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Supreme Court's Lamp Plus Brings Ambiguity in Classwide Arbitration to Light
May 9, 2019 by Rachel Schwartz
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 Ninth Circuit affirmed.
The U.S. Supreme Court granted cert on the issue of whether the Federal Arbitration Act (FAA) bars an order requiring class arbitration when an agreement is not silent, but rather "ambiguous," about the availability of such arbitration. First, the Court held that it had jurisdiction because an order that both compels arbitra­tion and dismisses the underlying claims qualifies as "a final decision with respect to an arbitration" within the meaning of 9 U.S.C. §16(a)(3). Next, the Court held that under the FAA, an ambiguous agreement cannot provide a contractual basis for concluding that the parties agreed to submit to arbitration. The Court explained that pursuant to the FAA, arbitration is a matter of consent. Previously, the Supreme Court held that "courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so," and that silence is not enough. The Court explained that this reasoning controlled here and, like silence, ambiguity does not provide a sufficient basis to conclude that parties consented to arbitration.
Lamps Plus, Inc. v. Varela, No. 17-988, 2019 WL 1780275 (2019)
Filed Under: Arbitration / Court Decisions, Arbitration Process Issues, Contract Interpretation