Lamps Plus keeps rejecting and widening of the ambit of arbitration agreement to class actions

The Supreme Court of the United States has rejected in Lamps Plus Inc. v. Varela[1] a further attempt to construe arbitration agreements as extending to class actions the ambit of an arbitration agreement which has not provided for that.

 

The Dispute

A hacker succeeded in getting tax information concerning about 1.300 employees of that corporation, from an employee of Lamps Plus Inc..

As a consequence of this, a fraudulent federal income tax return was filed with the Revenue for one of such employees, Frank Varela, who instituted a class action in a Federal District Court against Lamps Plus also on behalf of the employees who had been damaged by such information.

 

The Court Proceedings

Lamps Plus claimed that the proceedings be dismissed and arbitration between itself and Varela be compelled under their arbitration agreement. The District Court authorised the class action. Lamps Plus appealed but the Ninth Circuit affirmed. Lamps Plus appealed to the Supreme Court.

 

The Supreme Court

The Supreme Court’s analysis commenced by referring to Stolt Nielsen[2] in which the Court had held that it could not compel classwide arbitration when the arbitration agreement was silent on it.

It further dealt with the Ninth Circuit’s ruling that classwide arbitration could be compelled when the arbitration agreement was ambiguous on that issue.

The Court has held that a class arbitration is basically different from arbitral proceedings instituted only by one claimant.

The Court has concluded then that ambiguity cannot produce results different from silence and cannot be construed as a consent to classwide arbitration.

The Court has further dealt with the reasons on which the Ninth Circuit had based its conclusion, i.e. that under the contra proferentem rule, since such arbitration agreement had been drafted by the corporation, ambiguities had to be construed against it.

The Court held that such argument was in breach of the principle set out by the Federal Arbitration Act that arbitration requires consent.

 

Comment

The pressure, in order to turn an arbitration agreement entered into by two contracting parties into a pass to institute classwide arbitration, is strong.

This has been claimed again in this dispute, which has been decided by a 5 to 4 majority, all the female Associate Justices of the Supreme Court being in favour of the opposite decision.

The fundamental reason for these repeated attempts seems due to the employee being frequently in quite a difficult position in an arbitration against its employer.

Other solutions to this unbalance are needed and it is suggested that they may be found.

 

[1] Lamps Plus, Inc. et al. v. Varela, 24 April 2019, Supreme Court of the United States.

[2] Stolt Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662.

About the article

This article has been published by Mauro Rubino-Sammartano on Lexology

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