Amicus Curiae Brief — Directv, Inc. v. Imburgia, 135 S. Ct. 1547 (2015) (No. 14-462)
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No. 14-462
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IN THE
Supreme Court of the United States
DIRECTY, INC.,
Petitioner,
v.
AMY IMBURGIA, et al.,
Respondents.
On Warr or Certiorari TO THE Court oF APPEAL
oF CALIFORNIA, SECOND APPELLATE DisTRICT
BRIEF OF WILLIAM R. WEINSTEIN
AS AMICUS CURIAE IN SUPPORT
OF RESPONDENTS
—
WILLIAM R. WEINSTEIN
Counsel of Record
Law OFFICES oF WILLIAM R. WEINSTEIN
199 Main Street, 4th Floor
White Plains, New York 10601
(914) 997-2205
wrw@wweinsteinlaw.com
Amicus Curiae
i
TABLE OF CONTENTS
Page
TABLE OF CITED AUTHORITIES ...... ee
INTEREST OF AMICUS CURIAE ........ sae
Pe cckes) issue cecess!. “aanuwes 5
SUMMARY OF ARGUMENT.... ...... ........ 8
cd dnchnne sbedces: ecened) eunaend 12
I. InEnacting The FAA, Congress Preserved,
And Did Not Preempt, The Common Law
That Contracts Violating Statutes Enacted
Under The State’s Consumer Fraud Police
Power Are Illegal, Void, Unenforceable
And Revocable At Formation. .. ....... 12
A. The State Police Power to Prevent
Consumer Fraud, and to Render
Contracts in Violation of Consumer
Protection Statutes Illegal When
Made, Was Firmly Established When
Congress Ene~ed the FAA in 1925. ..12
B. Congress Incorporated, and Did
Not Abrogate, the Common Law of
Contracts, Including Illegal Contracts,
When It Enacted the FAA in 1925. ....16
i)
Table of Contents
1. The legislative history of the FAA
corroborates Congress’ intent not
to preempt the application of the
common law of illegal contracts to
arbitration agreements... ........ 18
2. Nothing in the FAA abrogates the
application of the equitable common
law of the class action remedy “to
prevent a failure of justice” in
connection with consumer fraud. ... .20
Il. Federalism Principles Require The
FAA To Be Construed Narrowly To Not
Preempt California’s Exercise Of The Police
Power To Prevent And Remedy Consumer
Fraud Committed Within Its Borders. .. ....23
A. The Primacy of the State Consumer
Fraud Police Power over “Liberty
of Contract” Challenges under
the Fourteenth Amendment Was
Well-Established When the FAA
WET sade pewsde- eeudsaseecs 23
B. The State’s Exercise of the Police Power
to “Impair” Contracts After Formation
Notwithstanding the Contract Clause
Was Sustained by the Court Before and
After the Enactment ofthe FAA. ..... 25
v1
Table of Contents
C. The Court’s Modern Federalism
Cases Prescribe that Congress’
Purpose Be “Clear and Manifest” to
Find the Exercise of the State Police
Power Superseded bythe FAA..... =. .27
IIL Concepcion Does Not Control FAA
Preemption Of California’s Exercise Of
The State Police Power To Prevent And
Remedy Consumer Fraud. ....... ...... 31
EY osu cascnendaskceensace: bsseuns 34
APPENDIX: California Consumers Legal
Remedies Act, Cal. Civil Code §§ 1750, et seg. —
ee eee sa la
Ww
TABLE OF CITED AUTHORITIES
Page
Cases:
Allied-Bruce Terminix Cos., Inc. v. Dobson,
ccchnes eneew. susaees 18, 19, 30
Armour & Co. v. North Dakota,
ee ceeccdeneks -weenss- 468 13, 24
AT&T Mobility LLC v. Concepcion,
Rss cucneseweaees. ‘sae passim
Berkovitz v. Arbib & Houlberg, Inc.,
| <cdee “ekend vtauen 18, 19
Cipollone v. Liggett Group, Inc.,
iit rrr 10, 16, 27, 28, 31
Cohens v. Virginia,
eae inewee cadens 11, 31
CSX Transp., Inc. v. Easterwood,
er IE, how ceceu Weeececcacecs 11, 27
CTS Corp. v. Waldburger,
8 er ee .10, 27
Emilio v. Sprint Spectrum L.P. d/b/a Sprint PCS,
No. 11-cv-3041, 2014 WL 902564
(S.D.N-Y. Feb. 11, 2014), aff'd, 582 F. App’x 63
(2d Cir. Nov. 12, 2014), cert. denied,
I ncn ks niece oexsdes: eece 3-4
Vv
Cited Authorities
Page
First Options of Chicago, Inc. v. Kaplan,
Ce ee ee sane ee 5
Hamilton v. Kentucky Distilleries & Warehouse Co.,
PC. coi dic naukhaie ouesnes 13
Hartford Life Ins. Co. v. Ibs,
I .ctene: weeded ceanes a
Hebe Co. v. Shaw,
ES sé stccundetien wavenunes 13, 24
Home Bldg. & Loan Ass'n v. Blaisdell,
a dn ce Sek hedeaces 10, 25, 26, 32
Hudson Cnty. Water Co. v. McCarter,
ccecntnenee enbueas: oon 14, 33
Hutchinson Ice Cream Co. v. Iowa,
ks wenen's- eueeken 13, 24
Jay Burns Baking Co. v. Bryan,
I kee Seaeve scecees a
Johnson v. United States,
--- §. Ct. ---, 2015 WL 2473450
Si cis cindes sucess -concand 23
Laster v. AT&T Mobility LLC,
584 F.3d 849 (9th Cir. 2009), rev'd sub nom.
AT&T Mobility LLC v. Concepcion,
Peet Sees Seccbecessss- sesercus 3
vi
Cited Authorities
Page
Litman v. Cellco P’shp d/b/a Verizon Wireless,
381 F. App’x 140 (8d Cir. 2010), cert. granted,
vacated & remanded, 131 S. Ct. 2872 (2011), cert.
granted, vacated & remanded, 131 S. Ct. 2873
(2011), on remand, 655 F.3d 225 (3d Cir. 2011),
cert. denied, 182 S. Ct. 1046 (2012) ............ 1-2
Lochner v. New York,
198 U.S. 45 (1905). ........ ...... 23, 24, 25, 26
Loving & Evans v. Blick,
EE cn occece soscedscece 15
Manigault v. Springs,
i cues eens 10, 26
Mastrobuono v. Shearson Lehman Hutton, Inc.,
oO) bie | fs. | ee ee eae 5, 20
McLean v. Arkansas,
le eeun we 13, 14
Medtronic, Inc. v. Lohr,
ne ee 10, 27
Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc.,
Ne cs beacon kuna 5
Moses H. Cone Mem'l Hosp. v.
Mercury Const. Corp.,
LC -Sivcinen. saeee Sécccevecce’ 5
vit
Cited Authorities
Page
Muhammad v.
County Bank of Rehoboth Beach, Del.,
CREE s eiceses eucceees ous 1
Murphy v. DIRECTV, Inc.,
724 F.3d 1218 (Oth Cir. 2013)... ....... cece 7
Obergefell v. Hodges,
--- §. Ct. ---, 2015 WL 2473451
ns vientens: sassvie .oenecs 23
Ozford Health Plans LLC v. Sutter,
PE Gcckcn cosecs 3 cévewcs A
Perry v. Thomas,
EE wees wauuss vescceec .5-6
Purity Extract & Tonic Co. v. Lynch,
DC tad séctee “steees ...14
Rent-A-Center, West, Inc. v. Jackson,
DccS Gudcdh ceaucees second 5
Schmidinger v. City of Chicago,
SEeces cttce- csenca 13, 24-25, 25
Shroyer v. New Cingular Wireless Servs., Inc.,
498 F.3d 976 (9th Cir.2007) ...... ....... 2,3
Smith v. Swormstedt,
el gsaneed 20, 21
viit
Cited Authorities
Page
Stewart Org., Inc. v. Ricoh Corp.,
ice bese ecnhwanneses 27-28
Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.,
eet eae eeads. aad 3, 5
Supreme Tribe of Ben-Hur v. Cauble,
255 U.S. 356 (1921), overruled in part on other
grounds by Toucey v. New York Life Ins. Co.,
DE veckadakeds seeks causes 20, 21
United States v. Texas,
ST sé necnkescstsssvesed 9, 16, 20
Volt Info. Sciences, Inc. v. Bd. of Trustees of
Leland Stanford Junior Univ.,
GP I « cbesc. teccsccees 5, 20, 28, 30
Constitution and Statutes:
RS ee re 10, 25
Se CMU casey seve acces seoves .29
vie cuss sonke weaeke . 13
Se Me MN MITE Blinc ccctvcceccciesan 10, 23, 27
Class Action Fairness Act of 2005, Pub. L.
