DIRECTV v. Imburgia involved an arbitration clause with a class action waiver in the satellite television service provider’s customer agreement. The clause at issue provided that the entire arbitration provision would not be enforceable if the “law of your state” makes the class action waiver unenforceable. Since California’s Discover Bank rule deemed unconscionable class action waivers in adhesive consumer services agreements with pre-dispute arbitration clauses, the California court ruled that the “law of your state” — i.e., California law — included the Discover Bank doctrine, and thus the arbitration clause was unenforceable. Even though the Supreme Court had previously held in AT&T Mobility v. Concepcion that the FAA preempted the Discover Bank rule, the California Court of Appeal interpreted the phrase “law of your state” to mean the state’s law whether preempted or not by the FAA.

The Supreme Court reversed, ruling that the California Court of Appeal’s interpretation of the phrase “the law of your state” to render the arbitration clause unenforceable did “not place arbitration contracts on equal footing with all other contracts” and thus did not give “due regard … to the federal policy favoring arbitration.” The Imburgia Court declared that the state court should have interpreted the phrase “law of your state” to mean only “valid” state law — defined to be state law as preempted. Because the Discover Bank rule was preempted in a previous case, it was “invalid” and should not have been applied.

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