United States Supreme Court Clarifies Rules Governing Class Arbitration
April 24, 2019
Lamps Plus, Inc. v. Varela
(April 24, 2019, No. 17-988) 587 U.S. ___ [2019 WL ______]
When an employee filed a class action against his employer, the employer moved to compel the employee to arbitrate his claims on an individual basis. The district court compelled class arbitration instead. The Ninth Circuit affirmed, concluding that because the arbitration agreement was ambiguous as to whether it permitted class arbitration, the agreement must be interpreted to allow for class arbitration based on California law requiring ambiguities in contracts to be construed against the drafter.
The United States Supreme Court reversed. The high court held that, under the Federal Arbitration Act (FAA), an agreement can be construed to authorize class arbitration only if it expressly permits class arbitration—a contractual ambiguity on the issue is insufficient to permit class arbitration. The Court decided that, to the extent California contract law requiring ambiguities to be construed against the drafter compelled a different conclusion, this state law was preempted by the FAA. The Court explained that this conclusion was “consistent with a long line of cases holding that the FAA provides the default rule for resolving certain ambiguities in arbitration agreements”—particularly the FAA rule “that ambiguities about the scope of an arbitration agreement
must be resolved in favor of arbitration.”
Going forward, Lamps Plus requires courts applying California law to resolve ambiguities in arbitration agreements in favor of arbitration, even if the agreements were drafted by the employer—and prohibits courts from compelling class arbitration based on ambiguities in an arbitration agreement.