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Lamps Plus, Inc. v. Varela

Supreme Court of the United States · 2019 · Civil Procedure

Civil ProcedureArbitrationClass ArbitrationFederal Arbitration ActFAAclass arbitrationambiguitysilence

Facts

Lamps Plus suffered a data breach after a hacker tricked an employee into disclosing tax information for about 1,300 employees. Frank Varela, an employee whose identity was then used to file a fraudulent tax return, sued Lamps Plus in federal court on behalf of a putative class of affected employees. Varela had signed an arbitration agreement at the start of his employment. Lamps Plus sought to compel individual arbitration, but the lower courts treated the agreement as ambiguous and authorized class arbitration.

Issue

Whether the Federal Arbitration Act permits a court to compel class arbitration when the arbitration agreement is ambiguous, rather than expressly authorizing or being silent about class arbitration. Also, whether the court of appeals had jurisdiction to review the district court's order compelling arbitration and dismissing the case.

Rule

The FAA requires more than silence or ambiguity before a court may conclude that parties agreed to class arbitration. Class arbitration may be compelled only when there is an affirmative contractual basis for concluding that the parties agreed to it, and state-law ambiguity rules such as contra proferentem cannot be used to impose class arbitration in the absence of such consent.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nora Kim signed an employment agreement with Red Mesa Logistics in Phoenix. The arbitration clause requires arbitration of "all disputes arising from employment" and says the arbitrator may grant "any remedy available in court," but it says nothing expressly about class procedures; a court concludes the clause could reasonably be read either to permit or forbid class arbitration.

Under the FAA, may the court compel class arbitration on these facts?

Explanation. The majority held that the FAA requires more than silence or ambiguity before a court may conclude the parties agreed to class arbitration. Because class arbitration fundamentally changes traditional individualized arbitration, a court may compel it only when there is an affirmative contractual basis showing consent. Ambiguity is insufficient.