Law School Case Brief
Lamps Plus, Inc. v. Varela - 139 S. Ct. 1407 (2019)
Courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so. Silence is not enough; the Federal Arbitration Act (FAA) requires more. An ambiguous agreement cannot, consistent with the FAA, provide the necessary contractual basis for compelling class arbitration. Class arbitration is not only markedly different from the traditional individualized arbitration contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration. The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.
In 2016, a hacker tricked an employee of petitioner Lamps Plus, Inc., into disclosing tax information of about 1,300 company employees. After a fraudulent federal income tax return was filed in the name of respondent Frank Varela, a Lamps Plus employee, Varela filed a putative class action against Lamps Plus in Federal District Court on behalf of employees whose information had been compromised. Relying on the arbitration agreement in Varela's employment contract, Lamps Plus sought to compel arbitration--on an individual rather than a classwide basis--and to dismiss the suit. The District Court rejected the individual arbitration request, but authorized class arbitration and dismissed Varela's claims. Lamps Plus appealed, arguing that the District Court erred by compelling class arbitration, but the Court of Appeals for the Ninth Circuit affirmed. Lamps Plus petitioned for a writ of certiorari, arguing that the Ninth Circuit’s decision contravened the Stolt-Nielsen decision and created a conflict among the Courts of Appeals. In opposition, Varela not only disputed those contentions but also argued for the first time that the Ninth Circuit lacked jurisdiction over the appeal, and that this Court therefore lacked jurisdiction in turn.
Does the Federal Arbitration Act bar a federal district court from compelling arbitration on a classwide basis --rather than an individual basis-- when the parties' ambiguous contract/agreement is ambiguous on the availability of such arbitration?
The Federal Arbitration Act (FAA) requires courts to “enforce arbitration agreements according to their terms." On certiorari, the Supreme Court of the United States faced the question whether, consistent with the FAA, an ambiguous agreement can provide the necessary “contractual basis” for compelling class arbitration. The Court held that it cannot—a conclusion that followed directly from the decision in Stolt-Nielsen. Class arbitration is not only markedly different from the “traditional individualized arbitration” contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration. Thus, an ambiguous agreement could not, consistent with the FAA, provide the necessary contractual basis for compelling class arbitration. The statute required more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis. The doctrine of contra proferentem could not substitute for the requisite affirmative contractual basis for concluding that the parties agreed to class arbitration. The Court reversed the judgment, commenting that the instant decision was consistent with a long line of cases holding that the FAA provides the default rule for resolving certain ambiguities in arbitration agreements and that the Court has repeatedly held that ambiguities about the scope of an arbitration agreement must be resolved in favor of arbitration.
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