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DirecTV gets get-out-of-jail-free card, but not Best Buy

DirecTV gets get-out-of-jail-free card, but not Best Buy

By Spencer Wilson and Paul Bland

Today, the U.S. Court of Appeals for the Ninth Circuit issued a great decision for consumers in Murphy v. DirecTV. On the plus side, the court allowed cheated consumers to pursue their legal claims against Best Buy, which was trying to invoke an arbitration clause even though it wasn’t covered by any arbitration clause. On the down side, the court let DirecTV off the hook for illegal abuses of their own consumers, underscoring how disastrous a recent U.S. Supreme Court decision is in the area of forced arbitration.

Public Justice represents a group of consumers who sued DirecTV and Best Buy for engaging in an ugly bait-and-switch scheme: the plaintiffs each thought they were purchasing a DirecTV receiver from Best Buy, but sometime after the consumers had purchased and installed their equipment, DirecTV allegedly mailed a document to the consumers — although most deny ever receiving the document — informing them that they had to begin making lease payments to DirecTV because they were actually just leasing the item they thought they had purchased. Could the consumers just return the equipment? Not without paying a stiff fine.

The consumers sued Best Buy and DirecTV, alleging that they had violated California consumer protection laws. But unbeknownst to the consumers, DirecTV had a get-out-of-jail free card. Buried in the DirecTV document was a reference to an arbitration clause saying that any disputes concerning the purported lease agreement must proceed individually in arbitration — not in court and not as a class.

Unlike DirecTV, Best Buy didn’t have an arbitration clause with our clients or its other customers. Faced with the prospect of actually being held responsible for violations of consumer protection laws, deep into the lawsuit Best Buy suddenly decided to try to borrow DirecTV’s arbitration clause. It didn’t bother Best Buy that it wasn’t mentioned in the arbitration clause and wasn’t a party to any contract containing the arbitration clause. Best Buy argued that it could enforce DirecTV’s arbitration agreement under a bunch of specious theories, the gist of which was that since Best Buy was in cahoots with DirecTV in the scheme, it should be allowed to hide behind its corporate buddy’s arbitration clause.

In a sweet decision extending the protections for consumers in this area, the Ninth Circuit rejected each of Best Buy’s arguments. In particular, the Court was not amused by Best Buy’s effort to hide the ball. The Court reprimanded Best Buy for arguing that it was DirecTV’s agent when it had previously submitted under seal the agreement between Best Buy and DirecTV, which showed that the exact opposite was true. The Court of Appeals admonished that Best Buy’s actions constituted “apparent violations of the duty of candor toward the tribunal,” and left open the possibility of sanctions against Best Buy. (We earlier posted a strong piece explaining how one of Best Buy’s formalistic arguments was unfounded and unfair.)

We also challenged DirecTV’s arbitration clause on the grounds that it had a drafting error in it. Before the U.S. Supreme Court had decided AT&T Mobility v. Concepcion (overriding state laws protecting consumers from class action bans in arbitration clauses), DirecTV thought it was to its advantage to word its arbitration clause so that challenges to the class action ban in the arbitration clause were to be governed by state rather than federal law. We argued that this drafting error meant that DirecTV couldn’t benefit from Concepcion. Unfortunately, the Ninth Circuit disagreed, in a lengthy analysis of the language and the law of federal preemption. While this holding is disappointing, we don’t expect that it will harm consumers in other cases that don’t involve arbitration clauses with this unique language.

The upshot of the decision is that it will allow consumers to pursue their claims against Best Buy as a class and hold them accountable for the deceptive scheme they administered with DirecTV. However, the Court of Appeals let DirecTV off the hook, holding that the arbitration agreement was enforceable under Concepcion.

The fact that DirecTV gets to walk away, without having to refund any of the money it cheated from its customers, shows just how terrible the Concepcion decision is. Just a few years ago, the law in California and in about 20 different states, and in most of the federal circuits, was that a corporation couldn’t stick a provision banning class actions into a fine print arbitration clause in a consumer contract, in cases where a class action was the only realistic way that its customers could get realistic justice for their claims. After Concepcion, though, a ton of corporations such as DirecTV have been able to avoid any legal accountability, even when they’ve egregiously violated the law. It’s no wonder that more and more consumers, workers, civil rights advocates, regulators and legislators are taking a hard look at the widespread abuse of mandatory arbitration clauses.

The gross unfairness of the Concepcion decision should not matter much in this particular case, though, because Best Buy doesn’t have an arbitration clause and should be on the hook for all of the class members’ damages. In the broader scheme, however, it’s intensely unfair that DirecTV can completely get away with violating the consumer laws to make a tidy profit and escape any responsibility for its actions.