No. 109-02, §2(a), 119 Stat. 4 (2005)....... ...... 29
uw
Cited Authorities
Page
Class Action Fairness Act of 2005, Pub. L.
No. 109-02, §2(b), 119 Stat. 5 (2005)........ + oo
Federal Arbitration Act, 9 U.S.C. $§1 et seg.... passim
PET wascnssevesbctiecnde’—cceetcs passim
DP a catctpacdssawiddd? enededas. esuaeas 17
PEE ate adsescdutebece- ‘Naeenc 4,17
PEE. Sebesckssdees_ Weevcie joxeces 4,17
NEUES csecne | duce¥ees, deedeie< 22
California Consumers Legal Remedies Act,
Cal. Civ. Code §§1750 et seg., Cal. Stats. 1970,
RU ci cee sacheecce cevnas passim
Cal. Civ. Code $1751 0... 00 0.2.0.2. ceeee. 6, 7, 8, 14
Cal. Civ. Code $1756... 0 eee eeeeee cee eee. 6, 32-33
Cal. Civ. Code $1770... .....226. 0 ceeeeee 33
Cal. Civ. Code $1780... 0.000005 seceess 15, 33
Cal. Civ. Code $1781 .. ......00.0 cea eee. 6, 15, 33
SEE bs bancecss seedens specvel 33
x
Cited Authorities
Page
Kansas Consumer Protection Act 50-625 ..... ...... 3
Kansas Consumer Protection Act 50-634 .... .... 3, 22
Other Authorities:
Antonin Scalia & Bryan A. Garner,
Reading Law: The Interpretation of
EE TRINGEEEED Sces vacusccdsavasaiea 15, 16, 17
Arbitration of Interstate Commercial Disputes,
Joint Hearings on H.R. 646 and S. 1005 before
the Subcommittees of the Committees on
the Judiciary, 68th Cong., Ist Sess. (1924). ...... 18
Julius H. Cohen & Kenneth Dayton,
The New Federal Arbitration Law,
12 Va. L. Rev. 265 (1926). 0.0... 1. e ce eee 19
Leviticus 19:35 (New Int’l Version)........ ...... 12
Leviticus 19:36 (New Int’l Version)....... ......... 12
8 Samuel Williston & Richard Lord,
A Treatise On The Law Of Contracts,
SIN, con neanesethuen ensode ane 15
The Federalist No. 45 (C. Rossiter ed. 1961)..... 13-14
Tr. of Oral Arg., AT&T Mobility LLC v. Concepcion
GOORERE FOUR. DEED sccccccccccsce socesecccces 7
]
INTEREST OF AMICUS CURIAE'
Amicus is a private practitioner whose practice
over the past fifteen years has substantially involved
the prosecution of consumer class actions, and over the
past ten years has evolved and is now firmly located at
the intersection of the constitutional and common law
contract principles implicated by the Federal Arbitration
Act (“FAA”). Several of the matters litigated by amicus
in recent years confirm his strong interest in the proper
resolution of the issues presented in this case.
Amicus was lead counsel for the consumers in Litman
v. Cellco P’shp d/b/a Verizon Wireless, 655 F.3d 225 (3d Cir.
2011), which was relied on by DIRECTV and distinguished
by the California Court of Appeal in its opinion now the
subject of these proceedings. Pet. App. lla. In Litman, the
Third Circuit originally held that the class action waiver
in Verizon’s arbitration agreement was unconscionable and
unenforceable under the New Jersey law incorporated by
the agreement’s choice-of-law provision—specifically the
New Jersey Supreme Court's decision in Muhammad v.
County Bank of Rehoboth Beach, Del., 912 A.2d 88 (N.J.
2006). Litman v. Cellco P’shp d/b/a Verizon Wireless,
381 F. App’x 140 (8d Cir. 2010). Verizon petitioned this
Court for a writ of certiorari, and after the issuance of
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011),
the Court granted Verizon’s petition, vacated the Third
Circuit’s decision and remanded for further consideration
1. Amicus affirms that no counsel for a party authored this
brief in whole or in part and that no person other than amicus
made a monetary contribution intended to fund the preparation
or submission of the brief. The parties’ consents to the filing of
amicus briefs are on file with the Clerk’s office.
2
in light of Concepcion. Cellco P’shp d/b/a Verizon Wireless
v. Litman, No. 10-398, 131 S. Ct. 2872 (2011). On the same
day, the Court also granted certiorari on Litman’s cross-
petition for which amicus was counsel of record, and which
presented the following question substantially similar to
the question presented in this matter:
Whether the [FAA] requires the enforcement
of a drafting party’s express agreement not
to arbitrate but to litigate in court if the class
action ban in the arbitration »greement is
unenforceable, where that part’ .ncorporates
state law under its choice-of-law provision that
contractual class action bans are unenforceable.
Litman v. Celico P’shp d/b/a Verizon Wireless, No.
10-551, 131 S. Ct. 2873 (2011). On remand, the Third
Circuit rejected Litman’s argument that the application
of the common law principles of contract construction to
determine the intent of the parties at contract formation
rendered the class action waiver unenforceable under New
Jersey law. Litman, 655 F.3d 225, 231 n.8 (8d Cir. 2011).
Litman’s subsequent petition for a writ of certiorari filed
by amicus as counsel of record and presenting the same
question as before was denied by the Court. Litman v.
Cellco P’shp d/b/a Verizon Wireless, No. 11-644, 132 S.
Ct. 1046 (2012).
Amicus also was lead appellate counsel for the
consumers in Shroyer v. New Cingular Wireless Servs.,
Inc., 498 F.3d 976 (9th Cir. 2007), in which the Ninth
Circuit upheld the application of Discover Bank to render
the class action waiver in the arbitration agreement
unconscionable and unenforceable, and held that Discover
3
Bank was not preempted by the FAA. Shroyer provided
the essential precedential basis for the Ninth Circuit’s
decision in Laster v. AT&T Mobility LLC, 584 F.3d 849
(9th Cir. 2009), which was reversed by Concepcion. See
Concepcion, 131 S. Ct. at 1745 (citing Shroyer).
Amicus also has been lead counsel for the past ten
years in Emilio v. Sprint Spectrum L.P. d/b/a Sprint
PCS. Emilio was commenced as class action arbitration in
2005, and the gateway issue was the enforceability of the
class action waiver in the arbitration agreement under the
Kansas law incorporated by the agreement’s choice-of-law
provision—specifically, the Kansas Consumer Protection
Act (“KCPA”), which (like the California Consumers Legal
Remedies Act) expressly provides an aggrieved consumer
with the right to pursue the “private remedy” of a class
action for violations of the act, and expressly precludes
the waiver by the consumer of the rights or benefits of the
act. See KCPA 50-634 & KCPA 50-625, respectively. In
2006, the arbitrator—who was delegatec the authority to
decide jurisdictional, arbitrability and all other disputes
by the arbitration agreement and the incorporated
arbitration forum rules—decided that the class action
waiver was unenforceable because of the unwaivable
right under the KCPA to pursue the class action remedy.
After substantial subsequent proceedings, Sprint moved
in 2010 for reconsideration of the arbitrator’s 2006 ruling
in light of this Court’s decision in Stolt-Nielsen S.A. v.
AnimalFeeds Int'l Corp., 559 U.S. 662 (2010). In her final
award the arbitrator adhered to her prior ruling under the
KCPA, and held that: (i) under Stolt-Nielsen, Sprint could
not be compelled to engage in class-wide arbitration to
which it did nat agree; (ii) under the KCPA, Emilio could
not be compelled to engage in bilateral arbitration to which
4
he did not agree; and (iii) therefore, the matter was not
arbitrable, and Emilio must be given the opportunity to
pursue his class claims in a court action. Emilio petitioned
the District Court under 9 U.S.C. §9 to confirm the award
in its entirety, and Sprint cross-petitioned under 9 U.S.C.
