ALI In The Courts

The Restatement of the Law Second, Contracts 2d, was cited in a recent dissent delivered by U.S. Supreme Court Justice Ruth Bader Ginsburg in DIRECTV, Inc. v. Imburgia.

The case involved a dispute over the enforceability of an arbitration provision that was expressly governed by the Federal Arbitration Act and that specified that if state law prohibited class-arbitration waivers, then the entire arbitration provision was unenforceable. Both the trial court and the California Court of Appeal denied a request by DIRECTV to enforce that provision in a dispute with DIRECTV’s customers, holding that the provision was unenforceable under California law. Reversing and remanding, the Supreme Court held that the lower court had to enforce the provision because the Federal Arbitration Act preempted California law.

One of the concerns raised in Justice Ginsburg’s dissent involved the interpretation of ambiguous contract terms in favor of the drafter. To address this issue, Justice Ginsburg looked to Contracts 2d §206, Comment a, stating:

[C]ourts generally construe ambiguous contractual terms against the drafter. This “common-law rule of contract interpretation,” reflects the principle that a party should not be permitted to write an ambiguous term, lock another party into agreeing to that term, and then reap the benefit of the ambiguity once a dispute emerges. The rule has particular force where, as here, a court is interpreting a “standardized contrac[t]” that was not the product of bilateral bargaining. Restatement (Second) of Contracts §206, Comment a (1979).

(some citations omitted).