Justices Will Review Standards for Class Arbitration

(CN) – The Supreme Court agreed Monday to decide whether the Federal Arbitration Act precludes state-law interpretations of arbitration contracts that would allow class-wide arbitration.

Frank Varela filed a class action against his California-based employer Lamps Plus Inc. after the company released his personal information in response to a phishing scam, according to court records.

Lamps Plus moved to compel arbitration based on an agreement Varela signed as a condition of his employment.

A federal judge found that the arbitration agreement was ambiguous as to class arbitration and ruled against Lamps Plus, allowing all claims to be arbitrated on a class-wide basis.

The company appealed, arguing the parties didn’t specifically agree to class arbitration, but the Ninth Circuit affirmed the district court last August.

The San Francisco-based appeals court cited state-law contract principles. According to the ruling, a contract is ambiguous under California law “when it is capable of two or more constructions, both of which are reasonable.”

The panel noted the language of Varela’s employment contract, specifically a line that said “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.”

“A reasonable – and perhaps the most reasonable – interpretation of this expansive language is that it authorizes class arbitration. It requires no act of interpretive acrobatics to include class proceedings as part of a ‘lawsuit or other civil legal proceeding,’” the ruling states. (Emphasis in original.)

The Ninth Circuit concluded, “State contract principles require construction against Lamps Plus, the drafter of the adhesive agreement. By accepting the construction posited by Varela – that the ambiguous agreement permits class arbitration – the district court properly found the necessary ‘contractual basis’ for agreement to class arbitration.”

Lamps Plus filed a petition for writ of certiorari with the U.S. Supreme Court, arguing on appeal that the Federal Arbitration Act requires a clear contractual basis for concluding that two parties have agreed to class arbitration.

“By departing from this court’s clear guidance, the panel majority also created a conflict with several other circuits, which have uniformly rejected similar efforts to equate standard arbitration terms with an implicit agreement to class arbitration,” the petition states. “Review is thus independently warranted to ensure uniform application of the FAA and underscore that standard language authorizing arbitration of ‘any and all claims’ and waiving the parties’ rights to file lawsuits in court does not supply the ‘contractual basis’ needed to ‘support a finding that the parties agreed to authorize class-action arbitration.’”

On Monday, the Supreme Court agreed to decide 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.”

Per the high court’s custom, the justices did not comment on their decision to take up the case.

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