The Supreme Court released its opinion earlier today in Lamps Plus, Inc. v. Varela, No. 17-988 (click here for a copy of the decision).
This employment class action case involved a data breach of tax information for about 1,300 employees. Both the district court and appellate court construed the arbitration clause as permitting class arbitration. The Ninth Circuit reasoned that the arbitration clause was ambiguous regarding class arbitration, and under California contract law, ambiguities are construed against the drafter. Hence, class arbitration should be allowed.
However, according to the Supreme Court’s majority, under the FAA, an ambiguous arbitration agreement cannot provide the required contractual basis for compelling class arbitration. The majority reasoned that class arbitration is fundamentally different from “traditional” individual arbitration and undermines the benefits of traditional arbitration. As a result, the FAA requires “more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.”
One can view the holding of this case as loosely analogous to the Moses H. Cone presumption in arbitration law. The FAA is construed as involving a hybrid application of both state and federal law. Whether an arbitration agreement exists is determined by looking at state contract law, but subject to certain federal standards of interpretation. For example, under the Moses H. Cone presumption, doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Similarly, one can view the holding from Lamps Plus as setting forth another interpretive rule: ambiguities about whether an arbitration clause permits class arbitration should be resolved in favor of bilateral arbitration.
A few other observations: The Court seems to leave undisturbed its prior decision in Oxford Health. If an arbitrator construes a contract as involving class arbitration, the arbitrator’s decision, even if erroneous, may still stand under the narrow judicial review of arbitral awards.
Also, others, such as Professor Jill Gross, have criticized the Court’s treatment or conceptualization of “traditional” arbitration as a uniform, simple process. This view of arbitration fails to take into account the rich variety of settings involving arbitration. In other words, it is not fair to presume that arbitration must always be simple, low-cost, or speedy. Parties, if they desire, can agree to complex arbitration procedures rivaling the procedures of a court. In the Dean Witter case from 1985, the Supreme Court viewed the FAA as requiring courts to implement the intent of the parties, without a concern for the efficiency of proceedings. Also, earlier this year, the Court in New Prime and Henry Schein appeared to reject policy-driven arguments in connection with the FAA, while a policy of promoting efficiency seems to drive the majority decision in Lamps Plus.
Just like with Concepcion, American Express, and Stolt-Nielsen, the majority’s opinion here is probably not really about the FAA or arbitration at all, and instead is more about the majority’s dislike for class procedures.
This decision is grounded in the majority’s implacable hostility to “Class Proceedings” in any form, fashion or forum. Still unresolved, and offering a few rays of hope in light of the Court’s other arbitration jurisprudence, is what analysis will command a majority when the issues do NOT relate to any “class” activities.
Other fundamental arbitration issues, such as the “Neutrality” of the tribunal, inadequate or misleading disclosures by arbitrators or the (il)legitimacy or (non)neutrality of the sponsoring forum, [remember the late unlamented Arbitration Forum or the fraudulent forums in the consumer loan or construction areas] appear to remain in play as issues for consideration. Sadly, the majority’s analysis relies on a halcyon hallucination of cost effective, expert and efficient arbitration that has not existed for decades. The Forced Arbitration Injustice Reform Act now includes relief for “small businesses.” That acknowledges “small businesses” are as abused by adhesive arbitration agreements as consumers and employees. Those of us representing “small business” can and have seen clients bankrupted by AAA arbitration fees and insidiously abusive procedural Rule traps.