§10 to partially vacate the part of the award favoring
Emilio. The award ultimately was confirmed in its entirety
by the District Court, and its decision was affirmed by
the Second Circuit, substantially based on the deferential
standard required under Ozford Health Plans LLC v.
Sutter, 133 S. Ct. 2064 (2013). Emilio v. Sprint Spectrum
L.P. d/b/a Sprint PCS, No. 11-cv-3041, 2014 WL 902564
(S.D.N.Y. Feb. 11, 2014), affd, 582 F. App’x 63 (2d Cir.
Nov. 12, 2014). Sprint’s subsequent petition for a writ of
certiorari regarding the Second Circuit’s affirmance was
denied by this Court on March 23, 2015, the same day
that certiorari was granted in this case. Sprint Spectrum
L.P. d/b/a Sprint PCS v. Emilio, No. 14-988, 135 S. Ct.
1569 (2015). Emilio is now in discovery proceedings in
the District Court.
In this case, amicus respectfully submits that the
anti-waiver provision of the California Consumers Legal
Remedies Act—enacted by the People of California
in furtherance of the State police power to prevent
and remedy consumer fraud—is enforceable and not
preempted under: (i) fundamental common law principles
precluding the formation of illegal contracts violating
consumer protection statutes; (ii) the text and legislative
history of the FAA analyzed under the pertinent rules
of statutory construction; and (iii) federalism principles
analyzed under interrelated standards that the Court has
applied for more than 100 years. Thus, the Court should
affirm the opinion of the California Court of Appeal.
5
INTRODUCTION
In determining the enforceability of an arbitration
agreement, certain fundamental principles are firmly
ingrained within the “body of federal] substantive law of
arbitrability” created by the Court’s FAA jurisprudence.
Moses H. Cone Mem’! Hosp. v. Mercury Const. Corp., 460
U.S. 1, 24 (1988).
One fundamental principle is that, “as with any other
contract, the parties’ intentions [and expectations] control.”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 626 (1985). See also Concepcion, 131
S. Ct. at 1752-53; Stolt-Nielsen, 559 U.S. at 682 (quoting
Mitsubishi). Furthermore, in determining the parties’
intentions and expectations, courts should “appl[y] general
state-law principles of contract interpretation.” Volt Info.
Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior
Univ., 489 U.S. 468, 475 (1989). See also Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63 (1995)
(applying cemmon law rules of construction that ambiguity
is resolved against drafter, and that arbitration agreement
“should be read to give effect to all its provisions and to
render them consistent with each other”).
Second, “[cJourts generally ... should apply ordinary
state-law principles that govern the formation of contracts”
when deciding whether an agreement to arbitrate a
certain matter exists. First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995); Rent-A-Center, West,
Inc. v. Jackson, 561 U.S. 63, 79 (2010) (quoting First
Options). See also Ferry v. Thomas, 482 U.S. 483, 492
n.9 (1987) (“state law ... is applicable if that law arose
to govern issues concerning the validity, revocability,
6
and enforceability of contracts generally”) (emphasis
in original). Cf Concepcion, 131 S. Ct. at 1753, 1754-55
(Thomas, J., concurring) (“Reading §§2 & 4 harmoniously,
the ‘grounds ... for the revocation’ preserved in §2 would
mean grounds related to the making of the [arbitration]
agreement” under §4 and “the formation of the agreement
to arbitrate,” i.e., grounds relating to “defects in the
making of an agreement”).
Here, §1781 of the California Consumers Legal
Remedies Act (“CLRA”), enacted in 1970 (and included in
Chapter 4 of the act, entitled “Remedies and Procedures”),
expressly authorizes the consumer to pursue the remedy
of a class action “if the unlawful method, act, or practice
has caused damage to other consumers similarly situated.”
And CLRA §1751, also enacted in 1970, prohibits the
waiver by the consumer of any and all o: the provisions of
the CLRA: “Any waiver by a consumer of the provisions
of this title is contrary to public policy and shall be
unenforceable and void.” See Cal. Stats. 1970, Ch. 1550; see
also CLRA §1756 (provisions are “appl[icable] to actions
filed on or after January 1, 1971”). (Select provisions of
the CLRA are included in the Appendix to this brief.)
The parties’ arbitration agreement (Section 9 of the
Customer Agreement), however, includes a class action
waiver; it also includes a “revocation clause” stating
that “[i]f ... the law of your state would find [the class
action waiver] unenforceable, then this entire [arbitration
agreement] is unenforceable.” Jt. App. 128-29 (Customer
Agreement $9(c)(ii)). The choice-of-law provision in the
Customer Agreement adds ambiguity (if not confusion)
by stating that “{njotwithstanding the [applicability of the
laws of the state and local area where Service is provided
7
to you], Section 9 shall be governed by the [FAA].” Jt. App.
129 (Customer Agreement §10(b)).?
Under a reasonable reading of the plain language
of the revocation clause, because the anti-waiver
provision of CLRA §1751 renders the class action waiver
unenforceable, the entire arbitration agreement is
unenforceable. The California Court of Appeal applied
general state-law principles of contract construction,
as prescribed by the relevant decisions of the Court, to
determine the parties’ intentions regarding the meaning
of the revocation clause in relation to CLRA §1751—
concluding that the parties intended the CLRA to apply,
and did not intend the revocation clause to be nullified by
this Court’s subsequently issued decision under the FAA
in Concepcion. Pet. App. 6a-11a.
By contrast, the Ninth Circuit used the word
“intention” only once in reaching a contrary conclusion
about the proper construction of the same provision,
Murphy, 724 F.3d at 1227, and determined that “many of
the parties’ various contract interpretation arguments are
2. When Concepcion was decided, the revocation clause was
known as a “blowout clause.” See Tr. of Concepcion Oral Arg. at
33 (argued Nov. 9, 2010) (JUSTICE KENNEDY: “Suppose that
this doesn’t have what’s called a blowout clause.”). Although the
Ninth Circuit refers to it as the “jettison clause,” Murphy v.
DIRECTV, Inc., 724 F.3d 1218, 1224 (9th Cir. 2013), amicus is
unaware of any other case using similar nomenciature. In any
event, given the language of the saving clause of 9 U.S.C. §2, it is
appropriate to call it what it is: a “revocation clause” that revokes
the arbitration agreement and makes it “unenforceable” when the
prescribed condition regarding the unenforceability of the class
action waiver under “the law of your state” is satisfied.
8
largely irrelevant to our analysis,” id. at 1228. Under the
holding of the Ninth Circuit, the parties could only intend
for the FAA to apply under the language of the revocation
clause regardless of the narrower, more specific reference
to “the law of your state”—even if the application of
“general state-law principles of contract interpretation”
would support a different, narrower construction. /d. at
1225-26. Stated differently, according to the Ninth Circuit,
the revocation clause makes the agreement “irrevocable.”
In construing the parties’ arbitration agreement, both
the California Court of Appeal and the Ninth Circuit took
as a given that Concepcion nullified the CLRA anti-waiver
provision—the principal contract issue was whether
the revocation clause should be construed to include or
exclude Concepcion’s holding. But amicus respectfully
submits that Concepcion does not control with respect
to the exercise of the State police power by the People of
California to prevent and remedy consumer fraud, and
that the FAA does not preempt their decision to declare
void and unenforceable any waiver by a consumer of the
provisions of the CLRA—including but not limited to a
waiver of the express statutory right to pursue the class
action remedy for consumer fraud committed within the
State that damages “other consumers similarly situated.”
SUMMARY OF ARGUMENT
Offer, acceptance, consideration, capacity, and
legality—essential elements for the formation of a
contract.
That the anti-waiver provision of the CLRA, §1751, is
enforceable and not preempted by the FAA is established
9
by the correlation and reconciliation of: (i) fundamental
common law principles precluding the formation of illegal
contracts, including those violating consumer protection
statutes; (ii) the text of the FAA, including its saving
clause contained in 9 U.S.C. §2, and the FAA legislative
history; and (iii) federalism principles that require the
State’s exercise of its historic consumer fraud police power
to be sustained when “plausible” against challenges under
both constitutional provisions and acts of Congress.
