In a decision announced April 24, 2019, the Supreme Court of the United States overturned a Ninth Circuit decision allowing a class to arbitrate claims against their employer. The case arose after a Lamps Plus, Inc. employee was duped into revealing 1,300 employees’ tax information to a hacker. Among those employees whose information was disclosed was Frank Varela. Varela filed suit against Lamps Plus in federal court on his own behalf and on behalf of all employees whose information was similarly disclosed. Lamps Plus moved to compel the individual claim to arbitration, and to dismiss the class claim. Lamps Plus relied on the arbitration clauses signed by all of its employees who were included in this class. The federal court granted Lamps Plus’ motion to compel arbitration, but allowed the class claim to be arbitrated. Lamps Plus appealed to the Ninth Circuit, which upheld the decision. Relying on the statement that “[a]rbitration is strictly a matter of consent,” SCOTUS overturned the Ninth Circuit’s decision, allowing only Varela’s individual claim to be arbitrated.
In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., SCOTUS found that an arbitration clause which was silent on class arbitration could not allow for class arbitration to be compelled. Although the Ninth Circuit distinguished this case from Stolt-Nielsen because the arbitration clause at issue here was ambiguous regarding class arbitration, SCOTUS found Stolt-Nielsen was controlling. In Stolt-Nielsen, the parties had specifically stipulated that the arbitration provision was silent on class arbitration. Because the parties had stipulated to this and courts will not infer consent to participation in class arbitration without an affirmative contractual basis to do so, SCOTUS declined to allow class arbitration.
In Lamps Plus’ case, SCOTUS found that despite the ambiguity in the arbitration provision, Lamps Plus had not provided the necessary affirmative contractual basis to allow class arbitration to be compelled. In other words, Lamps Plus had not expressly consented to be subjected to class arbitration under this arbitration provision.
Whereas the majority opinion focused on Lamps Plus’ rights, Justice Ginsburg’s dissenting opinion, joined by all of the other dissenting justices, focused on Varela’s rights. Namely, Varela and the other class members’ right to bring a class claim against Lamps Plus. This dissenting opinion found the majority’s focus on Lamps Plus’ rights to be misplaced. As the party with substantially more bargaining power, Varela and the class’ rights should have been the main focus. The majority disregarded whether Varela and the class members had given up their right to bring a class claim against Lamps Plus – either in court or through arbitration.
Varela, following this opinion, will have the opportunity to arbitrate his individual claim, and each and every other class member may do the same. However, in light of the low prospective damage award and Lamps Plus’ ability to out-arbitrate Varela and the other class members, it seems unlikely that any significant number of class members will choose to pursue their claims against Lamps Plus. This was the concern of all dissenting opinions: that by disallowing class arbitration without a clear surrender of the right to class claims, Varela and the class members were being deprived of their right to pursue their claims in any meaningful way, and effectively, Lamps Plus was walking away from a significant wrongdoing scot free.
Companies who manufacture or sell products and employers can rest a little bit easier following this opinion, knowing that even if their arbitration provisions are silent or ambiguous as to class arbitration, these parties will not be subject to class arbitration. Consumers and employees, however, should ensure they are clear about the rights they are giving up by signing these arbitration provisions.