Murphy v. DirecTV: Ninth Circuit Affirms In Part, Reverses In Part, Order Compelling Arbitration In Putative Class Action

A quick note on Murphy v. DirecTV, Inc., ___ F.3d ___ (9th Cir. 7/30/13).

The plaintiffs filed a putative class action, alleging that DirecTV and Best Buy misrepresented certain DirecTV equipment as being for sale at Best Buy, when the equipment actually was for lease. The plaintiffs alleged violations of the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA). The district court granted the defendants' motion to compel arbitration pursuant to DirecTV's customer agreement, which included a class action waiver. 

The Ninth Circuit affirmed as to DirecTV. Applying Concepcion retroactively to the arbitration provision, the Court held that “the class action waiver is not unconscionable, and therefore, the arbitration provision is enforceable.” Slip op. at 9. The arbitration provision included a clause that if any part of it would not be found valid under controlling state law, the arbitration provision would not be enforced. The Court rejected the argument that the agreement was not enforceable under California law prior to Concepcion, triggering this "jettison clause." 

Section 2 of the FAA, which under Concepcion requires the enforcement of arbitration agreements that ban class procedures, is the law of California and of every other state.   

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It follows that, under the doctrine of preemption, the Discover Bank rule is not, and indeed never was, California law. 

Slip op. at 10-11. 

The Ninth Circuit reversed as to Best Buy, finding that it was not a signatory to any arbitration agreement with the plaintiffs and that it could not avail itself of equitable estoppel, agency, or third party beneficiary arguments.  

Under California contract law, Best Buy could not compel arbitration under the theory of equitable estoppel. Slip op. at 17-23. Neither of two required conditions was met: (1) the plaintiffs did not "rely on the terms of the written agreement" containing the arbitration provision, and their claims were not "intimately founded in and intertwined with the underlying contract;" and (2) the plaintiffs did not allege "substantially interdependent and concerted misconduct... founded in or intimately connected with the obligations of the underlying agreement."  

The theory of agency also did not require arbitration. Slip op. at 23-26. Agency requires that the principal maintain control over the agent’s actions, and retailers typically are not considered the agents of the manufacturers whose products they sell. The district court did not find that Best Buy was DirecTV's agent, and the only evidence on this point in the record suggested that the parties had disavowed an agency relationship.

Finally, Best Buy could not rely on a third party beneficiary theory to compel arbitration. Slip op. at 26-28. Best Buy could not show that either DirecTV or the plaintiffs intended it to benefit from DirecTV's customer agreement. 

The opinion is available here.