Term: 2018
Docket: 17-988
Lamps Plus Inc. v. Varela
- Pro
17-988 LAMPS PLUS, INC. V. VARELA DECISION BELOW: 701 F.Appx. 670 CERT. GRANTED 4/30/2018 QUESTION PRESENTED: In Stolt-Nielsen, S.A. v. AnimalFeeds International Corp. this Court held that a court could not order arbitration to proceed using class procedures unless there was a "contractual basis" for concluding that the parties have "agreed to" class arbitration. 559 U.S. 662, 684 (2010) (emphasis in original). This Court explained that courts may not "presume" such consent from "mere silence on the issue of class arbitration" or "from the fact of the parties' agreement to arbitrate." Id. at 685, 687. The arbitration clause at issue here did not mention class arbitration. A divided Ninth Circuit panel majority (Reinhardt & Wardlaw, JJ.) nonetheless inferred mutual assent to class arbitration from such standard language as the parties' agreement that "arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings" and a description of the substantive claims subject to arbitration. App., infra, 3a-4a. The question presented is: Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements. LOWER COURT CASE NUMBER: 16-56085
The U.S. Supreme Court case Lamps Plus Inc. v. Varela revolved around the interpretation of arbitration agreements in employment contracts, specifically whether ambiguous language could be interpreted to allow class-action arbitration. The dispute began when an employee of Lamps Plus, Frank Varela, had his tax information stolen from the company and used to file a fraudulent federal income tax return. He filed a lawsuit on behalf of himself and other employees affected by the data breach against Lamps Plus for negligence and breach of contract among other claims. Lamps Plus sought to compel individual arbitration based on an agreement that Varela signed upon being hired but did not explicitly mention class-action suits or arbitrations. The Ninth Circuit court ruled in favor of Varela stating that ambiguity should be construed against the drafter (in this case, Lamps Plus). However, in 2019, the Supreme Court reversed this decision with a 5-4 vote ruling that under Federal Arbitration Act (FAA), courts cannot infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.
In the dissenting opinion for LAMPS PLUS INC. v. VARELA, Justice Ruth Bader Ginsburg argued that the Court's majority decision was a departure from traditional principles of contract interpretation and arbitration law. She contended that ambiguity in an agreement should be construed against its drafter - in this case, Lamps Plus Inc., which had drafted the ambiguous arbitration clause. Furthermore, she pointed out that nothing in the Federal Arbitration Act (FAA) requires class-action bans as a condition of enforceability for arbitration agreements. The FAA aims to ensure judicial enforcement of privately made agreements to arbitrate but does not favor individual over class or collective action claims. Therefore, if an agreement is silent on these matters or unclear like it was here with Lamps Plus’s employment contracts, courts are free to interpret them based on state laws and other guiding principles such as contra proferentem rule – interpreting any ambiguity against interests of party who provided wording.
