As we noted in prior blog articles, questions regarding what authorizes class arbitration continue to arise despite class action waivers in many arbitration agreements. (See our Nov. 11, 2013, March 12, 2015, Sept. 9, 2015, March 23, 2016, and May 3, 2017, blog articles dealing with “gateway issues” and the availability of class arbitration.) Now, the U.S. Supreme Court has granted certiorari in a case that might finally resolve the issue. See Lamps Plus, Inc. v. Varela, No. 17-988, certiorari granted April 30, 2018. In its petition, Lamps Plus presented the question “[w]hether 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.”
The case below
Lamps Plus was subjected to a successful phishing attack in 2016 during which one of its employees sent copies of current and former employees’ 2015 W-2 forms to a third party. Shortly thereafter, Frank Varela filed a putative class action in California federal court seeking relief for the data breach. Lamps Plus responded by seeking individual arbitration under Varela’s arbitration agreement. Instead, the district court interpreted the arbitration agreement to authorize class arbitration. A divided 9th Circuit panel affirmed.
Judges Reinhardt and Wardlaw first distinguished Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 55 U.S. 662, 684 (2010). In Stolt-Nielsen, “silence” was “more than the mere absence of language explicitly referring to class arbitration; instead, it meant absence of agreement.” So, merely because an agreement does not expressly refer to class arbitration is not determinative according to the judges. The majority then applied California contract principles to interpret the arbitration agreement. They found the agreement was ambiguous as to class arbitration and construed it against the drafter, Lamps Plus. This finding was based on “three sweeping phrases” in the agreement:
- Varela’s waiver of “any right I may have to file a lawsuit or other civil action or proceeding relating to my employment with the Company.”
- Varela’s waiver of “any right I may have to resolve employment disputes through trial by judge or jury.”
- The understanding that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.” (Slip Op. at 3-4.)
According to the majority, the district court “properly found the necessary ‘contractual basis’ for agreement to class arbitration” and affirmed. But, Judge Fernandez dissented, declaring:
“I respectfully dissent because, as I see it, the Agreement is not ambiguous. We should not allow Varela to enlist us in the palpable evasion of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. * * * (Citation omitted.)
In its reply brief, Lamps Plus forcefully responded to the argument that the class arbitration question is “becoming less important”:
“[A]t least a dozen circuit and district court cases decided since American Express and Concepcion present the issue of whether an arbitration agreement authorizes class arbitration under Stolt-Nielsen. In addition, the American Arbitration Association’s class arbitration docket reveals over 40 Clause Construction Awards – i.e., decisions by arbitrators assessing whether an arbitration clause authorizes class arbitration – since 2013. The issue presented has not vanished.” (Citation omitted.) (Reply Brief for Petitioners at 13.)
Apparently, the Supreme Court agreed.
BOTTOM LINE: The Supreme Court will now decide an issue that has continued to divide courts for years – regardless of state law, can an agreement that does not mention class or collective arbitration nevertheless authorize it?