John Murphy v. Directv, Inc. , 724 F.3d 1218 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOHN MURPHY; GREG MASTERS; No. 11-57163
ROBERTA WEISS, on behalf of
themselves and all others similarly D.C. No.
situated, 2:07-cv-06465-
Plaintiffs-Appellants, JHN-VBK
v.
OPINION
DIRECTV, INC.; DIRECTV
MERCHANDISING, INC.; DIRECTV
ENTERPRISES, LLC; DIRECTV
HOLDINGS LLC; THE DIRECTV
GROUP, INC.; BEST BUY STORES,
L.P.,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Jacqueline H. Nguyen, District Judge, Presiding
Argued and Submitted
May 6, 2013—Pasadena, California
Filed July 30, 2013
2 MURPHY V. DIRECTV, INC.
Before: John T. Noonan, Kim McLane Wardlaw,
and Mary H. Murguia, Circuit Judges.
Opinion by Judge Wardlaw
SUMMARY*
Arbitration
The panel affirmed the district court’s order compelling
plaintiffs in this putative class action to arbitrate with satellite
television provider DirecTV, and reversed the district court’s
order compelling plaintiffs to arbitrate with electronic retailer
Best Buy.
Plaintiffs charged DirecTV and Best Buy with violations
of state law, alleging that that Defendants presented certain
DirecTV service equipment, such as receivers and digital
video recorders, as though they were for sale at Best Buy
stores when in fact the Defendants considered the transactions
to be a lease rather than an outright purchase. The DirecTV’s
Customer Agreement required arbitration of certain disputes,
but Best Buy was not a party to that agreement.
The panel held that the arbitration agreement between
plaintiffs and DirecTV was enforceable under AT&T Mobility
v. Concepcion, 131 S. Ct. 1740 (2011), which held that
Section 2 of the Federal Arbitration Act preempts the State of
California’s rule rendering unenforceable — as
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
MURPHY V. DIRECTV, INC. 3
unconscionable — arbitration provisions in consumer
contracts that waive collective or class action proceedings.
The panel held that Best Buy, which was not a party to
the Customer Agreement, was not entitled to the benefit of
the arbitration clause. The panel held that neither equitable
estoppel nor the third-party beneficiary doctrine permitted
Best Buy to enforce DirecTV’s arbitration agreement, and
that the Independent Retailer Agreement between Best Buy
and DirecTV expressly disavowed an agency relationship.
The panel therefore reversed the district court’s order
compelling plaintiffs to arbitrate with Best Buy.
COUNSEL
F. Paul Bland, Jr. (argued), Public Justice, P.C., Washington,
D.C.; Leslie A. Bailey, Public Justice, P.C., Oakland,
California; Robert S. Green, Green & Noblin, P.C., San
Francisco, California; and Michael R. Reese, Reese Richman
LLP, New York, New York, for Plaintiffs-Appellants.
Melissa D. Ingalls (argued), Robyn E. Bladow, and Shaun
Paisley, Kirkland & Ellis LLP, Los Angeles, California, for
Defendants-Appellees DirecTV, Inc., DirecTV
Merchandising, Inc., DirecTV Enterprises, LLC, DirecTV
Holdings LLC, and The DirecTV Group, Inc.
Roman M. Silberfeld (argued), Michael A. Geibelson, and
Rebecka M. Biejo, Robins, Kaplan, Miller & Ciresi LLP, Los
Angeles, California, for Defendant-Appellee Best Buy Stores,
L.P.
4 MURPHY V. DIRECTV, INC.
OPINION
WARDLAW, Circuit Judge:
In AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011),
the Supreme Court held that Section 2 of the Federal
Arbitration Act (“FAA”) preempts the State of California’s
rule rendering unenforceable—as unconscionable—
arbitration provisions in consumer contracts that waive
collective or class action proceedings, see Discover Bank v.
Superior Court, 113 P.3d 1100 (Cal. 2005) (the “Discover
Bank rule”), reasoning that “[r]equiring the availability of
classwide arbitration interferes with fundamental attributes of
arbitration and thus creates a scheme inconsistent with the
FAA.” Concepcion, 131 S. Ct. at 1748. This putative
consumer class action, filed before Concepcion was decided,
but pending in the district court when Concepcion issued,
charges satellite television provider DirecTV and electronic
retailer Best Buy with violations of California’s Unfair
Competition Law (“UCL”) and Consumer Legal Remedies
Act (“CLRA”). We must decide whether Concepcion applies
to the unique arbitration clause in the customer service
agreement between DirecTV and individuals who believed
they purchased DirecTV equipment from Best Buy stores
and, if so, whether Best Buy, which is not a party to that
agreement, is entitled to the benefit of the arbitration clause.
The district court compelled arbitration of all claims against
DirecTV and Best Buy. We affirm as to DirecTV, but
reverse as to Best Buy.1
1
In a pair of February 11, 2011 minute orders, the district court granted
motions to dismiss filed by DirecTV and Best Buy, eliminating several of
Plaintiffs’ claims from the lawsuit. Plaintiffs referenced these minute
orders in their Notice of Appeal, but did not raise them in their Opening
MURPHY V. DIRECTV, INC. 5
I.
