Ninth Circuit Holds Arbitration Provision Containing Class Action Waiver Enforceable, But Non-Signatory to Agreement Cannot Arbitrate Claims

In Murphy v. DirecTV, Inc., --- F.3d ---, 2013 WL 3889158 (9th Cir. July 30, 2013), consumers brought a putative class action against DirecTV and Best Buy alleging violations of California's Unfair Competition Law and the Consumer Legal Remedies Act. Plaintiffs claimed that defendants purported to sell receivers and DVRs when, in fact, they were leased to consumers on unfair terms. Defendants moved to compel plaintiffs' claims to arbitration and the U.S. District Court for the Central District of California denied their motion on the ground that Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005) rendered arbitration provisions that contained class action waivers unenforceable. After the district court's ruling, the United States Supreme Court decided AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) which held that the Federal Arbitration Act ("FAA") preempted California's Discover Bank rule. Defendants moved to reconsider and the district court granted their motion to compel arbitration. Plaintiffs appealed. On appeal, plaintiffs argued that the Discover Bank rule controlled and, thus, the arbitration provision was unenforceable because it contained a class action waiver. The court rejected plaintiffs' argument and held that Concepcion rendered the provision enforceable and applied Concepcion retroactively. Accordingly, the court affirmed the lower court's decision to compel the claims against DirecTV to arbitration. The court turned next to Best Buy's argument that the claims against it should also be compelled to arbitration. Best Buy argued that, although it was not a signatory to the Customer Agreement, the claims were arbitrable under theories of (1) equitable estoppel; (2) agency; and (3) third-party beneficiary. The court first said that equitable estoppel applies in two situations: (1) when a signatory must rely on the terms of the written agreement when asserting its claims against the nonsignatory or the claims are intimately founded in and intertwined with the underlying contract, and (2) when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory and the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement. Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128-29 (9th Cir. 2013). Applying the two-prong test articulated by Kramer, the court first determined that plaintiffs' claims against Best Buy were not intertwined with the Customer Agreement because the Customer Agreement was wholly irrelevant to the claims against Best Buy. Plaintiffs' allegations against Best Buy centered around the point of sale and its representations during the transaction, whereas the Customer Agreement with DirecTV addressed the equipment lease. Moreover, the court found that the claims against Best Buy did not allege a violation of the Customer Agreement. Turning to the second prong, the court found that claims of collusive behavior alone were insufficient under California law to show "interdependent and concerted conduct." Accordingly, the court dismissed Best Buy's equitable estoppel theory. The court also dismissed Best Buy's agency theory finding that Best Buy failed to show that DirecTV maintained control over Best Buy. In addition, the court determined that retailers are not considered the agents of manufacturers as a matter of California law. Finally, the court rejected Best Buy's third-party beneficiary argument finding that the plain language of the Customer Agreement did not contemplate Best Buy as a third-party beneficiary. Specifically, the court found that the Customer Agreement never mentioned Best Buy; the terms did not demonstrate that either DirecTV or the consumers intended to benefit Best Buy; and the Customer Agreement named TiVo as the third-party beneficiary. Thus, the court concluded that plaintiffs did not agree to arbitrate their claims with Best Buy and reversed the district court's decision compelling arbitration with Best Buy. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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