Murphy v. DirecTV, Inc.

The Federal Arbitration Act preempts California’s rule that renders class arbitration waivers unenforceable, and Best Buy, as a non-signatory to a contract, cannot be compelled to arbitrate because no relevant California law allows it.

A class of consumers (“Plaintiffs”) brought action against DirecTV and Best Buy (collectively, “Defendants”), alleging violations of California's Unfair Competition Law and Consumer Legal Remedies Act. Plaintiffs claimed Defendants presented receivers and digital video recorders (“DVR”) for DirecTV’s service as if they were for sale at Best Buy’s stores, but instead the transactions were leases with oppressive and unfair terms. Part of the Customer Service Agreement (“CSA”) that Plaintiffs signed with DirecTV mandated dispute resolution through binding arbitration but waived all rights to class and joint arbitration unless relevant state law found it unenforceable. Additionally, the CSA stated that the agreement was subject to the Federal Arbitration Act (“FAA”). The district court found that California law, which said such waivers were unenforceable, was pre-empted by the FAA, and the court compelled arbitration against both Defendants. Plaintiffs appealed. First, the Ninth Circuit affirmed that the waiver was enforceable because the Supreme Court's recent decision in AT&T Mobility v. Concepcion held that the FAA preempted California’s rule that rendered such waivers unenforceable. Additionally, the preemption applied retroactively to contracts made before Conception. Second, the panel reversed the order compelling Best Buy, a non-signatory to the CSA, to arbitration because no relevant California law allowed it. The panel found that Best Buy could not be compelled through equitable estoppel because Plaintiffs' claims against Best Buy did not rely on, and were not intertwined with, the substance of the DirecTV CSA. Nor could Best Buy be compelled under an agency theory because the supplier-retailer relationship was insufficient to make Best Buy DirecTV's agent. Finally, Best Buy could not be compelled as a third-party beneficiary because Plaintiffs and DirecTV did not expressly intend for Best Buy to benefit from the CSA. AFFIRMED in part; REVERSED in part; REMANDED.