A summary of the alleged scheme to deceive consumers
is necessary to understand the relationship between Best Buy
and DirecTV and the claims against them. Plaintiffs allege
that Defendants present certain DirecTV service equipment,
such as receivers and digital video recorders, as though they
were for sale at Best Buy stores when in fact the Defendants
consider the transaction to be a lease rather than an outright
purchase. Plaintiffs claim that even after the Defendants
began offering the equipment in question only for lease,
customers continued to receive receipts at Best Buy stores
that suggested the equipment had been purchased–most
notably because the word “SALE” was printed in bold,
capitalized letters at the top of the receipts. Even after
language on the receipt was changed to include references to
a “lease,” Plaintiffs allege that the new language was “buried”
in fine print that most consumers would not notice or
understand.2 Plaintiffs claim that the Defendants crafted
oppressive and unfair lease terms, including unexpected and
unreasonable fees.
Brief. Therefore, we do not review those minute orders. See Bell v. City
of Boise, 709 F.3d 890, 896 n.8 (9th Cir. 2013). However, as a result of
those orders, Roberta Weiss (a California resident) is the only named
plaintiff with remaining claims pending against Best Buy.
2
Plaintiffs acknowledge that in some cases the defendants provided
customers with a “Lease Addendum,” but argue that this document also
is not an adequate disclosure of the terms of equipment acquisition
because the addendum was provided to customers only after equipment
was already installed and activated in their homes. Plaintiffs allege that
the defendants considered the Lease Addendum enforceable even against
customers who had never received or signed one.
6 MURPHY V. DIRECTV, INC.
When a consumer becomes a DirecTV customer, he or
she receives a “Customer Agreement” that governs the
relationship between DirecTV and its subscribers. Section 9
of the Customer Agreement, entitled “Resolving Disputes,”
provides that all disputes between DirecTV and its customers
“will be resolved only by binding arbitration.” Subsection
9(c)(ii) of the Customer Agreement provides: “Neither you
nor we shall be entitled to join or consolidate claims in
arbitration by or against other individuals or entities, or
arbitrate any claim as a representative member of a class or
in a private attorney general capacity.” However, the
Customer Agreement also sets forth a so-called “jettison
clause”: “If, however, the law of your state would find this
agreement to dispense with class arbitration procedures
unenforceable, then this entire Section 9 is unenforceable.”
The subsequent section, Section 10 (“Miscellaneous”),
contains a subsection (b), which reads:
The interpretation and enforcement of this
Agreement shall be governed by the rules and
regulations of the Federal Communications
Commission, other applicable federal laws,
and the laws of the state and local area where
Service is provided to you. This Agreement is
subject to modification if required by such
laws. Notwithstanding the foregoing, Section
9 shall be governed by the Federal Arbitration
Act.
DirecTV has long maintained that the Customer
Agreement means that Plaintiffs’ claims must be resolved
through arbitration. In March 2008, it moved the district
court to compel arbitration. DirecTV argued that the law of
named plaintiffs John Murphy and Greg Masters’s residences
MURPHY V. DIRECTV, INC. 7
(Georgia and Montana, respectively) applies and permits
enforcement of the class arbitration ban.3 Plaintiffs
contended that California law, which at the time included the
Discover Bank rule, governed the enforceability of the
Customer Agreement’s class waiver. Concluding that
California law applied, the district court declined to compel
arbitration. We affirmed the district court’s choice of law
ruling. See Masters v. DirecTV, Inc., Nos. 08-55825, 08-
55830, 2009 WL 4885132, at *1 (9th Cir. Nov. 19, 2009)
(unpublished).
Because the Discover Bank rule rendered DirecTV’s class
arbitration ban unenforceable, Section 9’s jettison clause was
triggered, permitting litigation in the district court to continue
for almost a year and a half. Then, the United States Supreme
Court decided Concepcion, prompting DirecTV to
successfully move the district court to reconsider its prior
order. Piggybacking on DirecTV’s Customer Agreement,
Best Buy also successfully moved to compel arbitration.
Plaintiffs timely appealed. We review the orders compelling
arbitration de novo. Kramer v. Toyota Motor Corp., 705 F.3d
1122, 1126 (9th Cir. 2013); Bushley v. Credit Suisse First
Bos., 360 F.3d 1149, 1152 (9th Cir. 2004) (“The district
court’s decision to grant or deny a motion to compel
arbitration is reviewed de novo.”).
II.
“With limited exceptions, the Federal Arbitration Act
(FAA) governs the enforceability of arbitration agreements in
3
Named plaintiff Roberta Weiss did not file suit until March 2010. Her
complaint was consolidated with the instant litigation shortly thereafter.
8 MURPHY V. DIRECTV, INC.
contracts involving interstate commerce.” Kramer, 705 F.3d
at 1126. Under the FAA:
A written provision in any maritime
transaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising out
of such contract or transaction, or the refusal
to perform the whole or any part thereof, or an
agreement in writing to submit to arbitration
an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 2. As the Supreme Court has noted, FAA § 2 “is
a congressional declaration of a liberal federal policy
favoring arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary.” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983); accord Concepcion, 131 S. Ct. at 1745. However,
fundamentally an arbitration agreement is contractual in
nature. Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct.
2772, 2776 (2010) (observing that the “FAA reflects the
fundamental principle that arbitration is a matter of
contract”). Thus, the FAA “places arbitration agreements on
an equal footing with other contracts, and requires courts to
enforce them according to their terms.” Id. (internal citation
omitted).
