Facts of the case

Frank Varela filed a class action complaint against his employer, Lamps Plus,
under theories including negligence, invasion of privacy, and breach of contract
after the company released employee personal identifying information in response
to a phishing scam. Varela had signed an arbitration agreement as a condition of
his employment. After he filed suit, Lamps Plus relied on this agreement as a basis
for a motion to compel bilateral arbitration.
The district court found the agreement to be a contract of adhesion and
ambiguous as to whether it permitted class arbitration. It construed the ambiguity
against the drafter, Lamps Plus, and allowed the arbitration to proceed on a class-
wide basis. Lamps Plus appealed, arguing that it had not agreed to class
arbitration, but the Ninth Circuit affirmed and ruled that class arbitration could
move forward.
The appeals court explained that because the agreement was capable of two
reasonable interpretations, the district court was correct in finding ambiguity.
Under California law it was also proper to construe the ambiguity against the
drafter, particularly since it was a contract of adhesion. Further, it was a
reasonable interpretation of the agreement to conclude that it covered legal
disputes including class-wide claims, not just individual ones. By accepting this
interpretation, the district court had found the requisite “contractual basis” for
agreement to class arbitration under Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662 (2010).

Question
Does the Federal Arbitration Act foreclose a state-law interpretation of an
arbitration agreement that would authorize class arbitration based solely on
general language commonly used in arbitration agreements?

Conclusion
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 • 5–4 DECISION FOR LAMPS PLUS

MAJORITY OPINION BY JOHN G. ROBERTS, JR.

Under the FAA, an ambiguous agreement does not provide the necessary contractual basis to compel class arbitration.

Roberts

Thomas

Alito
Gorsuch

Kavanaugh

Breyer
Ginsburg

Sotomayor

Kagan
Under the Federal Arbitration Act (FAA), an arbitration agreement that is
ambiguous as to the availability of class arbitration does not manifest sufficient
consent by the parties to submit to class arbitration. In a 5-4 opinion authored by
Chief Justice John Roberts, the Court held that the arbitration agreement between
Varela and his employer, Lamps Plus, which contained only general language
commonly used in arbitration agreements, did not provide the necessary
contractual basis for compelling class arbitration.
The Court first determined that it had jurisdiction to review the lower court’s
decision because an order that both compels arbitration and dismisses the
underlying claims is a “fundamental” change in the rights of a party and thus
qualifies as “a final decision with respect to an arbitration” within the meaning of
the statute.
On the merits, the Court first noted that the availability of class arbitration is a
matter of consent—that is, all parties must consent to class arbitration for it to be
available. Because there are crucial differences between class arbitration and sole
arbitration, the Court found utmost importance in giving effect to the intent of the
parties. In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), the
Court held that a contract’s silence toward class arbitration precluded its
availability, and the same holds true for ambiguity.
The Court rejected the California law that an ambiguous provision of a contract be
construed against the drafter, finding that rule preempted by the FAA despite
arguments by Varela and the dissenting justices that the law is nondiscriminatory.
Justice Clarence Thomas joined the majority but wrote a separate concurrence
expressing that he would not reach consideration of the California law of
interpretation.
Justice Ruth Bader Ginsburg wrote a dissenting opinion, in which Justices Stephen
Breyer and Sonia Sotomayor joined, to emphasize that the Court’s decision strays
even further from the principle that “arbitration is a matter of consent, not
coercion.” Justice Ginsburg notes the irony that in contracts between parties with
vastly unequal bargaining power, as between employers and employees, an
inference that an ambiguous contract requires solo arbitration vests the employer
with even greater power of coercion.
Justice Breyer wrote a dissenting opinion expressing his individual view that both
the court of appeals, below, and the Court itself lacked jurisdiction to review the
case.
Justice Sotomayor wrote a dissenting opinion to point out that the majority
reaches its holding without actually first agreeing that the contract is ambiguous,
thereby unnecessarily invading California law by invoking preemption.
Justice Elena Kagan wrote a dissenting opinion, in which Justices Ginsburg and
Breyer join, and in which Justice Sotomayor joins as to Part II. Justice Kagan
pointed out that the FAA, while requiring courts to enforce arbitration agreements
according to their terms, does not federalize contract law. Thus, even under the
FAA, state law governs the interpretation of arbitration agreements as long as it
treats other types of contracts the same way. In Justice Kagan’s view, this
principle should resolve the matter in this case.