Sunday, April 28, 2019
I’ve begun expanding my interest in the dispute resolution area to include research (I've been a practitioner and teacher). Along with my OU legal studies colleague, Professor Dan Ostas, I'm currently working on an arbitration article (readers, however, should take this post as expressing my views, and not necessarily his). So, when the U.S. Supreme Court decided Lamps Plus, Inc., et al. v Frank Varela this past Wednesday, I immediately had some careful reading to do.
Frank Varela was one of many Lamps Plus employees who upon beginning their employment with the company had signed an arbitration agreement and, as a result of a data breach, had had his tax information stolen. After Varela’s information was used to file a false tax return, he filed a class action suit against Lamps Plus in a Federal District Court in California. Lamps Plus motioned to compel bilateral arbitration, and to dismiss the suit. The District Court dismissed Varela’s claims, ordered arbitration, and authorized it to proceed on a classwide basis. Lamps Plus appealed. The Ninth Circuit Court of Appeals affirmed (with one judge dissenting). No language in the arbitration agreement explicitly addressed classwide procedures. Nevertheless, the Ninth Circuit viewed the agreement as ambiguous because it argued that various phrases in the agreement could support both perspectives. California, like most states, construes ambiguous contractual language against the drafter (Lamps Plus), especially in the case of adhesion contracts. Therefore, the Ninth Circuit held that Varela’s interpretation prevailed, meaning that the arbitration could proceed on a classwide basis. In a 5-4 decision, the U.S. Supreme Court (Court) reversed.
The Court considered “whether the FAA …bars an order requiring class arbitration when an agreement is not silent, but rather ‘ambiguous’ about the availability of such arbitration.” The Opinion of the Court (written by Roberts, C.J. and joined by Thomas, Alito, Gorsuch, and Kavanaugh, J.J.) held that just as Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp held that a court cannot compel classwide arbitration when an arbitration agreement is silent on the issue, it also may not do so when an arbitration agreement is ambiguous on the issue. The Court’s opinion did not state whether it found the agreement to be ambiguous, but rather deferred to and accepted the Ninth Circuit’s determination (note: the Court’s opinion initially addressed jurisdiction.) The Court reiterated that classwide arbitration is importantly distinct from traditional, individual arbitration and “undermines the most important benefits of that familiar form of arbitration” such as informality, speed, economy; “introduce[s] new risks and costs for both sides,” (quoting Epic Systems Corp. v. Lewis) particularly for the defendant; and creates significant due process issues. Therefore, “[t]he… [FAA] requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.” Citing Stolt-Nielsen, the Court emphasized that the FAA made arbitration “a matter of consent, not coercion,” and that arbitrators only have the authority that the parties have agreed to give them. Hence, to the extent that a state law contract interpretation rule – such as construing ambiguous contract language against the drafter – thwarts implementation of the purposes and objectives of the FAA, it is preempted.
Justice Thomas also filed a concurring opinion. Dissenting opinions were filed by Justices Sotomayor, Ginsburg, Kagan, and Breyer (the authors also joined other dissents).
I’m new to this area of research and my views are developing. Thus far, I agree that classwide arbitration is materially distinct from individual arbitration. As a practical matter, I would think that unless parties had explicitly agreed to such procedures, widespread authorization of classwide arbitration would dramatically decrease the use of arbitration. I don’t think this would necessarily always be helpful for employees or consumers, though in certain cases it likely would be. I also agree with the Court's judgment itself because the arbitration provision did not seem ambiguous to me, but rather silent regarding classwide arbitration (a point in the concurrence). At the same time, I also agree with several points made in three of the dissents.
However, for now, if you’re interested in a more comprehensive explanation of and argument for my views on arbitration, you’ll have to wait for (and then read) my future scholarship in this area. In the meantime, I’d love for readers who disagree with the perspective that classwide arbitration is importantly different from individual arbitration to share why and/or recommend helpful reading materials.