Stephanie Marmol – In the corporate sphere, as the preference to enter into arbitration agreements increases, since arbitration is more time and cost effective than litigation, so does the need for the Supreme Court to give guidance on the standards that will assist in the interpretation and application of the Federal Arbitration Act (“FAA”). One of the several corporate arbitration cases that have recently made the spotlight in the Supreme Court is Lamps Plus Inc. v. Frank Varela, 138 U.S. 1697 (No. 17-988). This case is on appeal from the Ninth Circuit, which affirmed the district court’s order compelling class arbitration.
The Respondent, Frank Varela, filed a class action lawsuit in California federal court after Lamps Plus was a victim of a successful phishing attack. Then after Petitioner, Lamps Plus, Inc., moved to compel arbitration on an individual basis pursuant to Varela’s arbitration agreement the lower court accepted Varela’s argument that “the language stating that ‘all claims’ arising in connection with Varela’s employment shall be arbitrated is broad enough to encompass class claims as well as individual claims, or is at least ambiguous and should be construed against the drafter.” The question that Lamps Plus presents to the Supreme Court is whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.
In the already granted Petition for Writ of Certiorari, Lamps Plus argues that the circuit court’s decision contravenes the FAA, defies the Court’s precedents; primarily the Court’s precedent in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010)., and conflicts with the decisions of several other circuits. Lamps Plus primarily contest that the circuit court’s decision is incompatible with Stolt-Nielsen, S.A., which established that a court cannot order arbitration to proceed using class procedures unless there is a “contractual basis” for concluding that the parties have “agreed to” class arbitration. It is Lamps Plus’ position that “none of the provisions [that the court] relied on [from the parties employment agreement] remotely supports an inference that the parties “agreed to authorize” class arbitration.”
Yet Respondent’s Reply Brief makes the argument that the FAA does not preempt the application of state contract-law principles to determine whether an agreement permits class proceedings, as established in Stolt-Nielsen, S.A., and that the state contract-law principles applied by the lower courts in this case are consistent with the FAA. Varela states that “whether the parties agreed to authorize class arbitration…[is a matter] to be determined by the same state-law contractual principles that determine whether parties have agreed to anything else.” Although the major point that Varela makes is that in this case the courts followed California state law rules and applied the state’s generally applicable principles of contract interpretation when they “first carefully analyzed the terms of the employment agreement and then, finding it ambiguous on the point [of class arbitration], [they] construed it against the drafter, Lamps Plus.”
The Supreme Court needs to continue to shed some light on the standards that rule arbitration matters, as the different circuits face the necessity of applying Supreme Court’s precedents, such as Stolt-Nielsen, S.A., and confront issues that question the limits of the FAA. Both parties in Lamps Plus Inc. v. Frank Varela make suitable arguments. But to prevent recurring splits with the different circuits and to ensure uniform application of the FAA, now the Supreme Court should in its decision outline the standard, which was left unanswered in Stolt-Nielsen, S.A, of what is enough to constitute a “contractual basis” that parties have agreed to authorize class arbitration.
