Lamps Plus, Inc., et al v. Varela, 2019 SCC OnLine US SC 50

LAMPS PLUS INC V. VARELA

Whether Federal Arbitration Act (FAA) precludes a state law interpretation of an arbitration agreement which would authorize class arbitration based on general language commonly used in arbitration agreements?

The Doctrine of Contra Proferentem, which roughly translates to “guilt of the drafter”, usually applied in contract law states that any clause or term considered to be ambiguous in an agreement should be interpreted against the party which requestion or included the clause in the first place.

In 2016, a hacker tricked one of the employees in the Petitioners company (Lamps Plus Inc) into disclosing tax information and credentials of more than 1300 employees. A fraudulent income tax return was then filed under the Respondents (Frank Varela) name and the Respondent then filed a class action suit against the Petitioner on behalf of himself and all other employees whose information had been released.
It is to be noted that the Respondent and all other employees had an arbitration agreement in their employment contract, on the basis of which the Petitioner sought to compel arbitration, but on an individual basis and not on a class-wide basis and urged to dismiss the class action suit.
The District Court, while rejecting the individual arbitration request, authorized class-action arbitration and dismissed the Respondents arguments. The Respondents appealed the District Courts decision, but the Ninth Circuit upheld the same, stating that the agreement in this dispute was ambiguous and arbitrary on the issue of class arbitration. The matter was then appealed before the Supreme Court of the United States.

The Supreme court first stated that it had the jurisdiction to review the lower courts’ decision and held that the mere availability of a class action suit is a matter of consent, where all parties must consent to class arbitration for it to be an option.
In a 5-4 opinion, the Supreme Court reversed the decision by the Ninth Circuit and held that under the Federal Arbitration Act, an ambiguous agreement cannot provide the necessary basis to conclude that all parties have agreed to submit to class arbitration.