Lamps Plus, Inc. v. Varela
Issues
Does the Federal Arbitration Act preclude using state law principles of contract interpretation to understand commonly used language in a standard form arbitration agreement as authorizing class arbitrations?
Lamps Plus, Inc. (“Lamps Plus”) and Frank Varela (“Varela”) executed an arbitration agreement which contained a clause waiving Varela’s right to sue his employer or institute any other civil action or proceeding concerning his employment at Lamps Plus. After a data breach caused by an internet phishing incident, Varela sued Lamps Plus alleging negligence, breach of contract, and invasion of privacy. Lamps Plus moved to compel arbitration of Varela’s individual claims, but the district court decided to dismiss Varela’s claims without prejudice and to compel class arbitration of the claims. Lamps Plus appealed, arguing that, as the Federal Arbitration Act (“FAA”) requires a contractual basis showing the parties’ intent to arbitrate class actions, the court could not read in an agreement to class arbitration based on language relating to personal disputes. Further, the company argues that even if the agreement is ambiguous as to that intent, Supreme Court precedent indicates that courts must resolve such ambiguity in favor of arbitration. Varela counters that issues of jurisdiction and standing prevent the Supreme Court from deciding this case and that, even if the Court were to examine the case on the merits, California contract-law interpretive principles used by the lower court were neutral, applied properly, and, thus, permissible. The Supreme Court’s decision has implications for the employment sector and will likely influence the decision of employers to expressly exclude class actions from future arbitration agreements to maintain the efficiency and informality of arbitration.
Questions as Framed for the Court by the Parties
Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.
Respondent Frank Varela (“Varela”) is an employee of Petitioner Lamps Plus Inc. (“Lamps Plus”). Brief for Petitioners, Lamps Plus, Inc. et al. at 3.
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Additional Resources
- John Lewis, Will SCOTUS Finally Decide What Language Authorizes Class Arbitration? Lamps Plus, Inc. v. Varela Might Just Do It, Employment Class Action Blog (May 2, 2018).
- Gilbert Samberg, Supreme Court Will Determine If Silence in an Arbitration Clause May Be Judicially Interpreted to Permit Class Arbitration, Mintz (May 4, 2018).