MURPHY V. DIRECTV, INC. 9
A. DirecTV
“Applying Concepcion retroactively to the arbitration
provision,” the district court held that “the class action waiver
is not unconscionable, and therefore, the arbitration provision
is enforceable.” We agree.4
Plaintiffs argue that Section 9 of DirecTV’s Customer
Agreement, which requires binding arbitration, is
unenforceable due to the jettison clause set forth in subsection
9(c). They maintain that as of April 24, 2007 and April 24,
2010, the effective dates of the Customer Agreements to
which Plaintiffs are parties, “the law of [California] would
[have found] this agreement to dispense with class arbitration
procedures unenforceable,” rendering the “entire Section 9
unenforceable.” Before 2011, the Discover Bank rule had not
yet been overruled by the Supreme Court, so Plaintiffs cling
to the notion that the rule still governs the interpretation of
their arbitration agreement today. This argument
misapprehends the doctrine of preemption and the rationale
of the Supreme Court’s ruling in Concepcion.
Importantly, the FAA meant what the Court in
Concepcion says it means—that the Customer Agreement’s
4
The district court found that Plaintiffs received the Customer
Agreement containing the arbitration provision, and were bound by the
contract, even if they did not read it. In their Reply Brief, Plaintiffs
attempt to challenge this conclusion. However, Plaintiffs did not argue in
their Opening Brief that they did not “assent to arbitration,” and therefore
they have waived this argument. Smith v. Marsh, 194 F.3d 1045, 1052
(9th Cir. 1999). In any event, the district court’s finding that Plaintiffs
received the Consumer Agreement and continued to accept DirecTV’s
services is not clearly erroneous and its conclusion that these actions
bound Plaintiffs to the terms of the contract is correct.
10 MURPHY V. DIRECTV, INC.
class waiver is enforceable—even prior to 2011 when the
Discover Bank rule was nominally in effect. That is because
the Supreme Court’s “construction of a statute is an
authoritative statement of what the statute meant before as
well as after the decision of the case giving rise to that
construction.” Rivers v. Roadway Express, Inc., 511 U.S.
298, 312–13 (1994); see also Morales-Izquierdo v. DHS,
600 F.3d 1076, 1090 (9th Cir. 2010) (“[W]hen a court
interprets a statute, even an ambiguous one, and even when
that interpretation conflicts with the court’s own prior
interpretation, the new interpretation is treated as the statute’s
one-and-only meaning.”). Thus, § 2 of the FAA has always
preempted states from invalidating arbitration agreements
that disallow class procedures. The parties’ agreement that
state law would govern the enforceability of the arbitration
requirement was not an agreement to rely on state law that
“creates a scheme inconsistent with the FAA.” Concepcion,
131 S. Ct. at 1748.
Section 2 of the FAA, which under Concepcion requires
the enforcement of arbitration agreements that ban class
procedures, is the law of California and of every other state.
The Customer Agreement’s reference to state law “does not
signify the inapplicability of federal law, for ‘a fundamental
principle in our system of complex national polity’ mandates
that ‘the Constitution, laws, and treaties of the United States
are as much a part of the law of every State as its own local
laws and Constitution.’” Fid. Fed. Sav. & Loan Ass’n v. de
la Cuesta, 458 U.S. 141, 157 (1982) (quoting Hauenstein v.
Lynham, 100 U.S. 483, 490 (1880)); see also Brown v.
Investors Mortg. Co., 121 F.3d 472, 476 (9th Cir. 1997)
(“The fact that the parties chose to apply the laws of
Washington, rather than the laws of another state, does not
mean the parties decided that federal law should not apply.”).
MURPHY V. DIRECTV, INC. 11
It follows that, under the doctrine of preemption, the
Discover Bank rule is not, and indeed never was, California
law. Simply put, “state law is nullified to the extent that it
actually conflicts with federal law.” De la Cuesta, 458 U.S.
at 153 (emphasis added). Thus, Plaintiffs’ contention that the
parties intended for state law to govern the enforceability of
DirecTV’s arbitration clause, even if the state law in question
contravened federal law, is nonsensical.5 A contract cannot
be unenforceable under state law if federal law requires its
enforcement, because federal law is “the supreme Law of the
Land . . . , any Thing in the Constitution or Laws of any State
to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2.
Section 9 of the Customer Agreement provides only that the
arbitration agreement will be unenforceable if the “law of
your state” disallows class waivers, which California law
does not—and could not—under the FAA as interpreted in
Concepcion.
Plaintiffs cite no cases to the contrary. For instance,
Plaintiffs rely heavily on American Airlines, Inc. v. Wolens,
513 U.S. 219 (1995), for the proposition that parties may
enter a contract whose terms diverge from the requirements
of federal law. In Wolens, the Supreme Court held that the
federal Airline Deregulation Act, which displaces state laws
regulating airline rates, routes, and services, see id. at 232,
preempted claims brought under state consumer protection
laws that served in effect as a “means to guide and police the
5
That the Customer Agreement may have been drafted and entered into
with the Discover Bank rule in mind does not change the fact that “the law
of your state” cannot include a rule that a federal statute, as interpreted by
the Supreme Court, bars states from imposing. Under Concepcion, states
simply lack the power to render class arbitration waivers unenforceable as
unconscionably exculpatory.
12 MURPHY V. DIRECTV, INC.
marketing practices of the airlines,” id. at 228. However, the
Court held that the Act does not “shelter airlines from suits
alleging no violation of state-imposed obligations, but
seeking recovery solely for the airline’s alleged breach of its
own, self-imposed undertakings.” Id. Plaintiffs read this
language broadly, arguing that when a party to a contract
promises to follow the substance of state law, it is bound to
do so even if federal law would otherwise preempt it. But
Wolens stands only for the proposition that contracting parties
can enforce the substantive terms of a private agreement even
if they exceed the requirements of federal law. Wolens does
not hold that contract language referencing state law
transforms otherwise preempted state contract-law doctrines
into enforceable private obligations; in fact, it implies that the
opposite is true. See id. at 233 (“This distinction between
what the State dictates and what the airline itself undertakes
confines courts, in breach-of-contract actions, to the parties’
bargain, with no enlargement or enhancement based on state
laws or policies external to the agreement.”).
