Court Distinguishes Imburgia v. DIRECTV, Inc., Case Pending Before SCOTUS.
Automobile purchases and leases have generated quite a few disputes about the enforcement of arbitration clauses. Exhibit 1: The Sanchez case decided by the California Supreme Court on August 3, about which I posted on August 4, 2015. We have a sidebar category for Arbitration: Automobiles.
Now we have yet another automobile case – coincidentally as with Sanchez, involving a Mercedes Benz. Plaintiff Kaghazchi sued Mercedes-Benz Financial Services USA LLC in connection with his lease of a Mercedez-Benz. The key issue in the appeal is whether “the FAA preempts application of the CLRA’s [California Legal Remedies Act] rule prohibiting a waiver of class actions.” In Kaghazchi v. Mercedes-Benz Financial Services USA LLC, G049981 (4/3 Aug. 10, 2015) (Thompson, O’Leary, Rylaarsdam) (unpublished), the Court of Appeal answers: Yes. Perhaps not without qualms, for the Court “acknowledge[s] the CLRA’s antiwaiver section serves an important purpose of protecting California’s consumers.” But the Court concludes, relying on Concepcion, that “[s]tates cannot require a procedure that is consistent with the FAA, even if it is desirable for unrelated reasons.”
NOTE: The Court is at pains to distinguish Imburgia v. DIRECTV, Inc., 225 Cal.App.4th 338 (2014), certiorari granted sub nom. DIRECTV, Inc. v. Imburgia (Mar. 23, 2015) ___ U.S. __ [135 S.Ct. 1547] (Imburgia). As posted on SCOTUSblog, the issue in Imburgia 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.”
The contract in Imburgia contained a reference to the “law of your state,” interpreted by the California Court of Appeal to operate as “a specific exception to the arbitration agreement’s general adoption of the FAA.” Therefore, in Imburgia, the FAA did not trump the application of California law. However, in Kaghazchi, the Court of Appeal explains that while the automobile lease stated it was “subject to” California law, arbitration under the lease was to be governed by the FAA. Thus, unlike Imburgia, there was no “specific exception” to FAA governance of arbitration. In other words, the parties in Imburgia and in Kaghazchi struck different deals as to choice of law for purposes of arbitration. Far from impairing the deal parties strike, according to Concepcion, the FAA ensures private arbitration agreements are enforced according to their terms.
Regardless of what SCOTUS does in Imburgia, we predict that automobile dealers, lessors, and financing parties will draft documents that follow the Kaghazchi model – i.e., they will preemptively make it clear that whatever substantive law applies to the contract, the FAA applies to arbitration procedure. To steal a line from one of our local judges, “that’s the way the cow chews its cud.”