, too, did Justice Roberts during oral argument in DirecTV. In so doing, they confirm the broad outlines of the antidiscrimination-based theory of FAA preemption that I had begun to develop (here, here, and here) even prior to Concepcion. To be clear, my point has never been that FAA preemption should turn on antidiscrimination principles; indeed, it is in many ways odd to talk about arbitration as the subject of “discrimination.” Rather, my point has been that we are stuck with a peculiar jurisprudence of FAA preemption that justifies displacing countless state statutes—and, more recently, judicial pronouncements—either implicitly or explicitly on the ground that they are somehow discriminatory. And if so, I argue, we should interrogate that justification on its own terms to demonstrate, for example, that sometimes the Court’s sweeping conclusion that a particular state law or judicial decision discriminates against arbitration is not even tenable under basic antidiscrimination principles.

I have already conducted this exercise with regard to Concepcion here. Somebody could easily do the same regarding DirecTV. In the meantime, I have one request to courts and commentators who may appreciate the antidiscrimination moorings of DirecTV: Stop talking about the FAA in terms of a mandate to place arbitration agreements on “equal footing” with other contracts. It just leads to further imprecision and confusion, which in turn allows courts to justify many more laws and decisions as discriminatory than it otherwise might. This is partly because it is impossible to place one type of contract on the same footing as “all” or “any” contract. All contracts are regulated in unique ways, either through subject-specific common law doctrines such as the statute of frauds or legislative enactments and regulatory measures. There is no way to equalize those differences, nor would it make any sense to do so. So if this is the standard for telling whether something discriminates against arbitration, almost anything will.

The real import of the idea that arbitration agreements should be placed on the same footing as other contracts (which was first expressed as something of an afterthought in a House Report from 1924 on the bill that would eventually become the FAA) is that an arbitration agreement should not be regulated in a certain way just because it is an arbitration agreement—the same way that a woman or an Asian American should not be subject to certain restrictions just because of her gender or race. There must, in other words, be a good, status-independent reason for a particular restriction in order for us to feel confident that it is not born of a knee-jerk hostility to that status and reflects instead a valid need for regulation.

The key is that the status in question is not arbitration agreements; it is arbitration. The so-called ancient judicial hostility to arbitration expressed the idea that arbitration is inherently inferior to litigation just because it is arbitration. It was not the idea that arbitration agreements are worse than insurance contracts, marriage contracts, or covenants not to compete. For given the extent to which contracts incorporate public policy and statutory law, it is simply impossible to make meaningful apples-to-apples comparisons between contracts. It only makes sense to talk of discrimination between arbitration and litigation, and to argue for what I have elsewhere referred to as “equal opportunity for arbitration.” To do this, we need not argue for arbitration to become the equivalent of litigation, any more than we would argue that a woman needs to become a man in order to be treated as his equal. Arbitration just needs to be placed on an equal footing—that is, with litigation rather than with other contracts.

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