Class action arbitration case hits US Supreme Court

Once again the US Supreme Court will wade into the contentious arena of class action arbitrations. In Stolt-Nielsen S.A. v. AnimalFeeds, 559 U.S. 662 (2010) [Decision] the Court held (5-3) that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." [Emphasis in original.] The Court overturned an arbitration award that had allowed arbitration to proceed on a class basis. But Stolt-Nielsen was a pretty easy case because the parties stipulated that there was no agreement on the question of class arbitration.

On April 30 the US Supreme Court granted certiorari in Lamps Plus Inc. v. Varela (US S Ct cert granted 04/30/2018) [Briefs]. The official issue 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."

Varela was an employee who brought a class action suit claiming his employer Lamps Plus released his personal information in response to a phishing scam. Lamps Plus moved to compel bilateral arbitration pursuant to an arbitration agreement the parties had signed. The district court found that the agreement was a contract of adhesion and ambiguous as to class arbitration, construed the ambiguity against the drafter Lamps Plus, and compelled class-wide arbitration. The 9th Circuit affirmed (2-1) in an unpublished opinion. Varela v. Lamps Plus (08/03/2017) [PDF].

The 9th Circuit distinguished Stolt-Nielsen by saying that the lack of any express reference to class arbitration is "not the 'silence' contemplated in Stolt-Nielsen." The court then applied state law to interpret the agreement, found an ambiguity, and resolved the ambiguity against Lamps Plus. The court actually used a lot of the language in the arbitration agreement (which Lamps Plus characterizes as "general language commonly used in arbitration agreements"). For example, the 9th Circuit pointed out that "The Agreement then specifies that arbitrable claims are those that 'would have been available to the parties by law,' which obviously include claims as part of a class proceeding."

Judge Fernandez dissented in two sentences: "I respectfully dissent because, as I see it, the Agreement was not ambiguous. We should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684–85, 130 S. Ct. 1758, 1775, 176 L. Ed. 2d 605 (2010)."

Expect this case to be set for oral argument in the Fall of 2018.