Mey v. DIRECTV, LLC – The Fourth Circuit broadens the scope of the FAA to “infinite” arbitration clauses

Wyrick Robbins Yates & Ponton LLP
Contact

Wyrick Robbins Yates & Ponton LLP

Arbitration provisions appear in millions of contracts that cover many different types of agreements and transactions. For decades, the United States Supreme Court has expanded the Federal Arbitration Act (“FAA”), which facilitates contract-based dispute resolution through arbitration. Over the years, the FAA’s expansion has helped corporations adopt especially broad, boilerplate arbitration clauses that mandate arbitration for any and all disputes, claims, or controversies between any related party/agent/beneficiary/affiliate arising from or relating in any way to the underlying agreement, aptly named “infinite” arbitration clauses. See David Horton, Infinite Arbitration Clauses, 168 Pa. L. Rev. Online 633 (2020) (defining infinite arbitration clauses as “those that mandate arbitration for all disputes between any related party in perpetuity”). Infinite arbitration clauses are “relatively new and untested.” Mey, 971 F.3d at 287. In Mey v. DIRECTV, 971 F.3d 284 (4th Cir. 2020), the Fourth Circuit Court of Appeals expanded the reach of the FAA in a significant way – by allowing corporations to enforce infinite arbitration clauses of a distant affiliate.

In 2017, Diana Mey sued DIRECTV in the United States District Court for the Northern District of West Virginia for violating the Telephone Consumer Protection Act (TCPA) by calling her cell phone to advertise DIRECTV products and services even though Mey had placed her cell number to the National Do Not Call Registry.  DIRECTV moved to compel arbitration based on the arbitration agreement in Mey’s contract with her cell phone provider, AT&T Mobility, LLC (“AT&T”).  AT&T’s arbitration provision provides, in relevant part, as follows:

AT&T and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to:

  • claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory;
  • claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising);
  • claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and
  • claims that may arise after the termination of this Agreement.

References to “AT&T,” “you,” and “us” include our respective subsidiaries, affiliates, agents, employees, predecessors in interest, successors, and assigns, as well as all authorized or unauthorized users or beneficiaries of services or Devices under this or prior Agreements between us.

DIRECTV did not (and could not) contend that Mey had ever been a DIRECTV customer or privy to any contract with DIRECTV. Instead, DIRECTV contended that it was an “affiliate” of AT&T and therefore could enforce AT&T’s arbitration agreement with Mey.

In support of its “affiliate” argument, DIRECTV submitted the affidavit of an AT&T’s Litigation Manager who authenticated Diana Mey’s AT&T account and explained the AT&T/DIRECTV corporate relationship. Mey’s counsel described AT&T and DIRECTV as “corporate cousins at least seven times removed.” Brief of Appellee, Mey v. DIRECTV, LLC, No. 18-1534, 2018 WL 4098110 (C.A. 4), at *6 (4th Cir. Aug. 20, 2018).[1]

In the Northern District Court of West Virginia, Federal District Judge John Preston Bailey, although recognizing the extremely broad reach of the FAA, found that DIRECTV’s alleged violation of the
TCPA was not “within the ambit of the arbitration agreement” and “any construction which does not so limit the scope of the arbitration clause would be unconscionably overbroad.” Mey v. DIRECTV, LLC, No. 5:17-CV-179, 2018 WL 7823097, at *5 (N.D. W.Va. Apr. 25, 2018). Judge Bailey was concerned less with the meaning of “affiliate” than with the broad sweep of the arbitration agreement’s “infinite” qualities. With limited case law addressing such broad arbitration clauses, Judge Bailey looked to persuasive district court opinions addressing the same or similar clauses. Enforcing AT&T’s infinite arbitration clause by compelling Mey to litigate her TCPA claims in arbitration, according to Judge Bailey, would pave the road to more “absurd results.” Mey, 2018 WL 7823097, at *6 (quoting Wexler v. AT&T Corp., 211 F. Supp.3d 500 (E.D.N.Y. 2016) (analyzing an identical arbitration clause)). Citing for instance that if Mey “were hit by a Mobility delivery van, or if she tripped over a dangerous condition in a Mobility store, her tort claim would have to go to arbitration. If she bought shares of stock in Mobility and later claimed a decrease in share price was the result of corporate malfeasance, her securities-fraud claim would have to go to arbitration. And since the arbitration clause purports to survive termination of the underlying service agreement, this obligation to arbitrate any claim whatsoever against Mobility would last forever.” Id. According to Judge Bailey, the absurdity is deeper and more obvious when the infinite clause is enforced to require arbitration of claims against any AT&T affiliate. The court denied DIRECTV’s Motion to Compel Arbitration and DIRECTV appealed the decision to the Fourth Circuit Court of Appeals.

The Fourth Circuit vacated the district court’s order denying DIRECTV’s motion to compel arbitration. Judge Allison Jones Rushing wrote the Fourth Circuit majority opinion in Mey (now a putative class action) on behalf of herself and Judge Henry Floyd.  First, the majority quickly concluded that Mey formed an agreement to arbitrate that extended to DIRECTV and, for that matter, to any and all affiliates at the time of the dispute and those acquired by AT&T after the agreement was signed. Mey v. DIRECTV, LLC, 971 F.3d 284, 286 (4th. Cir. 2020). The Court refused to limit the ordinary meaning of “affiliate” in any way, noting that “arbitration is a matter of contract” and the contractual context of the long-term, cell phone contract meant that it was “unlikely the parties intended to restrict the covered entities to those existing at the time the agreement was signed.” Id.