The right of the State to render contracts illegal, void,
unenforceable and revocable at formation in the exercise
of its police power, including the police power to prevent
and remedy consumer fraud, is a fundamental principle
of the common law of contracts firmly established under
an entire body of law by this Court when the FAA was
enacted in 1925. Congress is presumed to legislate with “an
expectation that [common law principles] will apply except
when a statutory purpose to the contrary is evident,”
and “[iJn order to abrogate a common-law principle, the
statute must speak directly to the question addressed
by the common law.” United States v. Texas, 507 U.S.
529, 534 (1993) (quotations and citations omitted). Here,
there is no need to “presume” that Congress intended
the common law of illegal contracts to apply—the saving
clause of 9 U.S.C. §2 incorporates it. The FAA legislative
history also supports this conclusion. And because the
FAA has nothing whatsoever to do with the State police
power or consumer fraud, it cannot reasonably be read as
abrogating the common law of illegal contracts in violation
of statutes enacted in furtherance of that police power.
The “adherence to the common law” of illegal contracts
under the FAA is mirrored and extended by federalism
10
principles based on the constitutional requirement
of great deference to the exercise of the State police
power, including the police power to render contracts in
violation of consumer fraud statutes void, unenforceable
and revocable. When the FAA was enacted in 1925, the
right of the State to render contracts violating statutes
enacted under the police power (including consumer fraud
statutes) void, unenforceable and revocable at formation
had been upheld a number of times by this Court against
constitutional challenges based on “liberty of contract”
under the Fourteenth Amendment (Amendment XIV, $1:
“{N Jor shall any State deprive any person of life, liberty, or
property, without due process of law[.]”). And both before
and after the passage of the FAA, the State police power
to impair contracts after formation also was upheld by
the Court against challenges under the Contract Clause
(Article I, §10, cl. 1: “No State shall ... pass any ... Law
impairing the Obligation of Contracts”). See, e.g., Home
Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398 (1934);
Manigault v. Springs, 199 U.S. 473 (1905).
The Court’s modern federalism cases similarly counsel
substantial deference to the exercise of the State police
power, and assume that it is not to be preempted unless
that is the “clear and manifest purpose of Congress.” See,
e.g., Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516
(1992); Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996).
See also CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2189
(2014) (Kennedy, J.) (preemption in areas traditionally
governed by state police powers should presumptively be
narrowly interpreted “where plausible”). Furthermore,
“li]f the statute contains an express pre-emption clause,
the task of statutory construction must in the first instance
focus on the plain wording of the clause, which necessarily
11
contains the best evidence of Congress’ pre-emptive
intent.” CSX Transp., Inc. v. Easterwood, 507 U.S. 658,
664 (1993). The FAA regulates and preempts arbitration
agreements, and the CLRA prohibits consumer fraud.
There is no “proximity” between the statutes or any
relationship whatsoever that could support a finding of
Congress’ intent to preempt California’s exercise of the
State police power to prevent and remedy consumer fraud.
Finally, Concepcion does not control the enforceability
of the CLRA anti-waiver provision under the FAA, inter
alia, because Concepcion did not involve or address (i)
the fundamental common law principle that contracts
violating statutes enacted under the State police power
are illegal, void, unenforceable and revocable at contract
formation, and (ii) the overriding federalism principles
that favor upholding statutes enacted under the State’s
historical police powers. E.g., Cohens v. Virginia, 19 U.S.
264, 399 (1821). And because the FAA and its text have
nothing to do with the State police power, the implied
“purposes and objectives” conflict preemption on which
Concepcion’s holding is based, 131 S. Ct at 1753, is too
far removed from, and thus cannot override the primacy
of, the State consumer fraud police power over contracts
that was firmly established when the FAA was enacted in
1925 and was preserved by Congress under 9 U.S.C. §2.
Insulating DIRECTV’s revocation clause from the
democratic exercise of the State police power by the People
of California under the CLRA cannot be reconciled with
Congress’ intent in enacting the FAA and its fundamental
purpose and design, which are reflected in the words
of the statute as interpreted under the applicable rules
of statutory construction, its historical context and
federalism principles.
12
ARGUMENT
The prohibition against consumer fraud can be traced
back more than two millennia, to biblical times. Leviticus
19:35 (New Int’] Version) prohibits the use of “dishonest
standards when measuring length, weight or quantity,”
and Leviticus 19:36 (New Int’] Version) requires the use
of “honest scales and honest weights, an honest ephah
{dry measure approximating one bushel] and an honest
hin [liquid measure approximating five liters].” See also
http://biblehub.com/proverbs/11-1.htm (collecting biblical
references) (last visited July 22, 2015). A consistent
“finger on the scale” in the sale of goods (or services) has
the capacity to deceive and damage every purchasing
consumer, collectively inflicting widespread injury on
the community. Prohibiting consumer fraud is not merely
“policy,” but an essential thread in the fabric of civilized
society.
I. InEnacting The FAA, Congress Preserved, And Did
Not Preempt, The Common Law That Contracts
Violating Statutes Enacted Under The State’s
Consumer Fraud Police Power Are Illegal, Void,
Unenforceable And Revocable At Formation.
A. The State Police Power to Prevent Consumer
Fraud, and to Render Contracts in Violation
of Consumer Protection Statutes Illegal When
Made, Was Firmly Established When Congress
Enacted the FAA in 1925.
When the FAA was enacted in 1925, the decisions of
this Court firmly established that the State’s police power
included the power to prevent and remedy consumer
13
fraud. See Hebe Co. v. Shaw, 248 U.S. 297, 303 (1919)
(prohibition on substitution of less valuable ingredients
in condensed milk even if “improved”); Hutchinson Ice
Cream Co. v. lowa, 242 U.S. 153 (1916) (consumer fraud
statute prohibiting sale of ice cream with less than
prescribed percentage of butter-fat), id. at 157 (“[tJhe
right of the State under the police power to regulate the
sale of products with a view to preventing frauds” was
conceded by plaintiff-in-error), id. at 159 (“Laws designed
to prevent persons from being misled in respect to the
weight, measurement, quality or ingredients of an article
of general consumption are a common exercise of the police
power.”); Armour & Co. v. North Dakota, 240 U.S. 510,
511, 513-14 (1916) (statute requiring standard bulk weight
sale of lard); Schmidinger v. City of Chicago, 226 U.S. 578,
584-85, 587-88 (1913) (statute requiring standard weights
and sizes for bread loaves). Cf McLean v. Arkansas, 211
U.S. 539, 548, 550 (1909) (upholding statute prescribing
precise methods for compensating miners based on weight
or volume of coal actually mined). See generally Hamilton
v. Kentucky Distilleries & Warehouse Co., 251 U.S. 146,
156 (1919) (Brandeis, J.) (“That the United States lacks
the police power, and that this was reserved to the States
by the Tenth Amendment, is true.”).*
3. Under the Tenth Amendment, “[t]he powers not delegated
to the United States by the Constitution, nor prohibited by it to the
States, are reserved to the States respectively, or to the people.”
See also The Federalist No. 45, pp. 292-93 (C. Rossiter ed. 1961)
(J. Madison):
The powers delegated by the proposed Constitution
to the federal government are few and defined. ...
Those which are to remain in the State governments
are numerous and indefinite. The powers reserved to
the several States will extend to all the objects which,
14
These same cases also confirm that, when the FAA was
enacted, it was a firmly-established, fundamental principle
of the common law that illegal contracts in violation of the
State’s police power, including its power to prevent and
remedy consumer fraud, were void, unenforceable and
revocable at contract formation. See also McLean, 211 U.S.
at 543 (upholding statute providing that “any provisions,
contract, or agreement between mine owners, lessees,
or operators thereof, and the miners employed therein,
whereby the provisions of this act are waived, modified or
annulled shall be void and of no effect”);* Purity Extract
& Tonic Co. v. Lynch, 226 U.S. 192, 197-98, 204-05 (1912)
(upholding right of party to agreement for sale of non-
alcoholic, non-intoxicating malt liquor to “repudiate [it] at
the outset” after learning performance would be unlawful
under Mississippi statute enacted as exercise of police
power designed, in part, to prohibit defrauding by short
measure). As stated by Justice Holmes in Hudson Cnty.
