On Monday, the U.S. Supreme Court issued its highly-anticipated opinion in  DirecTV, Inc. v. Imburgia et al., 577 U.S. ___ (2015), which reaffirmed its ruling in AT&T Mobility LLC v. Concepcion, 56 U.S. 333 (2011), dealing yet another blow to California Courts’ attempts to invalidate class action waivers.

Background

The plaintiffs in Imburgia filed their lawsuit in 2008, arguing that class action arbitration waivers were per se unenforceable in California under Discover Bank v. Super. Ct., 36 Cal. 4th 148, 162-163 (2005).  Under the Discover Bank rule, California courts were free to find such provisions, when contained consumer contracts of adhesion, unconscionable and to rule that they should not be enforced. Id.

The DirecTV service agreement at issue in Imburgia provided for arbitration of customer disputes and included a class action waiver but also stated that “[i]f . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration waiver] is unenforceable.”  While the Imburgia case was pending, the Supreme Court issued its decision in Concepcion, which ruled that the Discover Bank rule was preempted by the Federal Arbitration Act (“FAA”).  Despite Concepcion, the California Court of Appeals still found the class action waiver provision in the DirecTV service agreement unenforceable under the theory that the parties had chosen the law of California to govern at the time of drafting and, absent federal preemption, California law would not enforce such provisions.

Opinion

Justice Breyer delivered the opinion of the Court, which began with this “elementary” lesson:  “The Federal Arbitration Act is the law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”  (Slip Op. at 5). Unsurprisingly, the Supreme Court went on to rule that the California Court’s failure to do so indicated that it was not placing arbitration contracts “on equal footing with other contracts” and had therefore run afoul of the FAA.  (Id. at 10-11).

Justice Ginsburg and Justice Sotomayor dissented, opining that, given the specific language of the service agreement and the fact that it was drafted before Concepcion, the state court was free to interpret the contract as it had, and to find the class action arbitration waiver unenforceable.  (See Ginsburg Dissent at 3).  They also lamented that the Court’s recent decisions in Concepcion and Italian Colors had effectively deprived “consumers’ rights to seek redress for losses” and “insulated powerful economic interests.”  (Id. at 10-11).

Implications

Imburgia eliminates any doubt as to the enforceability of class action arbitration waivers.  Retailers and service providers wishing to avoid class action claims are encouraged to include them in their contracts and to be aggressive in enforcing them in litigation, even in the face of arguably ambiguous language.

Recently, a California federal court denied Nordstrom, Inc.’s and designer jean manufacturer, AG Adriano Goldschmeid’s request for an interlocutory review of the district court’s denial of their motion to dismiss the Plaintiff’s class action complaint alleging consumer fraud related to their use of “Made in USA” labels.25-jeans

Background

Plaintiff’s class action complaint alleged that defendants misleadingly marked their product with a Made in the USA label, when several component parts of the jeans, such as the fabric, thread, buttons, and rivets were manufactured outside the United States.  Plaintiff contend that defendants’ conduct violates various California statutes, including, California’s Consumer Legal Remedies Act, California Civil Code § 1750, and California’s Unfair Business Practices Act, California Business Professional Code § 17200 and § 17533.7.

Defendants moved to dismiss on the ground that plaintiff’s claims were preempted by the Federal Trade Commission Act (“FTCA”) and Textile Fiber products Identification Act (“TFPIA”), both of which contain provisions concerning Made in USA labels on products.  Defendants argue that the California statutes are preempted because they contain stricter standards than the federal acts.

The California Business Professional Code states that “it is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise or on its container there appears the words Made in USA Made in America, USA or similar words when the merchandise or any article, unit or part thereof, has been entirely or substantially made, manufactured, or produced outside the United States.”  (emphasis added).  However, the  FTCA guidelines state that a product may be labeled “Made in USA” if “all or virtually all of a specific product is made domestically.”  “All or virtually all” means that the product is one in which all significant parts and processing that go into the product are of U.S. origin, i.e., where there is only a de minimus, or negligible, amount of foreign content.  Accordingly, the FTCA allows for use of a Made in the USA label even if a product includes or contains material from a foreign country, whereas the California statutes do not allow use of the label unless all parts of the product were either entirely or substantial manufactured in the United States.

Decision

The Court agreed that the type of products at issue in the litigation were prohibited by the California statute but not the federal acts.  However, it found that the California statutes were not preempted because “although the laws set out different standards for the use of ‘Made in USA” labels, it would not be impossible for the defendants to comply with both laws.”  Consequently, the court denied defendants’ motion to dismiss.