The Court then addressed the broad scope of AT&T’s infinite arbitration clause and whether it covered Mey’s TCPA claims against DIRECTV.  The majority noted that the district court applied the wrong standard “by asking whether the arbitration agreement could be interpreted not to cover this dispute” rather than “whether the arbitration agreement is ‘susceptible of an interpretation that covers the asserted dispute’” as precedent requires. Id. As in Judge Bailey’s opinion, the Fourth Circuit acknowledged the lack of binding authority interpreting infinite arbitration clauses and noted that neither party could identify a case with an arbitration clause as broad as AT&T which covered “all disputes and claims between us.” Id. In light of the agreement’s “expansive text,” the majority concluded that AT&T’s infinite arbitration clause was “susceptible of an interpretation that covers Mey’s TCPA claims.” Mey, 971 F.3d at 286. The majority dismissed Judge Bailey’s theory of “absurd results,” stating that the question presently before the Court “is tethered to the facts of this dispute and the categories of claims specifically included in this arbitration agreement.” Id.

Takeaways

As someone who routinely peruses Westlaw attempting to stretch the scope of the FAA in my clients’ favor in support of motions to compel arbitration, I was comforted by the Fourth Circuit’s decision to break down new barriers in favor of arbitration. With cases like Mey in the outside counsel’s arsenal, corporations will continue to use arbitration agreements to help reduce their legal exposure and manage their risks. Drafters are free to broadly expand the language of arbitration agreements to include “all disputes” involving “all affiliates” and can expect the agreement will be enforced in the Fourth Circuit.

It would be very remiss of me not to acknowledge the strong dissenting opinion by Judge Pamela Harris. Her dissent challenges the majority’s application of contract interpretation principles and champions the consumer, stating bluntly that “no reasonable person procuring cell-phone service from AT&T Mobility . . . would understand ‘affiliate’ to include any and all future [and unidentifiable] corporate cousins.” Mey, 971 F.3d at 287. In oral argument, Judge Harris wasted no time recognizing the “absurd results” that would result from the majority’s decision. Within the first 90 seconds of DIRECTV’s oral argument, Judge Harris posits the following hypothetical to counsel for DIRECTV: An AT&T customer who ended a one-year relationship with AT&T years earlier decides it wants to sue CNN, who in her hypothetical becomes a future affiliate of AT&T, for defamation. Has this customer waived her right to sue CNN for defamation?  Counsel says yes and Judge Harris responds that she finds it “hard to believe that anyone signing this agreement would have understood it to mean that.” Court Listener, Diana Mey v. DIRECTV, LLC, Jan. 28, 2020, https://www.courtlistener.com/audio/68230/diana-mey-v-directv-llc/ (last accessed on Sept. 25, 2020). Judge Harris later notes in her dissent that the majority has opened Pandora’s Box as AT&T Mobility is the nation’s largest wireless provider with 165 million subscribers who are now “bound to arbitrate any dispute, occurring at any time, with any entity that ever subsumed under the massive AT&T, Inc. corporate umbrella.” Mey, 971 F.3d at 287.

Judge Harris and Judge Rushing have rebirthed the everlasting paradox between (1) the broad powers of the FAA resolving all disputes in favor of arbitration and (2) principles of contract requiring a mutual “meeting of the minds” as to the meaning of the arbitration clause. What follows from this paradox, as I and fellow commercial litigators know all too well, are legal briefs laced with citations regarding principles of contract formation and its permissible scope, and state contract law protecting the individual versus the ever-expanding FAA.

Candidly, until the United States Supreme Court pulls back on the FAA’s reigns in this matter or another, I will be citing to Mey v. DIRECTTV in memoranda in support of motions to compel for a few propositions, namely, for the obvious proposition that an arbitration agreement purporting to cover all disputes and claims between the parties and their respective subsidiaries, affiliates, agents, employees, predecessors in interest, successors, assigns, and authorized or unauthorized users, does in fact cover every dispute against that party or a related third party, and the FAA favors such wide inclusivity. Additionally, terms such as subsidiaries, affiliates, agents, etc. are to be given their ordinary meaning and their meaning should not be limited in any way but interpreted as openly as the contract language and context permits. Mey, 971 F.3d at 286. Lastly, since the Fourth Circuit made quick work of Mey’s argument that she did not form an agreement to arbitrate, I anticipate citing its finding that a signed acknowledgement stating that one reviewed and agreed to the terms of the contract containing an arbitration clause suffices to demonstrate one’s assent to the arbitration agreement. Id. The same goes for a mere “authorized user.” Id.

Given the divided panel and Judge Harris’ critical dissent and preview of things to come, this will be a case to watch.


[1] See Figures 1 and 2. Declaration of Paula Phillips, Case 5:17-cv-00179-JPB-JPM, Doc. 15-2; David Horton, Infinite Arbitration Clauses, 168 Pa. L. Rev. Online 633, 635 (2020) (taken from Brief of Appellee, Mey v. DIRECTV, LLC, No. 18-1534, 2018 WL 4098110, at *7 (4th Cir. Aug. 20, 2018)).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wyrick Robbins Yates & Ponton LLP | Attorney Advertising

Written by:

Wyrick Robbins Yates & Ponton LLP
Contact
more
less

Wyrick Robbins Yates & Ponton LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.