Water Co. v. McCarter, 209 U.S. 349, 357 (1908):
One whose rights, such as they are, are subject
to state restriction, cannot remove them from
the power of the State by making a contract
about them. The contract will carry with it
the infirmity of the subject matter. ... [T]he
contract, the execution of which is sought to be
prevented here, was illegal when it was made.
in the ordinary course of affairs, concern the lives,
liberties, and properties of the people, and the internal
order, improvement, and prosperity of the State.
4. The inclusion of an anti-waiver provision like CLRA §1751
in statutes enacted under the State police power extends back
more than 100 years.
15
Accord Antonin Scalia & Bryan A. Garner, Reading Law:
The Interpretation of Legal Texts, Canon 48: Penalty/
Illegality Canon, at 295 (2012) (“Scalia-Garner”) (party
cannot legally enter into contract violating statute with
intention of paying penalty) (“Any such contract, being
illegal, would be void.”).
The law of California has been the same since long
before the enactment of the FAA. See Loving & Evans
v. Blick, 33 Cal. 2d 603, 607 (Cal. 1949) (“it has been
repeatedly declared in this state that a contract made
contrary to the terms of a law designed for the protection
of the public and prescribing a penalty for the violation
thereof is illegal and void” (quotation omitted)) (citing, e.g.,
Chateau v. Singla, 114 Cal. 191 (Cal. 1896)). The CLRA is
just such a statute— providing an injured consumer with
the right under §1780 to bring an action seeking legal
and equitable remedies and penalties for violations of
the act, including injunctive relief, restitution, actual and
minimum damages, punitive damages, treble damages and
additional] penalties for prescribed violations under certain
conditions, and an award of costs and attorneys’ fees to
a prevailing plaintiff—as well as the class action remedy
under §1781. See Appendix. See also 8 Samuel Williston
& Richard Lord, A Treatise On The Law Of Contracts,
Miscellaneous Illegal Agreements, §19:46 at 550-51 (4th
ed. 2010) (contracts that violate “statutes enacted as an
exercise of the police powers of the state, designed ‘to
protect the public against fraud’ ... are generally held to
be void and unenforceable”) (quoting P.M. Palumbo, Jr.,
M.D., Inc. v. Bennett, 242 Va. 248, 253 (Va. 1991)).
16
B. Congress Incorporated, and Did Not Abrogate,
the Common Law of Contracts, Including
Illegal Contracts, When It Enacted the FAA
in 1925.
“(Cjourts may take it as a given that Congress
has legislated with an expectation that [common law
principles] will apply except when a statutory purpose
to the contrary is evident,” and “[iJn order to abrogate
a common-law principle, the statute must speak directly
to the question addressed by the common law.” United
States v. Texas, 507 U.S. at 534 (quotations and citations
omitted). See also Sealia-Garner, Canon 52: Presumption
Against Change in Common Law, at 318 (“A statute will
be construed to alter the common law only when that
disposition is clear.”). Here, there is no need to “presume”
that Congress intended the common law of illegal contracts
to apply—the saving clause of 9 U.S.C. §2 incorporates
it (“save upon such grounds as exist at law or in equity
for the revocation of any contract”). And as the consumer
fraud police power cases cited above confirm, the common
law of illegal contracts involves all of the contract concepts
identified in §2: validity, enforceability and revocability.
Because the FAA has nothing whatsoever to do with the
State police power or consumer fraud, it cannot reasonably
be read as “speaking directly to” or “abrogating” the
common law of illegal contracts in violation of consumer
fraud and other police power statutes. United States v.
Texas, supra. Supporting this construction by analogy
is Cipollone, 505 U.S. at 517:
[A] variant of the familiar principle of expressio
unius est exclusio alterius [is that] Congress’
17
enactment of a provision defining the pre-
emptive reach of a statute implies that matters
beyond that reach are not pre-empted
A variant on the variant that further supports the
construction of §2 proposed by amicus is derived from
the fact that, although Congress has prescribed four
exceptions under 9 U.S.C. §10 to the confirmation of the
arbitrator’s award required under §9, and has prescribed
an exception under §4 precluding a court from issuing an
order compelling arbitration unless it is “satisfied that the
making of the agreement for arbitration or the failure to
comply therewith is not in issue,” Congress has stated
no exception from the scope of the saving clause of §2
for the State’s firmly established police power to render
contracts made in violation of consumer fraud statutes
void, unenforceable and revocable. As stated in Scalia-
Garner, Canon 8, Omitted-Case Canon, at 93:
[The judge [should not] elaborate unprovided-
for exceptions to a text, as Justice Blackman
noted while a circuit judge: “(I]f the Congress
[had] intended to provide additional exceptions,
it would have done so in clear language.”
(quoting Petteys v. Butler, 367 F.2d 528, 538
(8th Cir. 1966) (Blackmun, J., dissenting)).
18
1. The legislative history of the FAA
corroborates Congress’ intent not to
preempt the application of the common
law of illegal contracts to arbitration
agreements.
In addition to statements and testimony, the FAA’s
legislative history also incorporates into the record a
“brief” on the proposed statute. Arbitration of Interstate
Commercial Disputes, Joint Hearings on H.R. 646 and
S. 1005 before the Subcommittees of the Committees on
the Judiciary, 68th Cong., lst Sess. 33-41 (1924) (“Joint
Hearings”). The brief was submitted by Julius H. Cohen,
the “drafter for the American Bar Association of much
of the proposed bill’s language.” Allied-Bruce Terminix
Cos., Inc. v. Dobson, 513 U.S. 265, 274 (1995). Included in
the brief, Joint Hearings 39, is a substantial quotation
from the decision by then Judge Cardozo of the New York
Court of Appeals in Berkovitz v. Arbib & Houlberg, Inc.,
230 N.Y. 261, 270, 271-72 (1921), which addressed the New
York arbitration statute of 1920, from which the FAA was
substantially derived:
We are told that the promise to arbitrate when
made was illegal and a nullity. Even before
che statute, this was not wholly true. Public
policy was thought to forbid that the promise
be specifically enforced. Public policy did not
forbid an award of damages if it was broken.
A promise that differences will be arbitrated
is not illegal and a nullity without reference to
the law in force when differences arise. ... Of
course, we exclude cases where the contract
is inherently immoral or in contravention
19
of a statute. General contracts of arbitration
were never subject to that reproach. (emphasis
added)
Amicus submits that there are several reasons why
the legislative history’s incorporation of Berkovitz and
Cohen’s brief is entitled to substantial probative weight.
Berkovitz is not “merely” the expressed view of a member
of Congress or witness, but a judicial decision by Justice
Cardozo on the state-law predecessor of the FAA—and
thus, in effect, a part of the existing “common law” of
enforceable arbitrations agreements (sparse though it
may have been). Cohen’s brief incorporating Berkovitz is a
contemporaneous record of the intent and understanding
of the individual who is generally regarded as the principal
drafter of the FAA. His brief, including its reliance on
Berkovitz and the above-quoted portion of the decision, is
replicated in material part in Cohen’s law review article
regarding the FAA published the year following the FAA’s
enactment. Julius H. Cohen & Kenneth Dayton, The New
Federal Arbitration Law, 12 Va. L. Rev. 265, 283-84 (1926).
And Cohen’s testimony and his article have been relied
on by many justices in the arbitration-related decisions
of the Court. See, e.g., Allied-Bruce, 513 U.S. at 274, 279
(majority decision citing Cohen testimony); id. at 288 n.1
(dissenting opinion of Thomas, J., joined by Scalia, J.,
citing article). See also Concepcion, 131 S. Ct. at 1759
(Breyer, J., dissenting) (citing article).
20
2. Nothing in the FAA abrogates the
application of the equitable common law
of the class action remedy “to prevent
a failure of justice” in connection with
consumer fraud.
