Case of the Day: Lamps Plus v. Varela
Posted on April 30, 2019
The case of the day is Lamps Plus, Inc. v. Varela (S. Ct. 2019). A hacker tricked Lamps Plus into disclosing tax information of more than a thousand employees. One of the employees, Frank Varela, was the victim of identity theft when someone using his information filed a fraudulent tax return in his name. Varela sued on behalf of a purported class of similarly situated Lamps Plus employees. Lamps Plus moved to compel arbitration on the grounds that Varela’s employment contract had an arbitration clause. The motion also sought an order requiring Varela to arbitrate his claim on an individual basis rather than a class basis. The District Court granted the motion to compel arbitration but denied the motion to require individual rather than class arbitration, and the Ninth Circuit affirmed. The Ninth Circuit held that the agreement to arbitrate was ambiguous under California law, and it applied the California rule of construction contra proferentem to hold that Varela could arbitrate his claims on behalf of a class. The Supreme Court granted a petition for cert.
The Supreme Court reversed, holding that as a matter of federal law, it is not enough for the arbitration agreement to be ambiguous under state law. Rather, class arbitration is only permissible if the agreement unambiguously provides for it. I have to say I find this result difficult to explain. The big picture, no doubt oversimplified, is that the common law traditionally disfavored private arbitration, and courts traditionally did not enforce agreements to arbitrate or enforce arbitrators’ awards. By enacting the Federal Arbitration Act, the Congress meant to reverse this anti-arbitration position and to place agreements to arbitrate on the same basis as other contracts.
But if that is so, then what is the basis for holding, in effect, that federal law implicitly preempts state law in a case where everyone agrees the claim must be arbitrated and the only issue is the procedure to be used? The opinion of the Court claims that the Court is treating the issue just like the issue of delegation of the power to decide arbitrability: the arbitrator has that power only if the parties have unmistakably delegated it to him. But arbitrability is a true threshold issue that asks whether the party has assented to arbitrate in the first place, and the rule has to do only with assigning the power to decide that question and ensuring that a party’s right to have a dispute decided by a court is protected. This is quite different from questions about the procedure that will govern the arbitration that the parties have agreed, which is not a threshold question. In any event the Court is not simply allocating default decisionmaking authority on the issue of class arbitration to a judge rather than an arbitrator, so the analogy with the issue of delegation of the power to decide arbitrability seems weak. And anyway, the Court’s opinion makes it pretty clear that the majority had objections to class arbitration as a method of dispute resolution that were serious enough to displace ordinary rules of state law aimed at determining whether the parties had agreed to class arbitration. But it’s not clear why the justices thought their view of the merits of class arbitration should take the question out of the ordinary ambit of state law.
The decision seems outdated on arrival. If we do a thought experiment and imagine that the justices in the majority were consciously setting out to do the bidding of big business, I can imagine big business saying in return, “thanks, don’t do me any favors.” Ask Uber and Lyft what they think about the costs and benefits of barring class arbitration.