Nordstrom is not the first, and likely not the last, retailer to be hauled into court on such allegations of mislabeling.  See, e.g., Clark v. Citizens of Humanity, Macy’s et al., case no. 3:14-cv-01404 (S.D. Cal.) (allege that the foreign components include fabric, thread, buttons, rivets and other subcomponents of the zipper assembly); Colgan v. Leatherman Tool Group, case no. B176953 (Cal. Ct. App.) (alleging that tool products with significant working parts that were “investment cast, fineblanked, formed, hardened, cut, forged, polished, or machined in various foreign countries” constituted a violation of California statutes when they had representations on the products, packaging and advertising that they were made in the USA); Oxina v. Lands’ End, 3:14-cv-02577 (S.D. Cal.) (alleging neckties labeled made in USA that contained parts made in other countries violated of California statutes).

Implications

As is evident from the court’s preemption decision in the Nordstrom case, retailers should take great care to ensure that their labels comply not only with federal laws but also any relevant state statutes.  Retailers may also consider making qualifying statements when products are not entirely made in the USA, such as “Made in US with foreign parts”  or “Produced in USA with imported raw materials,” to avoid allegations of misrepresentation.

Last week, the Seventh Circuit (Judge Flaum, Judge Rovner, and Judge Castillo, Chief Judge of the Northern District, sitting by designation) undertook the heady task of analyzing the interplay of Indiana’s Automated Dialing Machine Statute (“Autodialer law”) and the Telephone Consumer Protection Act, 47 U.S.C.  227 (“TCPA”).  Patriotic Veterans, Inc. v. Indiana, Case No. 11-3265 (Nov. 21, 2013) (“Patriotic Veterans”).  Both the context of the dispute, as well as the unresolved constitutional issue, keeps this case on our “Must Watch” list for 2014.

In the district court, Patriotic Veterans, a not-for-profit group with the stated purpose of informing voters of the positions taken by political candidates on issues of interest to veterans, moved for a declaratory ruling that Indiana’s Autodialer law is either: (1) preempted by the TCPA, or, alternatively (2) in violation of the First Amendment.  Under the TCPA, federal law exempts automated phone calls “not made for a commercial purpose.”  47 C.F.R. Sec. 64.1200(a)(3)(ii) (2005).   Indiana, however, places greater restrictions on such automated messages, exempting specific calls by employers to employees, or schools to parents, but remaining silent on exempting calls made for a political purpose.  Ind. Code Sec. 24-5-14-5(a).  As a result, Patriotic Veterans could not send out its “100,000 messages in a three hour period” that allowed it to reach constituents when time is of the essence, “such as on the eve of an election.”  Patriotic Veterans, pg. 4.   Patriotic Veterans requested an affirmative injunction issue, arguing that because it was an out-0f-state (Illinois) corporation, Indiana could not regulate interstate activities– a field left only, according to the plaintiff, to Congress.  The district court agreed, holding that despite a savings clause within the TCPA for state statutes regulating intrastate calls, Congress explicitly preempted any attempt to limit interstate calls, and ultimately granted an injunction against the enforcement of the Autodialer law.  Because the district court held the statute was preempted, it did not address the constitutional issues.  Patriotic Veterans, Inc. v. Indiana, 821 F. Supp. 2d 1074, 1079 (S.D. Ind. 2011).  The district court denied the State of Indiana’s request to stay the injunction pending appeal; on appeal, however, the Seventh Circuit stayed the injunction.  Patriotic Veterans, pg. 4, n.3.

The Seventh Circuit, in an eloquent analysis of both express and implied preemption, reversed.  Notable moments of the Court’s analysis include: (1) noting the initial presumption that state laws are not preempted without a stated clear and manifest purpose by Congress to the contrary, id. at 7; (2) emphasizing that no matter the oddity of the explicit statutory language, it is not the court’s job to fix the statute, id. at 9; (3) holding that the TCPA does not expressly preempt state statutes regulating interstate calls, id. at 10; (4)  stating that “the fact a state has more stringent regulations than a federal law  does not constitute conflict preemption,” id. at 14; (5) holding that more stringent regulations do not conflict, but support, the federal purpose of the TCPA, id. at 16; (6) engaging in a discussion of the merger of the concepts of “purposes and objectives” category of conflict preemption and field preemption, id. at 17; and (7) an amusing “frolic and detour” into the TCPA’s legislative history, recalling that a court is better served “examining the text, not by psychoanalyzing those who enacted it,” id. at 22.  In reversing, the Seventh Circuit remanded the matter back to the district court for an analysis of the whether the Autodialer Act violates the free speech rights protected by the First Amendment to the United States Constitution.  Id. at 23.

While the case arises in a non-class context, it provides insight on some brewing issues on the TCPA horizon, as well as very practical guidance for litigators on preemption issues.  We will continue to monitor this case as it returns to the Southern District of Indiana and keep our readers apprised.

Have a Happy Thanksgiving and see you in December.