US Supreme Court Issues Ruling Restraining Class Arbitration

Lamps Plus, Inc. v. Varela Ruling Supports Businesses & Restrains Class Arbitration Actions Filed by Workers & Consumers

Lamps Plus, Inc. became the focus of the legal world after a case wherein a hacker attempted to deceive an employee to disclose tax information of roughly 1,300 company employees. Subsequently, a fraudulent federal income tax return was filed in the name of Frank Varela, a Lamps Plus employee.

Frank Varela then went on to bring a class action suit against the company on behalf of the affected employees. Lamps Plus worked to have the case dismissed based on a mandatory arbitration agreement in Varela’s contract, making the argument that the contract did not allow class action cases, and should have instead been brought in  a case-by-case manner for each affected employee.

The District Court rejected the individual arbitration request, but made an authorization for  class arbitration and dismissed Varela’s claims.

The Federal District Court partially sided with the argument, but dismissed Varela’s case by ruling that he could act as the representative of the full class of affected employees in arbitration proceedings as his contract with Lamps Plus was nebulous regarding whether it permitted class arbitration. The Ninth Circuit went on to  affirm the District Court’s ruling after Lamps Plus had made an appeal.

SCOTUS Rules that Silence Does Not Give Sufficient Basis for Concluding that Parties to an Arbitration Agreement Agreed to Undermine Benefits

The Supreme Court ultimately ruled 5-4 that courts should not permit class arbitration unless an agreement explicitly authorizes such a procedure.

Chief Justice John Roberts, writing the opinion for the majority explained the Court’s Interpretation:

Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself.

Chief Justice Roberts also stated that arbitration is strictly a matter of consent and that unless Lamp Plus had given express consent to class arbitration, then it would not be  proper to urge them to partake in it.

Roberts went on to be clear that the judgment only pertains to to class arbitration conflicts. He notes that this fundamentally changes the nature of the traditional individualized arbitration envisioned by the FAA [Federal Arbitration Act].

Roberts further pointed to the 1925 Federal Arbitration Act, a landmark ruling which state that arbitration agreements must be enforced the same as any other contract.

Justice Elena Kagan Writes a Dissenting Opinion Stating that the Majority had Nullified a Plain-vanilla Rule of Contract Interpretation

Justice Elena Kagan spoke boldly in dissent. She stated that the majority had gone much further than the aforementioned previous rulings, and that the majority had nullified a plain-vanilla rule of contract interpretation that in California and other states require an ambiguous agreement be read to favor the side that did not write it.

Kegan further states:

Today’s opinion is rooted instead in the majority’s belief that class arbitration ‘undermines the central benefits of arbitration itself… But that policy view — of a piece with the majority’s ideas about class litigation — cannot justify displacing generally applicable state law about how to interpret ambiguous contracts.

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