April 24, 2019

Supreme Court Decides Lamps Plus, Inc. v. Varela

On April 24, 2019, the Supreme Court of the United States decided Lamps Plus, Inc. v. Varela, No. 17-988, holding that courts may not compel classwide arbitration based on an arbitration agreement that is ambiguous whether the parties agreed to arbitrate on a class basis.

Varela sued Lamps Plus in federal district court. The parties had an arbitration agreement that did not speak directly to whether arbitration could be conducted on a class basis, but contained some provisions that could be read to contemplate arbitration of only individual claims, and other provisions that could be read to contemplate arbitration on a class basis. 

Lamps Plus moved to compel arbitration on an individual basis. The district court granted Lamps Plus’s motion to compel arbitration, but ordered that the arbitration proceed on a classwide basis rather than on an individual basis, and dismissed the case. The Ninth Circuit affirmed on appeal, holding that the agreement was ambiguous whether the parties agreed to class arbitration, and that the ambiguity had to be construed against the drafter of the agreement, which was Lamps Plus. The Ninth Circuit distinguished the Supreme Court’s decision in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), which held that courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so, and that silence on the subject of class arbitration was not sufficient to compel it. The Ninth Circuit held that Varela’s agreement here was not silent on the matter, but was ambiguous, so Stolt-Nielsen did not apply.

The Supreme Court reversed. The Court initially held that it had appellate jurisdiction under Section 16(a)(3) of the Federal Arbitration Act, which provides that an appeal may be taken from “a final decision with respect to an arbitration that is subject to this title.” Relying on an earlier precedent, the Court explained that the district court’s order compelling classwide arbitration and dismissing all claims was a “final decision” within the meaning of § 16(a)(3).

The Court then addressed whether “an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling classwide arbitration.” The Court held that it could not. It based its decision primarily on what it termed a “rule of fundamental importance” under the FAA: “arbitration is a matter of consent not coercion.” The Court held that Stolt-Nielsen controlled this case because contractual ambiguity—just like contractual silence—does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to arbitrate on a class basis. The Court also held that California’s contract-interpretation doctrine of contra proferentem could not be used to infer the parties’ consent by construing the ambiguous agreement against Lamps Plus because that doctrine by definition applies only when a contract is ambiguous in the first place, and ambiguity does not supply the level of consent necessary to require class arbitration. The Court stated that it would be inconsistent with the FAA to use state law to supplant the requirement of affirmative consent to class arbitration.

Chief Justice Roberts delivered the opinion of the Court, in which Justices Thomas, Alito, Gorsuch, and Kavanaugh joined. Justice Thomas filed a concurring opinion. Justices Ginsburg, Breyer, Sotomayor, and Kagan filed dissenting opinions.



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