On April 24, 2019, the US Supreme Court ruled on the question of whether the Federal Arbitration Act (the "FAA") "bars an order requiring class arbitration when an agreement is ... 'ambiguous' about the availability of such [class] arbitration."1 Split 5-4, the Supreme Court ruled that unless an arbitration agreement clearly provides for class arbitration, claims thereunder must proceed on an individual basis.2
In Lamps Plus, a computer hacking incident led to the improper disclosure of personal tax information for more than 1,200 Lamps Plus employees. This disclosure resulted in the fraudulent filing of a federal tax return in the name of certain Lamps Plus employees, including respondent Frank Valera. Following the fraudulent filing, Valera filed a class action complaint against Lamps Plus on behalf of employees who also had their personal tax information stolen. Valera filed the lawsuit in the US District Court for the Central District of California even though he, like many other Lamps Plus employees, had signed an arbitration agreement when he was hired by the company.
Lamps Plus filed a motion to dismiss Valera's complaint and to compel arbitration—but only on an individual basis. Splitting the baby, the district court issued an order that: (a) dismissed the complaint from federal court and compelled arbitration, but (b) directed that Valera's claim proceed as a class arbitration. The US Court of Appeals for the Ninth Circuit affirmed the lower court's ruling ordering class arbitration, even though it found that Valera's agreement was ambiguous as to class arbitration because there was "no express mention of class arbitration" in the Valera arbitration agreement.3 The Ninth Circuit reasoned that, with contrary clauses in the Valera arbitration agreement, some supporting class arbitration and others supporting individual arbitration of claims, the state law doctrine of contra proferentem—that contractual ambiguities were construed against the drafter of the agreement (in this case Lamps Plus)—controlled. As such, the Ninth Circuit found that class arbitration could be inferred from the terms of the Valera arbitration agreement.
Reversing the Ninth Circuit, the SupremeCourt determined that a court cannot infer that an arbitration agreement allows for class arbitration, requiring "more than ambiguity" in connection with compelling class arbitration to "ensure that the parties actually agreed to arbitrate on a classwide basis."4 To find otherwise, the Lamps Plus Court reasoned, contradicted "the foundational principle that arbitration is a matter of consent."5 The Court rejected the Ninth Circuit's use of contra proferentem when its application is inconsistent with the FAA finding that a "... court may not rely on state contract principles to 'reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties' consent.'"6
In sum, in the wake of Lamps Plus, courts must find that an arbitration agreement unambiguously provides for class arbitration before determining that claims thereunder can be adjudicated classwide.
- The Court also addressed jurisdictional issues. The Court confirmed that it was faced with a "final decision with respect to arbitration" (and thus had jurisdiction) because, although Lamps Plus had obtained a dismissal and compelled arbitration, it had not obtained the relief it sought for individual arbitration. FAA, 9 U.S.C. § 16(a)(3). This reasoning was built on the Court's recent decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612, 1623 (2018), emphasizing that the FAA recognizes a "fundamental" difference between class and individual forms of arbitration.↩
- Lamps Plus, Inc., v. Varela, 2019 U. S. Lexis 2943, at *5.↩
- Notably, the Ninth Circuit did not consider the Valera agreement "silent" on class arbitration and, thus, controlled by the ruling in Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp., 559 U.S. 662, because the parties in Lamps Plus did not stipulate that the Valera agreement was "silent about class arbitration." Lamps Plus, Inc., v. Varela, 2019 U. S. Lexis 2943, at *6.↩
- Id., at 6.↩
- Stolt-Nielsen, 559 U.S. at 684.↩
- Id., at 10-11, citing Epic Systems Corp. v. Lewis, 138 S.Ct. 1612, 1623 (2018).↩
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