Alternative Dispute Resolution

Lamps Plus, Inc. v. Varela

587 U.S. 176 (2019)

Citation: 587 U.S. 176 (2019)
Court: Supreme Court of the United States
Date: 24 April 2019
Bench: John G. Roberts, C.J.; Clarence Thomas, Ruth Bader Ginsburg, Stephen Breyer, Samuel Alito, Sonia Sotomayor, Elena Kagan, Neil Gorsuch and Brett Kavanaugh, JJ.

Facts

A hacker obtained employee tax information from Lamps Plus.
A fraudulent tax return was filed in the name of employee Frank Varela.
Varela brought claims against Lamps Plus on behalf of himself and other affected employees.
His employment agreement contained an arbitration clause.
The agreement did not expressly authorise class arbitration.
Lamps Plus sought individual arbitration.
The lower federal court compelled arbitration but permitted it to proceed on a class-wide basis.
It treated the agreement as ambiguous and applied the state-law rule of contra proferentem, interpreting ambiguity against the drafter.
Lamps Plus appealed.
The dispute reached the United States Supreme Court.

Issue

Whether ambiguity in an arbitration agreement is sufficient to authorise class arbitration.
Whether contra proferentem may supply consent to class proceedings.
How class arbitration differs from bilateral arbitration.

Rule

Arbitration is based upon consent.
Class arbitration fundamentally changes the agreed process by:
involving absent parties;
increasing formality;
increasing cost and risk;
reducing confidentiality;
creating high-stakes aggregate liability; and
limiting effective judicial review.
Therefore, class arbitration requires an affirmative contractual basis.
Silence or ambiguity is insufficient.
General state-law interpretation rules may apply, but they cannot manufacture consent inconsistent with the Federal Arbitration Act.
Contra proferentem resolves uncertainty by public policy rather than proving actual shared intention.

Application

The agreement used broad language covering disputes connected with employment.
It did not specifically mention:
class claims;
representative arbitration;
absent employees; or
collective procedures.
The Supreme Court accepted, for purposes of the case, that the language might be ambiguous.
However, ambiguity did not answer the crucial question.
The issue was not merely whether the substantive claims fell within the clause.
It was whether the parties consented to a radically different form of adjudication.
Bilateral arbitration ordinarily involves:
two contracting parties;
limited evidence;
confidential hearings;
procedural flexibility; and
individually selected arbitrators.
Class arbitration binds numerous persons who may never personally participate.
The majority therefore required clear affirmative consent.
Contra proferentem could not supply that consent.
The doctrine operates only after interpretive methods fail and assigns ambiguity against the drafter as a policy choice.
It does not establish that both parties actually intended class arbitration.
The Federal Arbitration Act requires courts to enforce the arbitration agreement the parties made, not impose a procedure considered fair or efficient.
The dissent argued that ordinary contract principles and the lower court’s interpretation should have been respected.
The majority nevertheless held that the special consent requirement for class arbitration controlled.
The judgment follows the United States Supreme Court’s restrictive approach to class arbitration and emphasises bilateral consent.

Conclusion

The United States Supreme Court held that ambiguity cannot authorise class arbitration.
An affirmative contractual basis for class procedures is required.
The order permitting class arbitration was reversed, leaving individual arbitration.
Use this case for: class arbitration cannot be inferred from silence or ambiguity because it fundamentally changes the nature of bilateral arbitration.