U.S. Supreme Court Reverses California Court’s Strained Interpretation of Arbitration Clause Referencing Invalid State Law

On December 14, 2015 the United States Supreme Court in DIRECTTV, INC. V. INBUGIA ET AL reversed the California Court of Appeals decision rendering an arbitration agreement containing a class-arbitration clause waiver unenforceable. The Supreme Court noted that while under the Federal Arbitration Act state courts may invalidate arbitration agreements “upon grounds that exist in law and equity” and that state courts are the ultimate authority on their own law, such interpretation must be consistent with the fundamental principle that arbitration clauses must be placed on “equal footing with all other contracts.” The California Court’s strained interpretation of the arbitration clause which referenced law that was previously determined by the Supreme Court to be invalid and unenforceable was “unique” and “restricted” exclusively to arbitration agreements, since California courts would not interpret contracts other than arbitration contract the same way.