Nor does Plaintiffs’ position find support in the Supreme
Court’s decision in Volt Information Sciences, Inc. v. Board
of Trustees of the Leland Stanford Junior University,
489 U.S. 468 (1989). While Volt does indicate that the terms
of an arbitration agreement may be enforced even if they
require procedures not contemplated by the FAA, the unique
posture of Volt is a far cry from this case. In Volt, the
California Court of Appeal had held that, by incorporating
state law into an arbitration agreement, the parties agreed to
be bound by a California rule authorizing courts to stay
arbitration pending resolution of related litigation involving
third parties. Id. at 471–72. The Court only reviewed the
California Court of Appeal’s construction of the contract’s
choice-of-law provision to the extent necessary to determine
MURPHY V. DIRECTV, INC. 13
whether it was contrary to federal law, and concluded that it
was not. See id. at 474–76. The Court held that, “assuming
the choice-of-law clause meant what the Court of Appeal
found it to mean,” i.e., that the arbitration agreement
incorporated California procedural rules, id. at 476, the
California rule at issue was not preempted by the FAA. Id. at
479.
The Court in Volt emphasized “that the interpretation of
private contracts is ordinarily a question of state law, which
this Court does not sit to review.” Id. at 474. As Justice
Brennan’s dissent noted, the Court declined to review the
California Court of Appeal’s holding that the contract at issue
“would be governed solely by the law of the State of
California, to the exclusion of federal law.” Id. at 480
(Brennan, J., dissenting). Thus, the Volt majority had no
occasion to consider whether the state court’s construction of
the contract at issue was correct. Here, Plaintiffs’ contract
interpretation arguments are squarely presented, and our
reasons for rejecting them largely mirror the analysis of the
Volt dissenters. See id. at 490 (“[T]he literal language of the
contract–‘the law of the place’– gives no indication of any
intention to apply only state law and exclude other law that
would normally be applicable to something taking place at
that location. By settled principles of federal supremacy, the
law of any place in the United States includes federal law.”).
But even the California Court of Appeal’s (nonprecedential)
analysis in Volt is distinguishable because it proceeded from
the premise that, “‘[i]n the face of such a choice of laws
provision, California law applies unless preempted by the
FAA.’” Bd. of Trustees of Leland Stanford Jr. Univ. v. Volt
Info. Scis., Inc., 240 Cal. Rptr. 558, 560 (Cal. Ct. App. 1987)
(depublished) (emphasis added) (quoting Garden Grove
Cmty. Church v. Pittsburgh-Des Moines Steel Co., 191 Cal.
14 MURPHY V. DIRECTV, INC.
Rptr. 15, 20 (Cal. Ct. App. 1983)), aff’d, 489 U.S. 468(1989); see also Volt, 489 U.S. at 479 (noting that the
California rule in question could be given effect “without
doing violence to the policies behind the FAA”). Here, in
contrast, the Supreme Court has expressly held that the rule
Plaintiffs seek to apply is “an obstacle to the accomplishment
of the FAA’s objectives.” Concepcion, 131 S. Ct. at 1748.
Under Wolens and Volt, it is clear that if DirecTV had
actually contracted with Plaintiffs to allow class arbitration,
it would be required to do so irrespective of Concepcion. But
DirecTV did exactly the opposite. The Customer Agreement
provides that “Neither you nor we shall be entitled to join or
consolidate claims in arbitration by or against other
individuals or entities, or arbitrate any claim as a
representative member of a class or in a private attorney
general capacity.” Under these circumstances, Plaintiffs’
argument that by referencing state law, DirecTV incorporated
the Discover Bank rule by reference as a substantive contract
term is especially dubious. The parties agreed not to arbitrate
only if state law required the availability of class arbitration
procedures to enforce the arbitration clause. Concepcion
precludes such state laws.
For this reason, many of the parties’ various contract
interpretation arguments are largely irrelevant to our analysis.
For example, Plaintiffs devote extensive briefing to their
contention that the clause selecting state law in Section 9 is
“far more specific” than the language selecting the FAA in
Section 10. They likewise argue that the history of
amendments to DirecTV’s Customer Agreement over time
shows that Section 10’s reference to the FAA is inapplicable
to the jettison clause in Section 9, and that ambiguities about
whether state or federal law is controlling should be
MURPHY V. DIRECTV, INC. 15
construed against DirecTV as the contract’s drafter. These
arguments are unavailing because, under de la Cuesta and its
progeny, there is no conflict between the reference to “the
law of your state” in Section 9 of the Customer Agreement
and the reference to the FAA in Section 10. Thus, we have
no occasion to “choose” which provision of the contract
controls the enforceability of the class arbitration ban.