In addition to the explicit incorporation of the
common law of contract formation regarding the validity,
enforceability and revocability of an arbitration agreement,
the FAA also incorporates the common law of contract
construction to determine the intent of the parties, even
though not expressly referenced in the statute. E.g., Volt,
489 U.S. at 475, Mastrobuono, 514 U.S. at 62-63. See also
United States v. Texas, supra.
The equitable common law of the class action remedy,
although not related to the common law of illegal contracts,
also was well-established long before the FAA was enacted
in 1925. “{C]lass suits were known before the adoption of
our judicial system, and were in use in English chancery.”
Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 366
(1921), overruled in part on other grounds by Toucey
v. New York Life Ins. Co., 314 U.S. 118 (1941). What is
generally regarded as the earliest statement by this
Court of the propriety of the class suit is found in Smith
v. Swormstedt, 57 U.S. 288, 302-03 (1853):
The rule is well established, that where the
parties interested are numerous, and the suit
is for an object common to them all, some
of the body may maintain a bill on behalf of
themselves and of the others; and a bill may also
be maintained against a portion of a numerous
body of defendants, representing a common
interest.
21
To prevent a failure of justice, a court of equity
permits a portion of the parties in interest
to represent the entire body, and the decree
binds all of them the same as if all were before
the court. The legal and equitable rights
and liabilities of all being before the court
by representation, and especially where the
subject-matter of the suit is common to all,
there can be very little danger but that the
interest of all will be properly protected and
maintained. ... /t is manzfest that to require
all the parties to be brought upon the record,
as is required in a sutt at law, would amount
to a denial of justice. (emphasis added)
Cases decided by this Court contemporaneously
with the enactment of the FAA expressly approve the
equitable use of the class remedy to bind all members. In
Hartford Life Ins. Co. v. Ibs, 237 U.S. 662, 671-73 (1915),
citing to Smith v. Swormstedt and a number of then more
recent decisions, the Court determined that the class
suit commenced in Connecticut under complete diversity
by the plaintiffs “in their own behalf and on behalf of
all others similarly situated” could bind all members of
the class, including those who had not been parties. And
in Supreme Tribe of Ben-Hur, issued four years before
the enactment of the FAA and also quoting Smith, the
Court held that, under Equity Rule 38 of the Court
(which had been modified so the class decree could ‘vind
absent parties), the class decree could bind Indiana class
members who otherwise would have destroyed diversity
jurisdiction with respect to the Indiana company. 255
U.S. at 364-67.°
5. Just as an injunction is an “equitable remedy” generally
to prevent irreparable harm, so too is the aggregation of claims
22
Nothing in §2 or the remainder of the FAA “speaks
directly to” or “abrogates” the equitable common law
of the class action remedy. Regardless of whether that
remedy is itself an independent ground “at law or in
equity” for the revocation of any contract, there is no
textual support for the preemption of the State’s adoption
of the class action remedy in the exercise of its police
power to prevent and remedy consumer fraud, and its
determination to render any waiver of that remedy void
and unenforceable. Unger the existing rules of statutory
construction regarding the incorporation of the common
law unaltered, Congress should not be presumed to have
preempted a remedy necessary “to prevent the failure of
justice” to the public in connection with a consumer fraud
statute intended to prevent just such a failure of justice.
for class adjudication an “equitable remedy” “to prevent a failure
of justice.” The use of either remedy is subject to prescribed
procedural rules and standards, but when those are satisfied, the
remedy will issue—in a class suit class-wide relief pursuant to a
binding judgment. The true nature of the class suit as an equitable
remedy has become blurred since the merger of equity and law
into “one form of action-—the civil action” after the adoption of
the Federal Rules of Civil Procedure in 1937 and the current Fed.
R. Civ. P. 23. See also Kansas Consumer Protection Act 50-634
(including right to pursue class action within “private remedies”).
23
Il. Federalism Principles Require The
FAA To Be Construed Narrowly To Not
Preempt California’s Exercise Of The Police
Power To Prevent And Remedy Consumer Fraud
Committed Within Its Borders.
A. The Primacy of the State Consumer Fraud
Police Power over “Liberty of Contract”
Challenges under the Fourteenth Amendment
Was Well-Established When the FAA Was
Enacted.
Ironically, because the decision so frequently has been
discredited by the Court—sometimes twice on the same
day, see Obergefell v. Hodges, --- S. Ct. ---, 2015 WL 2473451
at *29-*30 (U.S. June 26, 2015) (Roberts, C. J., dissenting);
Johnson v. United States, --- S. Ct. ---, 2015 WL 2473450
at *18 (U.S. June 26, 2015) (Thomas, J., concurring in
judgment)—and because it was the harbinger of an era
in which hundreds of state statutes were struck down,
Lochner v. New York, 198 U.S. 45 (1905) (striking down
statute limiting employment of bakers to sixty hours
weekly), actually provides a thorough statement of the
standards that should have been applied to determine
whether the exercise of the State police power would be
preserved in the face of challenges based on the “liberty
of contract” under the Fourteenth Amendment:
The State ... has power to prevent the individual
from making certain kinds of contracts, and in
regard to them the Federal Constitution offers
no protection. If the contract be one which
the State, in the legitimate exercise of its
police power, has the right to prohibit, it is not
24
prevented from prohibiting it by the Fourteenth
Amendment. Contracts in violation of a statute,
either of the Federal or state government, or
a contract to let one’s property for immoral
purposes, or to do any other unlawful act,
could obtain no protection from the Federal
Constitution, as coming under the liberty of
person or of free contract. Jd. at 53-54.
[W]here legislation of this character is
concerned and where the protection of the
Federal Constitution is sought, the question
necessarily arises: Is this a fair, reasonable and
appropriate exercise of the police power of the
State, or is it an unreasonable, unnecessary
and arbitrary interference with the right of the
individual to his personal liberty or to enter into
those contracts[.] Jd. at 56.
This is not a question of substituting the
judgment of the court for that of the legislature.
If the act be within the power of the State it is
valid, although the judgment of the court might
be totally opposed to the enactment of such a
law. Id. at 56-57.
It is of great importance that, even though Lochner
and its progeny far too frequently found the limits of the
State police power exceeded, a number of cases prior to the
enactment of the FAA during the Lochner era upheld the
State’s exercise of the police power to prevent consumer
fraud. See Hebe Co., supra; Hutchinson Ice Cream Co.,
supra; Armour & Co., supra; Schmidinger, 226 U.S. at
588 (“courts may only interfere with laws or ordinances
25
passed in pursuance of the police power where they are
so arbitrary as to be palpably and unmistakably in excess
of any reasonable exercise of the authority conferred”).
Not all consumer fraud statutes, however, escaped
Lochner’s arbitrary reach. Compare Jay Burns Baking
Co. v. Bryan, 264 U.S. 504 (1924) (striking down statute
prescribing excess tolerance of two ounces for bread
loaves at all allowable weights) with Schmidinger, supra
(upholding statute requiring standard weights and sizes
for bread loaves).
That the State’s exercise of the police power to prevent
and remedy consumer fraud regularly survived Lochner
contemporaneously with the enactment of the FAA
confirms the essential role of the State consumer fraud
police power in our federal system, and undermines an
implication that Congress intended under §2 to preempt
any such legitimate exercise.
B. The State’s Exercise of the Police Power
to “Impair” Contracts After Formation
Notwithstanding the Contract Clause Was
Sustained by the Court Before and After the
Enactment of the FAA.
Nine years after the passage of the FAA, the
State police power to impair contracts ex post—after
formation—was upheld by the Court against challenge
under the Contract Clause. Blaisdell, 290 U.S. 398. In
rejecting the Contract Clause challenge and finding the
Maryland statute at issue to be “appropriate,’ “reasonable”
and “addressed to a legitimate end,” id. at 445, Blaisdell
identifies a number of cases where the exercise of the
State police power was upheld notwithstanding having
26
the effect of impairing contracts. Among many decisions,
Blaisdell (id. at 437) quotes Manigault v. Springs, 199
U.S. 473, 480 (1905)—one of a number of cited decisions
substantially preceding the FAA’s enactment, and a case
decided the same year as and reported one volume after
Lochner—to confirm the primacy of the State police
power in connection with contracts between individuals:
It is the settled law of this court that the
interdiction of statutes impairing the obligation
of contracts does not prevent the State from
exercising such powers as are vested in it
for the promotion of the common weal, or are
necessary for the general good of the public,
though contracts previously entered into
between individuals may thereby be affected.
