SCOTUS Holds Class Arbitration Must be Explicitly Provided for in Agreement

Yesterday, the Supreme Court of the United States issued a decision holding class arbitration is not permitted in situations where an agreement to arbitrate is silent on the issue. In Lamps Plus, Inc. v. Varela, No. 17-988 (April 24, 2019), a California man, Frank Varela, signed an arbitration agreement with his employer, Lamps Plus.  The agreement to arbitrate was silent on the issue of class arbitration.  Later, Lamps Plus experienced a data breach that disclosed Varela’s personal information.  After learning of the data breach, Varela filed a putative class-action lawsuit against his employer.

In response to Varela’s complaint, Lamps Plus filed a motion to compel the dispute to individual arbitration.  The Central District of California granted the company’s motion with regard to arbitration, but held collective action was permitted due to ambiguity in the parties’ agreement to arbitrate.  In an unpublished opinion, the Ninth Circuit affirmed the district court’s decision.  Last April, the nation’s highest court agreed to consider the case and the Justices heard oral argument in October.

The question presented in the case was:

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.

In a 5-4 decision authored by Chief Justice Roberts, the Supreme Court ultimately held:

Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis. The doctrine of contra proferentem cannot substitute for the requisite affirmative “contractual basis for concluding that the part[ies] agreed to [class arbitration].” Stolt-Nielsen, 559 U. S., at 684.

We reverse the judgment of the Court of Appeals for the Ninth Circuit and remand the case for further proceedings consistent with this opinion.

Justice Thomas issued a concurring opinion with regard to the result and Justices Kagan, Ginsburg, Breyer, and Sotomayor each wrote a dissent.  The entire opinion is available on the Supreme Court’s website.

Photo by: Waldemar Brandt on Unsplash