In answering the question “whether the rule of decision is
supplied by the laws of State X or by federal law,” general
“choice-of-law doctrines (and, accordingly, attempts by
contracting parties to influence their application with
choice-of-law clauses) have no applicability . . . because the
relevant rule is supplied by the Constitution itself: a valid
federal law preempts any state law purporting to regulate the
same issue.” Roadway Package Sys., Inc. v. Kayser, 257 F.3d
287, 293–94 (3d. Cir. 2001), abrogated on other grounds by
Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008); see also
Volt, 489 U.S. at 488 (Brennan, J., dissenting) (observing that
it is “beyond dispute that the normal purpose of such
choice-of-law clauses is to determine that the law of one State
rather than that of another State will be applicable; they
simply do not speak to any interaction between state and
federal law”). For this reason, the reference to the FAA in
Section 10 of the Customer Agreement is largely superfluous
to our inquiry. The “law of your state” language of Section
9 already incorporates § 2 of the FAA. See de la Cuesta,
458 U.S. at 157 n.12 (“Paragraph 15 provides that the deed is
to be governed by the ‘law of the jurisdiction’ in which the
property is located; but the ‘law of the jurisdiction’ includes
federal as well as state law.”). Thus, because the arbitration
agreement is enforceable under Concepcion, the district court
did not err in compelling Plaintiffs to arbitrate their claims
against DirecTV.
16 MURPHY V. DIRECTV, INC.
B. Best Buy
The district court determined that, although Best Buy is
not a signatory to the Customer Agreement or any other
arbitration agreement with Plaintiffs,6 nevertheless Plaintiffs
must submit their claims against Best Buy to arbitration. The
district court relied on the doctrine of equitable estoppel,
which “‘precludes a party from claiming the benefits of a
contract while simultaneously attempting to avoid the
burdens that contract imposes.’” Comer v. Micor, Inc.,
436 F.3d 1098, 1101 (9th Cir. 2006) (quoting Wash. Mut. Fin.
Grp., LLC v. Bailey, 364 F.3d 260, 267 (5th Cir. 2004)). The
district court reasoned that because Plaintiffs alleged in their
complaint “concerted action on the part of DirecTV and Best
Buy, the lawsuit against Best Buy is inseparable from the
lawsuit against DirecTV.” Thus, the distirct court found it
“necessary to compel arbitration of Plaintiff’s claims against
Best Buy.”
Best Buy argues that arbitration of Plaintiffs’ claims
against it is required under three alternative theories: (1)
equitable estoppel; (2) agency; and (3) third-party
beneficiary. None of these arguments is availing.
1. Equitable Estoppel
“The United States Supreme Court has held that a litigant
who is not a party to an arbitration agreement may invoke
arbitration under the FAA if the relevant state contract law
allows the litigant to enforce the agreement.” Kramer,
6
Although Weiss is the only Plaintiff with claims remaining against
Best Buy we use the plural “Plaintiffs” throughout this opinion for
consistency.
MURPHY V. DIRECTV, INC. 17
705 F.3d at 1128 (discussing Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 632 (2009)); accord Rajagopalan v.
NoteWorld, LLC, — F.3d —, 2013 WL 2151193, at *2 (9th
Cir. May 20, 2013). We therefore examine the contract law
of California to determine whether Best Buy, as a
nonsignatory, may seek arbitration under the theory of
equitable estoppel.
Because generally only signatories to an arbitration
agreement are obligated to submit to binding arbitration,
equitable estoppel of third parties in this context is narrowly
confined. Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042,
1046 (9th Cir. 2009). Under California law, a party that is
not otherwise subject to an arbitration agreement will be
equitably estopped from avoiding arbitration only under two
very specific conditions. Our recent decision in Kramer
adopted as a controlling statement of California law the
equitable estoppel rule set forth in Goldman v. KPMG LLP,
92 Cal. Rptr. 3d 534 (Cal. Ct. App. 2009):
Where a nonsignatory seeks to enforce an
arbitration clause, the doctrine of equitable
estoppel applies in two circumstances: (1)
when a signatory must rely on the terms of the
written agreement in asserting its claims
against the nonsignatory or the claims are
intimately founded in and intertwined with the
underlying contract, and (2) when the
signatory alleges substantially interdependent
and concerted misconduct by the nonsignatory
and another signatory and the allegations of
interdependent misconduct are founded in or
intimately connected with the obligations of
the underlying agreement.
18 MURPHY V. DIRECTV, INC.
Kramer, 705 F.3d at 1128–29 (internal alteration, citations,
and quotation marks omitted). This rule reflects the policy
that a plaintiff may not, “on the one hand, seek to hold the
non-signatory liable pursuant to duties imposed by the
agreement, which contains an arbitration provision, but, on
the other hand, deny arbitration’s applicability because the
defendant is a non-signatory.’” Goldman, 92 Cal. Rptr. 3d at
543 (quoting Grigson v. Creative Artists Agency, LLC,
210 F.3d 524, 528 (5th Cir. 2000)); see also Metalclad Corp.
v. Ventana Envtl. Organizational P’ship, 1 Cal. Rptr. 3d 328,
337 (Cal. Ct. App. 2003) (reasoning that equitable estoppel
applies where a plaintiff “agreed to arbitration in the
underlying written contract but now, in effect, seeks the
benefit of that contract in the form of damages . . . while
avoiding its arbitration provision”). We must analyze
whether Best Buy satisfies either of the two Kramer/Goldman
exceptions to the general rule precluding nonsignatories from
requiring arbitration of their disputes.
a. Reliance on the underlying contract
Under the first Goldman prong, equitable estoppel applies
when the plaintiff’s claims “are ‘intimately founded in and
intertwined’ with the underlying contract obligations.” Jones
v. Jacobson, 125 Cal. Rptr. 3d 522, 538 (Cal. Ct. App. 2011)
(quoting Boucher v. Alliance Title Co., 25 Cal. Rptr. 3d 440,
446 (Cal. Ct. App. 2005)). “This requirement comports with,
and indeed derives from, the very purposes of the doctrine: to
prevent a party from using the terms or obligations of an
agreement as the basis for his claims against a nonsignatory,
while at the same time refusing to arbitrate with the
nonsignatory under another clause of that same agreement.”
