Lamps Plus, Inc. v. Varela
139 S. Ct. 1407 (2019)
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Rule of Law:
Under the Federal Arbitration Act (FAA), an ambiguous arbitration agreement cannot provide the necessary contractual basis to compel class arbitration. State-law contract interpretation doctrines that resolve ambiguity based on public policy, such as construing the contract against the drafter, are preempted by the FAA's requirement that consent to class arbitration be affirmatively expressed.
Facts:
- Frank Varela was an employee of Lamps Plus, Inc.
- As a condition of his employment, Varela signed an arbitration agreement.
- In 2016, a hacker impersonated a Lamps Plus official and tricked an employee into disclosing the tax information of approximately 1,300 employees, including Varela.
- Subsequently, a fraudulent federal income tax return was filed in Varela's name.
Procedural Posture:
- Frank Varela sued Lamps Plus in the U.S. District Court for the Central District of California, on behalf of a putative class of employees.
- Lamps Plus filed a motion to compel individual arbitration and dismiss the class action lawsuit.
- The District Court granted the motion to compel arbitration but authorized class-wide arbitration and dismissed the case without prejudice.
- Lamps Plus, as appellant, appealed the order authorizing class arbitration to the U.S. Court of Appeals for the Ninth Circuit, with Varela as appellee.
- The Ninth Circuit affirmed the District Court's decision, holding the agreement was ambiguous and that under California law, this ambiguity should be construed against the drafter, Lamps Plus, thereby permitting class arbitration.
- The U.S. Supreme Court granted Lamps Plus's petition for a writ of certiorari.
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Issue:
Does the Federal Arbitration Act permit a court to compel class arbitration when the arbitration agreement is ambiguous on the issue?
Opinions:
Majority - Chief Justice Roberts
No. The Federal Arbitration Act does not permit a court to compel class arbitration when an agreement is ambiguous on the issue. Building on the precedent in Stolt-Nielsen, which held that silence is insufficient to compel class arbitration, the Court reasoned that ambiguity is also an inadequate basis. Class arbitration is fundamentally different from the traditional, individualized arbitration envisioned by the FAA, as it sacrifices the core benefits of speed, simplicity, and lower costs. Therefore, consent to this fundamentally different procedure cannot be inferred. The state-law doctrine of contra proferentem (construing ambiguity against the drafter) is a public policy tool, not a method for discerning the parties' actual intent. Applying such a rule to impose class arbitration interferes with the 'foundational FAA principle that arbitration is a matter of consent' and is thus preempted.
Concurring - Justice Thomas
No. The arbitration agreement is silent on class arbitration, and its text suggests that the parties only contemplated bilateral arbitration. While skeptical of the Court's implied preemption jurisprudence, the majority's opinion correctly applies existing FAA precedents like Epic Systems and Concepcion, which control the outcome.
Dissenting - Justice Ginsburg
Yes. The Court has strayed from the principle that arbitration requires consent by repeatedly deploying the FAA against employees and consumers who have no real bargaining power. The FAA was not designed for adhesion contracts like the one here, where employees face a 'Hobson's choice' of accepting arbitration on the employer's terms or forgoing employment. By blocking collective action, the Court curtails the enforcement of laws designed to protect vulnerable parties.
Dissenting - Justice Kagan
Yes. The FAA does not preempt neutral, generally applicable state contract law, and California's rule of construing ambiguity against the drafter is such a rule. First, the agreement's broad language is best read to authorize class arbitration. Second, even if ambiguous, the anti-drafter rule should resolve the ambiguity in favor of class arbitration because Lamps Plus, the drafter, could have explicitly prohibited it but did not. The majority's holding is not based on the FAA or precedent like Stolt-Nielsen, but on its own policy preference against class proceedings.
Dissenting - Justice Sotomayor
Yes. The Court's foundational error was its prior conclusion that class arbitration is fundamentally different from individual arbitration; a class action is merely a procedural device. The contract here was at least ambiguous, and the lower court was correct to apply state law to resolve that ambiguity. The majority preempts state law without even independently concluding the contract is ambiguous, instead just deferring to the lower court's finding, which is an ill-advised approach.
Dissenting - Justice Breyer
Yes. The Court of Appeals, and therefore the Supreme Court, lacked jurisdiction to hear the appeal in the first place. The District Court's order compelling arbitration was an interlocutory order, which is not immediately appealable under § 16(b) of the FAA. The fact that the District Court also dismissed the case did not create a final, appealable order, because a court should stay, not dismiss, proceedings pending arbitration. A party cannot manufacture appellate jurisdiction over an otherwise unappealable order.
Analysis:
This decision significantly strengthens the barrier against class arbitration by extending the logic of Stolt-Nielsen from 'silent' agreements to 'ambiguous' ones. It establishes that the FAA's requirement for consent to class arbitration creates a federal default rule that preempts generally applicable state contract interpretation doctrines like contra proferentem. This makes it exceedingly difficult for parties to proceed with class arbitration unless the agreement contains clear, affirmative language authorizing it. The ruling reinforces a judicial trend favoring individualized arbitration and places the burden on non-drafting parties (typically employees and consumers) to negotiate for explicit class action provisions, a practical impossibility in most adhesion contracts.
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