Lamps Plus, Inc. v. Varela

Under the Federal Arbitration Act, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.

Respondent filed suit after a hacker tricked the Petitioner’s employee into divulging tax information of approximately 1,300 other employees. When hired by the Petitioner, Respondent signed an arbitration agreement. Respondent brought a putative class suit on behalf of the employees with compromised tax information. The Federal District Court rejected Petitioner’s request for individual arbitration, instead authorizing class wide arbitration. The Ninth Circuit affirmed. Upon appeal, the Supreme Court ruled that an ambiguous agreement cannot “provide the necessary ‘contractual basis’ for compelling class arbitration,” consistent with the Federal Arbitration Act (FAA) and the decision in Stolt-Nielsen S. A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 684 (2010) (courts may not compel class wide arbitration for agreements that are “silent” on the subject). The Court reasoned that ambiguity, similar to silence, does not to provide a sufficient basis to conclude that the parties’ consented to “sacrifice[ ] the principal advantage of arbitration.” Class arbitration is markedly different and fundamentally changes the nature of the “traditional individualized arbitration.” Therefore, if state law is “an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA, it is preempted to that extent. In reversing the lower court, the Supreme Court held that lower courts cannot rely on state contract interpretation principles to “reshape traditional individualized arbitration” by ordering class wide arbitration without the parties’ affirmative consent. REVERSED AND REMANDED.