Goldman, 92 Cal. Rptr. 3d at 543–44.
MURPHY V. DIRECTV, INC. 19
Plaintiffs’ claims against Best Buy do not rely on, and are
not intertwined with, the substance of the DirecTV Customer
Agreement or Lease Addendum. Best Buy argues that, in
addition to governing the general contours of the customer-
provider relationship, the Customer Agreement clarifies that
the leased equipment is not the property of the customer,
cannot be transferred, and must be returned, rendering the
existence of the Customer Agreement a necessary
precondition for Plaintiffs’ claims. But the Customer
Agreement itself merely provides that, if a customer is leasing
his DirecTV equipment, it is non-transferable and must be
returned upon cancellation. The Customer Agreement is
factually irrelevant to Plaintiffs’ claims against Best Buy,
which charge misrepresentations to customers at the point of
sale. The complaint is replete with allegations of deceit by
Best Buy that have nothing to do with the Customer
Agreement. Among other allegations, Plaintiffs claim that
Best Buy “sold DirecTV Equipment at Best Buy stores in a
manner that reasonable consumers would find
indistinguishable from any other sale which occurs at Best
Buy”; that “Best Buy receipts given to customers
memorializing the transaction contained the word ‘SALE’ at
the top of the receipt in bold, capitalized letters”; and that oral
“[r]epresentations were made to some purchasers that the
DirecTV Equipment was for sale.” None of these allegations
rely on the Customer Agreement or attempt to seek any
benefit from its terms.
Even if Best Buy is correct that Plaintiffs’ claims on some
abstract level require the existence of the Customer
Agreement, the law is clear that this is not enough for
equitable estoppel. In California, equitable estoppel is
inapplicable where a plaintiff’s “allegations reveal no claim
of any violation of any duty, obligation, term or condition
20 MURPHY V. DIRECTV, INC.
imposed by the [customer] agreements.” Id. at 551.
Applying this principle in Kramer, we held that Toyota could
not compel arbitration of a consumer class action on the basis
of arbitration clauses contained in the Purchase Agreements
customers entered into with their dealerships. See 705 F.3d
at 1124–25. We expressly rejected Toyota’s argument that
the plaintiffs’ claims were necessarily intertwined with the
Purchase Agreements merely because the lawsuit was
predicated on the bare fact that a vehicle purchase occurred.
Id. at 1130–31. Rather, we held that the plaintiffs’ causes of
action, which, as here, largely arose under California
consumer protection law, were not sufficiently intertwined
with the Purchase Agreements to trigger equitable estoppel.
Id. at 1130–32. Likewise, here, the Customer Agreement
proves at most the existence of a transaction; Plaintiffs’
claims do not depend on the Agreement’s terms. The UCL
and CLRA allow Plaintiffs to sue Best Buy for misleading
consumers regardless of whether or not they signed largely
unrelated contracts with DirecTV.7 See Rajagopalan, — F.3d
7
We also note that many of the California cases permitting non-
signatories to compel arbitration under an equitable estoppel theory
involve contract-based causes of action, such as tortious interference or
breach of contract. See, e.g., Boucher, 25 Cal. Rptr. 3d at 447 (applying
equitable estoppel where plaintiff relied on an employment agreement
containing an arbitration clause to allege failure to pay accrued wages,
breach of contract, and other claims that were intimately bound up with
the substance of the contract); Metalclad, 1 Cal. Rptr. 3d at 337–38
(applying equitable estoppel where plaintiff’s claims turned on an alleged
breach of the underlying contract and fraud in obtaining it). Here, in
contrast, Plaintiffs do not seek any contract-related damages; rather, their
claims are for violations of consumer protection laws. While we need not
foreclose the possibility that a consumer class action might satisfy the
requirements for equitable estoppel, the obvious contrast between these
cases and Kramer suggests that equitable estoppel is particularly
inappropriate where plaintiffs seek the protection of consumer protection
MURPHY V. DIRECTV, INC. 21
at —, 2013 WL 2151193, at *3 (rejecting equitable estoppel
theory under Washington law where the plaintiff’s lawsuit
stated “statutory claims that are separate from the contract
itself” (internal alteration and quotation marks omitted)).
In short, Plaintiffs rely not on the Customer Agreement,
but on Best Buy’s’ alleged words and deeds in the course of
transactions leading to the acquisition of equipment they
believed they purchased, but in fact leased. “Plaintiffs do not
seek to simultaneously invoke the duties and obligations of
[Best Buy] under the [Customer] Agreement, as it has none,
while seeking to avoid arbitration. Thus, the inequities that
the doctrine of equitable estoppel is designed to address are
not present.” Kramer, 705 F.3d at 1134.
b. Substantial interdependence founded in
underlying agreement
Under the second Goldman prong, the doctrine of
equitable estoppel may apply in certain cases where a
signatory to an arbitration agreement attempts to evade
arbitration by suing nonsignatory defendants for “claims that
are based on the same facts and are inherently inseparable
from arbitrable claims against signatory defendants.”
Metalclad, 1 Cal. Rptr. 3d at 334 (internal quotation marks
omitted). However, under Goldman:
[M]ere allegations of collusive behavior
between signatories and nonsignatories to a
contract are not enough to compel arbitration
laws against misconduct that is unrelated to any contract except to the
extent that a customer service agreement is an artifact of the consumer-
provider relationship itself.
