April 25, 2019

Supreme Court Reiterates That Class Arbitration Cannot Be Compelled Absent Explicit Consent

Holland & Knight Alert
Tina Tellado | Deisy Castro

Highlights

HIGHLIGHTS:

  • The U.S. Supreme Court handed down its decision in Lamps Plus, Inc., et al. v. Varela, on April 24, 2019, holding in a 5-4 decision that courts may not infer from an ambiguous arbitration agreement that parties have consented to class arbitration.
  • The Supreme Court's ruling overturns a U.S. Court of Appeals for the Ninth Circuit's decision permitting a Lamps Plus employee to pursue class arbitration of his data breach class claims.
  • With this most recent decision in Lamps Plus, the Supreme Court appears to have put the final nail in the plaintiffs' bar ability to evade employers' arbitration agreements foreclosing class action claims.

The U.S. Supreme Court handed down its decision in Lamps Plus, Inc., et al. v. Varela, No. 17-988, on April 24, 2019, holding in a 5-4 decision that courts may not infer from an ambiguous arbitration agreement that parties have consented to class arbitration. The Supreme Court's opinion, authored by Chief Justice John Roberts, relied heavily on the "fundamental" differences between individual arbitration and class arbitration, as well as its prior holding in Stolt-Nielsen S.A. v. AnimalFeeds, Int'l Corp., 559 U.S. 662 (2010), that parties may not be compelled to class arbitration when the arbitration agreement is "silent" on that issue.

The Supreme Court's ruling overturns a U.S. Court of Appeals for the Ninth Circuit's decision permitting Lamps Plus employee, Frank Varela, to pursue class arbitration of his data breach class claims. See Varela v. Lamps Plus, Inc., et al., 701 Fed. Appx. 670 (2017). Specifically, the Ninth Circuit held that the arbitration agreement at issue was ambiguous as to whether the parties agreed to submit class claims to arbitration. The agreement did not include any "express mention of class proceedings," but was not necessarily silent on the issue. This distinction was key because the Supreme Court has held that "mere silence" on the issue is not enough to show that the parties somehow acquiesced or otherwise "agreed" to such procedures. Stolt-Nielsen, 559 U.S. at 687. Accordingly, the Ninth Circuit applied a California contract law principle that any ambiguity is to be construed against the drafter, and therefore held that the arbitration agreement permitted arbitration of the employee's class claims.

Although the Supreme Court deferred to the Ninth Circuit in its finding that the arbitration agreement should be treated as "ambiguous," it noted that at issue in this case was "the interaction between a state contract principle for addressing ambiguity and a 'rule of fundamental importance' under the [Federal Arbitration Act or FAA], namely, that arbitration 'is a matter of consent,' not coercion." The Supreme Court found that its reasoning in Stolt-Nielsen controlled, and held that, like silence, ambiguity does not provide the necessary "contractual basis" for compelling class arbitration. In particular, the Supreme Court highlighted the "crucial differences" between individual and class arbitration, which it relied on in Stolt-Nielsen to hold that "courts may not infer consent to participate in class arbitration absent an affirmative 'contractual basis for the concluding that the party agreed to do so.' " It further stated that the California contract law principle is a "default rule based on public policy considerations," and thus is inconsistent with the FAA's foundation principle requiring consent, because the principle applied by the Ninth Circuit "seeks ends other than the intent of the parties."

Ultimately, yesterday's decision in Lamps Plus provides further guidance on the interpretation of arbitration agreements and the ability for employers to compel arbitration on an individual basis and avoid pursuit of class actions claims. This decision, along with the Supreme Court's decision last year in Epic Systems Corp. v. Lewis, reinforces the continued strong public policy favoring arbitration of claims and the ability for employers to have employees waive the ability to pursue class claims. With this most recent decision in Lamps Plus, the Supreme Court appears to have put the final nail in the plaintiffs' bar ability to evade employers' arbitration agreements foreclosing class action claims. Accordingly, employers are reminded that arbitration agreements with employees should be carefully drafted with the consultation of legal counsel.

For more information regarding employment arbitration agreements and class action litigation, please contact the authors or another member of Holland & Knight's Labor, Employment and Benefits Group.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


Related Insights