Supreme Court Delivers Blow to Class-Wide Arbitrations Absent Express Authorization in Arbitration Agreement

On April 24, 2019, the U.S. Supreme Court issued an opinion in Lamps, et al. v. Varela, No 17-988 (April 24, 2019), holding class-wide arbitration cannot be compelled when the underlying arbitration agreement is ambiguous.

In 2016, a hacker tricked a Lamps Plus employee into disclosing tax information of approximately 1,300 other employees. Not long after, a fraudulent tax return was filed in the name of respondent Frank Valera, a Lamps Plus employee. Valera then filed a putative class action against Lamps Plus. Valera, like most Lamps Plus employees, had signed an arbitration agreement at the time of his hire. As a result, Lamps Plus moved to compel arbitration on an individual basis. The district court granted Lamps Plus’ motion to compel arbitration but authorized arbitration on a class-wide basis. Lamps Plus appealed the order, but the Ninth Circuit affirmed.

On appeal, the U.S. Supreme Court disagreed with the Ninth Circuit, instead finding controlling its previous decision in Stolt-Nielsen S.A.v. Animal Feeds Int’l Corp., 559 US 662, which held a court cannot compel class-wide arbitration when the arbitration agreement is silent on the issue.

At the heart of the Court’s decision was the principle that to compel arbitration, both parties must consent. Because of the “crucial differences” between individual and class arbitration, the Court explained in Stolt if an arbitration agreement is silent on the issue of class arbitration, there is reason to doubt the parties’ consent. Like silence, the Court explained, ambiguity does not provide a sufficient basis to conclude the parties to an arbitration agreement agreed to “sacrifice[] the principal advantage of arbitration.” Therefore, to compel class-wide arbitration, an arbitration agreement must expressly authorize it.

This is a victory for employers who recognize the benefits of arbitration. If you have questions about arbitration agreements, please contact the authors or your usual Dinsmore attorney.