This power, which in its various ramifications is
known as the police power, is an exercise of the
sovereign right of the Government to protect
the lives, health, morals, comfort and general
welfare of the people, and is paramount to any
rights under contracts between individuals.
Also pertinent is the following from Blaisdell, id. at 438
(citations omitted): “[WJhere the protective power of the
State is exercised in a manner otherwise appropriate
in the regulation of a business it is no objection that the
performance of existing contracts may be frustrated by
the prohibition of injurious practices.”
There is a compelling parallel between the
constitutional provision that expressly prohibits the
States from impairing the obligation of contracts and
the fact that “[t]he ‘principal purpose’ of the FAA is to
27
‘ensur{e] that private arbitration agreements are enforced
according to their terms.” Concepcion, 131 S. Ct. at
1748 (quoting Volt). The parallel extends as well to the
“liberty of contract” under the Fourteenth Amendment.
Because the State’s right to exercise its police power to
impair contracts when “appropriate,” “reasonable” and
“addressed to a legitimate end” was well-established
when the FAA was enacted, and when that right has
continued to be recognized by the Court thereafter, the
historical context should guide this Court’s construction
of §2’s saving clause so as to preserve the CLRA and its
anti-waiver provision.
C. The Court’s Modern Federalism Cases
Prescribe that Congress’ Purpose Be “Clear
and Manifest” to Find the Exercise of the State
Police Power Superseded by the FAA.
The Court’s modern federalism cases similarly counsel
substantial deference to the exercise of the State police
power, and assume that it is not to be preempted unless
that is the “clear and manifest purpose of Congress.” See,
e.g., Cipollone, 505 U.S. at 516; Medtronic, Inc., 518 U.S. at
485. See also CTS Corp., 134 S. Ct. at 2189 (preemption in
areas traditionally governed by state police powers should
presumptively be narrowly interpreted “where plausible”).
Furthermore, “[i]f the statute contains an express pre-
emption clause, the task of statutory construction must in
the first instance focus on the plain wording of the clause,
which necessarily contains the best evidence of Congress’
pre-emptive intent.” CSX Transp., Inc., 507 U.S. at 664.°
6. Although Justice Scalia describes §2 as an “explicit pre-
emption” provision, Stewart Org., Inc. v. Ricoh Corp., 487 U.S.
28
The FAA regulates and preempts arbitration
agreements, and the CLRA prohibits consumer fraud.
There is no linkage whatsoever between arbitration
agreements and the CLRA or its anti-waiver provision—a
provision that applies to all of the provisions and remedies
in the CLRA, and not just the class action remedy. The
application of the CLRA to prevent and remedy consumer
fraud is devoid of any “proximity” to the language
and prescribed subject preempted under the FAA.
“[W Jhatever the source of the duty, [the CLRA] imposes
[no] obligation in this case because of [arbitration
agreements].” Cipollone, id. at 554 (Scalia, J., concurring
in judgment in part and dissenting in part) (describing
““proximate application’ methodology”).
The Class Action Fairness Act of 2005 (“CAFA”), Pub.
L. No. 109-02 (enacted Feb. 18, 2005), also confirms the
“appropriateness,” “reasonableness” and “legitimacy”
of the exercise of the police power by the People of
California under the CLRA to provide consumers with
the unwaivable right to pursue all remedies, including
the class action remedy, for violations of the act, and
firmly supports the “plausibility” of reading 9 U.S.C. §2
22, 37 (1988), Volt states that “[t}he FAA contains no express
pre-emptive provision.” 489 U.S. at 477. However, the FAA’s
declaration that arbitration agreements shall be “valid, irrevocable
and enforceable” clearly displaces state law to the contrary. That
this Congressional directive is immediately followed by an express
saving clause strongly favors Justice Scalia’s characterization over
Volt’s contrary observation. Based on the saving clause alone, it
is necessarily true that Congress has prescribed the limit to the
scope of the preemptive reach of the statute, and that the language
of §2 should be the primary focus in determining Congress’
preemptive intent.
29
to not preempt that exercise. The findings of Congress in
enacting CAFA are stated in §2(a), 119 Stat. 4, and provide
in relevant part:
(a) Findings.—Congress finds the following:
(1) Class action lawsuits are an important
and valuable part of the legal system when
they permit the fair and efficient resolution
of legitimate claims of numerous parties by
allowing the claims to be aggregated into
a single action against a defendant that has
allegedly caused harm.
And CAFA §2(b), 119 Stat. 5, sets out the purposes of
CAFA, including to:
(1) assure fair and prompt recoveries for class
members with legitimate claims;
(2) restore the intent of the framers of the
United States Constitution by providing for
Federal court consideration of interstate
cases of national importance under diversity
jurisdiction; and
(3) benefit society by ... lowering consumer
prices.
It would be paradoxical for Congress to have exercised
its Article III, Section 1, power to vest the federal] courts
with diversity jurisdiction to adjudicate “an important
and valuable part of the legal system” in connection with
“interstate cases of national importance” for the express
30
benefit of consumers, but for this Court to find that
the same choice by the People of California to remedy
consumer fraud with its borders is preempted by a federal
statute that says nothing about and has nothing to do
with the State police power. Such a reading would be
“implausible.”
Congress’ “clear and manifest purpose” under the
FAA as stated in 9 U.S.C. §2 is elegantly straightforward:
[T]he Act was designed “to make arbitration
agreements as enforceable as other contracts,
but not more so.”
Volt, 489 U.S. at 478 (quoting Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)).
Similarly, the Court has “repeatedly referred to the Act’s
basic objective as assuring that courts treat arbitration
agreements ‘like all other contracts.”” Concepcion, 131 S.
Ct. at 1761 (Breyer, J., dissenting) (citing seven decisions).
Insofar as there is arguable uncertainty under §2,
than as stated by Justice Thomas in his dissent in Allied-
Bruce, 513 U.S. at 292, joined by Justice Scalia (quoting
Gregory v. Ashcroft, 501 U.S. 452, 460, 464 (1991)):
[W]e should resolve the uncertainty in light
of core principles of federalism ... “in areas
traditionally regulated by the States.” . .. Tothe
extent that federal statutes are ambiguous, We
do not read them to displace state law. Rather,
we must be “absolutely certain” that Congress
intended such displacement before we give
preemptive effect to a federal statute.
31
“(T]he domain expressly pre-empted by” the FAA is
arbitration agreements, and “the domain expressly” saved
is the legal and equitable common law principles rendering
any agreement illegal, void, unenforceable and revocable
at formation—including as a result of the legislative
exercise of State police power to prevent and remedy
consumer fraud. Cipollone, 505 U.S. at 517. Preservation
of the State police power, not preemption, is not merely
a “plausible” construction of the FAA, but the only one.
IIL. Concepcion Does Not Control FAA Preemption Of
California’s Exercise Of The State Police Power To
Prevent And Remedy Consumer Fraud.
Concepcion does not control the enforceability of the
CLRA anti-waiver provision under the FAA, because
Concepcion did not involve or address: (i) the fundamental
common law principle that contracts violating statutes
enacted under the State police power are illegal, void,
unenforceable and revocable at contract formation; and
(ii) the overriding federalism principles applied since
before the FAA was enacted that favor upholding statutes
enacted under the State’s historic police powers, including
in connection with consumer fraud. As stated by Chief
Justice Marshall in Cohens v. Virginia, 19 U.S. 264, 399
(1821):
It is a maxim not to be disregarded, that
general expressions, in every opinion, are to
be taken in connection with the case in which
those expressions are used. If they go beyond
the case, they may be respected, but ought not
to control the judgment in a subsequent suit
when the very point is presented for decision.
32
See also Blaisdell, 290 U.S. at 434 (“broad expressions
... beyond the requirements of the decision ... are not
controlling”) (citing Cohens).
Again, the text of the FAA lacks any proximity to the
consumer fraud domain of the CLRA necessary to support
the application of the implied “purposes and objectives”
conflict preemption on which Concepcion’s holding is
based, 131 S. Ct at 1753. As a matter of federalism,
there simply is no basis in the text of the statute, as
supplemented by its legislative history and its historical
context, to override the primacy of the State’s exercise of
its contract-related consumer fraud police power.’