22 MURPHY V. DIRECTV, INC.
between parties who have not agreed to
arbitrate: those allegations of collusive
behavior must also establish that the plaintiff's
claims against the nonsignatory are intimately
founded in and intertwined with the
obligations imposed by the contract
containing the arbitration clause. It is the
relationship of the claims, not merely the
collusive behavior of the signatory and
nonsignatory parties, that is key.
92 Cal. Rptr. 3d at 545 (internal alteration and quotation
marks omitted).
The district court concluded equitable estoppel required
arbitration against Best Buy because the allegations in the
complaint charged “substantially interdependent and
concerted” misconduct. While that is undeniably true,
Goldman makes clear “that allegations of collusive behavior
by signatories and nonsignatories, with no relationship to the
terms of the underlying contract,” does not justify application
of equitable estoppel to compel arbitration. Id. at 549.
Mere allegations of collusion are insufficient to trigger
equitable estoppel. Even where a plaintiff alleges collusion,
“[t]he sine qua non for allowing a nonsignatory to enforce an
arbitration clause based on equitable estoppel is that the
claims the plaintiff asserts against the nonsignatory are
dependent on or inextricably bound up with the contractual
obligations of the agreement containing the arbitration
clause.” Id. at 537. As we have already explained, Plaintiffs’
claims do not bear the requisite relationship to the Customer
Agreement to warrant application of equitable estoppel.
MURPHY V. DIRECTV, INC. 23
Thus, under California law, Plaintiffs are not equitably
estopped from litigating their claims against Best Buy.
2. Agency
Best Buy also argues that we may affirm the district
court’s order compelling arbitration on a theory of agency.
In California, “[a] nonsignatory to an agreement to arbitrate
may be required to arbitrate, and may invoke arbitration
against a party, if a preexisting confidential relationship, such
as an agency relationship between the nonsignatory and one
of the parties to the arbitration agreement, makes it equitable
to impose the duty to arbitrate upon the nonsignatory.”
Westra v. Marcus & Millichap Real Estate Inv. Brokerage
Co., 28 Cal. Rptr. 3d 752, 756 (Cal. Ct. App. 2005).8
However, the district court in this case did not find that Best
Buy was acting as DirecTV’s agent when it sold the
equipment, and the record does not reflect that an agency
relationship in fact existed.
Even assuming that Best Buy “represents [DirecTV] . . .
in dealings with third persons,” Cal. Civ. Code § 2295, Best
Buy is not entitled to compel arbitration based merely on the
fact that it sells DirecTV products in its stores. Agency
requires that the principal maintain control over the agent’s
actions. DeSuza v. Andersack, 133 Cal. Rptr. 920, 924 (Cal.
Ct. App. 1976) (“The right of the alleged principal to control
8
Best Buy relies on certain of our cases suggesting that agents of a
signatory to an agreement that contains an arbitration provision may
compel arbitration if the claims arise out of the agency relationship and
relate to the underlying agreement. However, after Carlisle, it is clear that
state law, not substantive federal law, governs the inquiry. Kramer,
705 F.3d at 1128.
24 MURPHY V. DIRECTV, INC.
the behavior of the alleged agent is an essential element
which must be factually present in order to establish the
existence of agency, and has long been recognized as such in
the decisional law.”); accord Batzel v. Smith, 333 F.3d 1018,
1035–36 (9th Cir. 2003). Generally, retailers are not
considered the agents of the manufacturers whose products
they sell. See Restatement (Third) of Agency § 1.01 cmt. g
(2006) (“A purchaser is not ‘acting on behalf of’ a supplier in
a distribution relationship in which goods are purchased from
the supplier for resale. A purchaser who resells goods
supplied by another is acting as a principal, not an agent.”);
Alvarez v. Felker Mfg. Co., 41 Cal. Rptr. 514, 522 (Cal. Dist.
Ct. App. 1964) (“One who receives goods from another for
resale to a third person is not thereby the other’s agent in the
transaction: whether he is an agent for this purpose or is
himself a buyer depends upon whether the parties agree that
his duty is to act primarily for the benefit of the one
delivering the goods to him or is to act primarily for his own
benefit.” (internal quotation marks omitted)). Thus, the
supplier-retailer relationship is insufficient to render Best Buy
DirecTV’s agent. Best Buy has presented no evidence, on
appeal or before the district court, that DirecTV controlled its
behavior in ways relevant to Plaintiffs’ allegations.
Indeed, to the extent the record contains any evidence that
is probative of the nature of the arrangement between the two
companies, it suggests that an agency relationship was
expressly disavowed by DirecTV and Best Buy in the
“Independent Retailer Agreement” they entered. The
“Independent Retailer Agreement” recites that Best Buy is
DirecTV’s independent sales representative. Paragraph 2 of
the agreement recites that “DIRECTV hereby appoints Best
Buy as its independent commissioned sales representative to
solicit Subscriptions, on the terms and conditions herein,
MURPHY V. DIRECTV, INC. 25
from its Locations.” In paragraph 4.1 of the agreement,9 the
parties expressly provide:
Best Buy shall conduct all of its DIRECTV
System sale, lease, warranty, maintenance,
and repair business (“DIRECTV System
Business”) for its own account and not as an
agent for DIRECTV. At the reasonable
request of DIRECTV, Best Buy shall display
notices to its customers, in such form, places
and manner as mutually agreed by Best
Buy and DIRECTV, of such fact and that
Best Buy and not DIRECTV shall be
responsible for all of Best Buy’s actions in
this regard. DIRECTV disclaims any control
over Best Buy’s DIRECTV System Business
except to the limited extent expressly
provided herein and to support and protect its
9
Although the agreement was filed under seal in the district court, we
conclude that Best Buy waived any claim of confidentiality as to these
portions of the document when its counsel affirmatively represented at
oral argument that Best Buy acted as DirecTV’s agent in these
transactions. The agreement, the contents of which are highly probative
of the question at hand, makes clear that the companies agreed that exactly
the opposite was true. Cf. In re Sealed Case, 676 F.2d 793, 807 (D.C. Cir.
