The Supreme Court ruled Wednesday that an arbitration agreement must explicitly provide for class-wide arbitration in order for class claims to proceed to arbitration and that, where an agreement is ambiguous on whether the parties agreed that claims could proceed on a class-wide basis, no class-wide arbitration can be ordered. Lamps Plus, Inc. v. Varela., No. 17-988 (Apr. 24, 2019). The 5-4 decision broke along traditional default lines, with Justices Thomas, Alito, Kavanaugh and Gorsuch joining Chief Justice Roberts in the majority.
In Lamps Plus, an employee of Lamps Plus filed a putative class action after his tax information, and the tax information of other employees, was compromised. Lamps Plus moved to compel arbitration on an individual rather than class-wide basis, and to dismiss the lawsuit. Both the California District Court and the Ninth Circuit held that arbitration could proceed on a class-wide basis.
At the Supreme Court, Lamps Plus continued to argue that, because it had not clearly and affirmatively agreed to class-wide arbitration in its arbitration agreements, class-wide arbitration could not be compelled. Varela, the employee, argued that, because the agreement was ambiguous on whether class-wide arbitration was allowed, it was not wrong for the lower courts to conclude it was authorized.
The majority agreed with Lamps Plus. It built upon its decision in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), where the Court held that a court may not compel arbitration on a classwide basis when an agreement is “silent” on the availability of such arbitration. The Lamps Plus majority concluded “[o]ur reasoning in Stolt-Nielsen controls the question we face today. Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’”
The majority rejected the reasoning of the Ninth Circuit, which applied the traditional contract principle holding that, where an agreement is ambiguous, it should be construed against the drafter (here, Lamps Plus). The Court explained that an arbitration agreement is not an ordinary contract and, as such, cannot be interpreted in accordance with this traditional maxim. Separate dissents were filed by Justices Ginsberg, Breyer, Sotomayar and Kagan.
The decision continues a recent trend of pro-employer arbitration decisions on class-action issues, including American Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), where the Court held the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery; AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), where the Court held the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures; and Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018), where the Court held that arbitration agreements providing for individualized proceedings must be enforced.
While the decision is a win for employers, who will not be forced into class-wide arbitration unless they have clearly and explicitly agreed to proceed in that manner, it is a good reminder of the need to make sure arbitration agreements and clauses are drafted as clearly as possible.