Finally, the application of the CLRA and its anti-waiver
provision to violations of the statute is materially factually
distinguishable from elements of the Discover Bank rule
that the Court found objectionable in Concepcion.
First, as opposed to the ex post application of the
Discover Bank rule (see 131 S. Ct. at 1750), the provisions
and prohibitions of the CLRA, including the anti-waiver
provision, are applicable ex ante, at contract formation,
and have been for more than four decades, since the CLRA
and its class action remedy and anti-waiver provision were
first enacted in 1970. See Cal. Stats. 1970, Ch. 1550; see
also CLRA §1756 (provisions “appl[icable] to actions filed
7. In his concurrence in Concepcion, Justice Thomas
“adhere[ed] to [his] views on purposes-and-objectives pre-
emption (citing Wyeth v. Levine, 555 U.S. 555, 583 (2009) (opinion
concurring in judgment) (“implied pre-emption doctrines that
wander far from the statutory text are inconsistent with the
Constitution”). 131 S. Ct. at 1754. Thus, Justice Thomas disagreed
with its application in Concepcion.
33
on or after January 1, 1971”). Cf Hudson Cnty. Water Co.,
209 U.S. at 357 (Holmes, J.) (“One whose rights ... are
subject to state restriction, cannot remove them from the
power of the State by making a contract about them.”).
Second, as opposed to the requirement of the Discover
Bank rule that “damages be predictably small” which
Concepcion characterized as “toothless and malleable,”
and the requirement that “the consumer allege a scheme
to cheat consumers” which Concepcion characterized as
“ha[ving] no limiting effect,” 131 S. Ct. at 1750, the CLRA
prescribes and identifies in advance in great detail in §1770
specific conduct violating the statute, and violations of the
act do not depend on the amount of any one consumer’s
individual damages. The penalties imposed and remedies
provided also are specified in advance, in §§1780-81, as are
defenses available to one charged with violating the act,
in §1784. See Appendix.
To hold that Concepcion applies to the CLRA and its
anti-waiver provision would deprive the People of the State
of California of the product of their democratic exercise of
the State police power to decide how to prevent and remedy
the commission of consumer fraud within its borders.
To do so would violate the fundamental common law
principles of illegal contracts that were firmly established
when the FAA was enacted and which §2 and its saving
clause incorporate. To do so would violate the fundamental
federalism principles applicable to the exercise of the
State police power established by the decisions of this
Court extending back more than 100 years and also
firmly established when the FAA was enacted. To do so
would contravene Congress’ intent in enacting the FAA,
and its fundamental purpose and design reflected in the
34
words of the statute as interpreted under the applicable
rules of statutory construction, its legislative history and
historical context, and the command of federalism.
It would be Lochnerian.
CONCLUSION
For the foregoing reasons, the Court should affirm
the opinion of the California Court of Appeal.
Respectfully submitted,
WILLIAM R. WEINSTEIN
Counsel of Record
Law OrFices oF WILLIAM R. WEINSTEIN
199 Main Street, 4th Floor
White Plains, New York 10601
(914) 997-2205
wrw@wweinsteinlaw.com
Amicus Curiae
July 24, 2015
APPENDIX
la
APPENDIX
CALIFORNIA CIVIL CODE SECTIONS 1750 ET SEQ.
CONSUMERS LEGAL REMEDIES ACT—
SELECTED PROVISIONS
CHAPTER 1. GENERAL PROVISIONS
1750. This title may be cited as the Consumers Legal
Remedies Act.
1751. Any waiver by a consumer of the provisions of this
title is contrary to public policy and shall be unenforceable
and void.
1752. The provisions of this title are not exclusive. The
remedies provided herein for violation of any section of this
title or for conduct proscribed by any section of this title
shall be in addition to any other procedures or remedies
for any violation or conduct provided for in any other
law. Nothing in this title shall limit any other statutory
or any common law rights of the Attorney General or
any other person to bring class actions. Class actions
by consumers brought under the specific provisions of
Chapter 3 (commencing with Section 1770) of this title
shall be governed exclusively by the provisions of Chapter
4 (commencing with Section 1780); however, this shall not
be construed so as to deprive a consumer of any statutory
or common law right to bring a class action without resort
to this title. If any act or practice proscribed under this
title also constitutes a cause of action in common law or
a violation of another statute, the consumer may assert
such common law or statutory cause of action under the
procedures and with the remedies provided for in such law.
2a
Appendiz
1753. If any provision of this title or the application thereof
to any person or circumstance is held to be unconstitutional,
the remainder of the title and the application of such
provision to other persons or circumstances shall not be
affected thereby.
1756. The substantive and procedural provisions of this
title shall only apply to actions filed on or after January
1, 1971.
CHAPTER 2. CONSTRUCTION AND DEFINITIONS
1760. This title shall be liberally construed and applied
to promote its underlying purposes, which are to protect
consumers against unfair and deceptive business practices
and to provide efficient and economical procedures to
secure such protection.
CHAPTER 3. DECEPTIVE PRACTICES
1770. (Excerpt)
(a) The following unfair methods of competition and
unfair or deceptive acts or practices undertaken by
any person in a transaction intended to result or which
results in the sale or lease of goods or services to any
consumer are unlawful:
(1) Passing off goods or services as those
of another.
(2) Misrepresenting the source,
sponsorship, approval, or certification of
goods or services.
3a
Appendix
(3) Misrepresenting the affiliation,
connection, or association with, or
certification by, another.
(4) Using deceptive representations or
designations of geographic origin in
connection with goods or services.
(5) Representing that goods or
services have sponsorship, approval,
characteristics, ingredients, uses,
benefits, or quantities which they do not
have or that a person has a sponsorship,
approval, status, affiliation, or connection
which he or she does not have.
(6) Representing that goods are original or
new if they have deteriorated unreasonably
or are altered, reconditioned, reclaimed,
used, or secondhand.
(7) Representing that goods or services
are of a particular standard, quality, or
grade, or that goods are of a particular
style or model, if they are of another.
[Subsections 8-23 omitted]
CHAPTER 4. REMEDIES AND PROCEDURES
1780. (Excerpt)
(a) Any consumer who suffers any damage as a result
of the use or employment by any person of a method,
act, or practice declared to be unlawful by Section 1770
may bring an action against such person to recover or
obtain any of the following:
4a
Appendix
(1) Actual damages, but in no case shall the total
award of damages in a class action be less than one
thousand dollars ($1,000).
(2) An order enjoining such methods, acts, or
practices.
(3) Restitution of property.
(4) Punitive damages.
(5) Any other relief which the court deems proper.
(b) Any consumer who is a senior citizen or a disabled
person ... may seek and be awarded, in addition to
the remedies specified therein, up to five thousand
dollars ($5,000) where the trier of fact (1) finds that the
consumer has suffered substantial physical, emotional,
or economic damage resulting from the defendant’s
conduct, (2) makes an affirmative finding (under]
Section 3345, and (3) finds that an additional award
is appropriate. Judgment in a class action by senior
citizens or disabled persons under Section 1781 may
award each class member such an additional award
where the trier of fact has made the foregoing findings.
*s?
(d) The court shall award court costs and attorney’s
fees to a prevailing plaintiff in litigation filed pursuant
to this section. Reasonable attorney’s fees may be
awarded to a prevailing defendant upon a finding by
the court that the plaintiff's prosecution of the action
was not in good faith.
5a
Appendix
1781. (Excerpt)
(a) Any consumer entitled to bring an action under
Section 1780 may, if the unlawful method, act, or
practice has caused damage to other consumers
similarly situated, bring an action on behalf of himself
and such other consumers to recover damages or
obtain other relief as provided for in Section 1780.
1784. No award of damages may be given in any action
based on a method, act, or practice declared to be unlawful
by Section 1770 if the person alleged to have employed or
committed such method, act, or practice
(a) proves that such violation was not intentional and
resulted from a bona fide error notwithstanding the
use of reasonable procedures adopted to avoid any
such error and
(b) makes an appropriate correction, repair or
replacement or other remedy of the goods and services
according to the provisions of ... Section 1782.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.