1982) (“Where society has subordinated its interest in the search for truth
in favor of allowing certain information to remain confidential, it need not
allow that confidentiality to be used as a tool for manipulation of the
truth-seeking process.”). We leave it to the district court to consider on
remand whether sanctions are an appropriate response to counsel’s
apparent violations of the duty of candor toward the tribunal. See Model
Rules of Prof’l Conduct R. 3.3(a) (“A lawyer shall not knowingly . . .
make a false statement of fact or law to a tribunal or fail to correct a false
statement of material fact or law previously made to the tribunal by the
lawyer.”).
26 MURPHY V. DIRECTV, INC.
activities as an independent commissioned
sales representative for DIRECTV’s Service.
We see no reason to conclude to the contrary, and therefore
hold that Best Buy is not entitled to compel arbitration as
DirecTV’s agent.
3. Third-Party Beneficiary
Finally, Best Buy argues that it is a third-party beneficiary
of the Customer Agreements, and is therefore entitled to
arbitration. In California,10 “[e]xceptions in which an
arbitration agreement may be enforced by or against
nonsignatories include where a nonsignatory is a third party
beneficiary of the agreement.” Nguyen v. Tran, 68 Cal. Rptr.
3d 906, 909 (Cal Ct. App. 2007). Best Buy’s argument that
it meets this exception is unpersuasive.
Best Buy bears the burden of proving that it is a third-
party beneficiary of the Customer Agreement. See Garcia v.
Truck Ins. Exch., 682 P.2d 1100, 1105 (Cal. 1984) (in bank).
A third party may only assert rights under a contract if the
parties to the agreement intended the contract to benefit the
third party; “[t]hus, the circumstance that a literal contract
interpretation would result in a benefit to the third party is not
enough to entitle that party to demand enforcement.” Hess v.
Ford Motor Co., 41 P.3d 46, 51 (Cal. 2002) (internal
alteration and quotation marks omitted); see also Cal. Civ.
Code § 1559 (“A contract, made expressly for the benefit of
a third person, may be enforced by him at any time before the
parties thereto rescind it.”). In other words, “[t]he mere fact
10
Again, Best Buy primarily relies upon federal law. However, under
Carlisle the relevant authority is California state contract law.
MURPHY V. DIRECTV, INC. 27
that a contract results in benefits to a third party does not
render that party a ‘third party beneficiary’”; rather, the
parties to the contract must have expressly intended that the
third party would benefit. Matthau v. Super. Ct., 60 Cal.
Rptr. 3d 93, 99 (Cal. Ct. App. 2007). The record here does
not reflect such an intent.
The terms of the Customer Agreement do not demonstrate
that DirecTV intended to benefit Best Buy through the
contract, let alone that its customers did. For one thing, the
Customer Agreement never mentions Best Buy. Cf. Hess,
41 P.3d at 51 (“‘[T]he intention of the parties is to be
ascertained from the writing alone, if possible.’” (quoting
Cal. Civ. Code § 1639)). In fact, the Customer Agreement
contains an entire subsection, Section 7(h), entitled “Third-
Party Beneficiary,” which specifies that TiVo, Inc. is a third-
party beneficiary of the agreement. That subsection does not
mention Best Buy. The California Supreme Court has
observed that “the rule of construction expressio unius est
exclusio alterius; i.e., that mention of one matter implies the
exclusion of all others” is “an aid to resolve the ambiguities
of a contract.” Steven v. Fid. & Cas. Co. of New York,
377 P.2d 284, 289 (Cal. 1962). To the extent the Customer
Agreement is ambiguous with respect to the parties’ intent to
benefit Best Buy, that rule of construction militates against
concluding that Best Buy is a third-party beneficiary, in light
of the fact that DirecTV clearly knew how to provide for a
third-party beneficiary if it wished to do so. Thus, we
conclude that Best Buy is not entitled to enforce the
arbitration agreement as a third-party beneficiary.
Because we conclude that neither equitable estoppel nor
the third-party beneficiary doctrine permit Best Buy to
enforce DirecTV’s arbitration agreement, and determine that
28 MURPHY V. DIRECTV, INC.
the Independent Retailer Agreement between them expressly
disavows an agency relationship, we reverse the district
court’s order compelling Plaintiffs to arbitrate with Best Buy.
III.
Fundamentally, our task in cases like this is to “ensur[e]
that private arbitration agreements are enforced according to
their terms.” Volt, 489 U.S. at 478. Plaintiffs agreed to
arbitrate their claims against DirecTV. They did not agree to
arbitrate their claims against Best Buy. Notwithstanding the
parties’ many imaginative legal arguments, in this case they
remain bound by the agreements they made and not by any
they did not make. We affirm the district court’s order
compelling Plaintiffs to arbitrate with DirecTV, and reverse
its order compelling them to arbitrate with Best Buy.
AFFIRMED IN PART; REVERSED IN PART;
REMANDED. Each party shall bear its own costs.