Lamps Plus, Inc. v. Varela: Class Arbitration Must Be Expressly Authorized

Class arbitration came back before the Supreme Court this term in Lamps Plus, Inc. v. Varela.  Today, the Supreme Court issued a 5-4 decision in Lamps Plus, holding that, under the Federal Arbitration Act, “courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”  Rather, class arbitration must be expressly authorized by contract.

The facts of Lamps Plus are straightforward.  An employee had signed an arbitration agreement upon being hired to work for Lamps Plus.  After a data breach, the employee sued Lamps Plus in federal court.  Lamps Plus filed a motion to compel individual arbitration, and the district court granted the motion to compel but authorized arbitration on a class basis.  The Ninth Circuit affirmed, reasoning that the arbitration provision was ambiguous as to class arbitration and must be construed against the employer under California’s contra proferentem rule that ambiguities in a contract must be construed against the drafter.

The Supreme Court reversed.  The Court accepted the Ninth Circuit’s conclusion that the arbitration provision was ambiguous, and went on to hold that an ambiguous agreement cannot provide the necessary contractual basis for compelling class arbitration.

Previously, in Stolt-Nielsen v. AnimalFeeds Int’l Corp., the Supreme Court had held that “a court may not compel arbitration on a classwide basis when an agreement is silent on the availability of such arbitration.”  Stolt-Nielsen reaffirmed that arbitration “is a matter of consent.”  Because class and individual arbitration fundamentally differ, the Court had concluded, there must be an “affirmative contractual basis for concluding that the party agreed” to class arbitration.

The Court concluded that Stolt-Nielsen controlled the question raised in Lamps Plus.

Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration.

The majority concluded that the Ninth Circuit erred by relying on the doctrine of contra proferentem to compel class arbitration.  That doctrine applies only as a rule of last resort, when the intent of the parties cannot be discerned by ordinary methods of interpretation.  That is, the doctrine provides a default rule rather than a method of ascertaining the intent of the parties.  Under AT&T Mobility v. Concepcion, however, state law may not “manufacture” class arbitration absent the parties’ consent.   Thus, the Court held that the “contra proferentem rule cannot be applied to impose class arbitration in the absence of the parties’ consent.”

Lamps Plus firmly rejects lower courts’ attempts to read Stolt-Nielson narrowly.  The Ninth Circuit was not alone in reading that case as limited to its facts.  The First Circuit also, in Fantastic Sams Franchise Corp. v. FSRO Assoc., had concluded that Stolt-Nielsen did not require “express contractual language evincing the parties’ intent to permit class or collective arbitration.”  The First Circuit’s narrow view of Stolt-Nielsen, along with that of the Ninth Circuit, has now been expressly repudiated by the Supreme Court.